couple looking at bill and discussing finances

Consumer Proposal

Consumer Proposal Guide

We understand why you’re worried. You have debt, but you may also have assets you wish to keep and the idea of filing for bankruptcy is terrifying. You’re thinking about long-term financial impacts and wondering how to avoid them. If this sounds like you, a Consumer Proposal may be just the Life-Changing Debt Solution you’re looking for.

What is a Consumer Proposal?

What debts are included in a Consumer Proposal?

How to file a Consumer Proposal in Canada

Consumer Proposal pros and cons

What Happens When You File a Consumer Proposal?

Is a Consumer Proposal the Right Option for Me?

Alternatives to Consumer Proposal

FAQ

What is a Consumer Proposal?

A Consumer Proposal is a federally regulated and legally binding process available to insolvent Canadian individuals. A Consumer Proposal provides for a reduction of debt owed to unsecured creditors, or an extension of time for repayment of the debt, or both.

What Debts are Included in a Consumer Proposal?

A consumer proposal includes unsecured debt. Unsecured debt is any type of debt not secured by an asset and generally includes the following:

  1. Credit cards – all balances as of the date of filing on your Visa, Mastercard, Amex, etc.
  2. Personal loans – lines of credit, consolidation loans, renovation loans, etc. providing no assets have been used to secure the debt
  3. Payday loans – both payday advances and installment loans obtained from a Payday lender generally unsecured
  4. Student loans – if you ceased to be a student at least seven years before you file a consumer proposal, those debts would be extinguished by the consumer proposal. If you haven’t ceased to be a student for at least seven years before you file a consumer proposal, a portion of the student loans may be included and discharged by the consumer proposal
  5. Income tax debt – amounts owing for personal income tax (including penalties and interest), GST debts, Canada Child Benefits overpayments, CPP and OAS overpayments, are unsecured debts and discharged

How to File a Consumer Proposal in Canada

The first step in determining whether a Consumer Proposal is the best choice for you is to meet with one of our Licensed Insolvency Trustees to review all of your options. The steps for a Consumer Proposal are as follows:

  1. Set up a Free, Confidential Consultation
  2. Prepare Your Consumer Proposal
  3. Proposal is Reviewed By Creditors
  4. Consumer Proposal Duties
  5. Debt-Free. For Life.

Learn more about the consumer proposal process.

Consumer Proposal Pros and Cons

Consumer Proposal “pros” Consumer Proposal “cons”
 Avoid bankruptcy and associated consequences  Proposal is a legislated process requiring full disclosure of all aspects of your finances
 Formal, legally binding process means clear rules and expectations  Rules and regulations can make some aspects of the process seem inflexible
 Provides immediate protection from unsecured creditors (stay of proceedings)  Protection does not apply to secured creditors who may seize assets if you default on payment
 Interest clock stops on debts included in the Proposal, except those falling under Section 178  Interest continues to accrue on secured debts and debts falling under Section 178
 Deals with all unsecured debts including credit cards, lines of credit, payday loans, trade suppliers, government debts (income taxes, student loans, medical service plan premiums) and debts owed to family and friends  You cannot pick and chose who gets included in your consumer Proposal, which may cause embarrassment if you personally know one or more of your creditors
 Limited ability to defer monthly payments  Proposal is deemed annulled when the payments are default in an amount equal to three months of payments
 Impact on credit rating is less severe than bankruptcy  There is a negative impact on credit rating and credit rating will need to be rebuilt upon completion of Proposal
You maintain ownership and control of your assets, unless the Proposal provides otherwise Proposal cannot deal with debts secured against specific assets and you will continue to be responsible for the maintenance and costs associated with your assets - this could be troublesome if a primary cause of your financial difficulties is related to maintenance of expensive assets
 Can pay out Proposal term early if you have the financial ability  Too much focus on paying out Proposal early can sacrifice short term savings and other financial goals
 Reduction of total unsecured debt is possible  Creditors vote on the Proposal and may reject an offer where it is perceived your Proposal is unfair or materially insignificant
 You may hold a credit card during a Proposal  Due to impact on credit rating, access to credit may be limited during Proposal term
 Proposal payments in good standing can be considered by some lenders as part of a credit check during your Proposal, such as when applying for a vehicle loan  Be prepared to pay high interest rates on loans obtained during Proposal

What Happens when you File a Consumer Proposal?

Upon filing the Consumer Proposal, there is an immediate stay of proceedings. This means that creditors cannot commence or continue collection activity for unsecured debts. The consumer proposal is a new arrangement with the unsecured creditors that allows an individual to pay less than the amount owing to their unsecured creditors. Once the creditors agree to the new payment arrangement, the individual proceeds to make the agreed payment(s) to the Licensed Insolvency Trustee’s office for the term of the consumer proposal.  The individual also has to attend two (2) financial counselling sessions during the term of the consumer proposal which deal with budgeting and setting and achieving financial goals.

Is a Consumer Proposal the Right Option for Me?

A Consumer Proposal may be the right choice if you:

  • Have debt that totals less than $250,000, excluding the mortgage on your principal residence. If your debt is higher than this amount, you still have options
  • Need more time or a realistic plan to pay back your debts
  • Want relief from accumulating interest and wage garnishments
  • Want to keep assets that may not be exempt or protected in a bankruptcy

Alternatives to Consumer Proposal

A Consumer Proposal is one of many options available to consumers who are looking for a manageable way to eliminate debt while avoiding Bankruptcy. It is important for consumers to carefully consider all options before choosing a debt solution, as the options available to consumers need to fit an individual’s unique financial situation.

Bankruptcy

Bankruptcy is a legal process that provides immediate relief from your unsecured debts, the most common example being credit card debt. It is important to note that certain types of debt are not extinguished or addressed by declaring bankruptcy, which means it's not necessarily an all-encompassing solution for your financial challenges. A Licensed Insolvency Trustee will explain exactly how bankruptcy works, so you can make the best decision for your unique financial situation.

Orderly Payment of Debts (OPD)

Orderly Payment of Debts (OPD) is a debt repayment arrangement available only in the provinces of Alberta, Saskatchewan, and Nova Scotia. OPD begins with an application to the court for an order consolidating unsecured debts into one monthly payment, with an interest rate of five percent and a payment period of up to three years. OPD is legally binding on many types of unsecured creditors, providing that they have consented to be included in the arrangement when they are owed more than $1,000. Certain types of debts such as income taxes or business debts are not included. OPD is administered by provincial credit counsellors.

Debt Management Plan (DMP)

A Debt Management Plan (DMP) is an informal (i.e., not legally binding) debt repayment plan which is arranged through a licensed, accredited, non-profit credit counselling organization. A credit counsellor works with the debtor and creditors to develop a more manageable and affordable debt repayment plan. Under a DMP, credit card and similar unsecured debt payments are consolidated into one payment which is made to the credit counselling agency, which then distributes the payment to the creditors. Licensed, accredited, non-profit credit counsellors are effective in negotiating with creditors to reduce or eliminate interest, which helps reduce overall costs. Many types of debts, such as unpaid income taxes, student loans, and other government debts cannot be part of DMP. Your debts must be in good standing or not in collections, in order to qualify for a DMP.

Consolidation Loan

A Consolidation Loan is a loan provided by a bank, credit union, or finance company to pay out other debts and consolidate several monthly payments into one monthly payment. A consolidation loan requires an application and approval by the lender, who will consider the debtor’s credit rating, income, assets, and debts. Many lenders require the debtor to provide security or collateral for a consolidation loan. Interest rates on consolidation loans can be high and will vary from lender to lender.

Deciding which strategy will work best can be difficult without professional advice, as the right strategy will depend on an individual’s income and expenses, assets and liabilities, family situation, and other factors. A Licensed Insolvency Trustee is qualified to provide an assessment and explain the various debt repayment strategies, including the merits, consequences, and costs of the various options. A meeting with a Licensed Insolvency Trustee is free, confidential, and unbiased, and can help you find the best debt solution for your unique financial situation.

Frequently Asked Questions

Licensed Insolvency Trustee holding up a piece of paper and advising a person on bankruptcy options.

Consumer Proposal vs Bankruptcy

Consumer Proposals and Bankruptcies are both government legislated options which can provide you with relief from significant debt problems. In addition, both debt solutions can only be administered by a Licensed Insolvency Trustee and provide a legal stay of proceedings which require creditors to discontinue harassing collection calls, garnishment or other legal proceedings.

Determining which, if either, option is an appropriate solution in your own unique situation depends on a number of variables. Let’s explore the advantages and disadvantages of both a Consumer Proposal and a Bankruptcy.

Compare Your Options

Group of people standing next to each other and smiling at the camera.

Consumer Proposals 101: An Introduction

Consumer Proposals 101 - An Introduction

Latest Blog Posts

2024-07-15

Myth-Busting Consumer Proposals (MNP 3 Minute Debt Break)

Consumer Proposal

Debt can be a heavy burden, and exploring a consumer proposal can feel daunting. It's natural to seek information online or talk to loved ones during this stressful time. Research is a good first step, but be cautious – online sources can be unreliable, and even well-meaning advice from friends or family might be inaccurate. Many people have misconceptions about consumer proposals before meeting with a Licensed Insolvency Trustee (LIT) for the first time. But you need to know… LITs are there to answer your questions and set the record straight.

Let's tackle three common myths about Consumer Proposals to help you make the right decision.

Read More

Consultation icon