Consumer Proposal

If you’re struggling to pay off your debt, a Consumer Proposal may be the debt solution for you.

What is a Consumer Proposal?

A Consumer Proposal is a legally binding debt settlement agreement between you and your unsecured creditors.

Put simply, you agree to repay less than what you owe over a period of 3 to 5 years in exchange for full debt forgiveness.

What types of debt can be included?

A Consumer Proposal can help you eliminate:

  • Credit card debt.
  • Unsecured lines of credit.
  • Bank loans and personal loans.
  • Overdue bills.
  • Payday loans.
  • Tax debts.
  • Certain student loan debt.

Can I keep my assets in a Consumer Proposal?

Yes. It’s important to note that Consumer Proposals do not address secured debt.

As long as you continue to make payments on your secured assets, such as your home or car, you may keep them.

What are the advantages?

In a Consumer Proposal:

  • You repay only a portion of your debt. In some cases, unsecured debt can be reduced by up to 70%.
  • You get to keep your assets, including the equity in your home.
  • You consolidate your debts into one affordable monthly payment.
  • That monthly payment stays the same throughout the Proposal (regardless of whether your income increases or you gain a windfall of money).
  • You get legal protection from your creditors. As of the date of filing, they’re no longer able to enforce action against you to recover on the debt you owe.
  • You put a stop to collection calls.
  • All creditors are legally bound to the Consumer Proposal. (This includes the Canada Revenue Agency and payday lenders.)
  • You attend two financial counselling sessions that help you learn how to manage your finances.
  • You set yourself on the path to eliminating your unsecured debt.
  • You avoid having to file for Bankruptcy.

What are the disadvantages of a Consumer Proposal?

Your credit score will be temporarily impacted by filing a Consumer Proposal. (We discuss this in greater detail below.)

Some debtors also feel a sense of shame when confronted with the fact that they need to file a Proposal.

The reality is that debtors should take pride in getting a handle on their debt.

What happens to my credit when I file a Consumer Proposal?

Once you file a Consumer Proposal:

  • A negative R7 credit rating will be applied against each debt included in your Proposal. This is the second worst rating possible on your credit report.
  • A notation will be added to your credit report indicating that you filed a Proposal.

How long does a Consumer Proposal stay on your credit report?

Notations will be removed from your credit report the earlier of either:

  • 6 years after you sign your Proposal; or
  • 3 years after you complete your Proposal.

A negative rating on your credit report should not determine whether a Consumer Proposal is the right debt relief solution for you.

If you’ve been missing payments for any significant period of time, it’s likely that your credit report is already negatively affected.

At the very least, a Consumer Proposal is a way to finally help you resolve your unsecured debt.

Which is better: A Consumer Proposal or a Bankruptcy?

This really depends on your unique financial circumstances and whether you’re eligible for a Consumer Proposal.

Consumer Proposals and Bankruptcies are the only debt relief programs offered by the Canadian government.

In both proceedings, you get legal protection from your creditors.

You also are able to eliminate some or all of your debt in either case.

Yet the wisest financial advisors in the nation will tell you that…

A Consumer Proposal is your best alternative to Bankruptcy in Canada.

You see, in a Consumer Proposal:

  • You keep your secured assets, which you’d likely have to forfeit in a Bankruptcy.
  • You keep any increase in income or windfall of money (such as a tax refund or lotto winnings). In a Bankruptcy, this “surplus income” must be paid into the Bankruptcy.
  • You have less obligations and duties to meet than in a Bankruptcy.

How do I file?

In order to file a Consumer Proposal you need the assistance of a Licensed Insolvency Trustee (LIT).

Your LIT will help you work out a repayment plan and calculate a monthly payment that you can afford.

The LIT then presents the Proposal to your creditors and negotiates settlement on your behalf.

What are the credentials of a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee:

  • Is licensed and regulated by the Canadian government.
  • Has the education and credentials to properly advise you about your finances.
  • Is obligated to adhere to strict ethical regulations.
  • Is obligated to undertake continuing education.
  • Is able to assist you with every debt relief option available.
  • Is required if you want to file either a Bankruptcy or Consumer Proposal.
  • Offers a free initial consultation, after which you’ll be able to make an informed decision about how to proceed to get rid of your debt.

How much does a Consumer Proposal cost?

Your LIT is paid through the Proposal. Costs associated with the Consumer Proposal are rolled into your affordable monthly payment. You are not required to pay any fees upfront.

Is a Consumer Proposal worth it?

A Consumer Proposal is considered the best, safest, and cheapest debt relief solution for Canadian debtors.

A Consumer Proposal:

  • Is a legal proceeding that affords you protection from your creditors.
  • Actually eliminates the unsecured debt you owe.
  • Gives you a fresh financial start so you can begin to rebuild your credit.

What does life after a Consumer Proposal look like?

Once you’ve completed your Proposal, your credit score will be low.

However, you’ll be able to immediately start rebuilding your credit.

Within about 3 years, if you establish a few lines of credit and ensure perfect repayment on them, you can improve your credit rating.

One way to do that is to get a secured credit card. This requires you to put funds into a bank to secure the amount you’re able to borrow. In time, the secured credit card may be switched to a standard credit card.

Another way to improve your debt is through a short-term personal loan. These loans will typically have a high rate of interest, so be certain you make timely payments.

Am I eligible for a Consumer Proposal?

A Licensed Insolvency Trustee (LIT) is best suited to determine your eligibility for a Consumer Proposal.

LITs are also the only professionals able to help you file a Consumer Proposal or Bankruptcy.

However, the requirements are:

  • An inability to repay your debts on time.
  • The ability to repay at least a portion of your debts.
  • Unsecured debt that exceeds $5,000 but is not more than $250,000 (not including your home mortgage or other secured debts).
  • Residency in Canada or owning a property in Canada. (You don’t need to be a Canadian citizen.)
  • No prior, open Consumer Proposal proceeding.

Is a Consumer Proposal right for me?

A Consumer Proposal is an excellent option if you:

  • Have a lot of credit card debt and can’t repay it on time.
  • Can’t get approval for a consolidation loan.
  • Want to get out of debt but wish to keep your assets.
  • Want to avoid filing for Bankruptcy.

That said…

Only a Licensed Insolvency Trustee can advise you on all the debt relief options you have available to you.

Once you have this information, you can make an informed choice on the best way for you to achieve debt relief.