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Consumer Proposal: What Is a Consumer Proposal & Other FAQs
What is a Consumer Proposal
A Consumer Proposal is a Government of Canada federally approved program that allows an individual to make a formal offer, or proposal, to their creditors. This allows them to pay back a portion of the debt they owe in full satisfaction of the amount owing. In other words, you are able to make a deal. This method of debt consolidation can only be made via a Licensed Insolvency Trustee (LIT). Over the past few years, this has become an increasingly popular way for Canadians to consolidate their unsecured debts. Payments to secured creditors, such as car loans or mortgages, often carry on as normal.
A Growing Trend
Consumer Proposals have been growing in popularity across Canada as an effective way to consolidate debts and gain relief from unsecured creditors. This powerful tool is an attractive alternative to bankruptcy while still providing relief from collection.
What Makes It an Attractive Debt Relief Option?
There are several factors that make a Consumer Proposal an attractive debt relief option.
- zero interest on unsecured debt
- no collection action from unsecured creditors
- one affordable monthly payment that covers all of your unsecured debt
- flexibility to finish the payments as soon as possible allowing for a better credit rating
- you retain control of your assets and your tax refund
- No additional fees
- On average, most individuals we help end up paying back 15-25%
Overall, a Consumer Proposal is a less intrusive process than a bankruptcy filing and one that allows the individual to better control their financial affairs. Monthly payments are made into the LIT’s office where they are held in trust until they are scheduled to be paid out to creditors.
Do You Qualify to File a Consumer Proposal?
To qualify, you must be an individual who resides in Canada or carries on business in Canada. In addition, you must owe between $1,000 and $250,000 excluding the amount of your mortgage on your principal residence.
Debts Included in a Consumer Proposal
Most unsecured debts can be included in a Consumer Proposal. Examples of those debts would include:
- credit card debt
- lines of credit
- overdrafts
- Canada Revenue Agency income tax debt
- Canada Revenue Agency GST/HST debt
- student loans
- payday loans
- installment loans
- shortfall from a mortgage foreclosure
You must file a proposal with a Licensed Insolvency Trustee in order to use this option. It is the only way that the Canada Revenue Agency is authorized to accept less than what is owing to them. In addition, as with the other creditors, CRA is forced to stop collecting and remove all garnishments by law.
A Viable Consumer Proposal
In order for a Consumer Proposal to be viable, several conditions must exist. Our office has years of experience in helping individuals, such as yourself, determine whether this is a good option for you. A viable Consumer Proposal has the following:
- The payment must fit your budget. This is an important consideration as Consumer Proposals often take time to complete. Much like a debt consolidation loan, payments can be scheduled to occur over several years but no longer than five years. Offering a monthly payment that is too high can jeopardize the successful completion of the proposal. If three scheduled payments are missed, a Consumer Proposal is deemed annulled. Although most proposals call for monthly payments, some proposals call for lump-sum payments that can speed up the process.
- There must be an advantage to the creditors to accept the terms of your Consumer Proposal. Essentially, this means they need to get back more than they would if you filed for bankruptcy or they will turn it down.
How to Proceed
In order to successfully file and complete a Consumer Proposal there are a series of steps that take place:
- Step 1: Contact our office to arrange a free appointment, either by phone, online, or in person. We will then assess your financial situation and provide you with feedback as to whether a Consumer Proposal would be a good option for you. We will also take the time to answer your questions and discuss other financial options that you may want to consider. The assessment is free and confidential.
- Step 2: Fill out our application, or make an appointment and one of our experienced staff can assist you with it.
- Step 3: Meet with us to sign your documents. We will then file them with the Federal Government. On that day, you receive protection from your creditors and a 45-day window opens for your creditors to vote as to whether they will accept your proposal. Proposals regularly receive a majority approval when first filed.
- Step 4: Once the Consumer Proposal is accepted, you then follow through on the proposal payments. You will also be required to complete two private financial counselling sessions where we discuss finances, budgeting and how to move financially forward with your life.
- Step 5: Upon completion of your proposal payments a Certificate of Full Performance is issued and your dischargeable debts are legally extinguished.
Frequently Asked Questions About Consumer Proposals
Who qualifies for a Consumer Proposal?
To qualify, you must be a Canadian resident and owe between $1,000 and $250,000 in unsecured debts (excluding the mortgage on your principal residence). Your Licensed Insolvency Trustee will assess your income, assets, and liabilities to determine if a proposal is appropriate.
What types of debts can be included?
Most unsecured debts can be included in a Consumer Proposal — such as credit cards, lines of credit, overdrafts, payday loans, tax debts, student loans, and installment loans. Secured debts like mortgages or car loans are usually excluded but are not affected by the proposal.
What happens if my proposal is accepted?
If creditors accept the proposal, you make the agreed payments to your trustee, who distributes the funds on your behalf. Once all payments are completed and any required counselling sessions are done, you receive a Certificate of Full Performance and your included debts are legally extinguished.
Can creditors reject a Consumer Proposal?
Yes, creditors vote on your proposal. If creditors holding the majority of proven claims oppose it, the proposal can be rejected. In that case, you can work with your trustee to revise and resubmit the offer or explore alternative solutions like bankruptcy.
Will a Consumer Proposal affect my credit score?
Yes, it will be noted on your credit report. While it affects your credit rating, the impact is generally less severe than bankruptcy and can begin to improve once the proposal is completed and your debts are discharged.
What happens to collection calls and garnishments?
Once your Consumer Proposal is filed, a legal stay of proceedings stops creditor collection actions, including phone calls, lawsuits, and wage garnishments.
Can I keep my assets?
Yes, unlike bankruptcy, a Consumer Proposal typically allows you to keep your assets (like your home or car) provided you continue making any required secured payments and meet the terms of the proposal.
Is there a cost to file a Consumer Proposal?
There are no upfront out‑of‑pocket fees. Trustee fees and administrative costs are included in your monthly proposal payment, so you pay everything through a single consolidated payment.
What if I miss payments?
If you miss three scheduled payments, the proposal can be annulled. If that happens, protection from creditors ends and they may resume collection actions. Your trustee can explain options if you’re struggling to make payments.
Consumer Proposals most often result in a win-win situation. You gain the debt help you were looking for and the creditors are happy because they recover some of their money. Please don’t hesitate to reach out to us for a free consultation to discuss your specific financial situation and how a Consumer Proposal might help. This life-changing debt relief is available for YOU.
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