What is a consumer proposal?
A consumer proposal is a legally binding agreement regulated by the Office of the Superintendent of Bankruptcy. If you are facing financial challenges, you are within your rights to ask for debt forgiveness.
If you are no longer able to pay back all of your debts, a Licensed Insolvency Trustee (LIT) can reduce your debt load to a fraction of what you owe, often between 30 and 70 per cent, by negotiating with your creditors on your behalf.
A consumer proposal offers you protection from your creditors. It will stop your creditors from taking legal action against you, garnisheeing your wages, and even calling you.
What kind of debts can be included in a consumer proposal?
A consumer proposal includes most debts that are unsecured, or without collateral. Examples of unsecured debts are:
- Credit card debt
- Bank loans
- Payday loans
- Tax debt
- Store credit cards
- Student loans, if 7 years have passed since you were last a student.
- Medical bills
Secured debts, such as a mortgage or car loan, cannot be included in a consumer proposal. A secured debt is debt that is backed by an asset.
A consumer proposal does not include secured debt, such as a mortgage debt or a vehicle loan, and remains separate from these financial commitments. As long as you’re able to keep up with your mortgage or car loan payment during the term of your consumer proposal, you can keep these assets. In many cases, a consumer proposal makes keeping up with secured debt payments a lot easier, because the rest of your financial situation is under control.
Eligibility requirements
To qualify, you must meet certain requirements before filing a consumer proposal.
- You are insolvent. This means that your debts are greater in value than your assets or you can no longer keep up with your debt payments;
- You have unmanageable debt that you can’t afford to pay back in its entirety. You can only afford to pay some of it back.
- Your unsecured debt is greater than $5,000 but less than $250,000 (excluding mortgage);
- You are a Canadian resident or have property in Canada.
Why is the consumer proposal an effective debt-relief strategy?
For many people who find themselves unable to pay back their debts, a consumer proposal is an effective strategy for eliminating debt without losing any of your assets.
Many people who fear they might have to declare bankruptcy are often able to solve their debt problems by filing a consumer proposal.
Why is the consumer proposal a popular alternative to bankruptcy?
- You can keep your assets (like your home or car)
- You can spread your monthly payments over five years
You can read more about the key differences between a consumer proposal and bankruptcy here.
Three key advantages of a consumer proposal:
- Provides immediate relief from unmanageable debt
- Reduces and consolidates your debt repayment obligations into one manageable monthly payment.
- It’s usually less expensive than other types of repayment options.
How does a consumer proposal compare to other debt relief solutions?
In the example below, a woman named Mary is carrying $25,000 in credit card debt. She files a consumer proposal, and a Licensed Insolvency Trustee negotiates with her creditors so that she only has to repay 60% of her debt, or $15,000, over a period of five years.
Mary’s consumer proposal vs other debt relief solutions:
| Mary's Consumer Proposal | Credit Counselling | Debt Consolidation Loan | "Do-it-yourself" Budgeting | |
|---|---|---|---|---|
| Monthly payment | $250.00 | $458.88 | $734.67 | $994.34 |
| Terms | Pay back 60% of original amount owed | Pay back debt in full with no interest, plus a "fair share fee" equal to 10% of debt | Pay debt in full at 12% interest, compounded annually | Pay back debt in full at 19% interest, compounded annually |
Compared to other forms of debt consolidation, the consumer proposal is the most cost efficient and puts you on a path towards becoming debt-free.
Need help exploring your debt-relief options?
The consumer proposal: a real-life example
A consumer proposal can bring tremendous relief to people who are struggling with debt. Here’s a debt story about new parents who were struggling with shortage of work and a second maternity leave and found relief in filing a consumer proposal.
The BDO Licensed Insolvency Trustee was able to renegotiate their debt from $95,000 to $43,700, a reduction of 46 per cent.
Everyone’s situation is different, but typically, a consumer proposal can reduce your debt load by 30 to 80 percent.
Will a consumer proposal affect my credit?
A consumer proposal can provide immediate debt relief and a path to becoming debt-free, but it will temporarily affect your credit rating.
Once your LIT files your consumer proposal, it will result in an R7 rating on your credit report, the second lowest rating that reporting agencies, like TransUnion or Equifax, use. The consumer proposal will remain on your credit report for six years from the date of your filing or three years after you are discharged from the proposal, whichever comes first.
A consumer proposal impacts your credit, but it doesn’t last forever. Your Licensed Insolvency Trustee can advise you on the different ways you can rebuild your credit, during and after your consumer proposal.
A consumer proposal can free up significant financial resources that could help you in the short term and the long term. It’s a chance to create breathing room in your budget so can focus on meeting your financial goals.
Who can help me decide if the consumer proposal is right for me?
A Licensed Insolvency Trustee is the only professional licensed and authorized to file a consumer proposal on your behalf.
They are the most qualified to help you understand your financial situation and the different debt relief strategies that are available to you, from debt consolidation to bankruptcy, and everything in between.
Your first meeting with an LIT is free. During your consultation, your LIT will be able to give you a full debt assessment, an explanation of each option and their recommendation for your best step forward. The initial consultation usually lasts about one hour, and you are under no obligation to pursue any of our services.
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