Frequently asked questions about consumer proposals

Consumer proposals are quickly becoming one of the most popular debt relief solutions, and are often used as an alternative to bankruptcy. This page will take a look at some of the key questions you might have about consumer proposals. If you’re wondering how to file a consumer proposal, a Licensed Insolvency Trustee (LIT) can explain every step of the process. An LIT is the only government-licensed professional who can file a consumer proposal on your behalf, and will be able to answer any questions you might have.

Will I lose everything if I file a consumer proposal?

No, you will not. When you file a consumer proposal, all your assets are protected from your unsecured creditors. If you own a home or a car, you will need to continue to make payments on your mortgage or car loan in order to keep them, as these debts cannot be included in a consumer proposal.

What’s the difference between a consumer proposal and bankruptcy?

While both a consumer proposal and a bankruptcy can give you a fresh financial start, there are a few key differences, as follows:

  • When you a file a consumer proposal, you cannot have more than $250,000 in debt. There is no maximum when you file for bankruptcy.
  • With a consumer proposal, you will pay the same amount to your Licensed Insolvency Trustee (LIT) every month; in bankruptcy, the monthly amount you pay can vary based on your ‘surplus income.’
  • Most importantly, when you file a consumer proposal, you will not lose any of your assets. By filing bankruptcy, some of your assets will likely be sold in order to repay a portion of the debt owed to your creditors.

What fees do I have to pay when I file a consumer proposal?

With a consumer proposal, you only make one equal monthly payment every month. Any fees you would pay are included in the monthly payment you make to your LIT.

What kinds of debt are included in a consumer proposal?

Any form of ‘unsecured’ debt (debt that is not backed, or secured, by an asset you own—like how a mortgage loan is secured by your house) can be included in a consumer proposal. Types of unsecured debt include:

  • Credit cards
  • Lines of credit
  • Personal loans
  • Payday loans
  • Income taxes

Can I pay off student loans with a consumer proposal?

A student loan can only be included in a consumer proposal if you have been out of school for longer than seven years. Otherwise, you will still be responsible for student loan payments if you file a consumer proposal.

How does a consumer proposal affect my mortgage (or car loan)?

Unfortunately, you cannot use a consumer proposal to reduce your mortgage or auto-loan debt obligations. These are considered ‘secured’ debts, meaning your creditors can repossess your home or car if you are unable to make payments. If you file a consumer proposal to pay off your unsecured debts, you will need to continue to make payments on your mortgage and/or car loan, or else you would run the risk of having your car and/or home repossessed. If your car and/or mortgage payments are in good standing, however, they will not be affected by a consumer proposal. All of your possessions and belongings, including your car and home, are protected from your creditors when you file a consumer proposal. And by using a consumer proposal to consolidate and pay off all of your unsecured debts, you might find it easier to continue making car and mortgage payments. Your LIT will work with you to determine a budget that allows you to meet all of your obligations.

What are the terms of a consumer proposal?

If you choose to file a consumer proposal, there are a few terms that you’ll agree to. Once your LIT negotiates with your creditors to repay a portion of your debt, you would enter into a proposal with a fixed monthly payment over a set period of time—usually between three and five years. You would make that same monthly payment to your LIT every month for the duration of the proposal. Your LIT will then distribute the money to your creditors as set out in the proposal.

How long does as consumer proposal last?

While the exact length would depend on your individual circumstances, a consumer proposal cannot last more than five years.

What happens to my credit score if I file a consumer proposal?

When you file a consumer proposal, you will receive an R7 rating, which shows you have made a settlement with your creditors. This rating will stay on your credit report for three years after your proposal has been completed.

Will my spouse be affected if I file a consumer proposal?

If you file a consumer proposal, it will not go on your spouse’s credit report. However, if you have joint debts, your spouse could be held responsible for the entire debt after you file a consumer proposal.

What happens if I co-signed a loan with someone?

If you file a consumer proposal (or file for bankruptcy), your co-signer will be responsible for repaying these debts; the debt will not be eliminated unless you file a joint consumer proposal.

What happens to my credit cards when I file a consumer proposal?

When you file a consumer proposal, you will need to hand over your credit cards to your LIT. You won’t be able to apply for a new credit card while you’re making payments on your proposal—unless it’s a prepaid or secured credit card.

Will a consumer proposal stop collections agencies from calling me?

Yes. Once your consumer proposal has been filled, collections agencies are not allowed to contact you.

What happens to my credit cards when I file a consumer proposal?

Yes. Once you file a consumer proposal, all legal action against you, including wage garnishments, will cease.

What happens to my consumer proposal if I stop making payments?

You will want to work with your LIT to make all of your monthly payments. If you miss three monthly payments, your consumer proposal will be cancelled. It may be possible to file an amended proposal before this happens, but if an amended proposal is not accepted by your creditors, your debts will not be discharged. You also won’t be able to file another consumer proposal for those debts, and might have to consider filing for bankruptcy.

How does a consumer proposal compare to other debt relief solutions?

In this example, 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. Here’s how her consumer proposal compares to over 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

Repayment period

Five years
Five years
Five years
Five years

To find out more about how a consumer proposal could help you pay off debt, please contact us.

Licensed Insolvency Trustees Since 1958