Friday, November 20, 2020
Discover how a consumer proposal can reduce unsecured debt by up to 80%, stop interest charges, protect assets, and provide legal relief from creditors in Canada.
When it comes to debt forgiveness, the consumer proposal is a leading alternative to bankruptcy. More than 75% of consumers handled their insolvencies in the first quarter of 2026 using a consumer proposal, not bankruptcy, according to Statistics Canada.
Consumer proposals are largely unfamiliar to many Canadians, however. Most people only get to learn about how a consumer proposal works when they meet with a Licensed Insolvency Trustee.
We're here to look at 10 key things Canadians should know about consumer proposals.
A consumer proposal is an agreement sanctioned by the Bankruptcy and Insolvency Act that benefits from the same protections as a bankruptcy, like protection from your creditors, lawsuits, or wage garnishments, which are not part of any debt settlement program or any debt consolidation loan.
One of the main advantages of a consumer proposal is that it issues a stay of proceedings. The stay of proceedings stops most legal actions that creditors can take against you over the debt. If legal proceedings are already underway, the stay of proceedings immediately brings them to a halt.
The stay of proceedings stops wage garnishments and lawsuits, and even prevents debt collectors from contacting you.
In a consumer proposal, a Licensed Insolvency Trustee negotiates with your creditors on your behalf to lower your unsecured debt. Unsecured debt is not debt not backed by an asset, for example, credit cards, lines of credit, and payday loans are all unsecured debt.
The Trustee will work to reduce the portion of the original debt you need to pay. A consumer proposal can reduce your debt by up to 80%. Even reducing your debt by 30% can have a major impact. Reducing the overall amount you owe makes repaying the debt more affordable and manageable for you.
If you are interested in learning more about the consumer proposal, you can talk to an Trustee directly, free of charge. Referrals aren’t necessary and can sometimes cost money.
Licensed Insolvency Trustees are regulated by the federal government of Canada and are ethically bound to act in your best interest. It’s their job to ensure that individuals seeking debt relief receive reliable and trustworthy assistance throughout the consumer proposal process.
In a consumer proposal, the monthly payments are based on your ability to pay. Determining how much you pay is based on your income, living expenses, and other financial obligations.
The goal is to develop a repayment plan that is realistic and affordable for you while still providing a reasonable return to your creditors. In short, our Licensed Insolvency Trustees can customize a consumer proposal to fit your situation.
Once your consumer proposal is accepted, interest charges are frozen. This is a big advantage over a debt consolidation loan. By freezing the interest charges, a consumer proposal offers several benefits.
Firstly, it helps to stop the debt from growing larger over time, allowing you to make progress in repaying what you owe. This is particularly advantageous if you have high-interest debts, like credit cards or payday loans.
Secondly, with interest charges eliminated, every monthly payment goes straight toward reducing the principal debt. This accelerates your progress toward becoming debt-free.
Moreover, the frozen interest also provides a level of certainty and predictability. You can budget and plan your repayment, knowing that the total amount you owe won't increase.
The Trustee’s fees are included in the proposal as part of your monthly payments. Payments don’t begin until your proposal is filed, and they stop once your payment schedule is complete.
The amount paid to a Trustee is predetermined and agreed upon before the consumer proposal is submitted.
These fees cover the full process, from preparing and filing the proposal to communicating with creditors and distributing payments.
One of the most significant advantages of filing a consumer proposal is that it allows you to protect your assets. You do not need to worry about losing your car or home when filing a proposal. This is the big advantage of a consumer proposal over bankruptcy.
You don't have to worry about losing your home or having your car repossessed if you file a consumer proposal.
One of the main advantages is the ability to spread payments over a five-year period, providing a longer timeframe to address your financial obligations in a more manageable way. You also have the option to make partial payments or even a lump-sum payment at any time during the proposal, allowing you to accelerate the repayment process if the opportunity arises.
This flexibility ensures that you have control over your debt repayment strategy, enabling you to customize it according to your financial resources and goals.
After filing a consumer proposal, your credit will have an R7 rating, a very low credit score that will remain on your file for either three years after you complete your payments or six years after you initially file, whichever comes first.
Your Licensed Insolvency Trustee can provide you with one-on-one guidance throughout the consumer proposal process about how to repair your credit as quickly as possible.
For those worried about their credit rating, it should be noted that those filing a consumer proposal often have bad credit ratings prior to seeking help anyway.
And you may have a low credit rating at the end of a consumer proposal; it’s better to have bad credit and be debt-free than to have good credit and lots of debt.
For an idea of what life looks like after a consumer proposal, click here.
As part of a consumer proposal, you must complete credit counselling sessions with a qualified professional.
These sessions are not meant as a punishment. They're to help you ensure you don't have money issues in the future.
These sessions help you understand how to manage your money, create a budget, and develop healthy financial habits.
Completing these sessions ensures you have the tools and knowledge to make informed financial decisions and maintain control of your finances long after your consumer proposal is finished.
If you’re feeling crushed by your debt and are looking for a solution, we can help. One of our Licensed Insolvency Trustees can give you clear guidance on whether a consumer proposal is right for your situation.
Our Trustees can fully review your situation, explain all available options, and help you understand what each choice means for your finances.
They provide advice in a judgment-free environment, so you can discuss your finances openly and without shame. The first consultation is always free of charge.
Friday, November 20, 2020
Discover how a consumer proposal can reduce unsecured debt by up to 80%, stop interest charges, protect assets, and provide legal relief from creditors in Canada.
