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Filing a consumer proposal in Canada

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%, 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 (including store credit cards);

Bank loans;

Payday loans;

Tax debt;

Medical bills;

Student loans, if 7 years have passed since you were last a student.

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.

How do you qualify for a consumer proposal?

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 a consumer proposal a popular alternative to bankruptcy?

  1. You can keep your assets (like your home or car)
  2. You can spread your monthly payments over five years

Learn more about the key differences between a consumer proposal and bankruptcy here.

3 key advantages of a consumer proposal:

Financial relief iconProvides immediate relief from unmanageable debt.

One manageable payment iconReduces and consolidates your debt repayment into one manageable monthly payment.

Calculator iconUsually 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:
Debt solutionMonthly paymentTerms
Mary's consumer proposal$250.00Pay back 60% of original amount owed
Credit counselling$458.88Pay debt in full with no interest, plus a "fair share fee" equal to 10% of the debt
Debt consolidation loan$734.67Pay debt in full at 12% interest, compounded annually
Do-it-yourself budgeting$994.34Pay debt in full at 19% interest, compounded annually


Compared to other forms of debt relief, the consumer proposal is the most cost efficient and puts you on a path toward becoming debt free.

Do you need help exploring your debt relief options?

Couple going over finances

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%.

Everyone’s situation is different, but typically, a consumer proposal can reduce your debt load by 30 to 80%.

Read the full blog article

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 (LIT) is the only professional licensed and authorized to file a consumer proposal on your behalf.

An LIT is 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.

Consumer Proposal FAQs

Can I pay off student loans with a consumer proposal?
Student loan debt 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 car 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 car loan, or else you would run the risk of having your home or car repossessed. If your car and mortgage payments are in good standing, however, they will not be affected by a consumer proposal. All 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 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 your obligations.
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 must repay 60 per cent of her debt, or $15,000, over a period of five years. Here’s how her consumer proposal compares to other debt relief solutions: 

 

Mary’s Consumer Proposal 

Credit Counselling 

Debt Consolidation Loan 

“Do-it-yourself” Budgeting 

Monthly  

payment 

$250 

$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 

 

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 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 must 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.
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 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 consumer proposal if I stop making payments?
You must 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.
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.
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. Learn more about how a consumer proposal affects your credit.
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 

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:  

  1. 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

  1. 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. 

  1. 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 to repay a portion of the debt owed to your creditors.

Will a consumer proposal stop collection agencies from calling me?
Yes. Once your consumer proposal has been filled, collection agencies are not allowed to contact you.
Will any wage garnishments that I have stop?
Yes. Once you file a consumer proposal, all legal action against you, including wage garnishments, will cease.
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
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. Learn more about when you may or may not be responsible for your spouse’s debt.

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