Consumer proposal FAQ

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.

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. 

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

 

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

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.

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.

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.

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.

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.

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.

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 

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. 

2. 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. 

3. 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.

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

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

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

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.