Consumer Proposal in Canada: The Best Bankruptcy Alternative
A consumer proposal is one of the best ways to gain debt relief in Canada. If you are struggling with overwhelming debts and bills that never seem to go away, a consumer proposal can reduce your debt by up to 80%. It is also a great bankruptcy alternative. On this page, we explain exactly what a consumer proposal is, how it may be a good debt relief option for you, and how to get started with filing a consumer proposal.
When filing a consumer proposal, you work with a Licensed Insolvency Trustee to determine how much you can reasonably afford to pay back each month. Your trustee will then negotiate with your creditors on your behalf to strike a deal as to how much this monthly payment should be. Immediate protection from your creditors including an end to any collection calls and wage garnishments is triggered as soon as you file. A highly experienced firm in filing consumer proposals, Spergel has helped over 100,000 Canadians become debt free, and we are here to help you too. Unlike other firms, you will be assigned your very own trustee to walk you through the end to end debt relief process.
What is a consumer proposal?
A consumer proposal is a legally binding form of debt settlement, in line with the Bankruptcy and Insolvency Act. It is a deal that is put in place with your creditors to repay a percentage of your total amount of debt, in exchange for debt forgiveness for the remainder. For most Canadians, it can reduce your debt by up to 80% while enabling you to keep your assets. Consumer proposals must be filed with the support of a Licensed Insolvency Trustee who will support you through each step of the process, and negotiate with your creditors on your behalf. It is an ideal form of debt relief if you are struggling to make your debt payments each month and would like to stop creditors contacting you with a suitable bankruptcy alternative. At Spergel, we have a 99% acceptance rate on any consumer proposals we file, and we have been supporting Canadians file consumer proposals for over thirty years.
Advantages of a consumer proposal: is a consumer proposal worth it?
There are many advantages of a consumer proposal. The #1 bankruptcy alternative in Canada, it offers a huge reduction in your debt without the consequences faced in bankruptcy. Here are some of the key benefits of filing a consumer proposal over other methods of debt relief:
- Reduction in your debt of up to 80%
- Debt free within three to five years
- Keep your assets, including your home, equity, and car
- Straightforward, affordable monthly payments that are fixed
- Freeze any interest and penalties on your debts
- Avoid bankruptcy and its consequences on your credit score and employment
- An end to collection calls from your creditors and legal action like wage garnishments, placement of liens, and bank account freezes via a stay of proceedings
- Avoid surplus income should you receive salary increases or additional income
As with any form of debt relief, there are some short-term disadvantages of filing a consumer proposal. If you think a consumer proposal may not be the right form of debt relief for you, a Licensed Insolvency Trustee will support you in finding a more appropriate option for your circumstances.
Which debts are included in a consumer proposal?
Most unsecured debts can be reduced in a consumer proposal, including the following:
- Credit card debt
- Unsecured lines of credit
- Bank loans
- Personal loans
- Payday loans
- Unpaid bills
- Accounts in collection
- Tax debts
- Some types of student loan debt (when you have been out of school for at least seven years)
Secured debts (like mortgages and car loans) cannot be included as part of a consumer proposal. Despite this, filing a consumer proposal can make paying off your secured debts much more manageable by substantially reducing your other debts. Provided you continue to make your payments on your secured debts, you can keep your associated assets, like your home or car. If you are struggling to make your secured debt payments, speak to a Licensed Insolvency Trustee who will help you to explore your options.
How does a consumer proposal work?
The first step in filing a consumer proposal is to find an experienced Licensed Insolvency Trustee to support you on your debt relief journey. As the only professionals in Canada legally able to file all forms of debt relief, they can cover all of your available options. At Spergel, we have been helping Canadians gain debt relief for over thirty years. This is the typical process for filing a consumer proposal:
- Your trustee will review your financial circumstances and debts with you to determine if a consumer proposal is the best option for you, or if an alternative like bankruptcy or debt consolidation would be more appropriate.
- Once you choose to file a consumer proposal, you will work together to determine how much you should offer to pay your creditors, based on what you can realistically afford. Payment plans are flexible provided they can be completed in a timeframe of up to five years.
- Your trustee will negotiate with your creditors on your behalf to have your proposal accepted. At Spergel, we have a 99% acceptance rate on any consumer proposals we file.
- As a consumer proposal is a legal debt settlement in line with the Bankruptcy and Insolvency Act, it offers full protection from your creditors via a stay of proceedings. This means creditors can no longer chase you for debt via collection calls or threaten legal action.
- There is much less you need to do with a consumer proposal than a bankruptcy – you simply need to make your agreed monthly payments on time, and attend two credit counselling sessions.
- Once you have made your consumer proposal payments, you will receive a Certificate of Full Performance, which indicates completion. From this point, you are free of your debts and can enjoy life after a consumer proposal. Learn more about rebuilding your credit.
Eligibility: who can file for a consumer proposal?
In Canada, you can file a consumer proposal if you meet the following eligibility criteria:
- You can afford to repay at least some of your debts;
- You are insolvent, and so the value of your debts is more than the assets you own; or you cannot keep up with your debts when they are owed;
- Your unsecured debt is no greater than $250,000 (excluding your mortgage);
- You are a Canadian resident or own property in Canada.
A consumer proposal is a particularly good debt relief option if your income is sufficient enough that you may need to make surplus income payments – or you foresee an increase in your income – and you would like to avoid bankruptcy.
Consumer proposal calculator
See how you can reduce your debt by up to 80% when filing a consumer proposal by using our debt repayment calculator. At Spergel, we have helped Canadians file consumer proposals for over thirty years, and we are here to help you too on your journey to a fresh financial future.
Consumer proposal examples
Take a look at some of our consumer proposal examples to get an idea of how your debt reduction could look when filing a consumer proposal. To learn more about how other Canadians’ experiences of filing a consumer proposal with Spergel, check out our consumer proposal reviews.
Consumer proposal vs bankruptcy: why choose a consumer proposal over a bankruptcy?
A consumer proposal is an ideal form of debt relief when alternatives do not work for you, including debt consolidation loans, debt management plans, and bankruptcy. Compared to bankruptcy, a consumer proposal is a very affordable debt relief solution. Here are the key reasons many Canadians choose filing a consumer proposal over bankruptcy to reduce their debt:
- To keep assets you might otherwise need to surrender in a bankruptcy, including your home, vehicle, and tax refunds.
- To avoid surplus income payments – with a consumer proposal, the cost of debt relief is not determined by your income.
- To repay what you can on your debts.
- To secure a credit card more easily than when filing bankruptcy.
- To pay off a consumer proposal early – bankruptcy has an obligatory length and cannot be completed any faster.
- For a less significant impact on your credit score than bankruptcy – consumer proposals remain on your credit report for three years, instead of six years with bankruptcy.
- No need to report your finances each month, or disclose changes to your income, unlike with bankruptcy.
Take a look at our consumer proposal comparisons with other forms of debt relief, including consumer proposal vs debt consolidation loans.
Which assets can you keep when you file a consumer proposal?
One of the many advantages of filing a consumer proposal is that you are able to keep your assets. This includes the following:
- Personal belongings
- RRSPs (aside from any RRSP contributions made in the last year)
This makes a consumer proposal particularly beneficial to anyone with home equity, a new or second vehicle, or that wants to keep their hard earned savings and investments. This is not the case when filing bankruptcy. The only condition with keeping your property and vehicles when filing a consumer proposal is that you must continue to make your monthly mortgage or car loan payments. They are secured debts and cannot be reduced or cleared when filed in a consumer proposal.
How long does a consumer proposal stay on your credit report?
As with all forms of debt relief, a consumer proposal will affect your credit score for a period of time. When you file a consumer proposal, a note will be placed on your credit report. Once you have completed your consumer proposal, this note is removed by Canada’s two primary credit bureaus:
- TransUnion will remove it 3 years after completion, or 6 years after you filed.
- Equifax will remove the note 3 years after completion.
Most individuals notice an improvement in their credit score once they have completed their consumer proposals, even before the note is removed. If you are already struggling with your debt and overdue bills, your credit score is likely already negatively affected by late or missed payments. Drastically reducing your debt with a consumer proposal is often the best step you can take to begin to rebuild your credit. Most often, individuals can rebuild their credit score enough to secure a mortgage or low-interest loan within two years of completion by following the advice of their Licensed Insolvency Trustee.
How much does a consumer proposal cost?
A consumer proposal allows you to reduce your debt payments by up to 80%. Your agreement is based on negotiation between your Licensed Insolvency Trustee and your creditors and what you can realistically afford to pay them. Your Licensed Insolvency Trustee will work with you to determine what to offer your creditors. The cost of a consumer proposal ultimately depends on your income and any assets you have. Consumer proposal payments can be spread out across a period of up to five years, and are interest-free. To see how your consumer proposal payments could look versus other debt relief options, have a look at our consumer proposal calculator.
How to find a Licensed Insolvency Trustee in Canada
In order to file a consumer proposal, you first need to appoint a Licensed Insolvency Trustee. They are the only professionals in Canada legally able to file all forms of debt relief. You should be very wary of anyone else claiming to be a debt consultant, or who may be unlicensed, as they will not be able to legally reduce or eliminate your debts. Initial consultations with any reputable Licensed Insolvency Trustee will be free – you should not need to pay for these. At Spergel, our experienced Licensed Insolvency Trustees offer the following:
- Free consultations
- Meetings with you as often as you need
- A review of your financial situation and an explanation of all your debt relief options
- Affordable debt relief solutions
- A 99% acceptance rate on any consumer proposals we file
Learn more about how to file a consumer proposal in Canada, and discover what life after a consumer proposal could look like for you. Book a free consultation with an experienced Licensed Insolvency Trustee today.
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For easy to understand debt solutions including consumer proposals, contact Spergel to begin rebuilding your financial future. With locations across Canada, our experienced Licensed Insolvency Trustees will help you choose the best debt relief solution for your circumstances.
Eli’s Path to Debt Freedom
After cashing out an RRSP to pay for his wedding. Eli received an unexpected tax bill. With his other debts he could not afford to pay and eventually the debt grew. CRA decided to initiate a wage garnishment. We helped Eli avoid bankruptcy with a Consumer Proposal. Debt consolidation saved Eli’s pay cheque and his Consumer Proposal taught him to plan for unexpected expenses in the future.
Frequently Asked Questions
Is a consumer proposal worth it?
As you can negotiate the amount of debt you pay back with a consumer proposal, you can reduce your debts by up to 80%. Consumer proposals are one of the safest forms of debt consolidation, and generally creditors will accept your consumer proposal as they will receive more than they would in a bankruptcy. Consumer proposals also offer a number of advantages including protection from creditors and a freeze on interest and penalties. For these reasons, for many Canadians a consumer proposal is well worth it.
How long does a consumer proposal last?
Generally, consumer proposals in Canada last between 3 to 5 years. You may pay off your consumer proposal sooner or even make a lump sum offer. The maximum amount of time you have to pay off your consumer proposal is 5 years.
Debt Relief Learning Centre
If you’re just starting to explore your debt relief options – including consumer proposals – visit our learning centre to learn from our articles and resources and start your path to debt freedom. When you’re ready, our highly experienced Licensed Insolvency Trustees are always available to listen.