Consumer Proposal in Canada: what it is and how it works
A consumer proposal is a government-regulated way to reduce unsecured debt by up to 80% and repay an affordable portion of what you owe. It can stop interest and collection action, allow you to keep your assets and give you a clear path out of debt without filing for bankruptcy.
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What is a consumer proposal?
A consumer proposal is a legally binding agreement between you and your unsecured creditors. It allows you to offer to repay part of what you owe, extend the time available to repay your debt, or both.
Once you complete the proposal, you’re legally released from the remaining balance of the eligible debts included in it.
Consumer proposals are governed by Canada’s Bankruptcy and Insolvency Act and can only be filed through a Licensed Insolvency Trustee (LIT). Your LIT will assess your financial circumstances, explain all your debt relief options, and help you develop an offer that is both affordable for you and reasonable for your creditors.
Depending on your circumstances, a consumer proposal may reduce the unsecured debt you need to repay by up to 80%. Interest stops when the proposal is filed, and you normally make one agreed payment instead of paying several creditors separately.
How does a consumer proposal work?
Your Licensed Insolvency Trustee begins by reviewing your income, living expenses, debts, and assets. If a consumer proposal is suitable, you and your LIT develop an offer based on what you can afford and what your creditors are likely to accept.
The main steps are:
- Meet with a Licensed Insolvency Trustee. Your consultation is free, and you’re under no obligation to proceed.
- Develop your offer. Your LIT helps you determine an affordable payment and prepares the required documents.
- File the consumer proposal. Once it’s filed, a stay of proceedings normally stops collection calls, wage garnishments, and legal action relating to the unsecured debts included in it.
- Allow creditors to review it. Creditors have 45 days to consider the proposal. They may accept it, request a meeting or ask for different terms. Your LIT handles the process and any negotiations.
- Complete the proposal. You make the agreed payments and attend two financial counselling sessions. When all the terms have been met, you receive a Certificate of Full Performance and are legally released from the included debts.
How much could you save with a consumer proposal?
Use our easy-to-use calculator to estimate how much a consumer proposal could reduce your debt.
How can a consumer proposal protect you?
Filing a consumer proposal can provide immediate relief from unsecured creditors through a stay of proceedings.
Filing a consumer proposal can provide immediate relief from unsecured creditors through a stay of proceedings. This generally stops collection calls, collection letters, wage garnishments, and legal action relating to debts included in the proposal.
Interest on included debts stops, and you make one agreed payment based on the terms of your proposal. Unlike bankruptcy, you don’t normally have to surrender your assets to the Licensed Insolvency Trustee. You must, however, continue paying secured debts, such as a mortgage or car loan, if you want to keep the associated asset.
Overview
What debts can be included in a consumer proposal?
Most unsecured debts can be included in a consumer proposal, such as:
- Credit card debt
- Unsecured lines of credit
- Bank and personal loans
- Payday loans
- Overdrafts
- Unpaid utility and household bills
- Accounts in collection
- CRA and tax debt
- Certain student loan debts, generally when you stopped being a student at least seven years before filing
All eligible unsecured creditors must be included. You cannot choose to leave one credit card or unsecured loan outside the proposal.
eligibility criteria
Who qualifies for a consumer proposal in Canada?
You may qualify to file a consumer proposal if:
- You’re insolvent, meaning you can’t pay your debts as they become due or your debts are worth more than your assets
- You owe no more than $250,000, excluding debts secured by your principal residence
- You can afford to repay a portion of what you owe
- You live in Canada, carry on business in Canada or own property in Canada
Two people with debts that are substantially the same may be able to file a joint consumer proposal, with a combined debt limit of $500,000, excluding debts secured by their principal residence.
A consumer proposal can be particularly helpful when you have reliable income, assets you want to protect or the possibility that your earnings may increase. It’s not automatically the right option for everyone, so your LIT must also explain the alternatives available to you.
How much does a consumer proposal cost?
The cost of a consumer proposal is the amount you agree to repay through the proposal. There’s no standard payment because the offer is based on your individual circumstances.
Your Licensed Insolvency Trustee considers factors including:
- Your income and reasonable household expenses
- The amount and type of debt you owe
- The value of your assets
- What creditors might receive if you filed for bankruptcy
- What you can reasonably afford to pay
- What your creditors are likely to accept
Your offer must normally provide creditors with a better outcome than they would expect from a bankruptcy. It must also be affordable enough for you to complete successfully.
There are no separate upfront or hidden fees charged on top of your agreed proposal amount. The LIT’s fees are regulated by the federal government and are paid from the money you contribute to the proposal. Interest does not accrue on the debts included in an accepted proposal.
If creditors accepted a proposal of $18,000 paid over five years, for example, the monthly payment would be $300. This is only an illustration: the amount you may need to offer depends on your circumstances. You can make additional payments or pay the proposal off early without penalty.
where to start
What’s the first step for debt help?
The first step is to speak to a Licensed Insolvency Trustee.
(LITs) Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. 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 proposal we file
Everyone’s situation is different. Let’s talk about you.
Book a free call with Spergel today, and we will make a plan with you on how to help.
What are the benefits of a consumer proposal?
Depending on your circumstances, a consumer proposal may allow you to:
- Reduce the amount of unsecured debt you need to repay
- Stop further interest on the included debts
- Stop eligible collection action through a stay of proceedings
- Combine payments into one affordable proposal payment
- Keep your assets while continuing to meet any secured loan obligations
- Avoid surplus income payments if your income later increases
- Pay the proposal off early without penalty
- Avoid filing for bankruptcy
Consumer proposal FAQs
What happens if my creditors don't accept my consumer proposal?
Your Licensed Insolvency Trustee can negotiate with your creditors and help you consider whether a revised offer is affordable. If an agreement cannot be reached, your LIT will explain the other debt relief options available to you.Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.
What happens if I miss a consumer proposal payment?
Contact your Licensed Insolvency Trustee as soon as possible if you think you may miss a payment. A consumer proposal is generally annulled if you fall behind by an amount equal to three monthly payments, although it may sometimes be possible to revive it.
Will a consumer proposal affect my credit?
Yes. A consumer proposal will be recorded on your credit report and can make it more difficult to obtain new credit for a period of time. You can begin rebuilding your credit by making payments on time and using any new credit carefully.
Can I keep my home and car during a consumer proposal?
You do not normally have to surrender your assets when filing a consumer proposal. Secured debts are not included, however, so you must continue making your mortgage, vehicle finance or lease payments if you want to keep the associated asset.
Can I pay off a consumer proposal early?
Yes. You can make additional payments or pay the remaining balance in full without penalty. Once you have made all the required payments and completed your financial counselling sessions, you will receive a Certificate of Full Performance.
Can CRA debt be included in a consumer proposal?
Yes. Income tax debt and certain other unsecured amounts owed to the Canada Revenue Agency can generally be included. CRA can review and vote on the proposal like any other creditor.
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Real Canadians. Real success - like Larissa.
“I can’t thank Spergel enough for their support and expertise during one of the toughest times in my life. Their consumer proposal not only reduced my debt significantly but also stopped the constant stress of creditor calls. Now, I’m able to focus on providing a stable future for my children without worrying about money. And, I can now sleep at night! Spergel truly gave me a fresh start.”
– Larissa, Ontario
Read more consumer proposal success stories
Larissa’s experience is one of many. Read more success stories from Canadians Spergel has helped, or speak to our team about your situation.
How we’ve helped others
Every debt story is different, and so is every solution. Here’s what real clients have said about working with Spergel.
How do I get started with a consumer proposal?
The first step is to speak to a Licensed Insolvency Trustee. LITs are the only professionals authorized to administer consumer proposals and bankruptcies in Canada.
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