Advantages of a Consumer Proposal in Canada

In Canada, a consumer proposal is considered one of the best bankruptcy alternatives, allowing you to repay a reduced debt total via one fixed affordable monthly payment.

A government backed form of debt settlement, filing a consumer proposal offers the benefits of major debt reduction while avoiding bankruptcy. In fact, filing a consumer proposal is now the favoured method of debt relief by the majority of Canadians. There are various advantages of a consumer proposal, all of which we will cover below.

Advantages of filing a consumer proposal in Canada

A consumer proposal has plenty of benefits when it comes to finding a suitable debt relief option. Here are the top advantages of filing a consumer proposal in Ontario and across Canada, and why it may be suitable for you:

  • Filing a consumer proposal means you avoid bankruptcy 

Filing bankruptcy is often considered a last resort when it comes to debt relief options in Canada. Although bankruptcy is a good option for some debtors, it is important to consider all alternatives beforehand. A key advantage of filing a consumer proposal is that you are able to keep your assets, yet when filing bankruptcy you must surrender any non-exempt assets. Bankruptcy can also have some potential impacts on employment, making a consumer proposal particularly favourable. Learn more about the differences between filing bankruptcy vs a consumer proposal.

  • Filing a consumer proposal allows you to keep your assets

Arguably the biggest advantage of filing a consumer proposal is the protection over your assets. As long as you are able to make your monthly payments on a mortgage and car loans, you may keep both your home and your car, regardless of their value. Equally, a consumer proposal allows you to keep any RRSPs (including payments made in the past year), as well as RESPs and other investments. This is in contrast to how assets are handled when filing bankruptcy, when non-exempt assets are expected to be surrendered to your Licensed Insolvency Trustee.

  • Filing a consumer proposal means you  significantly reduce your total debts

As a consumer proposal is a government backed debt settlement, your Licensed Insolvency Trustee will work with you to negotiate an affordable repayment agreement with each of your creditors. When filing a consumer proposal, your trustee will calculate a rate that is greater than the value of your assets to offer to your creditors. Your creditors are then satisfied that they will receive more than they would if you were to file bankruptcy, and you can spread out these payments across five years to ensure they are affordable. Often, this means your debts can be reduced by up to 80% when filing a consumer proposal. 

  • Filing a consumer proposal means you have just one manageable monthly payment

Although a consumer proposal is different to a debt consolidation loan, by working with your Licensed Insolvency Trustee, each of your debts will be consolidated into one affordable interest-free monthly payment. This is negotiated carefully with your creditors, and your trustee will help to ensure that it is affordable and manageable for you. By filing a consumer proposal, your debts will be reduced, meaning you are cleared from any overwhelming debt repayments.

  • Filing a consumer proposal will last no longer than five years

By Canadian law, a consumer proposal may last for up to sixty months – or five years. This means that you have up to five years to spread out the cost of your debt repayments on a monthly basis. By having one manageable monthly payment, you are usually able to save more money without the burden of overwhelming debt. Anyone with a consumer proposal is also able to pay it off sooner than the agreed term by making extra payments or putting down a lump sum.

  • Filing a consumer proposal means any interest is frozen

The primary benefit of filing a consumer proposal over taking out a debt consolidation loan is that there is no interest rate on your monthly payments. This ensures that your debt repayments remain stable and manageable, and you can regain financial control by beginning to save money once again. Any money saved can be used to pay off your consumer proposal early.

  • Filing a consumer proposal means you benefit from a ‘stay of proceedings’

As both filing bankruptcy and filing a consumer proposal are government backed forms of debt relief, you will automatically benefit from a stay of proceedings. This means that your creditors – or people you owe – are no longer able to pursue action against you, be it a lawsuit, a wage garnishment, or simply trying to contact you for money. This is actioned as soon as you file, and is often a huge relief for many debtors and a key advantage of a consumer proposal.

  • Filing a consumer proposal means you can avoid surplus income

Surplus income is any remaining income you may have after your monthly debt payments have been made. This is significant when it comes to filing bankruptcy, where the more surplus income you have, the more you will need to pay back. The advantage of a consumer proposal is that all you need to pay is one fixed, manageable monthly payment. Therefore, if you suspect your income may increase, a consumer proposal is an excellent form of debt relief over bankruptcy.

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A Spergel Consumer Proposal is structured into monthly payments paid over a period of up to 5 years. You will not pay additional interest or fees during that time.

What can a consumer proposal not do for you?

While a consumer proposal has many advantages, it is not always the right debt relief solution for everybody. There are a few scenarios where another form of debt relief may be more appropriate, like the following:

  • Timing

Generally speaking, in Canada a consumer proposal takes longer to complete than a bankruptcy. This is usually because your payments are spread out across a longer period of time to make them more affordable. That said, it is possible to pay off a consumer proposal early if your finances improve during the agreed term.

  • Assets

Should you not have a significant income, nor assets that would need to be surrendered in a bankruptcy, filing bankruptcy may make the most sense for you when it comes to clearing debt. This is where it is important to find a Licensed Insolvency Trustee who can talk through each of your options and the advantages of each form of debt relief.

  • Credit Report

Both filing bankruptcy and a consumer proposal have an impact on your credit rating. If this may affect other aspects of your life including your employment status, another debt relief option like a debt consolidation loan may be more appropriate.

 

How do I file a consumer proposal?

If you are interested in filing a consumer proposal, the first thing to do is to find a Licensed Insolvency Trustee that you can trust. The only professionals able to administer a consumer proposal are trustees, so by meeting one you can discuss your personal financial circumstances and get advice on the best pathway to debt relief for you. Many experienced trustee firms will offer a free consultation in which to discuss whether or not a consumer proposal is right for you.

Book a free consultation

At Spergel, we have over thirty years’ experience of explaining the advantages of consumer proposals and helping Canadians become debt free. We will discuss your financial situation and help you decide if a consumer proposal is right for you. Book a free consultation today.

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.