What is a Consumer Proposal?

In Canada, a consumer proposal is a legal form of debt relief and an excellent alternative to filing bankruptcy. It is a debt repayment pathway that is interest-free, with one affordable monthly payment.

In 2019, 60% of all insolvencies in Canada were consumer proposals, and the rest were bankruptcies – CBC

In most cases, filing a consumer proposal reduces the amount of debt owed by up to 80% through negotiations with creditors. Other advantages of a consumer proposal include protection from creditors and collection agencies, and the ability to keep your assets. Read on to learn more about what a consumer proposal is in Ontario, and if it’s a suitable option for you.

How does a consumer proposal work in Ontario?

In Ontario and the rest of Canada, filing a consumer proposal is relatively straightforward – it is a deal made with your creditors to settle your debts. You will meet with an experienced Licensed Insolvency Trustee to review your personal financial circumstances, and together propose a plan to settle your debts. This payment plan must be affordable for you, and your trustee will be able to advise on what your creditors will be looking for. The consumer proposal must offer more to your creditors than what they would expect if you went bankrupt. Your trustee will then offer the proposal to your creditors, and in most circumstances this reduces debts by up to 80%.

When does a consumer proposal clear debt in Canada?

A consumer proposal essentially consolidates debts into one manageable and interest-free monthly payment agreed with your creditors by your trustee. It is a legal debt settlement, meaning all your remaining debts are cleared, aside from the monthly payment you will make. A consumer proposal will last for a maximum of five years, meaning your affordable monthly payments can be spread across this time period to become more manageable. A consumer proposal can be paid off early without any penalties. Thanks to the fact your debts will likely have been reduced significantly, you can begin to save money and rebuild credit for a fresh financial start.

What are the advantages of a consumer proposal?

Aside from filing bankruptcy, a consumer proposal is the only legally binding form of debt relief that protects debtors from their creditors. This means any wage garnishments, lawsuits, and contact from creditors will be blocked. The primary advantage of filing a consumer proposal is that it can mean a reduction in your debts by up to 80%. Debts are consolidated into one affordable interest-free monthly payment, and there is an immediate freeze on any interest and penalties owed. Another key advantage of a consumer proposal is that debtors are able to keep all their assets, including property equity and it is a great option for those with surplus income. Filing a consumer proposal is therefore a great way of resolving the stress of financial debt and overwhelming payments, it means you avoid bankruptcy.

What is the difference between a consumer proposal and bankruptcy?

In Canada, filing bankruptcy is the process of reassigning any non-exempt assets to a Licensed Insolvency Trustee in exchange for having any unsecured debts permanently cleared. Once discharged from bankruptcy, you are granted a fresh financial start, and can begin rebuilding credit. A consumer proposal works a little differently – you are able to consolidate your debts into one affordable fixed monthly payment. The primary advantage is that you are able to keep all of your assets, including any property equity. Learn more about the difference between a consumer proposal and bankruptcy to discover which is the best option for you.

What is the difference between a consumer proposal and debt consolidation?

A debt consolidation loan essentially means taking out a new loan to refinance multiple debts into one monthly payment to a new lender. Ultimately, debt consolidation means you are still in debt, and there is a risk that you may not be able to meet the terms of your loan. In most cases, there will also be interest on top of these payments. Filing a consumer proposal, in comparison, is a form of debt settlement in which you agree the interest-free monthly payments that you can afford, spread across a maximum of five years. A consumer proposal clears any portion of the unmanageable debt that you have through negotiation by your trustee. It consolidates any remaining debt into a single monthly payment, and you will also receive security on your assets.

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To learn more about what a consumer proposal involves, book a free consultation with one of Spergel’s Licensed Insolvency Trustees. We have been helping Canadians gain debt relief for over 30 years.

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.

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