Frequently Asked Questions

Here are answers to some of the most common questions we get asked about by our clients.

What’s the difference between a consumer proposal and a bankruptcy?

A consumer proposal is a legal binding agreement between you and your unsecured creditors, in which you repay a portion of what you owe them over five years. The amount to be repaid is based on your monthly income, assets, and debt load.

A bankruptcy eliminates any eligible debts and puts a stop to most legal proceedings against you by creditors. Upon filing a bankruptcy, you would assign certain assets to a Licensed Insolvency Trustee; although, in most circumstances you will be able to keep your assets. A first-time bankrupt will have to pay $200 a month for 9 months to be discharged.

Will I lose my house and vehicle? What about other investments (e.g., RRSP, RESPS)?

In a consumer proposal, secured assets like your home and vehicle are protected. As long as you are able to keep up the payments with your creditors, you can keep these secured assets.

In a bankruptcy, the majority of clients keep their home, vehicle, RRSPs and RESPs. However, sometimes a person declaring bankruptcy may not be able to keep all of their assets.  Each situation is unique, and we are happy to address any concerns regarding your assets.

Will all my debts be eliminated once I file?

Most of the time, all unsecured debt will be eliminated by filing a consumer proposal or a bankruptcy.

However, there are some debts that are not eligible, and you would be responsible for maintaining these payments. Example of ineligible debts include any fine, penalty or restitution order made by the court, parking or speeding tickets, spousal or child support, any award for damages in respect of an assault, and student loans that are less than 7 years old since your last study date.

What’s the difference between a Licensed Insolvency Trustee and Credit Counsellor/Debt Consolidator?

The major difference between us and debt consolidators is that we offer full legal protection, as our agreement legally binds creditors to the party involved. We can help by consolidating all your unsecured debts into one affordable monthly payment, which will stop any interest charges, and in some cases might reduce the total outstanding debt owing.

If you are currently having difficulty managing your debt (for example, you miss monthly payments or are paying just the minimum payments on your credit cards), a consumer proposal may be a far better solution than debt consolidation or credit counselling. You will normally end up paying your creditors less in a proposal than under those other two options, and interest will stop the moment the proposal is filed.

Is a consumer proposal the same as a consolidation loan?

Unlike a consumer proposal, a debt consolidation loan is offered by a financial institution, like a bank. In this process, the financial institution pays off your outstanding debts by opening a new loan for the combined value.

In both cases, you make your payments to a single place, instead of worrying about making payments to different creditors. However, a debt consolidation loan lets you start accumulating debt again while you’re repaying your loan. This can often result in more debt than you had before. The biggest difference between the two solutions is that you will pay back 100% of your debt plus interest with a debt consolidation loan (meaning you’re paying more), compared to a consumer proposal.

Will I be able to quality for credit again after I file a consumer proposal or bankruptcy?

Of course! A consumer proposal does not stop you from applying for credit down the line. It stays on your credit report for however long it takes you to make your payments (you have up to 5 years to do so) plus 3 years. You can apply for credit during that time and begin rebuilding your credit.

What are the disadvantages of consumer proposals?

While a consumer proposal is great at providing debt relief and has many benefits, there are certain things you should keep in mind when making your decision. The following are some things to consider: 1) your credit score will be affected, 2) all credit cards will have to be turned in, 3) secured debt will not be eliminated, 4) some unsecured debts are ineligible for filing, 5) your proposal might be rejected by creditors, and 6) your proposal will be annulled upon 3 missed payments.

Does a consumer proposal or bankruptcy affect my spouse?

A consumer proposal or bankruptcy will not affect your spouse for any personal debts that you have. While the proposal or bankruptcy will appear on your credit report, it will not appear on theirs. Additionally, only your share of assets will be included in a proposal or bankruptcy, so your spouse’s assets are protected.

However, your spouse will still be responsible for paying back any joint debts you have together, or debts that they co-signed once you file. You won’t be responsible for the debt upon filing, but the debt will not be eliminated with the co-signer.

How long does a consumer proposal or bankruptcy stay on my credit report?

A consumer proposal stays on your credit report for however long it takes you to make your payments (you have up to 5 years) plus 3 years OR 6-7 years from the date it was filed (whichever comes first) depending on the credit bureau. What this means is the maximum period a proposal will remain on your credit report is 6-7 years from the time you file and can be shortened if you pay off your proposal in less than three years.

Generally, a bankruptcy stays on your credit report anywhere between 6-14 years, depending on whether you have been discharged and whether it is your first or second bankruptcy.

Will a consumer proposal or bankruptcy affect my credit score?

A common misconception is that your credit rating will be damaged forever once you file a consumer proposal or bankruptcy. Filing a consumer proposal or bankruptcy is going to impact your credit rating for the time that it appears on your credit report. However, if you are in a position where filing a consumer proposal or bankruptcy makes financial sense, it can help with your rising debt load and will help you in the long run.

What happens after I file for a consumer proposal?

Once the Licensed Insolvency Trustee files your proposal, you stop making direct payments to your unsecured creditors and make one consumer proposal payment to your Trustee instead. At this point, creditors will no longer be allowed to garnish your wages, take legal action against you, or make collection calls to collect on debts included in your proposal.

The proposal is then sent to your creditors, and they will have 45 days to accept or reject the offer. Upon acceptance, you will be responsible for either paying a lump sum amount or monthly proposal payments to the Trustee and adhering to any other conditions in the proposal.

Will my employer, spouse, friends, or family find out that I am insolvent?

Your employer is not notified that you have filed bankruptcy as part of the normal process. Sometimes new employers may want to conduct a search, especially if you are dealing with trust money or are in some other bondable occupation, but generally, your employer will never know. The only time your employer is notified is if you have a wage garnishment that you want stopped.

The same applies to your spouse, friends, and family. Only those who need to know will be informed that you filed insolvency, which includes the government, creditors, collection agencies, Revenue Canada, and credit bureaus. If someone wants to see whether you filed insolvency, they must do a bankruptcy search through the Bankruptcy and Insolvency Records of the Office of the Superintendent of Bankruptcy.

How can I stop collection calls?

Once the Licensed Insolvency Trustee files your consumer proposal or bankruptcy, your creditors will no longer be allowed to garnish your wages, take legal action against you, or make collection calls to collect on debts included in your proposal.

How can I stop wage garnishments?

Once the Licensed Insolvency Trustee files your consumer proposal or bankruptcy, your creditors will no longer be allowed to garnish your wages, take legal action against you, or make collection calls to collect on debts included in your proposal.

Can my student loans be included in my consumer proposal or bankruptcy?

While filing a consumer proposal or bankruptcy will eliminate most debts, student loans are treated a bit differently. If you have been out of school for 7 years or more at the time that you’re filing a proposal or bankruptcy, the debt will be included and eliminated. If, however it has not been 7 years since you have attended school, filing a proposal or bankruptcy will not automatically discharge the debt.

How can I rebuild my credit after filing a consumer proposal or bankruptcy?

One of the best ways to rebuild your credit after filing is to repay your debts on time. You will need to show your creditors (and ultimately the credit bureaus) that you are able to responsibly borrow money and pay it back as it becomes due.

You may find it difficult to acquire new credit if you have a low or poor credit rating. A good solution to this problem is to apply for a secured credit card. This is a card that allows you to put down a small deposit that is then secured against the credit issued to you for the card by the lender. This means that if you put down $500, your credit card could have up to a $500 limit. Paying the statement on your card as it becomes due will help improve your credit rating over time. You might even be able to convert the secured card into a traditional non-secured card once you’ve shown that you’re a responsible borrower.

Do I qualify for a consumer proposal?

To be eligible, you must be insolvent (unable to pay your debts as they become due), have a total debt load of less than $250,000 (excluding the mortgage on your principal residence), have a stable source of income (or a friend or family member who can help you make your monthly proposal payments), and have no active proposal proceedings from before.

How long does a consumer proposal last?

A consumer proposal usually lasts anywhere from 3 (can be less than 3) to a maximum of 5 years. You generally make one monthly payment to your Licensed Insolvency Trustee for a total of 60 months. However, you can make a lump sum payment upfront, or at anytime during the 5-year period to complete your proposal. Once the balance has been paid off, the Trustee will issue you a Certificate of Full Performance and notify the credit bureaus that you have successfully completed your proposal duties.

When is it time to file a bankruptcy?

If you are struggling with debt and can’t afford to pay your creditors back, it may be time to speak with a Licensed Insolvency Trustee about your options. Whether you should file bankruptcy will depend entirely on your unique financial situation. Continuing to struggle with pay day loans, credit card debt, etc. is not the best option. A free initial consultation with one of our Trustees will provide you with better alternatives and give you some peace of mind.

How much does a bankruptcy and consumer proposal cost?

Generally, an individual with low income and little to no assets will pay on average $1,800 to file a bankruptcy for the first time (payable over 9 months). That being said, costs can vary depending on your specific situation. As such, we recommend taking advantage of our free initial consultation for further information and to determine bankruptcy costs.

The cost of a consumer proposal depends on an individual’s unique situation. The Licensed Insolvency Trustee will consider your monthly household income, assets, and outstanding debt amount when determining how much your monthly payment will be. You can take advantage of the Debt Repayment Calculator on our site to get an idea of what your payments will look like. For a more accurate quote, however, we recommend booking a free initial consultation to speak to a Trustee.

What’s the difference between secured and unsecured debt?

Essentially, secured debt is a loan or line of credit that is backed by an asset (collateral) that the lender can seize if you default on payments. Some examples include: mortgages, car loans, home equity loans or lines of credit, secured credit cards, and secured business loans.


On the other hand, unsecured debt is not backed by any sort of collateral or asset, and is backed only by your name and credit profile. Examples of unsecured debt include: most credit cards, personal loans, lines of credit, federal student loans, medical debts, and small business loans.

What is surplus income and how is it calculated?

In a bankruptcy scenario, surplus income refers to a calculation that determines how much money per month you should be paying into a bankruptcy for the benefit of your creditors. Surplus income is based on your net household income. This is the income you (and any other adults in the household) are left with after paying income taxes, other normal payroll deductions, required medical expenses, required alimony or child support, and expenses related to earning income (e.g., child care). However, this does not include rent or mortgage payments, food, utilities, or the like.

Once your net household income is calculated, it is compared against the Superintendent of Bankruptcy’s surplus income guidelines for the current year. Whatever net household income you make in excess to the Superintendent’s limits for your family size is your surplus income. If you have less than $200 in surplus income, you will not have to forfeit that money to your creditors.

Book a free consultation

For easy to understand debt solutions including consumer proposals, contact Spergel to begin rebuilding your financial future. With locations across Canada, our experienced trustees will help you choose the best debt repayment plan 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.

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