How does a consumer proposal work?

Posted on 12 April 2022

Written by Alan Spergel

A consumer proposal is often considered the best bankruptcy alternative in Canada. If you are struggling with overwhelming debt but are keen to avoid bankruptcy, a consumer proposal may be an appropriate debt relief solution for you. Many Canadians are less familiar with consumer proposals than bankruptcy, but consumer proposals have many advantages. These benefits include a less severe impact on your credit report, and allowing you to keep your assets. So, how does a consumer proposal work? In this article, we will explain how consumer proposals work and how you can decide whether or not it is a good option for you and your unique financial circumstances.

What is a consumer proposal?

A consumer proposal is a legal form of debt relief, backed by the Bankruptcy and Insolvency Act. It is essentially a formal debt settlement, whereby you work with a Licensed Insolvency Trustee to establish how much you can reasonably afford to repay on your debt each month. Filing a consumer proposal requires a Licensed Insolvency Trustee, the only professionals in Canada legally able to file all forms of debt relief. Once you have agreed on a proposed monthly repayment, your trustee will negotiate with your creditors on your behalf. If accepted, you will commit to only making the arranged monthly payments for the agreed term, and any remaining debt you have will be cleared. Consumer proposals typically reduce your debt by up to 80%, and at Spergel we have a 99% acceptance rate on all consumer proposals we file. A consumer proposal reduces your debt, enables you to keep your assets, and offers protection from your creditors via a stay of proceedings.

How does a consumer proposal work?

There are a number of stages when it comes to how to file a consumer proposal. At Spergel, unlike other bankruptcy firms, you will be assigned your own Licensed Insolvency Trustee and will not be passed from person to person. Your trustee is here to explain each step of the consumer proposal process to you, and to support you throughout your journey to debt relief. Here is how a consumer proposal typically works:

Debt assessment

First of all, your Licensed Insolvency Trustee will begin a debt assessment with you. This will cover all of your outstanding debts, income, and outgoings. You will run through the interest rate and due dates for each of your debts. Once your trustee has a clear picture of your financial situation, they will consider appropriate forms of debt relief for you. This could include debt consolidation loans or even bankruptcy. Most often, a consumer proposal will be a good option for you.

Repayment plan

Once you have both agreed to file a consumer proposal, your trustee will recommend a manageable and affordable monthly payment for you to make to your creditors. This will be a compromise between affordability and an amount that your creditors will likely accept to receive. Payments can be flexible, and may be spread out across many months in order to bring the monthly payments down. The only disclaimer is that consumer proposals must be completed within five years. Most creditors would rather accept a consumer proposal because it means they will receive more money than they likely would should you go through a bankruptcy.


Due to the legalities involved in a consumer proposal, there is some paperwork involved in the process. Fear not – your Licensed Insolvency Trustee will look after all of this for you. You will simply need to sign once you have agreed on a repayment plan. At this point, your consumer proposal will be filed with the Canadian government, and your trustee will communicate this activity to your creditors.

Stay of proceedings

One of the advantages of a consumer proposal is the automatic generation of a stay of proceedings. A stay of proceedings is only triggered by filing either a consumer proposal or a bankruptcy, and it offers full legal protection from your creditors. This means they can no longer harass you for debt repayment. They can no longer make collection calls or threaten you with legal action like a wage garnishment.

Voting process

Once your consumer proposal has been put forward to your creditors, they have 45 days for a voting period to review the offer. They can decide whether or not to accept, reject, or request a creditors’ meeting. To get a creditors’ meeting, more than 25% of creditors must ask for a meeting – if they do not, no meeting will go ahead and your consumer proposal will be accepted. In this scenario, every unsecured creditor is bound regardless of their vote. If a meeting goes ahead, votes will take place among creditors to see if your consumer proposal is accepted or not. You will need 50% of the votes to be happy to proceed for your consumer proposal to be accepted. Each Canadian dollar owed to a creditor is equivalent to a vote. If you have debt owed to a family member, they can be included as part of your consumer proposal but they are unable to accept your proposal. Creditors are entitled to make a counter offer if they feel it is appropriate. In this instance, they can attempt to increase your offer, which you are able to negotiate with your trustee.

Fulfil your duties

Once you have received acceptance on your consumer proposal by your creditors, it is now down to you to fulfil your obligations. You will be pleased to know there are less commitments for you to make in a consumer proposal than a bankruptcy. Learn more about the differences between a consumer proposal vs bankruptcy. All you need to do is make your monthly consumer proposal payments in full and on time, and attend two credit counselling sessions.

Clear your debts

Once you have made all of your consumer proposal payments over the agreed period of time, you will receive a Certificate of Full Performance. This is evidence that you have completed your consumer proposal. You are now fully clear of any of your unsecured debts that were filed. You are free to enjoy life after consumer proposal, and can begin a fresh financial future. In addition, at Spergel, we can help you to rebuild your credit score.

Learn more about how your monthly consumer proposal payments could look by trying our debt repayment calculator.

Which debts can be included in a consumer proposal?

Consumer proposals cover unsecured debts. This refers to any type of debt not specifically associated with an asset. This includes:

Consumer proposals do not typically cover secured debts. These are usually treated separately, and often include:

  • Mortgages
  • Car loan debts
  • Vehicle leases
  • Home equity loans
  • Home equity lines of credit (HELOCs)

Contrary to popular belief, as long as you are able to continue making the payments in full and on time for your secured assets, there is no reason why you would lose your home and car when filing a consumer proposal. Learn more about consumer proposals and assets. In fact, consumer proposals can often make it easier for you to make your secured loan payments due to the reduction in unsecured debt payments.

If you have more questions on ‘how does a consumer proposal work?’, or if you would like to file a consumer proposal, you should book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees have been helping Canadians gain debt relief for over thirty years, and we will walk you through the consumer proposal process. Reach out today to begin your pathway to a fresh financial future.

Alan Spergel

Alan Spergel

Alan Spergel is the founder and President of Spergel. A leader in our industry, he is also a former chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) and has served on Canada's Superintendent of Bankruptcy Management Board. He actively supports multiple charities, ensuring that Spergel gives back to our communities and has recently been appointed as Chairman of the Board of the Humber River Hospital Foundation. Outside of the boardroom, you can find Alan playing golf, tennis, or skiing and enjoying quality time with his grandchildren.

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