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How much does a consumer proposal cost?

Posted on 5 July 2022

Written by Trevor Pringle

If you are in need of a form of debt relief, you may well be assessing the associated costs. Each form of debt relief varies in terms of cost, but the most important consideration should be choosing the most appropriate form of debt relief for you. A consumer proposal is an increasingly popular form of debt relief in Canada, and it can reduce your debt by up to 80%. As well as reducing your overall debt, it enables you to keep your assets, provides a strong alternative to bankruptcy, and offers protection from your creditors. In this article, we explain the costs associated with a consumer proposal so that you can make an informed decision as to whether or not to file one. So, how much does a consumer proposal cost? With over thirty years’ experience of filing consumer proposals in Canada, in this article we explain the true cost of filing a consumer proposal.

A consumer proposal is a legal form of debt relief backed by the Bankruptcy and Insolvency Act. It is the process of working with a Licensed Insolvency Trustee to determine a manageable monthly repayment figure that is affordable for you to make towards your debts. Your trustee will then negotiate with your creditors on your behalf. Often, consumer proposals can reduce your overall debt by up to 80%. A consumer proposal needs to work for both you as the debtor and your creditors, although it is often easier to get a healthy reduction in your debt as creditors would rather accept a consumer proposal than receive less through a bankruptcy. For debtors to succeed with a consumer proposal, the monthly repayments need to be manageable depending on your unique financial situation. As well as being a good alternative to bankruptcy, advantages of a consumer proposal include the ability to keep your assets, and protection from your creditors and collection calls via a stay of proceedings. A stay of proceedings is automatically generated once a consumer proposal is filed.

How much does a consumer proposal cost?

Ultimately, the cost of a consumer proposal is dependent on your personal circumstances. The amount you will need to repay for a consumer proposal relies on a few key factors:

  • Your income, and any surplus income you would need to consider for a bankruptcy
  • Any assets you have that would be surrendered in a bankruptcy
  • The creditors to whom you owe money – different creditors will expect different outcomes from a consumer proposal

Once the above factors are considered, you will then work with your Licensed Insolvency Trustee to establish a realistic and affordable consumer proposal to repay each month. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief, and they are legally required to file a consumer proposal. A consumer proposal can last up to five years, so your payments can be spread out across this time period. As a working example, if you were to meet your trustee and discover a bankruptcy would cost you $500 per month for three years, this would total around $18,000 in total. If, however, you were to offer your creditors $350 a month for 60 months as part of a consumer proposal, this would total $21,000. A consumer proposal is preferential in this instance as you can pay less per month than in a bankruptcy while keeping your assets. Your creditors are likely to agree, too, as they will receive slightly more over time. You will only pay the monthly payments agreed in your consumer proposal, and no additional fees. Although every circumstance is different, generally speaking a consumer proposal can reduce your debts by up to 80%. Try our debt calculator to work out how your monthly repayments could look.

How are consumer proposal payments determined?

The payments you will make as part of your consumer proposal are negotiated between yourself and your creditors. Of course, the role of your Licensed Insolvency Trustee is to help and advise you as part of this process. They will review your financial circumstances and recommend an amount to make to your creditors. At Spergel, we have been filing consumer proposals for Canadians for over thirty years, and we have a 99% acceptance rate on any consumer proposals we file. You have up to five years to pay your consumer proposal, and there is no interest rate on these payments. You have the option to make lump sum payments on your consumer proposal too, and you can pay it off early if you wish.

What if your financial circumstances change during a consumer proposal?

If your income increases during your consumer proposal, you can adjust your repayment plan to finish your consumer proposal sooner. This can be adjusted in a way that suits you – perhaps you make smaller payments initially, and increase them over time as your financial situation stabilizes. If, on the other hand, your financial circumstances deteriorate, you are able to defer only two payments during a consumer proposal. If you miss any more than two, your consumer proposal will fail. If your consumer proposal fails, your total debt will return. It also means that your creditors can restart collection calls and threaten legal action like a wage garnishment. If you suspect you will miss a third payment, you should speak to your Licensed Insolvency Trustee immediately. They can help you before your consumer proposal fails. They can try to negotiate with your creditors, and file revised payment terms. If your creditors accept this revised consumer proposal, you can continue with these new terms until your proposal is completed.

How can a consumer proposal make life easier for you?

Although initially filing a consumer proposal can seem like an arduous task, it can certainly have a positive impact on your future. It reduces your monthly debt payments overall, and means you can begin to save money. Equally, you will experience an initial knock by having to surrender your credit cards with some initial impact on your credit score. You will receive a note on your credit report to show that you have filed a consumer proposal, which will remain for six years from the date of filing. As soon as you file a consumer proposal, however, you can begin to rebuild your credit score. When you are a few months into your consumer proposal, you can apply for a secured credit card. This is the quickest way for banks to regain confidence in you, if you are able to make consistent payments on time. Eventually, this will allow your credit score to rise even while you are in your consumer proposal. Learn more about life after consumer proposal.

How does a Licensed Insolvency Trustee get paid from a consumer proposal?

You may think that filing a consumer proposal is a way for Licensed Insolvency Trustees to charge you fees, although this is far from the reality. The cost of administering your consumer proposal is actually factored into your agreed monthly payments. No additional costs are charged as part of the consumer proposal fee – everything is included in the amount you negotiate with your creditors. Any fees paid to a Licensed Insolvency Trustee are set by the Canadian government, and come from the monthly payment. This amount over time includes:

  • An administration fee of $100, paid to the Office of the Superintendent of Bankruptcy
  • The fees for two mandatory credit counselling sessions, at $85 each
  • Consumer proposal fees to the Licensed Insolvency Trustee of $1,500 plus 20% of creditor distributions
  • A 5% levy of creditor distributions, paid to the Office of the Superintendent of Bankruptcy

Once these fees have been paid from your monthly consumer proposal payments, any creditors who have claimed a stake in your consumer proposal will then receive their share of the balance. Instead of you having to pay Licensed Insolvency Trustees on top, your creditors essentially cover the cost of a consumer proposal for you. At Spergel, you do not make any payments until your consumer proposal has been officially filed. We do not charge any additional fees. We also offer flexible payments that help make your life easier when it comes to managing your finances. If you are considering filing bankruptcy, you can compare the cost of a consumer proposal with the cost of filing bankruptcy.

Still curious about ‘how much does a consumer proposal cost?’ At Spergel, we have helped over 100,000 Canadians gain debt relief through consumer proposals and we can help you too. We can provide a free quote as to how much a consumer proposal could cost you, and we will review your financial circumstances and advise you as to the best course of action. Book a free consultation with Spergel today – you owe it to yourself.

Trevor B. Pringle

Trevor Pringle

Trevor B. Pringle is a Chartered Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also Spergel's resident expert on consumer proposals and small business debt. When Trevor isn't at the office providing debt relief to Canadians and corporations with his innovative problem-solving skills, Trevor enjoys regular trail runs in the Dundas Valley.

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