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What can I keep in a consumer proposal?

Posted on 30 January 2024

Written by Ashvin Sharma

Navigating your financial challenges in Canada can feel like a daunting task, but consumer proposals are a viable solution for those seeking relief from overwhelming debts. One common concern individuals have when considering a consumer proposal is the fate of their assets. You may be pleased to know that unlike filing bankruptcy, filing a consumer proposal enables you to choose which assets you keep. Debt relief methods are not always about what you need to give up, but instead ensuring you have financial security. In this article, we’ll explore what assets you can keep when opting for a consumer proposal and shed light on this crucial aspect of debt management. So, what can I keep in a consumer proposal?

What is a consumer proposal?

A consumer proposal is a formal, legally binding agreement between you and your creditors that allows you to settle your debts for less than the total amount owed. In fact, it can reduce your overall debt by up to 80%. Consumer proposals provide a structured plan for debt repayment, typically extending over a maximum period of five years. One of the key advantages of a consumer proposal is that it allows you to retain possession of certain assets while finding a manageable path to financial recovery. This makes it a unique and potentially favourable option compared to both bankruptcy and any informal debt solutions you may be considered. Other advantages of a consumer proposal include enabling you to begin a fresh financial future, and preventing your creditors from contacting you. It can also put an immediate end to any actions including collection calls, wage garnishments, and bank account freezes. At Spergel, we have a 99% acceptance rate on any consumer proposals we file, and we have been helping Canadians to gain debt relief for over 34 years. Learn more about what a consumer proposal entails.

What can I keep in a consumer proposal?

The concept of bankruptcy is using your property and assets to repay what you can towards the debts that you owe to your creditors. Consumer proposals, in contrast, allow you to keep your property and assets, and to repay your creditors using cash you earn over a longer time period instead. Many Canadians prefer to file a consumer proposal (Canada’s #1 bankruptcy alternative) because it is considered to be more flexible and often less disruptive. Most importantly, it allows you to keep assets you may have otherwise had to surrender. Here is what you can keep in a consumer proposal.

Your home

In most circumstances, you can keep your primary home when entering a consumer proposal. It is essential, however, to ensure that your mortgage payments are up-to-date and that the equity in your home is within the permitted limits set by provincial regulations. If keeping your home is a priority, a consumer proposal is probably the best choice for you. As long as you keep your mortgage payments up-to-date, your property will remain yours.

Your vehicle

Provided you can keep up with any car payments alongside your consumer proposal payments, you can keep ownership of your vehicle, as long as the equity in it falls within the limits specified by your province. This is because the practical need for transportation in daily life is recognized.

RRSPs and pensions

Registered Retirement Savings Plans (RRSPs) and pensions are generally exempt from the consumer proposal process. These assets are crucial for long-term financial security, and their protection is prioritized. While creditors can claim on any contributions made in the last year in a bankruptcy, consumer proposals protect the entire value of your RRSPs. This said, you might want to withdraw any funds from any institutions where you owe debts, as lenders may decide to withdraw money from your accounts to offset any outstanding balances. They are permitted to do so until you file a consumer proposal or bankruptcy.

Household goods and furniture

Essential household items and furniture are typically considered exempt. This includes items needed for daily living, such as appliances, furniture, and personal belongings. You will need to disclose your income, assets, and possessions to your Licensed Insolvency Trustee, just so that they can prepare a fair settlement.

Trade tools

If your livelihood depends on specific tools or equipment, these are protected in a consumer proposal. This ensures that you can continue to earn an income and support your family.

Tax returns, GST rebates, and other government benefits

You need to continue filing your annual income tax returns while you repay your consumer proposal. What happens to any applicable refunds depends on whether or not you owe funds to the Canada Revenue Agency (CRA). The same applies to GST rebates and other government benefits.

What to consider before filing a consumer proposal

Although a consumer proposal provides a degree of protection for certain assets, it is crucial to consider the specifics of your financial situation and provincial regulations. Equity limits, payment plans, and individual circumstances can vary, making it essential to consult with a reputable Licensed Insolvency Trustee to navigate the process effectively. Although you may have the option to keep many of your assets, it is also helpful to consider the benefits of letting go of certain items. Make a list of everything you own and note what you must keep, want to keep, and what you might be willing to let go. It is a good idea to bring this to your free initial consultation with a Licensed Insolvency Trustee for an informed and unbiased opinion on what to do.

How do other debt relief solutions handle assets?

There are a number of debt relief solutions to handle your debt. The primary two are a consumer proposal and bankruptcy (governed by the Bankruptcy and Insolvency Act), although there are some other informal options that you can access with or without the support of a non-profit credit counsellor. Deciding which debt relief option is best for you will depend on the amount of debt you owe, which assets you wish to keep, and how quickly you want to be debt-free. We recommend speaking to an experienced Licensed Insolvency Trustee to help you make the decision. Here is how a consumer proposal compares to other debt relief solutions when it comes to assets and what you are able to keep.

Legally binding?Reduction in debtDurationInterest free payments?Assets you can keep
Consumer proposalYESUp to 80%Up to a maximum of 5 yearsYESHouse, vehicle, RRSPs, household goods, trade tools
BankruptcyYES100%9-12 months for a first time bankruptcyYES, although you may also need to pay surplus income, depending on your incomeOnly those included in provincial bankruptcy exemptions
Informal debt solutions – e.g. orderly payment of debts, debt management plans, informal creditor negotiationNOUndefinedUndefinedUnlikelyVariable

What can I keep in a consumer proposal? FAQs

Here are some of the most commonly asked questions we are asked about ‘what can I keep in a consumer proposal?’

What debt is not included in a consumer proposal?

While a consumer proposal is a powerful debt relief option, not all types of debts are included in the proposal process. Here are those typically not covered by a consumer proposal:

  1. Secured debts – consumer proposals primarily deal with unsecured debts. Secured debts, such as mortgages or car loans, are tied to specific assets.
  2. Child and spousal support payments – debts related to court-ordered child support or spousal support payments are not dischargeable through a consumer proposal. Individuals are legally obligated to fulfil these financial responsibilities, and they are not affected by the proposal process.
  3. Court fines and restitution orders – legal obligations like court fines, penalties, and restitution orders resulting from criminal offences or civil judgments are not covered by a consumer proposal. These debts must be settled separately and according to the terms set by the court.
  4. Student loans (in certain circumstances)student loan debts are generally not discharged through a consumer proposal unless you have been out of school for at least seven years. In specific situations, where repaying the student loan would cause undue hardship, a court may consider including it in the proposal.
  5. Debts arising from fraud or misrepresentation – debts resulting from fraudulent activities or misrepresentation – such as obtaining credit through false information – are typically not dischargeable through a consumer proposal.
  6. Debts arising after the proposal date – any debts incurred after the date of the consumer proposal are not covered by the proposal. It only addresses pre-existing debts at the time of its initiation.
  7. Non-allowable debts – certain debts specified as ‘non-allowable’ by the Bankruptcy and Insolvency Act cannot be included in a consumer proposal. These may include fines or penalties imposed for environmental violations, damages resulting from fraudulent activities, or debts arising from intentional injuries to others.

It is crucial to consult with a Licensed Insolvency Trustee to get personalized advice based on your specific financial situation. While a consumer proposal provides significant relief for many types of debts, understanding its limitations can help you to make informed decisions regarding your financial future.

Can I keep any credit cards in a consumer proposal?

During a consumer proposal, it is typically a requirement to surrender all credit cards associated with the debts included in the proposal. This measure aims to foster responsible financial habits by preventing the accrual of new debt while individuals work towards repaying their existing obligations. The surrender of credit cards is part of the commitment to sound financial management during the proposal period. While you are generally not allowed to keep traditional credit cards, you might want to explore the option of a secured credit card, which is backed by a cash deposit. Successfully completing the consumer proposal provides an opportunity for rebuilding credit over time through responsible financial practices and timely debt repayment. Learn more about keeping a credit card with a consumer proposal.

What is the downside of a consumer proposal?

While a consumer proposal is a valuable debt relief option for many individuals, it is important to be aware of potential downsides associated with this financial strategy. Here are some considerations:

  1. Impact on credit score.
  2. Limited borrowing capacity.
  3. Impact on future loan approval.
  4. Costs and fees.
  5. Employment and industry considerations.

It is crucial to thoroughly assess your individual financial situation, weigh the benefits against the downsides, and consider alternatives before deciding to proceed with a consumer proposal. Consulting with a Licensed Insolvency Trustee provides personalized advice and ensures you have a clear understanding of the implications for your specific circumstances. Learn more about the disadvantages of a consumer proposal, and your alternative options.

Do I have to include all debt in a consumer proposal?

When filing a consumer proposal, you have the flexibility to choose which unsecured debts to include in the agreement. This voluntary process allows you to address specific financial challenges by focusing on the debts causing the most strain while excluding others. It is important to note that secured debts, tied to collateral like mortgages or car loans, are not typically part of the consumer proposal. Additionally, ongoing financial obligations such as child support, spousal support, and certain fines are not included. The decision to include or exclude specific debts should be made after careful consideration of your financial situation, and consulting with a Licensed Insolvency Trustee is recommended for personalized advice and guidance throughout the proposal process.

A consumer proposal is a powerful tool for regaining control over your finances, and the ability to retain certain assets makes it a more attractive option for many individuals facing financial challenges. If you are considering a consumer proposal, book a free consultation with a Licensed Insolvency Trustee at Spergel (the ‘get rid of debt’ people) to explore your options and develop a tailored plan for your financial wellbeing.

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Ashvin Sharma

Ashvin Sharma is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) overseeing all of Spergel's offices in the Greater Vancouver Area and British Columbia. He is also our resident expert on homeownership debt and health debt. In his spare time, Ashvin loves to play sports, spend time with family and friends, and serves as a volunteer coordinator for "Free-Them", a Canadian organization committed to raising awareness about human trafficking.

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