A consumer proposal is a debt relief solution available to individuals in Canada who are struggling to repay their unsecured debts. It provides a legally binding agreement between you and your creditors, allowing you to pay back a portion of what you owe over an extended period, usually up to five years. Below are answers to some consumer proposal FAQs that we are often asked to help you understand the process better.
- What is unsecured debt?
- Consumer proposal FAQs: general overview
- Consumer proposal FAQs: process and filing
- How do I file a consumer proposal?
- What debts can be included in a consumer proposal?
- Can I include tax debt in a consumer proposal?
- How much does a consumer proposal cost?
- What is the acceptance rate of a consumer proposal?
- Can I leave a creditor out of my proposal?
- How soon will I know if my consumer proposal has been accepted?
- Who can help to file a consumer proposal?
- Why am I still receiving statements and why does it show payments being made?
- Why are my creditors still taking payments and/or interest accruing in my old bank account that I still have access to?
- Do you do my income taxes?
- Are my student loans included?
- When are my 45 days up?
- Consumer proposal FAQs: payments and terms
- Are you going to take my GSTs?
- Consumer proposal FAQs: rights and protection
- Consumer proposal FAQs: impact and consequences
- Consumer proposal FAQs: responsibilities
What is unsecured debt?
Unsecured debt refers to loans or credit that are not backed by collateral, meaning the lender has no specific asset to claim if you were to default. Common examples include credit card debt, personal loans, and medical bills. Because it is not secured by property or assets, unsecured debt typically comes with higher interest rates and carries greater risk for lenders, which can result in higher costs for borrowers.
Consumer proposal FAQs: general overview
What is a consumer proposal?
A consumer proposal is a formal, legally binding process where you make an offer to your creditors to settle your unsecured debts. The proposal typically involves paying back a portion of your total debt over an agreed period. The payment terms are negotiated by a Licensed Insolvency Trustee (LIT) on your behalf.
Who is eligible for a consumer proposal?
You are eligible for a consumer proposal if:
- Your total unsecured debts do not exceed $250,000 (excluding a mortgage on your primary residence).
- You have a stable source of income to make regular payments.
- You are unable to repay your debts in full but want to avoid bankruptcy.
How does a consumer proposal affect my credit?
Filing a consumer proposal will negatively impact your credit rating. It will be recorded on your credit report as an R7 rating, which indicates that you have entered into a formal debt settlement plan. This rating will remain on your credit report for three years after the proposal is completed.
What are the benefits of a consumer proposal?
Consumer proposals have a number of key advantages, including the following:
- Avoid bankruptcy: a consumer proposal is an alternative to bankruptcy, which often has more severe consequences.
- Debt reduction: creditors often agree to settle for less than the total amount you owe – often reducing your debt by up to 80%.
- Legal protection: once the proposal is filed, creditors can no longer take legal action against you, garnish your wages, or contact you for payments.
- Affordable payments: the payment plan is based on what you can afford, ensuring that the debt settlement does not put you under additional financial stress.
Consumer proposal FAQs: process and filing
How do I file a consumer proposal?
To file a consumer proposal, you must work with a Licensed Insolvency Trustee (LIT), who will assess your financial situation, develop a consumer proposal, and negotiate with your creditors on your behalf. Your trustee will also guide you through the legal process and handle all necessary paperwork.
What debts can be included in a consumer proposal?
A consumer proposal covers unsecured debts, such as:
- Credit card debt
- Personal loans (note that this does not include loans from friends or family; rather, it refers to loans from recognized lenders)
- Lines of credit
- Payday loans
- Income tax debt
However, it cannot include secured debts like a mortgage or car loan, nor can it include court fines, alimony, or child support.
Can I include tax debt in a consumer proposal?
Yes, tax debt owed to the Canada Revenue Agency (CRA) can be included in a consumer proposal. The CRA is often open to accepting proposals, as long as they see that it’s a fair and reasonable offer based on your financial situation.
How much does a consumer proposal cost?
To gain creditor approval, your consumer proposal must offer more than what they would likely receive if you filed for bankruptcy. When deciding the payment amount, your Licensed Insolvency Trustee will evaluate:
- Your assets and income to estimate what creditors could collect in a bankruptcy scenario.
- Your budget to ensure the proposed payments are manageable for you.
There are no hidden or upfront fees when it comes to a consumer proposal. Your Licensed Insolvency Trustee is compensated from the funds agreed upon in your proposal, meaning the cost of filing is included within your regular payments, and not an additional expense.
What is the acceptance rate of a consumer proposal?
To create a successful consumer proposal, the following points are essential:
- Your offer must provide creditors with more than they would obtain through bankruptcy.
- It should satisfy the basic requirements of your creditors.
- The payment plan must be one you can realistically maintain.
At Spergel we’re proud to have a 99% approval rate for the consumer proposals we submit.
Can I leave a creditor out of my proposal?
No, you’re not able to decide which creditors you include and exclude from your consumer proposal. Consumer proposals are able to clear unsecured debts, like credit card debt, payday loan debts, tax debts, and lines of credit. You’re not able to clear debts from secured creditors like mortgage lenders or car dealerships. Some other debts – including child support, alimony, court fines, penalties, and student loan debts less than 7 years old – are also unable to be settled by a consumer proposal.
How soon will I know if my consumer proposal has been accepted?
After your Licensed Insolvency Trustee files your consumer proposal, it will be shared with your creditors. Creditors then have 45 days from the date of filing to vote for or against the proposal. During this time, negotiations can occur with any creditor who votes against your consumer proposal. A majority must vote for your proposal in order for it to be accepted. If most creditors with a majority of the dollar amount owed vote against the proposal, there will usually be a meeting of creditors to decide whether or not a revised consumer proposal would be considered, or if it will be rejected.
Who can help to file a consumer proposal?
Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. This means only a Licensed Insolvency Trustee can help you to file a consumer proposal. With their extensive training, qualifications, experience, and knowledge of the Bankruptcy and Insolvency Act, they are well placed to advise you on the best form of debt relief for your unique financial circumstances.
Why am I still receiving statements and why does it show payments being made?
Some creditors may continue to send you statements during the term of your proposal. This is because their computer systems prepare and send these automatically. Provided that you have already included this debt in your listing of debts, you do not need to be concerned, and you do not need to advise us this happened.
Why are my creditors still taking payments and/or interest accruing in my old bank account that I still have access to?
We strongly recommend opening a new bank account at a new bank to prevent unwanted withdrawals from accounts that have been included in your bankruptcy/proposal. If you owe money to your current bank, it takes time for them to update the bank’s computer software that automatically withdraws money from the designated account once you cease making payments. Once you complete your bankruptcy/proposal, the account along with any interested accrued will be extinguished.
Do you do my income taxes?
No, in a proposal, it is your responsibility to complete and file your own income tax returns.
Are my student loans included?
If it has been at least seven years since you were either a full or part time student, your student loans would be included in your consumer proposal. If it hasn’t been seven years, you will be responsible to pay this debt, which will accumulate interest while you are in the proposal. It is important to note that Spergel does not have the ability to confirm the last time that you were a full or part time student. If you are unsure of this date, please be sure to contact your student loan lenders and ask them this question.
When are my 45 days up?
We will send your paperwork to the Office of the Superintendent of Bankruptcy; they will provide us with a Certificate of Filing a consumer proposal. You can start counting your 45 days once we receive the certificate of filing.
Consumer proposal FAQs: payments and terms
How much will I have to pay in a consumer proposal?
The amount you pay in a consumer proposal is determined by your income, assets, and what your creditors are willing to accept. Typically, you’ll end up paying a portion of your total debt, which is lower than what you initially owed – often just 20% of your total debt. A Licensed Insolvency Trustee will help you to negotiate these terms with your creditors.
How long does a consumer proposal last?
The repayment period for a consumer proposal can last up to five years, though you can pay it off sooner if your financial situation improves. It’s important to note that consumer proposals are interest free, no matter how long your proposal term is.
What happens if I miss a consumer proposal payment?
If you miss more than three payments during the term of the proposal, it may be considered in default. At that point, the consumer proposal may be annulled, and creditors could resume collection efforts, including wage garnishments.
Can I pay off a consumer proposal early?
Yes, you can pay off your consumer proposal early without penalties. Doing so will allow you to rebuild your credit sooner and move on from your debt obligations.
Will my creditors accept a consumer proposal?
For your consumer proposal to be accepted, creditors who hold the majority of your debt (at least 51%) must agree to the terms. If accepted, the proposal becomes binding for all unsecured creditors. If the proposal is rejected, your trustee can renegotiate the terms or explore other options, such as bankruptcy.
Can I have credit while in a consumer proposal?
Contrary to popular belief, yes, you can have credit while in a consumer proposal. If, however, you have found yourself with unmanageable debt that has led to needing a consumer proposal, you should hesitate before taking on more credit. It’s often best to wait several months or even years before taking out credit again.
Are you going to take my GSTs?
No, GST credits will continue to be forwarded to you if you are entitled to them.
Can I change my payments?
Your proposal payments are like a mortgage or car payment. The payments automatically come out of your bank account every month. Create your budget with this expectation. If you bank account changes, please contact us to update your payment agreement as soon as possible to ensure you do not miss any payments. Keep in mind that if you are three months in arrears on your proposal payments, then your proposal will be annulled, and your creditors’ rights will be revived.
How can I find out the remaining balance on my consumer proposal and/or when the next payment is due?
We encourage you to speak with your Estate Administrator and/or Licensed Insolvency Trustee. They will have this information.
Consumer proposal FAQs: rights and protection
Will I lose my assets in a consumer proposal?
Unlike in bankruptcy, you generally won’t lose your assets, such as your home or car, when filing a consumer proposal, provided you continue to make payments on secured debts like your mortgage or auto loan.
When will I be protected from my creditors?
As soon as your Licensed Insolvency Trustee files your consumer proposal, a stay of proceedings will be automatically generated. This puts an immediate end to any creditor contact, collection activity, wage garnishments, and any legal action.
What do you lose in a consumer proposal?
In a consumer proposal, you generally don’t lose any assets, unlike in bankruptcy. However, it impacts your credit rating, and the proposal will remain on your credit report for up to three years after completion. You also commit to making regular payments, which can limit your disposable income during the repayment period.
What do I do when a creditor is calling?
You are protected from collection activity from your creditors during your proposal. As such, they are not allowed to continue collection calls after your proposal has been filed. In the unlikely event that you do continue to receive collection calls, we ask that you:
- Tell the creditor that you have filed for your consumer proposal with Spergel and give them the contact information for your Administrator.
- Provide your creditor with your “estate number”. This is an individual number assigned to each bankruptcy or proposal filed in Canada. To find this number look at the top of almost any form that we have sent you. An estate number typically looks like this: 32-234567.
- If they continue calling, call us and talk with your Administrator. For us to stop the call, we will need to know the name of the company that is calling. Please note that certain creditors may be allowed to call you for collections. Although this is uncommon, this can happen if:
- You owe money for child/spousal/family support and fall behind in these payments.
- You have decided to keep secured debt (e.g., your mortgage or car payments) and fall behind on these payments. These creditors are not included in your proposal, so you will need to make arrangements with them.
Why am I still getting collection letters?
It has been our experience that the vast majority of creditors respect the insolvency process and will cease collection activities once they are notified. However, it can take upwards to 6-8 weeks for creditors to cease calls and/or sending correspondence. If a creditor continues to make collection attempts, your administrator can contact them directly.
Consumer proposal FAQs: impact and consequences
What is the downside of a consumer proposal?
The main downside of a consumer proposal is its negative impact on your credit score, as it remains on your credit report for up to three years after completion. On the contrary, by accumulating debt, your credit score likely needed improvement anyway and filing a consumer proposal is the first step to rebuilding your credit. At Spergel, we’re here to help you with this. Additionally, while a consumer proposal can reduce your debt, you still need to make regular payments, and missing payments can result in the proposal being cancelled. It can also take longer to pay off compared to other options like bankruptcy, although it is much easier to keep your assets.
How will a consumer proposal affect my future credit applications?
While a consumer proposal stays on your credit report for three years after completion, many people find that they can begin rebuilding their credit during this time. Once the proposal is complete, you can start applying for new credit, but it may be at higher interest rates until your credit improves.
What cannot be included in a consumer proposal?
A consumer proposal cannot include secured debts, such as mortgages or car loans, as these are tied to specific assets. Additionally, it doesn’t cover court-ordered fines, alimony, child support payments, or student loans if the loans are less than seven years old. Only unsecured debts like credit card debt, personal loans, and tax debt can be included.
Why are my debts still showing on my credit report?
Your debts are not extinguished until you complete the terms of your proposal. Should you not complete the proposal, your creditors’ rights will be revived, and they will be able to pursue collection of their debt.
How do I fix my creditor report?
If there are errors or items not reported correctly on your credit report, complete a dispute form or request an investigation with the credit bureau. Complete the online form/paper copy forms along with any supporting documents required. It is your responsibility to ensure the credit bureaus are reporting accurately on your report. The credit bureaus are required to provide you with a free copy of your credit report once per year upon request.
You can get the request forms from their websites: www.transunion.ca and/or www.consumer.equifax.ca
What happens if my proposal is not accepted?
If your proposal is rejected, we will discuss your options. One option is filling for bankruptcy. Please keep in mind that we monitor your proposal during the initial 45-day period. If creditors respond back with a counteroffer, we will contact you to discuss the counteroffer to see if you are able to pay more into your proposal. If you are able to, we can amend your proposal to decrease the chances of rejection.
Consumer proposal FAQs: responsibilities
Which duties do I need to undertake to complete my consumer proposal?
Should your consumer proposal be accepted, you have a few duties to undertake – all of which are fairly straightforward:
- You need to make your agreed payments on time, as set out in your consumer proposal.
- You need to attend two credit counselling sessions.
- You need to comply with any other requirements laid out in your consumer proposal – your Licensed Insolvency Trustee will explain these thoroughly if they apply.
You will receive a Certificate of Full Performance upon completion of your consumer proposal, and your debts will be legally discharged. At this point, you’re free to enjoy life after a consumer proposal.
What are the differences between a consumer proposal and bankruptcy?
Here are some of the key differences between a consumer proposal and bankruptcy:
- You do not need to surrender your assets in a consumer proposal, including your home, car, and any tax refunds.
- You can reduce your debt by up to 80% in a consumer proposal, while in a bankruptcy, it is eliminated.
- Monthly payments are often lower in bankruptcy.
- A consumer proposal requires the approval of your creditors through a voting process, while bankruptcy is automatic although your creditors can oppose your discharge.
- Payments in a consumer proposal are negotiated up front and remain the same throughout your proposal term. Bankruptcy payments are defined by law and can increase if your income increases – also known as surplus income.
- You can pay off a consumer proposal early, while bankruptcy has a pre-defined length determined by law.
- A consumer proposal has fewer required duties than bankruptcy, for instance, there’s no need to report your income and expenses monthly in a consumer proposal.
Is a consumer proposal right for me?
A free, no-obligation consultation with a Licensed Insolvency Trustee at Spergel will help you decide if a consumer proposal is the right debt solution for you, or if another form of debt relief is more appropriate for your circumstances.
When are my counselling sessions?
Your first stage counselling session has to be completed within 60 days of filing your proposal: the second stage within seven months of filing. Please refer to the package we gave to you upon signing for the date and timing of the meetings. If a third-party counsellor is completing your session, they will
contact you within several weeks of signing with the appointment timing.
A consumer proposal is a debt relief solution for those facing unmanageable debt, offering a structured way to reduce and repay debt without filing for bankruptcy. Consulting with a Licensed Insolvency Trustee will ensure you understand all your options and can make an informed decision about whether a consumer proposal is the right choice for you. Book a free, no-obligation consultation with an experienced Licensed Insolvency Trustee at Spergel to get started.