Consumer Proposal as a Comprehensive Guide to Debt Consolidation

Posted on October 4, 2023 by Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee

In today’s world, managing debt can be a daunting challenge. Many individuals find themselves overwhelmed by mounting bills, high interest rates, and the stress of financial instability. If you’re in this situation, you’re not alone. Fortunately, there are solutions available, and one of the most effective options for Canadians facing financial hardship is the consumer proposal. In this comprehensive guide, we’ll explore what a consumer proposal is, how it works, its advantages and disadvantages, and how it can help you consolidate your debt.

Understanding Consumer Proposal

A consumer proposal is a formal debt settlement arrangement regulated by the Bankruptcy and Insolvency Act (BIA) in Canada. It is designed to help individuals who are struggling with unmanageable debt. Through a consumer proposal, you can make a formal offer to your creditors to pay back a portion of your debt over a specific period. This legally binding agreement can provide you with relief from debt collectors, interest charges, and the threat of bankruptcy.

How Consumer Proposal Works

  1. Consultation: The first step is to consult with a Licensed Insolvency Trustee (LIT). LITs are federally regulated professionals who can assess your financial situation and help you determine if a consumer proposal is the right solution for you.
  2. Proposal Creation: Working with your LIT, you’ll develop a proposal outlining how much you can afford to pay and the duration of the proposal. This proposal is then sent to your creditors.
  3. Creditor Acceptance: Your creditors have 45 days to review the proposal. If the majority of them accept it, the proposal becomes binding on all of them.
  4. Payment Plan: You’ll make monthly payments to the LIT, who will distribute the funds to your creditors as per the agreed-upon terms.
  5. Completion: Once you’ve fulfilled the terms of the consumer proposal, your debts are considered settled, and you’re on your way to financial recovery.

Advantages of a Consumer Proposal

  1. Debt Reduction: Consumer proposals typically allow you to pay back a percentage of your total debt. This means you can become debt-free faster, often in less time than other debt solutions.
  2. Legal Protection: Once your proposal is accepted, it becomes a legally binding agreement, offering you protection from creditor harassment and legal action, including wage garnishment.
  3. One Monthly Payment: With a consumer proposal, you make a single monthly payment to your LIT, who then distributes it to your creditors. This simplifies your finances and reduces stress.
  4. Interest Relief: The proposal freezes interest on your debts, preventing them from growing larger, unlike other debt consolidation methods that may still accrue interest.
  5. Credit Score Rehabilitation with Bankruptcy Advice: While a consumer proposal undoubtedly affects your credit score, the impact is typically milder compared to the consequences of filing for bankruptcy. Following our bankruptcy advice, as you progress with your payments and work towards completing the proposal, you’ll notice a gradual recovery in your credit score. This rehabilitation is a key aspect of the financial recovery process, providing a more manageable pathway to rebuilding your creditworthiness.
  6. Asset Protection: Unlike bankruptcy, where you may have to sell certain assets, consumer proposals allow you to retain your assets while still addressing your debt.

Disadvantages of a Consumer Proposal

  1. Credit Impact: A consumer proposal will negatively impact your credit score, making it harder to access credit during and immediately after the proposal.
  2. Costs: Consumer proposals involve fees for the services of the Licensed Insolvency Trustee, which are typically included in your monthly payment.
  3. Lengthy Process: While consumer proposals provide a quicker path to debt relief than traditional debt repayment methods, they can still take several years to complete.
  4. Public Record: Your consumer proposal will be recorded on your credit report and in the public records section for a specified time, which can affect your financial reputation.

Is a Consumer Proposal Right for You?

Deciding whether a consumer proposal is the right choice for you depends on your individual financial situation. If you are dealing with unmanageable debt, facing creditor harassment, and are at risk of bankruptcy, a consumer proposal may be a suitable option. It offers a structured path to debt solution, allowing you to regain control of your finances and work towards a debt-free future. However, it’s essential to consult with a Licensed Insolvency Trustee to assess your specific circumstances. They can provide guidance tailored to your situation, helping you make an informed decision.

How to Initiate a Consumer Proposal

  1. Consult with a Licensed Insolvency Trustee: Your first step should be to find a Licensed Insolvency Trustee in your area. They will assess your financial situation and help you determine if a consumer proposal is the right choice.
  2. Develop the Proposal: Working with your LIT, you’ll create a proposal outlining the terms, including the duration, amount, and method of payment.
  3. Submit the Proposal: Your LIT will then submit the proposal to your creditors, who will have 45 days to vote on it.
  4. Acceptance: If the majority of your creditors accept the proposal, it becomes legally binding.
  5. Payment Plan: You’ll make monthly payments to your LIT, who will distribute the funds to your creditors.
  6. Completion: Once you’ve fulfilled the terms of the consumer proposal, your debts are considered settled.

Frequently Asked Questions

  1. Can I include all my debts in a consumer proposal? Consumer proposals can include most unsecured debts, such as credit card debt, personal loans, and lines of credit. However, certain debts, like child support, alimony, court fines, and student loans (if you’ve been out of school for less than seven years), are generally not eligible for inclusion.
  2. How does a consumer proposal affect my credit score? A consumer proposal will have a negative impact on your credit score. The record of the proposal will remain on your credit report for three years after completing the proposal or six years from the date it’s filed, whichever is earlier.
  3. Can I pay off my consumer proposal early? Yes, you can pay off your consumer proposal early if you have the means to do so. This may help you rebuild your credit sooner.
  4. What happens if my proposal is rejected? If your proposal is rejected, you have a few options. You can revise the proposal and resubmit it, explore other debt relief alternatives, or consider filing for bankruptcy as a last resort.
  5. Are there income limitations for a consumer proposal? There are no strict income limitations for filing a consumer proposal. Your eligibility is determined based on your overall financial situation, including the amount and nature of your debts.


A consumer proposal is a powerful tool for Canadians struggling with unmanageable debt. It offers a structured path to debt solution, allowing you to regain control of your finances, protect your assets, and work towards a debt-free future. While it does have some drawbacks, such as its impact on your credit score, it can be a lifeline for those facing financial hardship.

If you find yourself buried in debt and unsure of where to turn, contact us to explore the possibility of a consumer proposal. With their guidance, you can make an informed decision about your financial future and take the first step towards a debt-free life. Remember, you’re not alone, and there are solutions available to help you achieve financial stability and peace of mind.

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Mihir Chande
Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee Mike, a Chartered Accountant, began his insolvency career in the Corporate Insolvency and Restructuring group at one of Canada’s largest insolvency firms. After gaining extensive experience, he founded Chande Debt Solutions to offer personalized and empathetic debt relief services to clients seeking an alternative to traditional solutions.

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