IT’S NOT ANOTHER PAYMENT.
IT’S A SOLUTION TO YOUR DEBT PROBLEMS.™

Many Canadians struggle with debt and are looking at options for debt relief. Bankruptcy is scary, especially if you have assets you want to keep and are worried about the long-term impact on your credit score.

In this case, a consumer proposal might perfectly fit your situation!

What Is A Consumer Proposal?

A consumer proposal is a legally binding process regulated by the Office of the Superintendent of Bankruptcy. It is an alternative to declaring personal bankruptcy and can only be arranged by a Licensed Insolvency Trustee. The amount you will have to repay mostly depends on your income and your assets. The most significant benefit of a consumer proposal is that you can reduce the debt up to 80% owed to unsecured creditors. 

The LIT will review your financial situation and create the proposal with a monthly payment you can afford. They will send the consumer proposal to your unsecured creditors and if it is accepted by your creditors, it will be legally binding. The consumer proposal has a maximum period of five years to repay the proposed amount, but can be paid off at any time before that. Once the proposal is filed, all legal action against you will cease, such as wage garnishments or harrassing phone calls from collection agencies.

Other than reducing the debt you have to pay back by up to 80%, a consumer proposal can also lower monthly payments, freeze interest charges and consolidate unsecured debts into one monthly payment.

What Debts are Included in a Consumer Proposal?

A consumer proposal covers unsecured debt. This includes any type of debt not secured by an asset, such as a house or car. Generally, the following can be included in a consumer proposal:

• Credit card debt
• Personal loans – this includes lines of credit, consolidation loans or renovation loans, as long as no assets have been used to secure the debt
• Payday loans
• Student loans – if you have ceased to be a student at least seven years ago
• Income tax debt – this includes amounts owing for personal income tax (including penalties and interest), GST debts, Canada Child Benefits overpayments, CPP and OAS overpayments

How to File a Consumer Proposal in Canada?

The first step in the consumer proposal process is to schedule a free and confidential consultation with a Licensed Insolvency Trustee (LIT) of Chande Debt Solutions. During this consultation, they will carefully evaluate your financial situation to determine if a consumer proposal is the right solution.

Then the LIT will prepare the consumer proposal by arriving at a monthly payment you can afford and will likely satisfy your creditors’ demands, and then sends it to your creditors for review.

If your creditors accept the consumer proposal, you will make the monthly payment to your LIT, and once all payments have been fulfilled, the remainder of your debt will be discharged.

Consumer Proposal Pros and Cons

Benefits	Drawbacks
Avoid bankruptcy and its consequences	Consumer proposal is a legislated process requiring full disclosure of all aspects of your finances
Clear rules and expectations due to the legally binding process	Rules and regulations may make the process seem inflexible
Immediate protection from unsecured creditors (stay of proceedings)	Protection does not apply to secured creditors who may seize assets if you default on payment
Interest accrual stops on debts included in the Proposal, except those falling under Section 178	Interest continues to accrue on secured debts and debts falling under Section 178
Covers all unsecured debts including credit cards, lines of credit, payday loans, trade suppliers, government debts (income taxes, eligible student loans, medical service plan premiums) and debts owed to family and friends	All unsecured debt has to be included without the option of picking and chosing which gets included in your consumer proposal
Limited ability to defer monthly payments	Proposal is cancelled after three missed payments or an amount equal to three months of payments
Less severe impact on credit score than bankruptcy	Negative impact on credit rating, which will need to be rebuilt upon completion of Proposal
All assets are protected, unless the proposal provides otherwise	A consumer proposal cannot cover debts secured against specific assets
Can be paid off before proposal term	Paying off the Proposal early can sacrifice short term savings and other financial goals
Reduction of total unsecured debt of up to 80%	Creditors may reject the proposal if they don’t perceive it fair

What Happens When You File a Consumer Proposal?

As soon as the consumer proposal is filed, all legal action against you will cease. No collection activity for unsecured debts can be initiated or continued. A consumer proposal is a legally binding agreement between you and your unsecured creditors, allowing you to pay less than the total amount owing. 

Once the creditors approve the proposal, you will make the agreed payments to the Licensed Insolvency Trustee for the term of the consumer proposal. You will also have to attend two mandatory financial counselling sessions that deal with budgeting and setting and achieving financial goals.

Is a Consumer Proposal the Right Option for Me?

A consumer proposal may be suitable for you if:

• You have debt less than $250,000, excluding the mortgage on your principal residence
• You are insolvent, meaning you are unable to pay your monthly obligation
• You want relief from wage garnishments, collection calls and accumulating interest
• You want to keep assets that may not be protected in a bankruptcy

Alternatives to Consumer Proposal

Many different debt relief options are available, so it is critical to explore all possible solutions to determine the best option to fit your unique financial situation.

Bankruptcy

Bankruptcy also is a legal process overseen by a Licensed Insolvency Trustee. They will be assigned to your bankruptcy claim, take control of your assets (there are some exceptions), handle your affairs, and monitor the progress of your bankruptcy duties. These duties include two mandatory credit counselling sessions and monthly reports on your income and expenses. 

Once these duties are completed, you will be discharged from your debt after 9 or 21 months.

Debt Management Plan (DMP)

In a DMP, a non-profit credit counsellor takes stock of your debts and prepares a multi-year repayment plan. This solution will allow you to repay your debts over three to five years. This proposal will then be presented to your creditors, and if they accept the plan, you will make one monthly payment to the credit counselling agency. 

The credit counsellor may be able to negotiate a reduction to the interest on your debt, which you could use toward repaying your debt. A DMP is not any kind of debt reduction or cancellation, as you still have to pay off your entire debt.
It is also important to note that this is not the same as a consumer proposal.

Consolidation Loan

With a debt consolidation loan, you combine several multiple small loans or debts under one new loan. This service has numerous purposes. You can completely pay off smaller debts or consolidate several higher-interest debts into one payment with a lower interest rate spread over a more extended period.

The downsides of this solution are that you are not eliminating your debt but only making it more manageable. You also have to apply and qualify for a consolidation loan.

Consumer Proposal vs. Personal Bankruptcy

Ontario’s two legally binding debt relief options are a consumer proposal and bankruptcy. Both will relieve you of part of your debts and protect you from creditors. However, there are some significant differences between them.

Consumer Proposal	Personal Bankruptcy
Total debt must be less than $250,000	No limit to size of debt, has to be more than $1,000
Only available to individuals	Available to individuals and companies
No seizure of assets	Surrender of assets (some exemptions apply)
You can keep your tax refund	Tax refunds of the calendar year go to creditors
Payments are determined based on what you can afford	Payments are based on household income and value of assets
Flexible payment structure; proposed amount can be paid in a lump sum or over a maximum of 5 years	No payment flexibility, 9-21 months for the first bankruptcy, 24-36 months for the second bankruptcy

Who Can Help Me Decide if the Consumer Proposal Is Right For Me?

The only professional licensed and authorised to file a consumer proposal on your behalf is a Licensed Insolvency Trustee (LIT). They are the most qualified to review your financial situation and the different debt relief solutions available, from debt consolidation to bankruptcy.

Your first consultation with a LIT is free, where they will do a thorough assessment of your financial situation and go over every option with you to determine the best step forward. You will be under no obligation to use any of our services.

Why work with a Licensed Insolvency Trustee?

Only a Licensed Insolvency Trustee has the training, knowledge and authority to file a consumer proposal in Ontario on your behalf. The experienced LITs of Chande Debt Solutions are focused on personal insolvency services. We know that filing a consumer proposal or bankruptcy is a serious matter, and we want to ensure that you are well informed and don’t rush into any solutions. All of our consultations are free, without time limits.
Call us today at 416-366-3328 or fill out our convenient online form to learn how we can help you recover financially.

Consumer Proposal FAQs

What Assets Can I Keep In a Consumer Proposal?

One of the most significant benefits of a consumer proposal is that you can protect certain assets you would likely have to give up in bankruptcy. While it will eliminate up to 80% of your unsecured debt, it will not impact your secured creditors, where you can choose which property you would want to keep or sell to help fund your consumer proposal:

• Home (or other real estate)
• Vehicles
• Personal possessions
• Investments and savings
• Tax returns and government benefits

How Do I Calculate My Surplus Income?

Licensed Insolvency Trustees can calculate your surplus income based on government-provided guidelines. This amount depends on the number of members in your family and the total family income. It is unlikely to be able to submit a consumer proposal that your creditors will approve if you cannot show surplus income under these guidelines.

What’s the Difference Between a Consumer Proposal and a Division I Proposal?

The maximum debt you can include in a consumer proposal is $250,000 (excluding the mortgage of your principal residence). You must look at a Division I Proposal if your total debt exceeds this. Similar to a consumer proposal, it is a formal offer to creditors to settle unsecured debt.

After filing a Division I Proposal, your LIT will call a First Meeting of Creditors (FMC) within 21 days. Here, creditors can ask the debtor questions and consider the proposal terms before voting. The influence in the vote depends on the amount of unsecured debt you owe, with every $1 of debt granting one vote.

The vote can lead to acceptance, rejection or an adjournment to further consider the proposal or request an amendment.

If your creditors accept the proposal, the LIT will book a court date and notify all stakeholders that the creditors are in agreement. Then they will seek a court order to confirm the proposal. This is one big difference to a consumer proposal where no court attendance is required.

If the creditors reject a Division I Proposal, it will directly lead to automatic bankruptcy, and a bankruptcy FMC will follow. A rejected consumer proposal will not automatically mean bankruptcy.

How Will a Consumer Proposal Affect My Spouse?

Generally, your spouse will not be affected by a consumer proposal. You may have to file a joint proposal if you have joint assets or debt, as the non-filing spouse is still liable for the joint debt.

How Long Will My Consumer Proposal Last?

The maximum length of a consumer proposal is five years. The exact length will depend on your proposal. The proposal will impact your credit rating for three years after your final payment.

What Happens if I Can’t Pay For My Proposal?

It is critical to be able to make your monthly payments on time. During the assessment of your finances, your LIT will have proposed an amount you can afford. If you default on three payments or an amount totalling three payments, your proposal will be annulled, cancelling the agreement. In some cases, you may be able to file an amended proposal before the default occurs. Still, it will have to be accepted by all creditors again, like the original proposal.

If you default and have not filed an amended proposal on time or if your unsecured creditors reject it, your debts owed will not be discharged. Your creditors will seek payment from you directly for the total amount you owed before the proposal.

A default and cancelled proposal will also prohibit you from filing consumer proposals in the future. However, the option of bankruptcy is still available to you.

Does a Consumer Proposal Affect My Job?

No, a consumer proposal does not affect your job. Section 66.36 of the Bankruptcy and Insolvency Act states, “No employer shall dismiss, suspend, lay off or otherwise discipline a consumer debtor on the sole ground that a consumer proposal has been filed in respect of a consumer debtor.”

Can I Keep My Car In A Consumer Proposal?

Yes. A consumer proposal only includes unsecured debt, so any debt secured by an asset, such as your car, is unaffected.

How Are Consumer Proposal Payments Calculated?

Three major factors affect your consumer proposal payments.

• How much money do you owe, and to who,
• If you have any assets or what you would have to pay in the case of bankruptcy, and 
• Your budget and whether you can afford the payment.

Your Licensed Insolvency Trustee will carefully review your financial situation and weigh the expectations from your creditors against what you can realistically afford. For more details, please visit our blog about how consumer proposals are calculated in Canada.

Is A Consumer Proposal The Same As Bankruptcy?

No, while both are debt relief options administered by a Licensed Insolvency Trustee, there are distinct differences. The impact on your assets is the most significant difference between a consumer proposal and bankruptcy. In a consumer proposal, you pay back a portion of your debt without any impact on your assets. In a bankruptcy, you have to surrender any non-exempt assets in exchange for eliminating your debts.

Can I Sell My House During a Consumer Proposal?

Yes, you can sell your house during a consumer proposal. Unlike in a bankruptcy, you have complete freedom to deal with your assets.

Why Would a Consumer Proposal be Rejected?

Many factors may cause a consumer proposal to be rejected. The most common reason is that the creditors feel the proposed amount is insufficient.

Are Consumer Proposals Public Record?

Yes. Once you file a consumer proposal, a special notation will be placed in the public records section of your credit report. Anyone you grant access to your credit report can see this section.

Can You Claim Bankruptcy While in a Consumer Proposal?

You can switch to bankruptcy if you can no longer afford to make your proposal payments. You can include new debt incurred since the start of your proposal in bankruptcy.

Does a Consumer Proposal Affect My Taxes?

Regardless of the consumer proposal, you must still file your income taxes as usual. However, if you have had any tax debt in the filing year or prior years, the CRA will keep your refund to cover this debt. Otherwise, you will receive it as usual.

Is a Consumer Proposal Worth It?

In a consumer proposal, you may reduce your unsecured debt by as much as 80% of the original amount owed. It is one of the best and safest debt consolidation options available.

Can You Pay Off a Consumer Proposal Early?

Yes, you can pay off a consumer proposal at any time. You have the entire proposal length to make the required payments; however, you can pay off the proposal early if you receive a large refund or another windfall.

Does a Consumer Proposal Affect Mortgage Renewal?

A consumer proposal should not affect renewing your mortgage if you keep your mortgage payments current and on time. In most cases, lenders will not require a new credit application for renewal.

However, if your lender does ask for an updated credit report, your ability to renew your mortgage at preferred rates may be negatively affected.

Can You Get Credit While In A Consumer Proposal?

It is possible to get credit while in a consumer proposal. However, lenders may be reluctant to grant new credit as a default on the proposal would mean that all debt will fall back on you, jeopardising your ability to repay the new credit. One option is to get a secured credit card, meaning that you put down a deposit that would be used in case you can’t keep up with the monthly payments.

How Does A Consumer Proposal Work?

A Licensed Insolvency Trustee will review your financial situation with you to determine if a consumer proposal is the best solution. If so, they will prepare a proposal to your unsecured creditors with a monthly payment you can afford. If your creditors accept the proposal, you will make your monthly payments for the period outlined in the proposal. Once all payments have been made, the remainder of your unsecured debt will be discharged.

Is a Consumer Proposal Bad?

A consumer proposal is one of the best and safest debt relief solutions available. It will allow you to discharge up to 80% of your unsecured debt. It will, however, lead to an R7 status on your credit report, which may make it more challenging to get new credit.

Can I Get OSAP After a Consumer Proposal?

It is possible to get approved for OSAP after filing a consumer proposal. We recommend speaking to your Licensed Insolvency Trustee to understand your options.

Does a Consumer Proposal Affect Sponsorship?

Unlike bankruptcy, a consumer proposal does not impact your ability to sponsor someone.

How Long Does a Consumer Proposal Stay on My Credit Report?

A consumer proposal will remain on your credit report for 3 years after you’ve paid off all the debts according to the proposal, or 6 years from the date it was filed, whichever comes first.

Can I Get a Mortgage While in a Consumer Proposal?

You can apply for a mortgage whenever you like, even during a consumer proposal. However, finding a lender that will approve you will be far more challenging as they may see you as a credit risk. The probability also will be high that your mortgage rate may be considerably higher than a conventional mortgage.

Does a Consumer Proposal Affect my Citizenship Application?

A consumer proposal will not affect your citizenship application.

Can I Get a Loan While In a Consumer Proposal?

Yes, it is possible to get a loan while you are in a consumer proposal. However, it can be challenging. Lenders will view you as a credit risk due to the proposal and may not approve your application. It also is probable that interest rates will be considerably higher.

How Much Does A Consumer Proposal Cost?

The cost for a consumer proposal depends on a few factors, such as how much money you own and to who, if you have any assets or what you would have to pay in case of bankruptcy and your budget and whether you can afford the payment.
Contact a Chande Debt Solutions Licensed Insolvency Trustee at 416-366-3328 or complete our convenient online form to learn more.

Can You Make a Consumer Proposal Twice?

If you have completed a consumer proposal before, you can enter into a second consumer proposal. However, if you have defaulted on a previous proposal and it was annulled, you can no longer file future consumer proposals.

How To Qualify for a Consumer Proposal?

• You have debt less than $250,000, excluding the mortgage on your principal residence
• You are insolvent, meaning you are unable to pay your monthly obligation
• You want relief from wage garnishments, collection calls and accumulating interest
• You want to keep assets that may not be protected in a bankruptcy

How Bad is a Consumer Proposal?

The most harmful effect of a consumer proposal is its impact on your credit score, which will show an R7 status for 3 years after you’ve paid off all the debts according to the proposal, or 6 years from the date it was filed, whichever comes first, making it more challenging to qualify for new credit.

More About Consumer Proposals

• Consumer Proposal vs. Bankruptcy: Which is better?
• How to File a Consumer Proposal: A Step-by-Step Guide
• How much does a consumer proposal cost?
• How much do I offer my creditors?
• Will it affect my spouse or partner?
• What happens if I miss my proposal payments?
• Will it affect my credit rating?
• Can I include tax debts?