Consumer Proposal Canada: #1 Alternative to Bankruptcy

Your Guide to Understanding
Consumer Proposals in Canada

When faced with overwhelming debt, many individuals in Canada often feel trapped and see no way out. However, there is a powerful solution that can provide relief and help them regain control of their financial future – a consumer proposal. In this comprehensive guide, we will explore what a consumer proposal is, how it works, its advantages and disadvantages, and how it compares to other debt relief options. So, let’s dive in and discover how a proposal can be a game-changer for those burdened by debt.


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consumer proposals







This is becoming a very popular debt relief option for Canadians dealing with massive debt.

    1. You will be able to keep assets that might be lost in a bankruptcy;
    2. You will receive protection from all of your creditors, including your bank, credit card companies, and the Canada Revenue Agency (“CRA”);
    3. Your trustee will deal with your creditors for you;
    4. You will receive the “Stay of Proceedings” that is the legal order that prevents your creditors from making any collection attempts. Collection calls will stop.

      Wage garnishment orders contemplated or in place will cease;

  1. You will be able to consolidate all of your debts into a single, easy to make payment, so you won’t have to keep track of different payment schedules on all of your different debts;
  2. The administrator will be paid out of the single monthly payment that you make into the proposal;
  3. You are able to make additional payments or add a large payment in the middle of the proposal if your financial situation improves so you can have the proposal paid off earlier;
  4. If you are a director of an incorporated company you can continue to act as the director while in a proposal, which is not possible in bankruptcy;
  5. You will no longer have to pay interest charges that could be 30% or higher;
  6. A consumer debt proposal allows you to avoid bankruptcy!

Understanding Consumer Proposals

A consumer proposal is a legally binding agreement between an individual and their creditors, overseen by a Licensed Insolvency Trustee (LIT). It offers a viable alternative to filing for personal bankruptcy and provides an opportunity for debtors to negotiate reduced repayment amounts with their creditors. The proposal is filed under the Bankruptcy and Insolvency Act and must be approved by the majority of the creditors to become effective.

Qualifying for a Debt Proposal

To qualify for a consumer proposal, certain criteria must be met. The individual must be insolvent, meaning their debts exceed their assets or they are unable to make their debt payments. Unsecured debt, such as credit card debt, bank loans, lines of credit, payday loans, and tax debts, can be included in a consumer proposal. However, secured debts like mortgages and car loans cannot be included.

The Benefits of a Proposal

  1. Debt Reduction: One of the most significant advantages of a consumer proposal is the potential to reduce the total amount of debt owed. Through negotiations with creditors, a Licensed Insolvency Trustee can propose a repayment plan that is often significantly lower than the original debt amount.
  2. Creditor Protection: Once a consumer proposal is filed, creditors are legally obligated to stop all collection actions, including wage garnishments, legal proceedings, and harassing phone calls. This protection provides individuals with peace of mind and allows them to focus on their financial recovery.
  3. Asset Retention: Unlike bankruptcy, a consumer proposal allows individuals to retain their assets, such as their home and car, as long as they continue making the required payments. This enables debtors to maintain stability and avoid the potential loss of their valued possessions.
  4. Extended Repayment Period: Consumer proposals offer a longer timeframe for debt repayment, usually up to five years. This extended period allows debtors to manage their payments more comfortably and reduces the financial strain compared to shorter-term repayment plans.
  5. Credit Score Improvement: While a consumer proposal will initially impact an individual’s credit rating, it provides an opportunity for them to rebuild their credit over time. By making regular payments and demonstrating responsible financial behavior, individuals can improve their creditworthiness and regain access to credit in the future.

Some of the rules in filing a consumer debt proposal are:

  1. You must use the services of a Licensed Insolvency Trustee;
  2. The creditors must end up better off than if filing bankruptcy; “Better off” can mean that payments are made over time or a third party agrees to pay a sum to the creditors only if the proposal is accepted;
  3. The debt must be consumer debt, so a business cannot file.However, a person who has a sole proprietorship business can file one;
  4. A person cannot owe more than $250,000, excluding home mortgages.If more than $250,000 is owed a Division I Proposal is available.
  5. The proposal cannot be for more than 5 years;
  6. As soon as a proposal is filed all actions against the debtor, by law, must cease.This includes collection calls, garnishment and any legal action to collect the debt.
  7. Interest also stops accruing;
  8. Consumer proposals are considered accepted if, within 45 days of the filing, a creditor has not objected.
    If any creditor objects a creditors’ meeting is required;
  9. Creditors vote at the meeting with a simple majority of the dollars voted deciding on acceptance or refusal;
  10. If the debt proposal is accepted all the creditors, including the ones who voted against the proposal and the ones who did not vote, are bound by the terms of the proposal;
  11. If the proposal is not accepted, the debtor cannot make another proposal;
  12. The debtor is not automatically bankrupt if the consumer debt proposal is not accepted;
  13. The debtor is required to take two counselling sessions.

You are given a set period of time in which to pay off your debt in an interest free and government approved debt management plan.

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The Process of Filing a Proposal

  1. Consultation with a Licensed Insolvency Trustee: The first step in filing a consumer proposal is to schedule a free consultation with a Licensed Insolvency Trustee. They will assess your financial situation, review your debts, assets, and income, and determine if a consumer proposal is the best course of action for you.

  2. Proposal Preparation: If a consumer proposal is deemed suitable, the Licensed Insolvency Trustee will work with you to prepare the proposal. They will calculate the amount you can afford to repay based on your income, expenses, and assets. The proposal will then be presented to your creditors for approval.

  3. Creditor Voting: Creditors have 45 days to vote on the consumer proposal. If the majority of creditors (in dollar value) accept the proposal, it becomes legally binding for all included creditors. If the proposal is rejected, alternative options, such as bankruptcy or debt negotiation, may need to be considered.

  4. Repayment Period: Once the consumer proposal is accepted, you will make regular monthly payments to the Licensed Insolvency Trustee. The trustee will distribute these payments to your creditors according to the terms of the proposal. It is crucial to make all payments on time to ensure the success of the proposal.

  5. Completion and Debt Discharge: Upon completing all the required payments outlined in the consumer proposal, you will receive a Certificate of Full Performance, indicating the successful completion of the proposal. The remaining outstanding debts included in the proposal are considered discharged, providing you with a fresh financial start.

Consumer Proposal vs. Other Debt Relief Options

While a consumer proposal offers several advantages, it’s essential to consider how it compares to other debt relief options to make an informed decision. Let’s explore how a consumer proposal stacks up against bankruptcy, debt consolidation, and credit counselling.

Consumer Proposal vs. Bankruptcy

A consumer proposal is often seen as a more favorable alternative to personal bankruptcy due to its potential to reduce debt and allow for the retention of assets. Unlike bankruptcy, where assets may be liquidated to repay creditors, a consumer proposal provides individuals with the opportunity to maintain ownership and control over their assets. Additionally, a consumer proposal has a less severe impact on credit rating and offers a shorter duration of credit reporting.

Proposal vs. Debt Consolidation

Debt consolidation involves taking out a new loan to pay off multiple existing debts, consolidating them into a single monthly payment. While debt consolidation can simplify repayment by combining debts, it does not reduce the overall debt amount. In contrast, a consumer proposal offers the potential for significant debt reduction, making it a more effective solution for individuals facing unmanageable debt.

Consumer Debt Proposal vs. Credit Counselling

Credit counselling involves working with a non-profit credit counselling agency to create a debt management plan. This plan focuses on negotiating with creditors to reduce interest rates and establish a more manageable repayment schedule. However, credit counselling does not provide the same level of debt reduction as a consumer proposal. While credit counselling may be suitable for individuals with lower levels of debt, a consumer proposal is often more effective for those facing high levels of debt.

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A consumer proposal is a powerful debt relief solution for individuals burdened by overwhelming debt. By reducing the total amount owed, providing creditor protection, and allowing for the retention of assets, a consumer debt proposal offers individuals a fresh start on their path to financial stability. While it may initially impact credit ratings, responsible repayment and diligent financial management can lead to credit score improvement over time. If you are facing significant debt and need a lifeline to regain control of your finances, a consumer proposal may be the game-changer you’ve been searching for. Consult with a Licensed Insolvency Trustee to explore this option and pave the way towards a debt-free future.

Consumer Debt Proposal Canada

Repaying a portion of your debts may sound too good to be true but a consumer proposal is a win-win situation for you and your creditors.

Most debtors avoid bankruptcy and creditors get paid more through a proposal.

Only people in financial trouble can file a proposal with their creditors although surplus income is not a consideration as it would be in bankruptcy.

A proposal is an alternative to filing bankruptcy and is not for everyone.

Many Canadians have never heard of a proposal but it is becoming a more popular alternative to filing bankruptcy in Canada because of the many benefits making a proposal to your creditors offers over bankruptcy.

Your credit score is not impacted as seriously, and a proposal usually is gone from your credit report before a bankruptcy filing clears off it.

Making a proposal to your creditors allows to begin rebuilding your credit rating faster than a bankruptcy filing would.

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I was feeling overwhelmed by my credit debt, constantly receiving calls and letters from debt collectors, which caused a great deal of stress. It seemed like there was no way out of this situation. However, I discovered Bankruptcy Canada while listening to my local talk radio station. This organization proved to be friendly, empathetic, knowledgeable, and professional, with extensive experience in their field.

During our initial meeting, they took the time to understand my debt and financial circumstances. They explained the various options available to me and helped create a personalized plan that would be most beneficial for my situation. With their assistance, I was able to avoid declaring bankruptcy by presenting a consumer proposal to my creditors. Fortunately, my proposal was accepted, and I am extremely relieved to finally be free of debt, all thanks to BankruptcyCanada. The burden on my shoulders feels significantly lighter now, and I truly believe that Bankruptcy Canada has the most skilled specialists in debt relief.



What is a consumer proposal?

A consumer proposal is a mutually agreed upon arrangement between you and your creditors where you propose to repay a portion of your total debt and your creditors agree to forgive the remaining amount.

To illustrate, let’s say you owe $30,000 in various unsecured debts such as credit card bills and other payments. By working with a Licensed Insolvency Trustee, acting as your Consumer Proposal Administrator, you may be able to negotiate a settlement to repay only $12,000 through monthly installments of $200. It’s important to note that each financial settlement is unique, and we will provide more details later, but potential savings of up to 70% or even 80% are achievable.

What are the pros and cons of filing a proposal?

A consumer proposal serves as a viable alternative to bankruptcy, although it may not be suitable for every individual seeking debt solutions. Before making any decisions, it is important to discuss the following pros and cons with your trustee.

Advantages of a consumer proposal:

You only have to repay a portion of your total debts.
You are allowed to retain all of your assets.
Settlement offers are agreed upon in advance.
Monthly payments are based on your budget, making them affordable for you.
Consumer debt proposals operate as interest-free repayment plans.
Once accepted, consumer proposals become legally binding for all of your creditors.
Creditor actions such as collection calls, lawsuits, and wage garnishments are halted by a consumer proposal.

Disadvantages of a consumer proposal:

It is essential to carefully consider certain implications before committing to a consumer proposal.
Secured creditors are not included in the proposal.
Eligibility to file a proposal is determined by insolvency.
If you fail to make payments for three consecutive months, your proposal will be voided, and your debts will be reinstated.
A consumer proposal negative impacts your credit.

Does it affect your credit?

The presence of a consumer proposal on your credit report will last for a maximum of 6 years from the date of filing, or alternatively, 3 years from the date of completion, whichever comes earlier. In Canada, the majority of consumer proposals have a duration of 5 years, resulting in their removal from the credit report just 1 year after completion.

Even while in the midst of your proposal, you have the opportunity to start rebuilding your credit, including obtaining a new credit card. Your trustee will guide you through the necessary steps to improve your credit.

How to file

Filing a consumer proposal is a straightforward process:

Start by contacting a Licensed Insolvency Trustee for a complimentary debt assessment. This will help determine if you meet the requirements to file a proposal and whether it is the best option for you.

Arrange a meeting with your trustee to discuss your debts, budget, and assets. Together, you will determine the appropriate amount to offer your creditors.

Once you are ready, sign the necessary documents that include your proposal offer.

Your trustee will then file the required paperwork with the court, triggering a stay of proceedings that puts an end to all creditor actions.

As soon as your proposal is filed with the government, you no longer need to make payments on your debts.

Your creditors have 45 days to vote on whether to accept or reject your proposal. If at least 25% (based on the dollar value) request a meeting, a vote will take place. If more than half of the creditors vote in favor, your proposal will be approved. Alternatively, if less than 25% request a meeting, the proposal is automatically accepted.

After acceptance, there is a waiting period of 15 days for court approval of your proposal. While it is very rare, creditors can object through the court if they choose to do so.

Once your proposal is approved, you will make payments according to the terms outlined in the proposal.

During your debt proposal, you will participate in two credit counseling sessions and begin the process of rebuilding your credit.

Upon successfully completing the agreed-upon terms, you will receive a Certificate of Completion, and your debts will be eliminated.