Consumer Debt Proposal: The Ultimate Guide to a Consumer Proposal

Consumer Debt Proposals in Canada

  • With a Consumer Proposal You Keep all of Your Assets, Including your Home, Car and RRSPs
  • Reduce Your Debt By 70% or More
  • Stop Creditor Collection Attempts, Harassing Collection Calls and Wage Garnishments
  • 400+ Offices Across Canada | 20 Years of Experience | 100,000 Satisfied Canadians

What Is A Consumer Proposal?

A Consumer Proposal is a negotiated agreement between you and your creditors that is administered by a government licensed debt professional.

Your Licensed Insolvency Trustee will act as your Consumer Proposal Administrator and will submit your proposal to your creditors.

Almost all (99%) proposals are accepted by creditors because it’s a fair agreement for them as well as yourself.

With a consumer proposal you will normally pay less than the total amount of your unsecured debts, which can result in a debt savings of 70% or more.

The main benefit of a consumer proposal is that you get to keep all of your assets, including your home and your car.

If your financial situation improves you can pay off your proposal early and get out of debt faster and in the easiest manner.

Consumer Proposal Payments

Yes, you can make a lump sump payment towards your consumer proposal at any time during the proposal.

Additionally, you can make a "lump sum payment" consumer proposal to your creditors to get out of debt as quickly as possible.

Many consumer proposals are based on a monthly payment for several years, but some debtors prefer to offer a lump-sum payment proposla to their creditors.

If you have family members or a friend who can loan you money, or you have access to funds such as investments or the ability to remortgage your home, a lump sump consumer proposal could be the way to go.

The sooner your proposal is paid off, the sooner it will be off your credit report.

The advantages of a lump-sum payment proposal are:

  • You don't have to make any payments until your proposal is accepted by your creditors;
  • Your consumer proposal will be paid off in the shortest amount of time;
  • Creditors will accept a lower repayment figure, as they will receive their funds faster, rather than having to wait several years as you make monthly payments.

If you have the ability to access funds to make a lump-sum payment you should consider a lump-sum proposal over a traditional Consumer Proposal agreement.

The beauty of a consumer proposal is they are very flexible!

A major benefit of a consumer proposal is their flexibility.

Unlike bankruptcy, which has set payments for a set period of time, you have the option to pay off your consumer proposal early.

You can pay down your consumer proposal at anytime once it has been accepted by your unsecured creditors.

Our Licensed Consumer Proposal Administrators encourage consumer debtors to pay off their consumer proposal as soon as they can.

This will allow you to get your Certificate of Completion earlier and begin improving your credit rating, and saving for a financially secure future!

In order to successfully complete your Consumer Proposal, you must make all of the payments as agreed to in the proposal plan presented to your creditors.

You will make the monthly payments directly to the Licensed Insolvency Trustee who is acting as your consumer proposal administrator through a pre-authorized withdrawal from your bank.

Once the trustee receives your funds each month, they will be distributed to your creditors.

Missing up to two payments is possible, but they must be made up as soon as possible.

It is also possible to add the payments to the end of your proposal, extending the length of the proposal by two months (or 1 month if you missed only 1 payment.)

However, if you miss three payments over the life of the proposal, your consumer proposal will be deemed annulled (cancelled).

If your proposal is annulled, the payments you have made will be forfeited and your creditors will be able to collect the full amount of the debt they are owed, as well as any accrued interest you weren't paying (consumer proposal payments are interest free.)

So you can see why it is so important you do not miss the payments in your consumer proposal.

If your proposal does get annulled you can always file for personal bankruptcy, which will provide you the same protection from your creditors and eliminate your debt.

But we recommend doing everything in your power to complete your consumer proposal.

Your consumer proposal payments are not tax-deductible unfortunately.

Even though you are making payments through a government agency, your payments are not tax-deductible because they are going to repay your unsecured debts that you owe to creditors.

The money you are repaying has already been spent on goods and services.

During the consumer proposal you won't be paying any interest so you are getting quite a beneficial arrangement by making a proposal to your unsecured creditors.

Consumer Proposal & Your Credit Rating

When you file a consumer proposal your credit report will have an "R7" rating appear.

However, this doesn't mean your credit will always be damaged by your Consumer Proposal.

Creditors, collection agencies and unlicensed debt consultants like to pepetrate the myth that your credit will always be ruined by a proposal as a scare tactic.

A consumer proposal naturally has a negative impact on your credit rating, but most consumer debtors in the position of considering a consumer proposal already have poor credit due to missed and late payments.

Some debtors who file a consumer proposal manage to keep their credit score strong, but this is not common.

Generally, using a consumer proposal as a way to get out of debt and your finances under control will help you in the long run.

A consumer proposal allows you to regain control of your finances, and the proposal administrator will give you tips and advice on managing your finances successfully in the future.

Once you have completed your consumer proposal you can begin rebuilding your credit score and it won't take very long to be able to gain new credit again at favourable rates!

In order to rebuild your credit rating after your consumer proposal has been completed, it is important to be aware of what the credit bureaus (TransUnion and Equifax mainly) consider important in generating credit scores.

Generally, the most important thing to do is repay your debts on time.

Therefore, when it comes to rebuilding your credit rating, it is important that you have the ability to show your creditors (and therefore, the credit bureaus) you can responsibly borrow money and pay it back on time.

Using a secured credit card can be a highly advantageous way to rebuild your credit rating.

A secured credit card works by you "securing" the card by putting down a down payment that will become your credit limit.

For example, if you put down $250 your secured credit card will have a $250 limit for you to use.

By having money to back up the use of this credit card, you will not be able to use the card irresponsibly or get into debt.

We recommend that you use this card for small monthly purchases, for example your Netflix subscription.

By using this card regularily you will show the credit bureaus that you are able to use credit responsibly, and this will help improve your credit.

A consumer proposal allows you to get out of debt, regain your financial freedom and you will have the ability to rebuild your credit in the future after your proposal is completed.

When you file a consumer proposal with your creditors, both Equifax and TransUnion (the 2 major credit bureaus in Canada) will list your existing debts as "R7" on your credit report.

This rating means you have made special arrangements with your creditors to repay your existing unsecured debts.

This rating will likely remain until you have completed your proposal and get your Certificate of Full Performance from your Licensed Insolvency Trustee (acting as your consumer proposal administrator).

When you have successfully completed your consumer proposal, a note will appear on your credit report and stay there for three years.

Once the three year period is over, the mention of the debts included in the proposal will disappear from your credit report, as well as any mention of your consumer proposal.

Consumer Proposal & Your Loans

Many people struggle with student loan debt, and they often wonder if a consumer proposal can provide debt relief for Provincial or Federal student loan debt.

Whether you can include student loan debt in your consumer proposal depends on how old the student loan debt.

Under the rules of the Bankruptcy and Insolvency Act (BIA), you can only eliminate student loan debt through a consumer proposal (or bankruptcy) if your student loan debt is more than 7 years old.

This means you must have been out of school for more than seven years to eliminate the debt in a consumer proposal.

If you have completed your studies less than 7 years ago, you won't be able to eliminate the debt through a consumer proposal.

In some cases, you can deal with the student loan debt through hardship provisions that are included in the BIA.

However, even if you cannot include your student loan debt in your consumer proposal plan, it should be mentioned that a consumer proposal eliminates your other high interest debt, freeing up cash that should make it easier for you to handle your student loan payments.

Yes, you will be able to get loans once your consumer proposal has been completed, but you likely won't be able to get loans at a good interest rate for some time.

A consumer proposal does not ruin your credit forever, and it actually puts you back into a position to take control of your finances and your credit.

Repairing your credit once you are out of your proposal is very possible.

Once you have successfully finished your Consumer Proposal, a note will remain on your credit report at the credit bureau, but this doesn't mean you cannot get new credit, or work at improving your credit score.

Your payment history is the most important factor in calculating your credit score.

To improve your credit after a consumer proposal, you have to show the credit bureau you can successfully borrow money and pay it back as it becomes due.

After your consumer proposal you should take out a small loan or apply for a secured credit card, as they are easier to obtain.

If you apply for a secured credit card you must use it to make small purchases regularily, and this will result in the credit bureau seeing you have the ability to borrow money and repay it on time.

We do not recommend using a Prepaid credit card to rebuild your credit, as these cards do not report to the credit bureaus, and therefore, they won't help you with rebuilding your credit.

While rebuilding your credit after a consumer proposal is definitely very doable, it is important to remember it will take some time.

On that note, we also recommend avoiding companies that promise to fix your credit rating.

Yes, it is often possible to get a Canadian car loan from a private lender if you are in a consumer proposal repayment plan

You will have to bring your Consumer Proposal documents and show that your debt to income ration is low so that you can afford to make the car loan payments.

As a car loan is secured debt, it is a safer type of debt for your lender (they can reposess the car if you don't make the required payments on time), and for yourself.

Additionally, the car loan will allow you to start the credit rebuilding process because your lender will report your on-time monthly payment to the credit bureaus.

Payday loans are some of the most dangerous debts you can obtain.

Fortunately, you can include payday loan debt in your consumer proposal plan.

Payday loans are small, short term loans that are tied into your paycheque.

Payday loan companies are in most communities across Canada and they are intended to give employees access to cash to tie them over until you receive your paycheque.

Once you receive your paycheque, you will have to return to the payday loan company and pay back the amount you borrowed, plus the interest charges.

Unfortunately, many borrowers who use payday loans get trapped into a cycle of debt.

Often borrowers must turn to a second payday loan company to pay off the 1st payday loan debt.

A Licensed Insolvency Trustee can help you put an end to the hopeless debt cycle if you are dealing with payday loan debts.

Consumer Proposal & Your Mortgage

One of the main concerns most Canadians have is buying their own home one day, or whether they will be able to renew their mortgage, especially if they have turned to a Consumer Proposal.

Fortunately, a consumer proposal won't prevent you from buying a home in the future or renewing your mortgage.

Additionally, a consumer proposal will improve your financial situation, which allows you to save for a downpayment, or improve your chances of getting your mortgage renewed.

In order to get a mortgage at attractive rates during or after your consumer proposal you should:

  • Pay off your Consumer Proposal as soon as possible - you will find it much easier to qualify for a mortgage if you don't have to make payments towards your proposal every month.

    Without consumer proposal payments to make each month you will also get a better mortgage rate, which will save you a lot of money on interest over time.

  • Ensure all of your bills are paid on time, including your utility bills; mortgage lenders can reject a mortgage due to utility bill defaults.
  • Save money for a downpayment - By having a larger down payment (15% or 20% as opposed to the minimum 5%) available, you can get a better interest rate on your mortgage.
  • Consider alternative lenders is possible - An alternative lender can help you qualify for a mortgage, and if you re-finance your existing mortgage you can get better rates.

    You could also use your mortgage to pay off your consumer proposal if you wish.

  • Speak with a mortgage broker - A mortgage broker can help you explore all of the options that are available to you, and the mortgage broker can make recommendations on improving your credit score so you have the best chance to qualify for a mortgage at the best possible rates.

A major benefit of consumer proposals is that your assets won't be impacted if you can continue to make the monthly payments.

Therefore, a consumer proposal won't impact your mortgage.

Your mortgage lender cannot change your mortgage agreements or foreclose on your home if you have made a Consumer Proposal.

If you continue to make your mortgage payments on time, your proposal won't impact your mortgage.

A consumer proposal deals with your unsecured debts, which can often make it easier for you to maintain your mortgage payments on time.

Your mortgage debt cannot be included in your consumer proposal payment plan, as unsecured debts are the only debts included in a consumer proposal.

If your mortgage comes up for renewal during your consumer proposal, you likely won't have an issue with getting your mortgage renewed.

In order to ensure your mortgage will be renewed, ensure that you haven't missed any mortgage payments and that you can satisfy your mortgage lender that you can afford to pay your mortgage.

When you renew your mortgage during a consumer proposal, you likely won't get the best interest rate and you will find it difficult to switch mortgage lenders.

If you pay a higher interest rate on your mortgage for several years, you can often negotiate a much lower renewal interest rate on your next mortgage renewal.

The good news is that your home is protected when you file a consumer proposal, if you are up to date on your mortgage payments and property taxes.

Your home, and other assets, will remain in your possession, so you can keep your home when you file a consumer proposal.

Consumer Proposal FAQs

Under a consumer proposal you can include only your unsecured debts, such as your credit cards, tax debt owed to the CRA, debts owed to family and friends, unsecured lines of credit, payday loan debt, bank overdraft fees, and student loan debt (if you have been out of school for at least seven years)

You must list all of your unsecured creditors in your consumer plan; you cannot pick and choose what debts to include in your proposal.

Debts that you are not able to include in your consumer proposal are generally secured debts, such as your mortgage and car loan debt.

Some unsecured debts, such as child and spousal support payments, fines, government overpayments, and student loans that are less than 7 years old cannot be included in your Consumer Proposal plan either.

Your Licensed Insolvency Trustee / Proposal Administrator will let you know what debts can and cannot be included in your proposal before you sign any paperwork.

A consumer proposal can last up to 5 years, with most consumer proposals lasting from 3 to 5 years (with 5 years, or 60 months, being the most common).

Some consumer debtors prefer to make a "lump sum" payment proposal, which allows them to get their consumer proposal over with as quickly as possible.

When a person makes a lump sum payment, the proposal will last for approximately 1 month, which is the time it takes the consumer proposal administrator to file the paperwork and distribute the funds to your creditors.

A consumer proposal gives you flexibility in managing your debts, and you can choose a lower monthly payment (by stretching your proposal out to 60 months) or a higher monthly payment by choosing a shorter payment plan (to allow you to get out of debt as soon as possible).

Additionally, if you choose a traditional consumer proposal, you can make additional payments if you can afford to do so to get your consumer proposal finished sooner.

Once you make your final consumer proposal payment, you will be dischaged from all of your debts included in the consumer proposal.

Secured debts, certain unsecured debts, and debt you have incurred since the start of your proposal, won't be discharged when you complete your proposal.

In order to be eligible for a Consumer Proposal you must be insolvent (which means you are unable to pay your debts as they become due), have debts of less than $250,000 (not including the mortgage on your principal residence), have no prior, active Consumer Proposal proceedings and have the income to afford an attractive proposal repayment plan to your creditors.

People struggling with debt repayments (for example you have missed some payment due dates or you are only making minimum payments) a Consumer Proposal can be the best way to regain control of your financial situation.

A consumer proposal allows you to repay a portion of your debt in an interest-free repayment plan, administered by a Licensed Insolvency Trustee.

How Much Does A Consumer Proposal Cost?

The cost of a Consumer Proposal will vary depending on the level of qualified unsecured debts that you owe.

The Licensed Insolvency Trustee will help you work out a fair offer to your creditors, that is affordable for you.

There is no upfront cost to file a consumer proposal, and your Licensed Insolvency Trustee assisting you with the proposal is paid out of the payments you make to your creditors.

Generally, you will pay about 30 cents on the dollar of what you owe to your creditors (meaning 70% of your debt is wiped out).

The cost of a Consumer Proposal will vary depending on the level of qualified unsecured debts that you owe.

The Licensed Insolvency Trustee will help you work out a fair offer to your creditors, that is affordable for you.

There is no upfront cost to file a consumer proposal, and your Licensed Insolvency Trustee assisting you with the proposal is paid out of the payments you make to your creditors.

Generally, you will pay about 30 cents on the dollar of what you owe to your creditors (meaning 70% of your debt is wiped out).

A Division 1 Proposal is similar to a Consumer Proposal, as it is a formal procedure overseen by a Licensed Insolvency Trustee under the Bankruptcy & Insolvency Act.

The difference is that a Division 1 Proposal is available to businesses and consumers with a high level of debt (there is no debt limit for a Division 1 Proposal, unlike a regular consumer proposal, which has a debt limit of $250,000).

Like a Consumer Proposal, you will work with a Licensed Insolvency Trustee to draft a fair offer to your creditors.

As with a consumer proposal, you will repay your creditors a percentage of what you owe them, which you will pay over a specific timeframe (although you can make extra payments if you wish to end the proposal earlier).

You will pay the agreed upon payment to the Trustee each month, and these funds will be held in trust until the Trustee distributes the funds to your creditors.

No, you must work with a Licensed Insolvency Trustee in order to file a consumer proposal with your creditors.

A debt consolidation firm or a credit counsellor is not eligible to file a consumer proposal with your creditors.

Many credit counsellors and debt consolidation firms advertise consumer proposal services, but they will merely charge you to refer you to a Licensed Insolvency Trustee.

Additionally, you cannot file a consumer proposal on your own.

The Bankruptcy & Insolvency Act ensures that proposals retain their integrity by only allowing Trustees, who are licensed by the government, to file Consumer Proposals.

Before you can make a proposal with your creditors, you will meet with a Trustee to ensure that a Consumer Proposal is the right course of action for you.

It is important that all of the information is included in the paperwork to make sure your proposal is filed properly and that it becomes legally-binding to all your unsecured creditors once a majority of your creditors have voted to accept your proposal.

Only insolvent individuals who are unable to pay their debts on time and who owe less than $250,000 in total debt (not including your principal residence mortgage) can file a consumer proposal.

You must also have a steady source of income, so that you can successfully make all your required payments under your consumer proposal plan.

Additionally, you cannot have any open proposal proceedings at the time of filing your consumer proposal.

Yes, but you can only withdraw your consumer proposal within 60 days of it being filed.

However, we do not recommend doing so, as you will no longer be protected from your creditors.

Your creditors will be able to demand full payment from you, including any interest charges that accrued since the Consumer Proposal was originally filed.

Before you file the consumer proposal your Trustee will have explained how everything works, and you will be aware of your monthly payment.

However, if your situation has abruptly changed and you are considering withdrawing / cancelling your proposal agreement, we suggest you meet with the Trustee who is administering your proposal to discuss options available to you.

All of your unsecured creditors must vote on your Consumer Proposal agreement, so there is a chance it won't be accepted.

Once your Trustee has helped you draft your proposal and it has been filed and registered with the Official Receiver, a copy of the Consumer Proposal is sent to all of your creditors and they have 45 days (from the date it was filed) to vote on accepting, rejecting or renegotiating your proposal.

However, this is incredibly rare as our Trustees have vast experience in drafting consumer proposals that your creditors will accept.

Additionally, one of the only rules in drafting a proposal is that your creditors must be "better off" (ie receive more money) than if you file personal bankruptcy, so there is a financial incentive for them to accept your Consumer Proposal.

In the rare case that your Consumer Proposal is not accepted, you still have the chance to renegotiate your proposal so you can ususally work out an agreement with your unsecured creditors through your Licensed Insolvency Trustee.

Some creditors are a bit more difficult in accepting consumer proposals (such as the CRA and the Royal Bank of Canada), but your Trustee will know what each of your creditors is looking for.

All across Canada, consumer proposals are often accepted because they must be fair and reasonable (we have a 99% success rate in filing consumer debt proposals).

Yes, your creditors can vote to reject your consumer proposal, although this is incredibly rare.

After your consumer proposal has been filed your unsecured creditors will have 45 days to either accept or reject your proposal plan.

Any creditor included in your consumer proposal can vote to reject your proposal.

Your creditors have the right to reject your proposal at anytime during the 45 day voting period.

In some cases your creditors will request a meeting of creditors to learn more about your financial situation and to discuss your proposal.

Your creditors must vote for this meeting within the 45 day voting period.

The purpose of the meeting of creditors is to gather more information and negotiate an acceptable consumer proposal plan.

If your proposal is not accepted right away by your creditors, there is almost always a way to get your proposal accepted by offering more money, extending the length of your proposal (although a proposal cannot last more than 60 months).

Usually your employment will not be affected by your consumer proposal.

In most cases, your employer won't even know you have made a proposal to your creditors.

However, there are certain industries such as financial and insurance industries that require you to inform your employer about your consumer proposal.

Unlike a personal bankruptcy, a Consumer Proposal allows you to keep your licenses and other professional designations / credentials.

An annulled consumer proposal is a proposal that has been cancelled due to missed payments.

During your consumer proposal you will have to make agreed upon payments in a timely manner.

While Trustees do not encourage you to ever miss any payments, you can miss up to two payments without impacting your consumer proposal or having it cancelled (although you have to make up the missed payments).

However, if you miss three payments in your consumer proposal your proposal will be officially known as a "deemed annulment."

This means your consumer proposal is cancelled, your debt is not discharged, and you will lose your legal protections from your unsecured creditors.

Yes, it is possible to withdraw from your consumer proposal during the first 60 days of your proposal.

If you withdraw from and cancel your consumer proposal it will be considered annulled.

While it is possible for you to withdraw from your consumer proposal in a timely manner, the consequences of an annulled consumer proposal are severe.

When your proposal is cancelled, you will lose all of the money paid out to your creditors under the proposal.

When your creditors learn your proposal has been cancelled, they will be able to contact you again for debt repayment, including any interest that accrued during your proposal.

Finally, if you withdraw from your proposal you might have to file personal bankruptcy.

Yes, a consumer proposal puts an end to wage garnishments, both in place and being considered.

You receive many powerful protections under a Consumer Proposal, which means wage garnishments are cancelled, frozen bank accounts become unfrozen and the proposal process ends all civil legal action to collect your debts.

However, a wage garnishment that is due to unpaid alimony or child support and some other debts cannot be cancelled by filing a consumer proposal.

The legal protections you receive from a Consumer Proposal, is known as a Stay of Proceedings.

A consumer proposal is highly beneficial over personal bankruptcy because it allows you to protect all of your personal assets.

During a bankruptcy, you will lose some of your assets depending on the value of those assets, and the province you live in (each province provides bankruptcy exemptions, which protects a certain amount of value in your assets).

Fortunately, this is not the case with consumer proposals and you will be able to keep all of your assets, regardless of their value.

This makes a consumer proposal the best choice for many debtors with equity in their home, high levels of savings, and valuable cars.

Yes, a Consumer Proposal can help unfreeze your frozen bank accounts.

However, it won't be able to recover already seized funds.

Your account can be frozen by the CRA or your bank if you owe money that you are not repaying, and a consumer proposal can deal with this situation.

Yes, and in fact we recommend you get a secured credit card as soon as possible because you can use it to start rebuilding your credit.

By obtaining a secured credit card, and using it responsibly, you can prove to the credit bureaus that you can use credit responsibly.

A secured credit card is a special type of credit card that you "secure" by placing a deposit into an account with the credit card issuer.

Naturally, people considering a consumer proposal often worry about their retirement savings and how a consumer proposal will affect those RRSP savings.

Many people have a valid concern that they will lose money they've worked hard for years to save for their future retirement.

Money saved for your future retirement is clearly very important, as it is intended to sustain you through your retirement years.

Fortunately, consumer proposals protect your assets in most cases, including your RRSP contributions.

This means you will be able to keep the funds in your RRSP account when you file a Consumer Proposal.

A Consumer Proposal is a legal process with set terms that detail the length and payments of your consumer proposal.

Once you have fulfilled your duties and have made all the required payments under your Consumer Proposal plan, you will receive a Certificate of Full Performance from your Licensed Insolvency Trustee.

This is your proof that you have completed your consumer proposal, which legally eliminates your unsecured debts listed in the proposal.

Once you have received your Certificate of Full Performance, you will have to send the certificate to TransUnion and Equifax, so they are aware that you have successfully completed your consumer proposal.

Your Licensed Insolvency Trustee will also inform the credit bureaus, but it is important you inform Equifax and TransUnion as well.

We recommend that you regularily check your credit report to ensure that there are no errors, and that debts included in your Consumer Proposal have been removed from your credit report.

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