Does a Consumer Proposal Affect My Car Loan?

Does a Consumer Proposal Affect My Car LoanUnderstanding the financial implications of a consumer proposal on your car loan is crucial. This article aims to demystify the concept of a consumer proposal in Canada and how it could potentially impact your car loan.

Understanding Consumer Proposal

A consumer proposal is a legally binding process managed by a Licensed Insolvency Trustee (LIT), formerly known as a bankruptcy trustee. This process allows debtors to pay back less than they owe to their creditors.

What Debts Can Be Included in a Consumer Proposal?

A consumer proposal typically includes unsecured personal loans, credit cards, lines of credit, payday loans, and income tax debts. Most importantly, the total debt must not exceed $250,000, excluding the mortgage on a primary residence. However, it’s worth noting that secured debts, such as a car loan or mortgage, cannot be included in a consumer proposal.

How Does a Consumer Proposal Work?

A consumer proposal is an agreement that is negotiated with your creditors through a Licensed Insolvency Trustee. The trustee will work with you to develop a proposal, which is an offer to pay creditors a percentage of what is owed to them or extend the time to pay off the debts, or both.

The terms of a consumer proposal are tailored to your ability to pay. So, rather than making monthly payments to each of your unsecured creditors, you make one monthly payment to your trustee, who then distributes the money to your creditors.

Impact of a Consumer Proposal on Car Loans

When you file a consumer proposal, secured debts, like a car loan, are not included. Therefore, if you wish to keep your vehicle, you must maintain your monthly car payments. Failure to do so may lead to the car’s repossession by the lender.

Can I Get a Car Loan During My Consumer Proposal?

Yes, you can. Many Canadians wonder if they can still get a car loan while in a consumer proposal. The simple answer to this question is yes, you can still apply for and receive a car loan while in a consumer proposal. However, terms and conditions may apply, and you may require guidance from auto finance brokers experienced in car financing for individuals in a consumer proposal.

Car Financing Options During a Consumer Proposal

Several lenders specialize in providing car loans to individuals with poor credit or insolvency histories. These lenders may be more willing to work with you, and they may offer more lenient terms without increasing interest rates significantly.

Furthermore, having a co-signer or guarantor with good credit can increase your chances of getting approved for a car loan. However, the co-signer or guarantor will be equally responsible for the loan if you fail to make payments.

Car Loan as a Credit Rebuilding Tool

Did you know that a car loan can serve as a powerful tool to rebuild your credit during your consumer proposal? By securing a car loan and making regular, on-time payments, you can demonstrate that you can handle additional credit responsibly.

What If I Can’t Afford My Car Payments?

If your car loan payments are straining your budget, you might consider surrendering your vehicle voluntarily. This action is also known as a voluntary repossession. In this case, any shortfall from selling the car (i.e., the amount still owing on your car loan after the sale) is treated as unsecured debt, which can be included in your consumer proposal.


In conclusion, while a consumer proposal may impact your ability to get a car loan, it does not eliminate the possibility. With careful planning and consideration, you can navigate this financial arrangement while still maintaining your ability to finance a vehicle.

Remember, your current credit profile does not define you. Making smart, informed choices can help improve your creditworthiness over time. Reach out to financial professionals for assistance and make the most out of your financial situation.

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