Getting Out of Debt: A Guide to Consumer Proposals

Navigating Financial Hurdles: An Insightful Handbook on Consumer Proposals

The repercussions of the COVID-19 pandemic have left many grappling with financial difficulties. If you’re among the 8.7 million Canadians who applied for the Canada Emergency Response Benefit (CERB), you might be wondering how to manage your finances post-pandemic. This handbook, titled “Getting Out of Debt: A Guide to Consumer Proposals,” is designed to help you navigate such challenges.

Understanding the Financial Impact of COVID-19

As life slowly resumes its normal course and CERB payments cease, you may find the economic implications of the pandemic persist. Experts are predicting a surge in insolvency filings in the coming months as deferred payments are no longer an option. If you’re facing such a predicament, considering a consumer proposal could be beneficial.

Consumer Proposals Vs. Bankruptcy: The Key Differences

Before delving into the specifics of consumer proposals, it’s important to understand how they differ from bankruptcy.

Consumer Proposals

Consumer proposals offer lower monthly payments than bankruptcy and don’t require you to surrender your assets. They need the approval of your creditors through a voting process, and the payments are set for the term of the proposal. Furthermore, consumer proposals can be paid off early, reducing the reporting period at the credit bureau.


Bankruptcy, on the other hand, is immediate, though your creditors can oppose your discharge. Payments can increase if your income does, and the length is set by legislation.

Eligibility for a Consumer Proposal

To be eligible for a consumer proposal, you must be unable to pay your debts on time, have total unsecured debts less than $250,000 (excluding mortgages and car leases), and have a steady income source. You must also be confident that the payments are affordable for you.

Types of Debt Included in a Consumer Proposal

A consumer proposal can include various types of debt, such as credit cards, lines of credit, personal loans, payday loans, certain student loans (if you’ve been out of school for at least seven years), income tax debts, and HST for self-employed individuals.

Duration of a Consumer Proposal

A consumer proposal can last a maximum of 60 months. If you can afford to pay more each month, you can shorten the proposal terms or offer a lump sum payment.

Approval Process for a Consumer Proposal

Once you file a consumer proposal, your creditors have 45 days to consider it. The proposal is approved if a majority (51%) in dollar value of creditors vote in favor. If more creditors vote against the proposal, it can be amended.

Fees Associated with a Consumer Proposal

The fees for a consumer proposal are set by the Bankruptcy & Insolvency Act and are deducted from the Proposal Fund, which means there are no additional fees or costs required to be paid.

Impact on Credit Cards

When you file a consumer proposal, you will surrender your credit cards to the Administrator. You cannot apply for a new credit card while making payments on your proposal unless it’s a prepaid or secured card.

Consequences of Missing Monthly Payments

If you miss three payments on your consumer proposal, you would be in default. However, due to COVID-19, the Ontario Superior Court of Justice issued a Court Order extending the three missed payments to six missed payments between March 13, 2020, and December 31, 2020.

Rebuilding Credit after a Consumer Proposal

Rebuilding credit after a consumer proposal involves applying for a secured credit card, getting an RRSP loan, staying within your budget, and paying off your proposal earlier.

Handling Collection Calls

Once a consumer proposal is filed, your creditors are notified, and collection calls typically stop within 1-2 weeks.

Including Tax Debt in a Consumer Proposal

You can include various types of Canada Revenue Agency (CRA) debts in your consumer proposal. However, if CRA has registered a lien on real property for outstanding taxes, that debt is not eliminated in a consumer proposal.

Dealing with Student Loan Debt

Your consumer proposal can eliminate your student loan debt, but only if the end of the study period is more than seven years from the date of the proposal filing.

Excluding a Creditor in a Consumer Proposal

You must include all debts when filing a consumer proposal, as it’s a legal process that deals with all creditors fairly and allows you to complete the process completely free of debt.

Early Payoff of a Consumer Proposal

You can pay off a consumer proposal early, without penalties or interest. The sooner you complete the proposal payments, the sooner your credit rating will improve.

Final Thoughts

Life after COVID-19 will demand financial resilience. Reaching out to a Licensed Insolvency Trustee is the first step for those battling debt problems. These professionals are non-judgmental and offer free telephone or video consultations. With commitment and the right guidance, you can climb out of debt, no matter how daunting it may seem.

Remember, “Getting Out of Debt: A Guide to Consumer Proposals” is not just a handbook; it’s your roadmap to financial stability.

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