Pros and Cons of a Consumer Proposal

Evaluating the Merits and Drawbacks of a Consumer Proposal: A Comprehensive Guide

A consumer proposal, a government-regulated solution for unsecured debt settlement, presents an alternative to bankruptcy, guarding your assets from possible liquidation and facilitating a less strenuous recovery from overwhelming debt. However, it’s essential to understand both the pros and cons of a consumer proposal before considering this option.

Advantages of a Consumer Proposal

A consumer proposal is beneficial if one has a steady income stream to maintain reduced payments and desires to avoid bankruptcy. Here are the six principal reasons you might want to consider a consumer proposal:

  1. Reduction of unsecured debts: It can minimize your unsecured debts by up to 75%.
  2. Bankruptcy avoidance: It provides a method to evade bankruptcy through a structured payment plan.
  3. Consolidation of debts: It allows you to amalgamate all your debts into one fixed monthly payment.
  4. Legal settlement of unsecured debts: It enables you to legally settle all unsecured debts, including those held by the Canada Revenue Agency (CRA).
  5. Less impact on credit rating: It inflicts less damage to your credit rating compared to bankruptcy.
  6. Quick recovery from debt: It accelerates the process of recovery from significant debt.

Drawbacks of Filing a Consumer Proposal

Despite its benefits, there are certain pros and cons of a consumer proposal, and its drawbacks may make it unsuitable for some debtors. These include:

  1. Secured debt exclusion: Secured loans are not reduced or included in your payment plan, which may render a consumer proposal impractical.
  2. Impact on credit rating: Your credit rating may take a hit as a result of entering a consumer proposal due to the debt write-offs.
  3. Increased borrowing rates: Following a consumer proposal, you may be viewed as a high-risk borrower, leading to increased borrowing rates.
  4. Exclusion of certain student loans: Student loans less than seven years old are not included in the proposal.

Alternatives to a Consumer Proposal

A consumer proposal is only one of the options available to manage insolvency and substantial debt. If your income is unstable, you have large secured debts, or you are solvent, there are other alternatives that a Licensed Insolvency Trustee can help you explore.


Bankruptcy may be your last resort to find relief from collection efforts if you’re insolvent but lack the necessary income to negotiate a fixed payment plan. This option is sometimes forced upon debtors who have large secured loans like home mortgages that can’t be addressed with a consumer proposal.

Debt Consolidation

If you are solvent and have a stable income, debt consolidation might be a more suitable option. This approach allows you to consolidate several payments into a single monthly payment and could even reduce your borrowing costs.

Debt Counselling

Debt counselling programs can be another way to improve your financial situation before you become insolvent. These programs will analyze your financial status, considering your income and total debt, and advise you on how to better control your budget.

Why Opt for a Consumer Proposal?

A consumer proposal is a formal, legal, government-sanctioned program that can help reduce the total amount of debt you have to repay. If you have a large amount of unsecured debt and a stable monthly income, and can still repay at least 25% of your total debt over a five-year period, it’s likely that creditors will accept a consumer proposal to avoid losing the entire loan balance in a bankruptcy.

How to Proceed with a Consumer Proposal

  1. How to File a Consumer Proposal
  2. Consumer Proposal vs Bankruptcy
  3. Consumer Proposal vs Debt Consolidation

The Role of a Licensed Insolvency Trustee

A Licensed Insolvency Trustee (LIT) can help assess your qualifications and finances with a free consultation. It’s crucial to consult a LIT about the possibility of filing a consumer proposal, as the law requires a LIT to administer a consumer proposal.

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In Conclusion

A consumer proposal can be a beneficial tool for managing unsecured debt. However, it’s crucial to weigh the pros and cons of a consumer proposal before making a decision. Always consult with a Licensed Insolvency Trustee to understand your options better.

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