Self-Employed and Considering a Consumer Proposal

Evaluating Consumer Proposals as a Self-Employed Individual

If you’re a self-employed individual grappling with debt, a Consumer Proposal might be the financial solution for you. This legal debt relief process has garnered attention as an alternative for those unable to pay their debts in full but unwilling to file bankruptcy. Here’s what you need to know.

Eligibility for Consumer Proposals

Just because you’re self-employed doesn’t mean you can’t file a consumer proposal.


Don’t fall into the trap of assuming you’re ineligible.


You could qualify if your consumer debt exceeds $1,000 but is less than $250,000. Consumer debt includes all debts except those secured against your residence. If you are unable to settle your debts by liquidating assets like your house or investments, you’re likely eligible.

Consumer Proposal

Here’s an example: Add up all your debts, excluding your mortgage if you own a house. If the total falls under $250,000, you could file a consumer proposal.


Consumer proposals can help manage almost all types of unsecured debt, including money owed to the Canada Revenue Agency (CRA). However, you must fully disclose all your debts to your licensed insolvency trustee.

Bear in mind, if you wish to retain any assets tied to secured debts, such as a house or car, you must continue making payments on these debts. Self-employed individuals could also have secured loans for tools or other specialized machinery and equipment.

Continuing as a Self-Employed Individual

Filing a consumer proposal doesn’t legally restrict you from continuing as a self-employed individual, but it’s worth considering whether you should.


Take time to assess the viability of your business.


Reflect on your income potential as an employee versus as a self-employed individual. Could you earn more with less stress and risk as an employee? Is there potential for business growth or opportunities to reduce costs?

By filing a consumer proposal, you aim to start afresh, free from crippling debt. However, if your business cannot generate sufficient income to maintain your lifestyle, you risk falling into debt again. In contrast, restructuring debts could provide the necessary financial relief for your business to thrive.

Protection of Assets in a Consumer Proposal

A consumer proposal blocks creditors from seizing your assets, providing much-needed relief for those with specialized assets crucial for income generation.


Filing a consumer proposal shields your assets.


In contrast, bankruptcy may require you to surrender some assets for liquidation, with the funds channeled towards partial debt repayment. A consumer proposal, however, does not necessitate any asset surrender.

Consider it a debt settlement where creditors often agree if they see you’re offering to pay back more than what they’d get if you filed bankruptcy. This arrangement determines the payment amounts for a consumer proposal. You retain your assets, and both parties view it as a fair deal considering the alternative (i.e., bankruptcy).

Income Fluctuations as a Self-Employed Individual

As a self-employed individual, your income probably fluctuates, lacking the consistency of a regular paycheck. Filing a consumer proposal won’t change this.


Embrace the hustle.


The advantage of a consumer proposal is that it consolidates your debts into one manageable monthly payment. You no longer have to juggle payments to the CRA and various credit card companies.

If you face a lean month, you can reduce or skip a payment without immediate repercussions. However, avoid falling behind by three months, as this could lead to an annulment of your consumer proposal, leaving you back at square one.

Previously, you might have relied on credit during lean periods. However, your access to credit will be limited after filing a consumer proposal. This limitation forces you to manage your cash flow more tightly.

Dealing with the Canada Revenue Agency (CRA)

Debts to the CRA are often a significant concern for self-employed individuals.


With no credit application process, the amount owed to the CRA can quickly snowball, especially with added penalties and interest.

Fortunately, CRA debts can be included in a consumer proposal. However, getting the CRA on board, particularly when it’s the largest creditor, can be challenging.

The CRA is often concerned about future tax debts. They might want to see the changes you’ve made to prevent new debt problems. This might involve hiring a professional bookkeeper or making your GST/HST payments more frequently.

To determine if a consumer proposal is right for you, consider consulting with a licensed insolvency trustee. They can offer professional, honest advice to help you regain financial stability. The first consultation is always free.

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