Top 20 Consumer Proposal FAQs for Canadian Debt Relief

Consumer debt can quickly spiral out of control, leaving individuals feeling overwhelmed and uncertain about their financial future. For Canadians grappling with mounting unsecured debt, a consumer proposal offers a legal solution to regain control and achieve long-term financial stability. This comprehensive guide explores the intricacies of this debt relief option, addressing the top 20 frequently asked questions to empower you with the knowledge necessary to make an informed decision.

What is a Consumer Proposal, and How Does it Work?

Top 20 Consumer Proposal FAQs for Canadian Debt ReliefA consumer proposal is a formal agreement between an individual and their creditors, facilitated by a Licensed Insolvency Trustee (LIT). This legal process aims to restructure and consolidate unsecured debts, providing a path toward debt forgiveness and financial rehabilitation.

The journey begins with a consultation with an LIT, who will assess your financial situation and determine if a consumer proposal is the most suitable option. If deemed appropriate, the LIT will initiate negotiations with your creditors, proposing a repayment plan tailored to your unique circumstances.

Once the consumer proposal is accepted, you’ll make a single, manageable monthly payment to the LIT for a predetermined period, typically ranging from 36 to 60 months. During this time, interest charges on your unsecured debts will cease, and creditors will be prohibited from pursuing further collection efforts.

Upon successful completion of the agreed-upon payments and mandatory credit counseling sessions, your remaining unsecured debts will be discharged, granting you a fresh financial start.

Debts Included and Excluded in a Consumer Proposal

A consumer proposal encompasses all unsecured debts, such as credit card balances, unsecured lines of credit, personal loans, payday loans, most tax debts, and student loans over seven years old. It’s crucial to disclose all unsecured debts during the initial consultation, as you cannot selectively exclude specific unsecured debts from the proposal.

Conversely, debts secured by assets, such as mortgages, second mortgages, secured lines of credit, car loans, and life insurance loans, are excluded from the consumer proposal. However, if the value of a secured asset is lower than the outstanding debt, you may opt to surrender the asset and include the remaining balance in the consumer proposal.

Additionally, alimony, child support, legal fines and penalties, and student loans under seven years old cannot be discharged through a consumer proposal.

Impact on Credit and Credit Reporting

While a consumer proposal will temporarily impact your credit rating, it can ultimately help improve your credit score in the long run. During the proposal period, your credit report will reflect the arrangement, but once you’ve successfully completed the payments, your credit rating should improve substantially compared to its pre-proposal state.

A consumer proposal will remain on your credit report for three years after your final payment or six years from the proposal’s effective date, whichever comes first. After this period, you’ll have the opportunity to rebuild your credit and establish a solid financial foundation.

Costs and Monthly Payments

The monthly payment amount for a consumer proposal depends on various factors, including your income, the total unsecured debt owed, the extent of debt forgiveness negotiated, and the length of the proposal term. However, the monthly payment will generally be significantly lower than the combined minimum payments you were previously making on your unsecured debts.

Once the consumer proposal is accepted, your monthly payment will remain fixed throughout the duration of the agreement. If your financial situation improves, you have the option to pay off the remaining balance in a lump sum without incurring penalties. Conversely, if your circumstances worsen, you may be eligible to amend the proposal terms through your LIT.

Qualifying for a Consumer Proposal

To qualify for a consumer proposal, you must meet the following criteria:

  • You are an individual (not a corporation) residing, conducting business, or owning property in Canada.
  • You are unable to repay your debts as they become due.
  • You owe at least $1,000 in unsecured debt.
  • You have a stable income source to make the proposed monthly payments.
  • Your total debt, excluding your primary residence’s mortgage, does not exceed $250,000. If it does, you may need to file a Division 1 Proposal instead.

Acceptance and Rejection of Consumer Proposals

While creditors are generally willing to negotiate and accept consumer proposals, there are instances where a proposal may be rejected. Common reasons for rejection include:

  • The proposed repayment amount is too low.
  • You lack the financial means to make the monthly payments.
  • Suspicions of financial fraud or misconduct arise.
  • Creditors believe you have the ability to repay the original debt in full.

If your initial proposal is rejected due to creditors’ demands for higher payments, your LIT can renegotiate the terms on your behalf to reach an acceptable agreement.

Joint Consumer Proposals for Spouses

Married couples have the option to file a joint consumer proposal, encompassing both individual and shared debts. This approach can be more complex, and it’s advisable to consult with an LIT to determine if a joint proposal is the most suitable solution for your circumstances.

Filing a Consumer Proposal

To initiate the consumer proposal process, you must engage the services of a Licensed Insolvency Trustee (LIT). These professionals are the only individuals authorized to file consumer proposals on your behalf. During the initial consultation, the LIT will evaluate your financial situation, assess the debts you owe, and determine the repayment amount you can reasonably afford.

Once these details are established, the LIT will file the necessary paperwork and commence negotiations with your creditors, representing your interests throughout the process.

Asset Protection and Tax Refunds

Unlike bankruptcy proceedings, a consumer proposal offers asset protection, allowing you to retain ownership of your assets, including your home, vehicles, and personal belongings. This feature provides significant relief, as you won’t be forced to liquidate your possessions to satisfy creditor demands.

Additionally, any tax refunds or government benefits you receive, such as the Canada Child Benefit or the Working Income Tax Benefit, are protected during the consumer proposal period. However, it’s advisable to consult with your LIT regarding specific exceptions or circumstances that may impact your eligibility for these benefits.

Employment Considerations

In most cases, filing a consumer proposal will not affect your employment status. However, if you are a licensed or bonded professional, your licensing or bonding agency may require notification of the consumer proposal. If this applies to you, it’s essential to disclose this information to your LIT to ensure compliance with any applicable regulations or requirements.

Comparing Consumer Proposals and Bankruptcy

While both consumer proposals and bankruptcy are insolvency proceedings, they differ in several key aspects:

  • Asset Protection: Consumer proposals allow you to retain your assets, whereas bankruptcy may require the liquidation of certain assets to satisfy creditors.
  • Length: Consumer proposals can last up to 60 months, while bankruptcy discharges can occur as early as 9 months, depending on your circumstances.
  • Credit Reporting: A consumer proposal will be removed from your credit report sooner than a bankruptcy filing.
  • Monthly Payments: Typically, monthly payments under a consumer proposal are lower than those required during bankruptcy proceedings.

Your LIT can provide guidance on whether a consumer proposal or bankruptcy is the more appropriate solution based on your unique financial situation.

Limitations on Consumer Proposals

There is no limit to the number of consumer proposals you can file throughout your lifetime. However, you cannot have more than one active consumer proposal at any given time.

Obtaining a Mortgage After a Consumer Proposal

While a consumer proposal can impact your ability to secure a mortgage immediately after its completion, lenders typically consider applications two years after the proposal’s discharge. However, this timeframe may be shortened if you can provide a larger-than-average down payment, effectively lowering the loan-to-value ratio on the property you wish to purchase.

Weighing the Pros and Cons of a Consumer Proposal

Like any financial decision, a consumer proposal presents both advantages and disadvantages. Here’s a concise overview of the key pros and cons:


  • Asset protection
  • Termination of interest payments on unsecured debts
  • Consolidation of multiple debts into a single monthly payment
  • Minimal upfront costs
  • Potential for significant debt forgiveness
  • Less stigma compared to bankruptcy
  • Fixed monthly payments that won’t increase
  • Protection from wage garnishment and collection efforts
  • Applicability to certain government debts
  • Reduced financial anxiety and a fresh start


  • Short-term impact on credit report
  • Not all debts are included (secured debts remain)
  • Potential rejection by creditors if terms are deemed unfavorable
  • Maximum duration of 60 months
  • Public knowledge of the consumer proposal filing
  • Penalties for defaulting on the agreed-upon payments

While the cons should be carefully considered, the advantages of a consumer proposal often outweigh the drawbacks for individuals seeking a path out of overwhelming unsecured debt.

Making an Informed Decision

Navigating the complexities of debt relief can be daunting, but with the right information and guidance, a consumer proposal can offer a viable solution for regaining financial stability. By addressing the top 20 frequently asked questions, this comprehensive guide aims to equip you with the knowledge necessary to make an informed decision about whether a consumer proposal aligns with your unique circumstances and goals.

If you’re still uncertain or have additional questions, don’t hesitate to reach out to a Licensed Insolvency Trustee for personalized advice and support. With their expertise and guidance, you can embark on a journey towards a debt-free future and reclaim control over your financial well-being.

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