A consumer proposal doesn’t mean you’re filing for bankruptcy or taking out a loan: it’s a legal, structured tool that can help you reduce your debt load without losing it all. But what does that mean? In this article, we’ll clearly explain what a consumer proposal is, who it’s for, what it does (and doesn’t) do, and how it works.
A common solution that’s often misunderstood
Lots of people confuse consumer proposals with bankruptcy or consolidation loans. However, it’s actually a separate tool provided for under the Bankruptcy and Insolvency Act that allows you to repay your debts in a different way.
This structured process is carried out with the help of a licensed insolvency trustee. For many, it’s a significant turning point: it’s not a way out of debt, but rather a way to regain control of your situation.
Generally speaking, a consumer proposal is an official agreement with your creditors to repay a portion of your debt based on what you can actually afford — no interest, no need to lose it all. Sounds like just the thing, right? In many cases, it is. But it also has its limits.
Who is eligible for a consumer proposal?
A consumer proposal may be appropriate in several types of situations, especially when:
- You have accumulated significant debt (credit cards, personal loans, tax debt);
- You have regular income but it’s not enough to pay off your debt;
- You’ve tried, unsuccessfully, to organize your finances or negotiate with creditors.
It’s often recommended for people who want to avoid bankruptcy but are unable to fulfill their current financial obligations. How do you know if you meet all the criteria? Your licensed insolvency trustee is the best person to ask.
What does a consumer proposal do?
A consumer proposal can give you the opportunity to get back on your feet. It allows you to:
- Reduce the total amount of debt to be repaid
- Eliminate interest
- Stop receiving calls from collections agencies
- Avoid bankruptcy
- Pay a fixed monthly amount that’s realistic for your budget
- Keep certain assets (like your car or home, in certain cases)
Limitations
Like any solution, consumer proposals have limits. They do not allow you to:
- Reduce someone else’s debt (ex.: your partner or spouse)
- Erase certain debts (alimony, fines)
- Avoid impacting your credit score
How does a consumer proposal unfold?
Here are the main steps in the process:
- Meeting with a licensed insolvency trustee: this initial consultation is free and confidential. You will explain your situation and needs.
- Assessing your file and your options: we will analyze your capacity to repay your debts. Your expert will explain every possible solution so you can make an informed decision.
- Preparing the proposal: if you choose to proceed with a consumer proposal, your licensed insolvency trustee will create a realistic repayment plan. For example, you may offer to repay 30% of your debts over a 5-year period.
- Presenting to creditors: creditors will have 45 days to respond to your proposal. Your licensed insolvency trustee will be in charge of presenting, negotiating, and getting your proposal approved. If the majority of them accept, the proposal will take effect.
- Repaying and following up: you will make monthly payments during the agreed-upon period. Your licensed insolvency trustee will continue to guide you through the entire process.
For more technical details on how proposals work, visit our dedicated webpage.
What happens afterwards?
A proposal usually unfolds over 5 years, but you’ll always have the option to repay your debt faster. Once all payments have been completed, the rest of your balance will be cleared.
Yes, your credit score will be affected. But that doesn’t mean you won’t be able to borrow money in the future. In fact, many people successfully rebuild their credit history within a few years through careful management and good habits.
Above all, what you’ll gain is a better understanding of your finances and a newfound freedom to make the choices you want.
FAQ
If I file a consumer proposal, will I lose everything?
No. Unlike bankruptcy, which can require you to give up certain assets, proposals often allow you to retain your assets as long as you make your payments.
Can creditors reject my proposal?
Yes. In order for your proposal to be accepted, the majority (according to the amount owed) must accept it. However, it’s possible to negotiate and find a middle ground. If that doesn’t pan out, your licensed insolvency trustee will help you explore other options.
Can I repay my debt faster than I planned?
Absolutely. You can make additional payments or repay the entire proposal earlier than the agreed-upon timeline.
Will this affect my spouse or partner?
No, unless you have joint debt. Your licensed insolvency trustee will be able to provide more details based on your situation.
Is it confidential?
Yes. Your employer, loved ones, and friends will not be informed about your proposal unless you decide to tell them yourself.
Can I pursue a proposal if I’ve already filed for bankruptcy?
It may be possible, but one of our experts will need to verify whether the option is available or relevant to you.
The bottom line
A consumer proposal is a powerful tool to reduce your debt load without losing your belongings. It requires effort, but it will help you get your head above water without having to start over from scratch.
If you feel like your debt is becoming too much to handle, take some time to meet with a licensed insolvency trustee. It’ll leave you with a clearer picture of your finances…and, potentially, a starting point for the future.