Table of Contents
What is a Consumer Proposal?
A consumer proposal is a legal agreement negotiated between you and your creditors. It gives you immediate relief from collection efforts and provides for a payment arrangement for part of your unsecured debts. If you file a consumer proposal and it’s accepted, your creditors will agree to forgive a portion of your debt, and you’ll agree to pay the remaining balance.
The exact amount of your total debt that will be forgiven depends on your ability to pay the balance. It’s not unusual for consumer proposals to reduce your total debt by 75%, but the outcome varies from case to case.
Benefits of a Consumer Proposal
The benefits of Consumer Proposals can be quite favorable depending on your situation. The primary benefit of a consumer proposal is that it will allow you to renegotiate your debts while protecting assets like a home or car that might otherwise need to be liquidated. Filing a consumer proposal stops debt collector calls and brings a halt to any additional interest charges or penalties. It will also stop all legal actions that have been commenced by a creditor, including wage garnishments and lawsuits.
Other benefits of a consumer proposal include:
- Up to 75% debt reduction
- Avoid filing for bankruptcy
- Consolidate debts into a single fixed monthly payment
- A legal settlement with all creditors including the CRA
- Less damage to your credit score
What Happens in a Consumer Proposal?
To determine if a consumer proposal is appropriate for your finances, you’ll need to meet with a Licensed Insolvency Trustee (LIT). You’ll need to collect billing statements, proof of income, and a list of assets for the LIT to assess whether you qualify for a consumer proposal. The LIT will meet with you to determine your goals and whether a consumer proposal will be a better way to achieve them than in a bankruptcy scenario. If it is, the LIT will help you develop an arrangement between you and your creditors that is feasible given your financial resources.
If a consumer proposal is accepted by your creditors, then you’ll have a new fixed monthly payment that will fit into your budget. Your creditors will avoid a complete loss on the unsecured loans you owe them, which they likely would suffer if you filed for bankruptcy.
Success Rate of a Consumer Proposal
The government doesn’t publish statistics that show the acceptance rate of consumer proposals, but most proposals that are submitted are accepted if the LIT carefully considers all the financial factors involved. Creditors don’t want debtors to be forced into bankruptcy when they fall into financial hardships because their chances of recovering any amount of their unsecured debts would be small. For this reason, most consumer proposals are accepted by creditors.
Consumer Proposal Eligibility Requirements
There are a few requirements you’ll need to meet when an LIT assesses whether a consumer proposal is the right option. Below are the main guidelines:
- Your total unsecured debts are between $5,000 and $250,000
- You have the income needed to make a lower fixed monthly payment
- You are insolvent, which means that your total debt exceeds your assets
- You want to avoid bankruptcy to protect important assets like your home
- You are a Canadian resident or property owner
Filing a Consumer Proposal
The entire process for filing a consumer proposal is a little more complicated, but this is what you can expect when you file a consumer proposal:
Step 1: Creditor Protection
Your LIT will file the proposal with the Office of the Superintendent of Bankruptcy (OSB), at which time you stop making payments to your creditors. If any creditors are collecting garnishments or have legal proceedings underway, collections or legal actions will stop at this point.
Step 2: Drafting a Proposal
Your LIT will also submit the consumer proposal to each of your creditors with a summary of your financial problems and situation.
Step 3: Creditors Vote
Your creditors have a maximum of 45 days to accept the proposal or object to it. Creditors owning at least 25% of your debts may request a meeting with you and the other creditors. If a meeting isn’t requested, then the OSB will consider the proposal accepted by all your creditors after 45 days.
Step 4: Proposal Approval
If a creditor requests a meeting, then it will be held within 21 days. At the meeting, the creditors attending will vote on whether to accept your proposal or not. If it’s rejected, you and your LIT can alter the proposal and make a new filing or consider other options.