Consumer Proposal
An alternative to bankruptcy.

What Is a Consumer Proposal?

Most people know about bankruptcy, but not many know about consumer proposals: another way to settle your debts for less than what you owe. Like bankruptcy, filing a consumer proposal is a big decision that will affect your credit and job opportunities for years to come. It can give you some debt relief and even protect assets like your home, but comes with costs and conditions that can’t be ignored. Get the full picture on this option and its alternatives before making a choice that could change your life.

When to Consider a Consumer Proposal

You should only consider pursuing a consumer proposal when all other options for dealing with your debt have been exhausted. That means you:

  • Cannot afford to repay your debt as originally agreed
  • Have more debt than the value of your assets
  • Do not want to declare bankruptcy
  • Do not qualify for a debt management program or it doesn’t align with your goals
  • Have explored all other little-known options and alternatives with a non-profit credit counsellor

If you haven’t yet fully considered everything above, it’s to your advantage to do so before committing to a consumer proposal. If you’d like to talk things over with someone or receive some extra guidance, give us a call and we’ll be happy to help.

Filing a Consumer Proposal in Canada

Completing a consumer proposal in Canada is a legal process that must be done through a licensed insolvency trustee. Your trustee will officially ask your creditors to accept payments for less than the full amount of your eligible debts. Your creditors who hold the majority of your debt must agree, which can be difficult if they believe that you’re able to make bigger payments. If the “proposal” is accepted, you’ll usually have just under 5 years to finish making the payments.  

Unsecured and Secured Debts in a Proposal

A consumer proposal deals with your unsecured debts, which are debts that you haven’t put collateral up for. They can also deal with government debt, and if you’ve been out of school for at least 7 years, your government student loans too. Once your creditors become aware that you filed a proposal, collection activity stops. You start making payments to your trustee once your proposal is accepted and registered by the Court.

Secured debts are not included in consumer proposals. However, if you wish to keep assets like your vehicle and home, creditors or your trustee might add their value to your payments. This means that you essentially buy them back through the proposal.

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Solutions and alternatives that I had no idea existed

The counsellor was of great help and opened my eyes to a lot of solutions and alternatives that I had no idea existed. He was very easy to talk to, and very knowledgeable. I’m impressed with what I took away from the session, and will be back to start taking steps with the Credit Counselling Society once my job situation is sorted.

Sandra

 

Avoid Consumer Proposal Traps

There are some debt relief companies that advertise consumer proposals as a quick and easy way to get rid of your debts. However, only a licensed insolvency trustee can file paperwork for a consumer proposal. What these debt relief companies do is charge thousands in fees only to refer you to a trustee who then charges the real proposal fees. Here’s how to avoid getting ripped off:

  • Talk to a local non-profit credit counsellor first. They will review your financial situation with you and help you understand all possible solutions for your debt. Talking to a non-profit credit counsellor is typically free, and they can refer you to a reputable trustee that they trust if it looks like a consumer proposal may be a viable option for you.
  • Never pay money to anyone for consumer proposal services except a licensed insolvency trustee. By law, only a trustee can fill out the paperwork for and negotiate consumer proposals. Anyone else who does this is either tricking you or breaking the law.
  • Watch out for commission-based debt consultants. Ask how the person helping you gets paid. Many debt consultants get paid more if you choose certain options and less or nothing if you choose others. Make sure their “solution” for you is in your best interest and not just theirs.

Avoid Consumer Proposal Traps

There are some debt relief companies that advertise consumer proposals as a quick and easy way to get rid of your debts. However, only a licensed insolvency trustee can file paperwork for a consumer proposal. What these debt relief companies do is charge thousands in fees only to refer you to a trustee who then charges the real proposal fees. Here’s how to avoid getting ripped off:

 

  • Talk to a local non-profit credit counsellor first. They will review your financial situation with you and help you understand all possible solutions for your debt. Talking to a non-profit credit counsellor is typically free, and they can refer you to a reputable trustee that they trust if it looks like a consumer proposal may be a viable option for you.
  • Never pay money to anyone for consumer proposal services except a licensed insolvency trustee. By law, only a trustee can fill out the paperwork for and negotiate consumer proposals. Anyone else who does this is either tricking you or breaking the law.
  • Watch out for commission-based debt consultants. Ask how the person helping you gets paid. Many debt consultants get paid more if you choose certain options and less or nothing if you choose others. Make sure their “solution” for you is in your best interest and not just theirs.

Need some questions answered?

Will a consumer proposal will work for you?

To help you figure out if filling a consumer proposal is the best option for you, contact us to find out about all of your options. One of our counsellors will be happy to carefully review your whole financial situation and answer your questions. Speaking with our certified counsellors is always free, confidential and without obligation. 

True Cost of Consumer Proposals

The success of a consumer proposal is never guaranteed, but its cost and risks are. After talking to a trustee and agreeing to start the process, you’ll pay $750 upfront to apply for the proposal. If accepted, you’ll pay another $750, for a total of $1500. That’s not all. 20% of your consumer proposal payments also goes to your trustee for their services. All fees that go to them, including the application cost and their portion of your payments, is additionally taxed with GST. 

But what if your proposal gets rejected? The fact is that creditors will only accept a proposal that gives them more value than if you declared bankruptcy. They figure this out by looking through the financial info you gave them in your consumer proposal paperwork. 

If your proposal is rejected, youll be out about $750 but still have all your other options available. However, the problem is that your creditors will now know everything about your assets and liabilities – because your trustee provided this info on the paperwork. This can make it harder to negotiate payments for other options in the future, like when your mortgage comes up for renewal.  

If your consumer proposal is accepted and you miss 3 monthly payments, the proposal will be automatically cancelled and you won’t be able to reapply. Collection activities will resume while you try to figure out what to do and your creditors will come after you again for everything you still owe – knowing full well about all your assets and liabilities. Whether successful or not, consumer proposals are also public record. Finally, it will damage your credit rating for as much as 8 years (5 years of payments plus 3 years once they’re done). 

Make sure that a consumer proposal is truly the best option for you before committing to one, especially if you have joint debt, or a partner in your household who is not part of the debt. We can help you figure this out for free. 

Discover your options.

Between financial difficulty and bankruptcy are many options. Our credit counsellors specialize in helping you explore your options and discover which one will work best for you.

Get the clarity you need.

Speak with a non-profit credit counsellor.

Between financial difficulty and bankruptcy are many options. At a time like this, it can be helpful to sit down with a knowledgeable credit counsellor who can talk through all your options and make a plan to resolve your difficulties. Once you can see your way out, you can regain your peace of mind and move forward with confidence.

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