TLDR
All consumer proposals are administered by a Licensed Insolvency Trustee regulated under federal law by the Canadian Government.
The debt limit for filing a consumer proposal is up to $250,000 in unsecured personal debts (excluding mortgage).
You can usually keep your assets (home, car, RRSPs, etc.) if you maintain payments.
Repayment terms typically last from 3 to 5 years (a maximum of 60 months).
Filing stops collection calls and legal action immediately.
Appears on your credit reports as an R7 rating
A consumer proposal, in Canada, is a government-regulated debt solution that allows you to legally settle unsecured debts by repaying a portion of what you owe over time, with the help of a Licensed Insolvency Trustee (LIT). Consumer proposals are governed under the Bankruptcy and Insolvency Act and are often used as an alternative to bankruptcy, offering a way to reduce debt while typically keeping your assets.
This article guides you through how a consumer proposal works, how much it costs and who qualifies for one. It also discusses what happens after you complete one (‘discharge’), how to avoid getting back in debt and ways to rebuild your credit.
What is a consumer proposal?
Definition
A consumer proposal is a formal, legally binding process that allows you to settle your unsecured debts with creditors by paying back a reduced amount over time.
Key differences between a consumer proposal and bankruptcy
This table presents a high-level comparison of the key differences between a consumer proposal and bankruptcy.
| Consumer Proposal | Bankruptcy | |
|---|---|---|
| What is it | Repay a portion of debt over time | Legal process to eliminate most debts |
| Assets | Usually keep assets | May need to surrender some assets |
| Payments | Fixed monthly payments | Based on income |
| Timeline | Up to 5 years/60 months | Typically, 9-21 months |
| Credit Impact | R7 rating | R9 rating (more severe) |
For a more detailed analysis refer to the comparison chart featured in A Consumer Proposal or Bankruptcy?
Why are more Canadians using consumer proposals?
Consumer proposals are often preferred because they offer predictable payments, allow you to keep assets and typically have a less severe impact on your credit than bankruptcy.
Who qualifies for a consumer proposal?
You may qualify for a consumer proposal if:
- You owe between $1,000 and $250,000 in unsecured debt (excluding mortgage)
- You’re unable to keep up with your debt repayments
- You are a resident of Canada or own property in Canada
- You work with a Licensed Insolvency Trustee
Debts that can/cannot be included
In Canada, these are the debts that CAN be included in a consumer proposal:
1. Unsecured Credit Debts
- Credit card balances
- Lines of credit (unsecured)
- Store credit cards
- Overdraft balances
2. Personal Loans
- Bank loans
- Payday loans
- Personal lines of credit
- Loans from finance companies
3. Government Debts
- Canada Revenue agency (CRA) tax debts
- GST/HST debts
- Income tax arrears
- CPP/EI overpayments
- CERB/COVID benefit overpayments
- HST/GST audit assessments
4. Utility and Service Bills
- Unpaid utility bills (hydro, gas, water)
- Unpaid phone, internet, cable bills
- Unpaid rent (past due amounts)
5. Medical and Professional Bills
- Unpaid utility bills (hydro, gas, water)
- Dental bills
- Other healthcare provider bills
6. Collection Agency Debts
- Any of the above debts that have been sent to collections
7. Business Debts (if sole proprietor)
- Business credit cards
- Business loans
- Supplier debt
- Commercial leases
8. Co-signed Debts
- Debts you co-signed can be included in your proposal
- However, your co-signer remains fully liable
In Canada, these are the debts that CANNOT be included in a consumer proposal:
1. Secured Debts
- Mortgages and car loans (unless the creditor lets you surrender the asset)
- Any debt where collateral is pledged
2. Student Loans
- If it’s been less than 7 years since you ceased being a student (full-time or part-time)
- After 7 years, student loans can be included
3. Court-Ordered Debts
- Fines and penalties imposed by the court
- Restitution orders
4. Family Support Obligations
- Spousal support (alimony)
- Child support payments
5. Debts from Fraud
- Any debt obtained through fraudulent misrepresentation
6. Undisclosed Debts
How does the consumer proposal process work?
A consumer proposal is a chance to settle your debts without losing your assets or filing for bankruptcy. This means you can usually keep your home and car, provided you can meet the monthly payment requirements.
Although not broadly advertised, a consumer proposal becomes part of a public record maintained by the federal government.
Here are the steps for filing a consumer proposal in Canada:
- Step 1. Select a Licensed Insolvency Trustee:
- Step 2. Review your debts, income and options:
- Step 3. Submit a proposal to creditors
- Step 4. File proposal, triggering a stay of proceedings (collections stop)
- Step 5. Creditors vote (within 45 days)
- Step 6. Begin fixed monthly payments
- Step 7. Attending 2 financial counselling sessions
- Step 8. Complete payments and receive discharge
What happens after you file?
Creditors have 45 days to accept your proposal or request changes. If they accept, payments begin immediately and you are protected from collection activity.
What happens after completion?
Once your proposal is fully paid, you will receive a certificate of completion confirming that you’re legally released from all debts mentioned in the consumer proposal.
How much does a consumer proposal cost?
The cost of a consumer proposal is regulated by the federal government and built into your monthly payments, meaning you typically don’t pay large upfront fees.
Fees breakdown: filing fees, counselling fees, trustee fees (included in payments)
- Filing fee: $105
- Financial counselling fees: Two mandatory sessions at $85 per session ($170 total)
- Administration fees (included in payments)
Myth: No large upfront payment required
While the cost of fees associated with consumer proposals may vary from one province or territory to another, consumer proposals do not have upfront fees as costs are incorporated into your repayment plan.
Can you keep your house or car in a consumer proposal?
In most cases, yes. Consumer proposals only apply to unsecured debts, meaning secured debts like mortgages and car loans are not included. You can also keep your home if you continue making mortgage payments. It is worth noting that equity in your home may affect your proposal terms. You can also keep your car if your loan payments are up to date.
What happens if you come into money during the term of the proposal (e.g. a bonus or inheritance)
Most consumer proposals include a windfall provision requiring that you report any major windfalls or large financial gains (financial gifts, inheritance, etc.) you receive during the term of your consumer proposal. Common examples include:
- Inheritances
- Lottery or gambling winnings
- Legal settlements or insurance payouts
- Large tax refunds
- Significant bonuses or gifts
- Sale of assets
Depending on your agreement, this may affect your repayment terms.
Potential Issues with Consumer Proposals
There are three potential downsides to consumer proposals that you should look out for:
- They can take up to five years to complete.
- They can negatively impact your credit score
- They become a matter of public record in Canada, meaning it can be viewed by anyone who searches your credit report. This may impact your financial reputation
What happens if creditors reject the proposal
If creditors reject your consumer proposal, you can work with your LIT to create a new proposal featuring better terms for your creditors or explore alternative debt solutions. Your creditors may propose a counteroffer with a modified proposal, which you can accept on the spot if you can manage the suggested repayment terms.
What happens if you miss payments
Missing three payments (or falling three months behind) can cause your proposal to be annulled, allowing creditors to take action to collect any outstanding money you owe them.
What happens after the consumer proposal is completed?
Once you’ve completed your proposal, you can take steps to start rebuilding your credit.
What is ‘discharge’ and when does it happen?
Once your negotiated debt has been paid in full, you’ll get a certificate confirming that your consumer proposal is completed. You’ll then be legally released or ‘discharged’ from all the debts included in your proposal.
Steps to rebuilding credit and avoid getting back into debt
Although your credit will suffer from submitting a consumer proposal, it will be significantly better than declaring bankruptcy. Also, there are several steps you can take to rebuild your credit. Start by creating a realistic budget that follows the 50/30/20 rule, leave some room for unexpected/surprise expenses and adhere to the following:
- Pay all bills on time
- Stick to a budget
- Monitor your credit regularly
- Consider a secured credit card or credit-builder loan
FAQs
You can include up to $250,000 in unsecured debt (excluding your mortgage)
Yes, you can usually keep your home if you continue to meet the mortgage payment requirements.
With Equifax, your consumer proposal will stay on your credit report for three years after completion. With TransUnion, your consumer proposal will remain on your credit report for three years from completion or six years from the date of filing, whichever comes first.
Yes, but each filing impacts your credit. While there’s no limit to how often you can file a consumer proposal, you must complete or annul your first one before filing a second one. Each consumer proposal appears on your credit report separately, so multiple proposals could cumulatively damage your credit history.
In the case of joint debts, both debtors are equally and fully responsible. If your proposal offers to repay a portion of the debt, creditors will pursue your co-signer for the remaining balance.
It depends on your situation. A consumer proposal may be a better fit if you have steady income and want to keep your assets, while bankruptcy may be an option if you cannot afford to repay your debts.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
