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An Alternative to Bankruptcy: Understanding the Consumer Proposal Process in Canada

By Amanda Reaume

Published July 20, 2023 • 3 Min Read

A consumer proposal is a formal agreement between a consumer and their creditors to settle debts without filing for bankruptcy. Consumers renegotiate what they owe, agreeing to repay a portion of that based on what they can afford, with up to five years to pay it off. The individual is required to make one monthly payment — interest-free — with assets such as a home or car, being fully protected, unlike bankruptcy. The downside? Consumer proposal creates a permanent public record stored in a searchable online database, negatively impacting the individual’s credit score.

Filing a consumer proposal in Canada involves several steps:

1. Select a Licensed Insolvency Trustee: Consider consulting a Licensed Insolvency Trustee (LIT) to assess your financial situation and determine if a consumer proposal is the best option for your circumstance. Your LIT will administer and manage the end-to-end process of your consumer proposal. To find a LIT near you, check out the Superintendent of Bankruptcy Canada website.

2. Debt assessment: Your LIT will take you through a series of questions to understand your current debts and whom you owe. This will help calculate your total debt owed. They will also ask what your current income is, as this will help calculate what a reasonable payment might look like. Your LIT will walk you through your debt relief options to help you decide if a consumer proposal is right for you.

3. Proposal preparation: Once you know how much you can offer your creditors and how much your monthly payments are, your LIT will draw up a proposal for you to review and sign.

4. Filing consumer proposal: Your LIT will file your consumer proposal to the federal government and court on your behalf.

5. Creditor protection: Once your LIT has filed your proposal, they will send a copy to your creditors, informing them about it. This will put you into consumer protection – also referred to as “stay of proceedings” – meaning your creditors must cease all collection or legal activities against you.

6. Voting by creditors: Creditors have the right to request a meeting to ask questions about your proposal before voting. Your LIT will attend this meeting with you and will act as your intermediary to negotiate on your behalf. If your creditors do not request a meeting by the 45-day mark, your proposal is considered “accepted.” It is important to note that what the majority of creditors vote in favour of, all creditors must accept, even if they voted against it.

7. Implementation: Once your proposal is accepted and approved, you will begin to make your agreed-upon monthly payments. It is also mandatory that individuals going through the consumer proposal process attend at least two financial counselling classes.

8. Completion and discharge: Once your negotiated debt has been fully repaid, you will receive a certificate confirming your consumer proposal is completed and that you are legally released from all debts mentioned in the proposal.

It is easy to see why consumer proposal has become an increasingly popular bankruptcy alternative, offering Canadians a viable solution to help eliminate debt and regain financial stability. It is important to note that the consumer proposal process may vary by province or territory, depending on where you live.

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.

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