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Consumer Proposal: Your Top 10 Questions Answered

By Sean Lough

Published March 19, 2024 • 4 Min Read

Rising interest rates and inflation have some Canadians struggling to make ends meet. Some may even consider personal bankruptcy as a way out of their financial situation. A consumer proposal is a relatively unknown alternative to filing for personal bankruptcy, offering those facing economic distress an option for debt relief.

Below are answers to your top 10 questions about consumer proposals.

1. What is a consumer proposal and how does it work?

A consumer proposal is a formal arrangement whereby debtors can negotiate with their creditors to restructure their debt and make repayment arrangements over a longer period of time — up to five years. Consumer proposals in Canada are governed by the Bankruptcy and Insolvency Act, offering a balanced solution whereby debtors can help regain their financial future, and creditors can receive greater monetary recovery than the bankruptcy process.

2. Is a consumer proposal an option in Canada?

Yes. Consumer Proposal is a viable option for Canadians facing financial hardship.

3. How is a consumer proposal different from bankruptcy?

Unlike bankruptcy, a consumer proposal allows individuals to keep their assets while consolidating their unsecured debts into a single monthly payment.

4. What are the potential benefits of a consumer proposal?

A consumer proposal is a less invasive process as compared to personal bankruptcy. There are several benefits to consumer proposals including consolidating all debt into one lower monthly payment, the ability to retain assets, providing creditor protection, and allowing individuals to avoid personal bankruptcy.

5. How much does it cost to do a consumer proposal?

Several fees make up the total cost to file a consumer proposal in Canada, including the Filing Fee ($105), Financial Counselling Fees (2 sessions at $85 each for a total of $170) and Administration fees that can run upwards of $1500. These limits are subject to change.

6. Will a consumer proposal impact my credit rating?

Yes. Entering into a consumer proposal in Canada will impact your credit rating, as it is still a form of debt settlement and is recorded on your credit report. However, by successfully completing your consumer proposal and making consistent payments, you can begin to rebuild your credit history over time.

7. What is the debt limit for a consumer proposal in Canada?

The debt limit for filing a consumer proposal is less than $250,000 in total unsecured personal debts. These limits are subject to change.

8. What are the potential downsides to consumer proposals?

There are three potential downsides to consumer proposals that individuals should be aware of:

  • A lengthy process: Consumer proposals typically take longer to complete than bankruptcy, often up to five years. Lowering your monthly payments means it may take longer to pay off the debts as agreed upon with your creditors

  • The impact on credit scores: Consumer proposals, while less extreme than bankruptcy, can still negatively impact your credit score

  • Public records: Like bankruptcy, a consumer proposal becomes 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

9. Can I include my taxes owing to CRA in my consumer proposal?

Yes, personal income taxes owing to CRA, as well as source deductions and GST/ HST may be included in your proposal.

10. How do I locate a Trustee to administer my consumer proposal?

All consumer proposals are administered by an appointed Trustee who is licensed with the Canadian Government. To find a Trustee to help you through the process, visit the website for The Office of the Superintendent of Bankruptcy. Because they are licensed advisors, many will be open to a free, no-obligation consultation.

Consumer proposals are an alternative to personal bankruptcy in Canada, allowing a more collaborative environment between parties. This option provides a pathway to debt relief, as well as the ability to retain control over your assets while resolving financial challenges responsibly.

Learn more about the Consumer Proposal process today.

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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