What You Need to Know About Consumer Proposals

December 13th, 2021
What You Need to Know About Consumer Proposals

No one gets into debt by choice. However, many people can’t pay their debts on time due to unforeseen circumstances, which is becoming a more prevalent problem for Canadians. According to the Organization for Economic Co-operation and Development (OECD) report, household debt levels have reached higher levels than any other country. The average non-mortgage debt that Canadians owe has ballooned to $22,154.00, which is contributing to the growing problem of falling delinquent on their payments and loans.

The good news is that there are many options to resolve your debt, including debt consolidation loans, debt management programs, credit counselling, budgeting and bankruptcy. However, consumer proposals are also another feasible and popular option to consider. Here’s what you need to know about consumer proposals:

What is a Consumer Proposal?

A consumer proposal is a process that enables borrowers to arrive at an agreement with their creditors that usually includes paying a percentage of the debt owed, or to extend the time they have to repay the debt, and often usually involves both. A consumer proposal is a legally binding agreement under the Bankruptcy and Insolvency Act in Canada, which means that debtors receive immediate relief from their creditors and both parties must adhere to the terms agreed upon.

A Licensed Insolvency Trustee, or LIT, is the only professional in Canada who can administer a consumer proposal. The Licensed Insolvency Trustee will help the debtor determine what type of payment would be reasonable given the debtor’s unique situation and circumstances. People are often confused as to why creditors would agree to new terms, but creditors would prefer to receive a greater recovery of money, rather than the debtor filing for bankruptcy.  Creditors also have the ability to vote on the proposal and can request different terms if they do not like the proposal originally offered. Remember, this system was created for creditors and debtors to negotiate new terms of repayment rather than a bankruptcy occurring.   

What are the Benefits of Consumer Proposals? 

Consumer proposals provide relief for borrowers who are struggling to repay their debts. The proposal will stop interest, stop collections and allow the debtor to repay the debt in part or full. Whether the borrower needs more time to repay in full or can afford only a certain amount, a consumer proposal makes it possible to negotiate terms with their creditors.

Another benefit of consumer proposals is that they will immediately cease wage garnishments and stop interest from accruing on the day you file. It will also stop creditors and collection companies from legally contacting you to collect payment. Consumer proposals allow you to keep all your assets, resolve your debt issues without needing to declare bankruptcy, and allows for more time to make payments.

What are the Disadvantages of Consumer Proposals? 

Just like debt management programs and bankruptcies, a consumer proposal will negatively impact your credit rating and score.  However many people already have negative credit ratings when they file consumer proposals. Other things that negatively affect credit ratings are collections, defaulting on loans, missed payments, high credit utilization and legal action. Often times debtors need to address the current financial issues to stop the problems from continuing and then they can rebuild their credit ratings.

Creditors also have the ability to vote on the proposal and can request different terms if they do not like the proposal originally offered.  However, creditors would prefer to receive a greater recovery of money rather than the debtor filing for bankruptcy. So even though they have the ability to vote against your proposal, they do want to work with debtors to come to create a reasonable agreement.

Remember, you want to create terms that you’ll be able to fulfill so that the proposal is completed in full and is not deemed annulled (cancelled) for missing payments. If this were to happen, the rights of the creditors would be revived and collection activity would start again. However, your Licensed Insolvency Trustee will work with you to create payment terms that you’ll be able to complete. If you have a material change and your circumstances change during the terms of the proposal, there is always an option to amend and change your payment terms in order to complete it with the permission of the creditors.

What are the Qualifications Need for Consumer Proposals? 

The Bankruptcy and Insolvency Act stipulates that you may be eligible to file a consumer proposal if your total unsecured debt, such as your loans, payday loans and credit cards, are below $250,000 and you are currently insolvent.


Before filing a consumer proposal, you should book a consultation with a Licensed Insolvency Trustee to discuss your options and see if it is the right option for you.

If you want to review your options and learn about consolidation loans, debt management programs, credit counselling, proposals, consumer proposals and bankruptcies, we at Paul J. Pickering and Associates Limited are here to help you, backed by over 30 years of experience in helping our clients resolve their financial problems. Let’s discuss the right plan for you. Call us at 519-572-2494 to start solving your debt problems today!