Common Consumer Proposal Questions

A consumer proposal is a formal binding offer made to your creditors to settle your debt for less than the full amount owing. An alternative to bankruptcy, it is a legal process filed under the Bankruptcy & Insolvency Act through a Licensed Insolvency Trustee. At the completion of the proposal all unsecured debts included in the proposal are forgiven.

To qualify for a consumer proposal in Canada, you must:

• owe at least $1,000 and less than $250,000 (excluding your mortgage)
• have a stable income to make monthly payments
• be a Canadian resident or have assets in Canada

Consumer proposals are available to any individual with unsecured debts who is unable to repay their debts as they become due. A Licensed Insolvency Trustee will review your situation to confirm eligibility.

A consumer proposal is a viable alternative to declaring bankruptcy in Canada. Choosing the right solution depends on your specific situation. The main benefits of a consumer proposal in Ontario include:

• you keep your assets
• you make one lower monthly payment
• it’s a government program
• it provides creditor protection and court approval
• there are early payment options
• you avoid bankruptcy

A consumer proposal’s main disadvantages include:

• if the majority of creditors don’t accept your proposal, you may need to file bankruptcy
• it will have an impact on your credit rating, although the R7 rating is less severe than R9 in a bankruptcy
• if you miss three payments your proposal will be annulled

While these drawbacks exist, they’re often less severe than bankruptcy’s consequences, and many can be overcome through proper planning and credit rebuilding after completion.

A consumer proposal is the #1 alternative to bankruptcy for Canadians seeking debt relief. With a proposal:

• You do not surrender assets in a consumer proposal, including tax refunds.
• Monthly payments are usually lower in a bankruptcy.
• A proposal requires the pre-approval of your creditors through a voting process. Bankruptcy is automatic although your creditors can oppose your discharge.
• Payments in a consumer proposal are negotiated up front. Bankruptcy payments are defined by legislation and can increase if your income increases.
• You can pay off a consumer proposal early. Bankruptcy has a pre-defined length determined by legislation.
• A consumer proposal has fewer required duties than bankruptcy. For example there is no requirement to report your income and expenses monthly in a consumer proposal.

Read more for a full comparison between bankruptcy and a consumer proposal

There are no upfront costs when filing a consumer proposal. Licensed Insolvency Trustee fees and government filing fees are regulated by the government and paid from your proposal payments. The costs of administration are taken from the proceeds distributed to creditors, not added to your monthly payments. 

Your monthly proposal payments are based on what you can afford and what creditors will accept to settle your debts.

Filing a consumer proposal has no upfront costs or extra fees. All government and trustee fees are included in your monthly payment. The amount you pay is based on what you can afford and what your creditors will accept, not on the trustee’s fees. 

Your monthly payment amount depends on your income, assets, and total debt. Most consumer proposals settle debts for 20-40% of what you owe. A Licensed Insolvency Trustee will help calculate an amount your creditors are likely to accept based on what they would receive in a bankruptcy.

While proposal payments do not have to be monthly. Payments can easily be aligned with your pay periods.

Your surplus income (income above government standards) helps determine how much you need to offer creditors in a consumer proposal. While proposal payments don’t increase with income changes like in bankruptcy, your trustee must consider your surplus income when calculating an acceptable initial offer. Creditors expect to receive at least what they would in bankruptcy, which includes any surplus income payments. Higher surplus income typically means you’ll need to offer more in your proposal to gain creditor acceptance. However, a proposal allows you to spread those payments over a longer period, making your monthly payments more affordable.

Consumer proposals have a high acceptance rate – over 99% at Hoyes Michalos. Most proposals are accepted by creditors when properly structured.

Three factors determine acceptance. You must:

• offer more than creditors would get in bankruptcy,
• meet minimum creditor expectations for repayment,
• propose affordable monthly payments that are suitable for your budget

Creditors have 45 days to vote, and if the majority (based on dollar value) accept, the proposal is approved and binding on all creditors. A Licensed Insolvency Trustee will help structure your proposal to maximize chances of acceptance.

Your creditor protection begins immediately when your Licensed Insolvency Trustee files your proposal.

Creditors then have 45 days to vote on your proposal. If a majority of creditors (by dollar value) accept, the proposal is approved and becomes legally binding on all creditors.

A meeting of creditors is only required if 25% of creditors request one. After creditor acceptance, the court automatically approves your proposal unless there are objections. Most proposals are fully approved within 60 days of filing.

Creditors may reject a consumer proposal if it offers less than they would receive in bankruptcy, or if your income is too high compared to your proposed payment and you offer too low a percentage of repayment. Creditors may also deny your proposal if you exclude assets from your proposal’s value calculation, having significant recent credit purchases, or transferred assets immediately before filing. However, rejection is rare when proposals are properly structured by a Licensed Insolvency Trustee, and there’s often opportunity to negotiate terms if creditors initially vote no.

You keep all your assets in a consumer proposal, including your house, car, investments, and tax refunds. This is one of the main benefits of choosing a consumer proposal over bankruptcy. You maintain ownership and control of your property while settling your debts. To keep financed assets like your home or car, you must continue making your regular payments to your secured creditors.

No, you won’t lose your house in a consumer proposal. Unlike bankruptcy, you keep all your assets, including your home. However, you must continue making your regular mortgage payments to keep your house. A consumer proposal only affects your unsecured debts.

Yes, you can keep you car in a consumer proposal. If you’re financing or leasing your vehicle, you must maintain your car loan or lease payments and keep your vehicle.

A consumer proposal doesn’t directly affect your mortgage. You’ll continue making your regular mortgage payments. You mortgage lender cannot change the terms of your current mortgage just because you filed a consumer proposal. However, getting a new mortgage or refinancing during a proposal may be challenging. Most lenders require your proposal to be completed before offering new mortgage financing.

Yes, most people can renew their mortgage with their current lender during a consumer proposal. However, shopping for a new lender may be difficult until your proposal is completed. It’s important to maintain your mortgage payments to ensure a smooth renewal process.

Getting a mortgage after a consumer proposal is possible but requires planning. Most traditional lenders want to see two years of credit rebuilding after your proposal is completed. You’ll typically need a larger down payment (20-25%), proof of stable income, and may face higher interest rates initially. Alternative or B-lenders may consider applications sooner, but with higher rates. Working with a mortgage broker who specializes in post-proposal financing can help find the best options. Your chances of approval improve significantly as you rebuild your credit and save for a larger down payment.

When you file a consumer proposal, your credit cards will be closed, and these debts will be included in your proposal. Some secured credit card options may be available during your proposal to help rebuild credit. After completing your proposal, you can apply for new credit cards.

f you have debts with your bank, consider opening a new account at a different institution before filing. While not always necessary, this prevents any potential issues with your bank’s right of offset. Your Licensed Insolvency Trustee can advise based on your specific situation.

A consumer proposal can include most unsecured debts like credit cards, lines of credit, payday loans, personal loans, income tax debt, and overdrafts.

However, certain debts cannot be included: secured debts (mortgages and car loans), student loans less than 7 years old, court-ordered alimony or child support, court fines or penalties, and debts due to fraud.

To file a consumer proposal, you must owe between $1,000 and $250,000 (excluding your mortgage) in total unsecured debts. While $1,000 is the legal minimum, most Licensed Insolvency Trustees recommend having at least $10,000 in debt to make a consumer proposal practical. For debts over $250,000, you may need to consider a Division 1 Proposal instead.

No. You cannot pick and choose which debts to include. A consumer proposal eliminates unsecured debts including credit cards, lines of credit, payday loans and tax debts.

Consumer proposals do not affect secured creditors. You cannot modify the terms of secured debt with a consumer proposal.

Read more in our article: Must a consumer proposal include all my creditors?

Car loans are not typically included in a consumer proposal because they are secured debts. If you want to keep your vehicle, you must continue making your regular car loan payments outside of the proposal. However, if you choose to surrender your vehicle, any remaining balance after the car is sold (called a deficiency balance) can be included in your proposal.

Yes. A consumer proposal is a legal proceeding under the Bankruptcy and Insolvency Act that provides a stay of proceedings that immediately stops all creditor actions including most wage garnishments and calls from creditors and collection agencies. Once you sign your proposal documents, they will be electronically filed with the government and you immediately gain protection from your creditors.

Read more: How a consumer proposal stops a wage garnishment

No, creditors cannot contact you once you file a consumer proposal. The moment your proposal is filed, a legal “stay of proceedings” takes effect that stops all creditor contact and collection actions. Your Licensed Insolvency Trustee notifies all creditors within 5 days of filing, and becomes your point of contact, handling all creditor communication during your proposal. While creditors might still send one final account statement, they must direct all questions and concerns through your trustee. This protection continues as long as your proposal remains in good standing.

Yes, the Canada Revenue Agency (CRA) accepts consumer proposals and is legally bound by the terms once approved. CRA treats tax debts like other unsecured debts in a proposal, including income tax debt, GST/HST debt, and source deductions. While CRA has voting power like any creditor, they typically accept proposals that offer more than they would receive in bankruptcy. A Licensed Insolvency Trustee can help structure your proposal to meet CRA’s specific requirements for acceptance.

See our tax debt forgiveness article.

A consumer proposal appears on your credit report for either 3 years after completion or 6 years from the filing date, whichever comes first. Your credit rating will show as an R7, indicating you settled your debts through a debt management program.

While it’s possible to get new credit during a consumer proposal, most traditional lenders will require your proposal to be completed first. Secured credit cards and some alternative credit card options may be available during your proposal and can help you begin the process of rebuilding your credit history.

Yes, you can buy a car during a consumer proposal, but your options may be limited. You’ll likely need to work with specialized auto lenders who may require a larger down payment and charge higher interest rates. Your chances improve after completing your proposal.

Unlike bankruptcy, you keep your tax refunds in a consumer proposal. However, if you owe money to CRA, future tax refunds may be applied to any tax debt not included in your proposal. It’s important to stay current with tax filings during your proposal.

You must continue filing your tax returns annually during your proposal and pay any balances owing on time, but any refunds come directly to you.

Consumer proposals can last up to 5 years. Most proposals are structured over 48-60 months. If you can afford more each month, you can shorten your proposal term or offer a lump sum payment. Consumer proposal payments are interest free no matter how long the term of your proposal

Yes you can pay off  your consumer proposal early with no penalties. While your consumer proposal terms and total payments are fixed once your creditors accept the proposal, you can make larger monthly payments, add lump sum payments, or pay the full amount at any time. Early payoff can help you begin the recovery process sooner.

If you miss three monthly payments, your consumer proposal will be automatically annulled. Your debts will be reinstated, and creditors can resume collection actions. Contact your trustee immediately if you’re having difficulty making payments – options may be available.

The duties required in a consumer proposal are much less than those in a bankruptcy. During your proposal, you must:

• Make all required payments
• Attend two credit counselling sessions.
• Unlike bankruptcy you do not need to report your income and expenses and you do not lose any assets, including any tax refunds owing to you.

A consumer proposal typically doesn’t affect your current employment. Professional licenses and bonding may be affected, so check with your professional association. You employer will not be notified except to stop a wage garnishment.

A consumer proposal only affects your debts – it doesn’t impact your spouse’s credit or separate debts. However, joint debts require special consideration. Your spouse remains fully responsible for any joint debts included in your proposal.

Yes, you can rent after filing a consumer proposal. While some landlords check credit, many focus more on income stability and rental history. Being upfront about your proposal and providing references can help secure a rental property.

If you’re struggling with debt, contact a Licensed Insolvency Trustee at Hoyes Michalos for a free consultation. We’ll review your situation and help you understand if a consumer proposal is your best option for becoming debt free.

Book a FREE consultation