Is a consumer proposal worth it? Toronto

Is a Consumer Proposal Worth It? Find Out Now

Considering a consumer proposal to relieve your debts? Is a consumer proposal worth it? It’s a major decision, and one that shouldn’t be taken lightly. Here’s what you need to know about consumer proposals, including how they work, who can file one, and the pros and cons. Weighing your options? Contact us for a free consultation to see if a consumer proposal is right for you.

What is a consumer proposal?

A consumer proposal is a formal option under the Bankruptcy and Insolvency Act that allows you to repay your debts over a period of time. It’s a less severe alternative to bankruptcy, and can be completed in as little as six months. When you make a consumer proposal, you work with a Licensed Insolvency Trustee to create a plan to pay back a fraction of what you owe. Nearly all debts are settled with a consumer proposal. You get to keep your assets and payments are interest free. 

How does a consumer proposal work?

A consumer proposal is a formal, government-regulated process that lets you repay a reduced amount of your debts over a set period of time (usually 3-5 years) while still maintaining possession of your assets and avoiding bankruptcy. 

How does it work? The trustee (your licensed insolvency trustee) will contact your creditors and negotiate a settlement that is fair to everyone involved. Once the proposal is accepted by the majority of your creditors (and deemed approved by the court) it becomes legally binding.

Do most consumer proposals get accepted? Yes!

Once approved, you make regular payments to the trustee, who then distributes the money to your creditors. If you stick to the terms of the proposal, you will receive a certificate of completion of the consumer proposal and your debts will be discharged. You will be debt-free.

What are the benefits of a consumer proposal?

A consumer proposal is a formal process where you offer to repay a portion of your debt to your creditors, over a period of time. The benefits of a consumer proposal include:

  • Better credit rating than bankruptcy
  • Stopping wage garnishments and legal action
  • Stopping demands by the CRA for taxes owing
  • Settling debts at a fraction of what is owed
  • Eliminating interest on payments
  • Paying off your debt over time, in manageable payments
  • Avoiding bankruptcy 
  • Keeping assets
  • Preventing eviction if behind in rent payment

What are the drawbacks of a consumer proposal?

Despite the many benefits of a consumer proposal, there are a few important ‘drawbacks’ to keep in mind. Here are the disadvantages of consumer proposal:

First, once you file a consumer proposal, it is reported to the credit bureaus (equifax and transunion). The reports will show that you filed a consumer proposal under the Bankruptcy and Insolvency Act. Prospective lenders –when reviewing these reports– may erroneously believe that you have filed bankruptcy.  You should be prepared to provide a copy of your consumer proposal documents to show that you did not file bankruptcy. 

Second, consumer proposals are binding agreements and if you default under the terms of the consumer proposal (fall three payments behind), it is deemed annulled (automatically cancelled).  While this does not result in an automatic bankruptcy, you are essentially back to square-one, and the creditors can restart collections or legal action to collect the full amounts owing (plus interest dating back to the start of the consumer proposal).   

Third, a consumer proposal does not compromise secured debt such as car loans or leases or mortgage debt, etc., which must be paid as usual during the course of the consumer proposal.

Who is a consumer proposal right for?

A consumer proposal may be a good option if you are unable to repay your debts as they come due, do not qualify for –or want to avoid– a consolidation loan, or you want to avoid bankruptcy. A consumer proposal is also a good option if you want to keep your assets such as a home or car, or if you are facing legal action from your creditors.

A consumer proposal is right for you if:

  • -you owe less than $250,000, excluding mortgage debt on your principal residence
  • -your wish to keep your assets
  • -you can afford to make monthly payments for the length of the consumer proposal
  • -you project a budget surplus over the life of the consumer proposal
  • -you haven’t already filed a consumer proposal for the same debts (that was rejected or annulled)
  • -you are currently in a bankruptcy and wish to stop and exit the bankruptcy

Who should think twice before making a consumer proposal?

A consumer proposal may be a good option if you are unable to repay your debts as they come due, but it is not the solution for everyone. You should strongly consider other options to resolve your debts if any of the following apply to you:

  • -low income
  • -inconsistent income (sporadic employment, or seasonal)
  • -self-employed with inconsistent earnings or sales
  • -expecting a baby or planning to have a baby (will impact the budget)
  • -older car that may have significant unforeseeable expenses, or may need to be replaced soon
  • -relationship issues, impending separation 
  • -temporary living arrangement that may necessitate a move which will impact the budget
  • -child support or spousal support arrears which are not compromised in a consumer proposal
  • -income subject to garnishment by the Family Responsibility Office (FRO).

Is a Consumer Proposal Worth it? – Summary

A consumer proposal is a formal, government-approved debt-relief solution. If you’re struggling with debt, a consumer proposal may be right for you. A consumer proposal can help you get out of debt and to keep your assets without having to resort to bankruptcy. However, there are some drawbacks to consider before making a decision.

A consumer proposal can be a powerful option to become debt-free by making affordable interest-free payments. To decide if a consumer proposal is right for you, watch our video on consumer proposals or visit our blog on What is a Consumer Proposal. Of course, don’t hesitate to reach out to us to speak with our debt experts for professional advice about consumer proposals and other options to eliminate debt.

About Author

Dr. Jacques Rusinek LIT

Dr Jacques (Jojo) Rusinek LIT was licensed in 1999 as a trustee in bankruptcy (now called Licensed Insolvency Trustee). He has helped thousands of people to become debt-free.

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