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Looking for a debt solution to help you regain control of your finances and clear debt? Read on to learn about Canada’s options for consumer debt relief, and why individuals should consider filing a Consumer Proposal to consolidate and cut debt instead of declaring bankruptcy.

Understanding the Consumer Proposal and Bankruptcy Processes

Consumer Proposals are a specialized type of debt consolidation that can be used to drastically cut your consolidated debt with no added interest or fees. Used to settle virtually all debts, including government debts like income taxes and student loans, Consumer Proposal terms are tailored to the unique circumstances of each person, which can make them a great option for many people.

  • A Consumer Proposal provides a means to reducing and paying off debt, protecting you from creditors and can be a successful debt relief option – without bankruptcy.

Because Consumer Proposals provide automatic protection from your creditors and a freeze on any additional interest, they have many benefits compared to other debt consolidation options too.

  • By filing a Consumer Proposal, you are making a legal arrangement with your creditors where you only have to repay the portion of your debts that you can afford to have them settled them in full.
    • Consumer Proposals can include (but aren’t limited to): general consumer debts like credit cards, overdrafts, payday loans or lines of credit, and government debts like student loans and Canada Revenue Agency tax debts.
  • A Consumer Proposal can be made by a person who owes between $1,000 and $250,000 (not including mortgages on a personal residence). If the person’s debts are more than $250,000, they may still be able to file a Proposal, but some different rules will apply.
    • It is also possible to file a joint Consumer Proposal (i.e., for spouses), which doubles the debt limit to $500,000.
  • The length of your Consumer Proposal consolidation payments depends on your situation – it could be just a single lump-sum payment, or as long as five years – your Proposal is tailored to your needs.

If you can afford to pay something towards your debt, a Consumer Proposal is generally the preferred option, and far more people choose Consumer Proposals over bankruptcy. 

How Much Debt will a Consumer Proposal Eliminate?

Bankruptcy is a powerful legal debt forgiveness process Canadians can access in situations where you are no longer able to repay your debts. Personal bankruptcy means you get legal protection from your creditors and debt forgiveness that eliminates your debt.

  • The overall goal of bankruptcy is to provide the honest but unfortunate person an opportunity to start fresh, free from the burden of unmanageable debt.
  • For most people bankruptcy is a simple legal process completed by working with a Licensed Insolvency Trustee. No lawyers, no court appearances, and no need to ask creditors for permission to seek bankruptcy protection.

In certain situations, choosing bankruptcy can be the best way to get out of debt, and, compared to other debt solutions, bankruptcy is often the least expensive debt option and the fastest to complete. There can be several reasons to file for bankruptcy, including:

  • Getting full forgiveness for almost all types of debt including (but not limited to): credit cards, overdrafts, bank loans, taxes and other Canada Revenue Agency debts, CERB overpayments, student loans, payday loans and more.
  • Protecting your assets and income from creditors, including halting wage garnishments.
  • Stopping the stress of debt and gaining a financial fresh start that allows you to move forward with your life and achieve your future financial goals.

10 Facts You Should Know About Personal Bankruptcy

Benefits of a Consumer Proposal – Is a Consumer Proposal Worth it?

Consumer Proposals have immediate benefits and advantages in managing your debt, including:

  • Restructuring virtually all types of debt.
  • Saving you money – halting interest charges, cutting your debts and monthly payments.
  • Giving you breathing room from your creditors, payments, and collection activity.
  • Providing you professional support throughout, as well as qualified financial counselling.

Making a Consumer Proposal is a Simple Process

Filing a Consumer Proposal is a simple process, and less involved than bankruptcy as it requires you to do little beyond completing the terms of your repayment offer, two private one-on-one financial counselling sessions, and keeping your taxes filed.

Consolidating Debt with a Consumer Proposal: Step-by-Step

Consumer Proposals Offer Flexibility in Paying Off Debt

A Consumer Proposal allows you the flexibility to decide your repayment terms. For example: A Consumer Proposal may offer repayment of as little as 20-50% of your total debts.

  • There is no ‘minimum term’ required in a Consumer Proposal. Payment terms can be up to 60 months, or a Consumer Proposal could even be completed with a single, lump-sum payment.
  • You can pay off your Consumer Proposal early at any time without penalty.

In comparison, bankruptcy payments and how long bankruptcy lasts are set by law and are primarily based on your income.

  • Most people will pay just the administrative filing fees of $2,700 (broken into monthly payments) and the bankruptcy will last either nine months or 21 months until you are discharged (released) from bankruptcy, with this “in bankruptcy” period being set by law.
  • In bankruptcy if your income substantially changes the amount you need to pay monthly towards your bankruptcy can increase. In a Consumer Proposal your offer / payments remain the same regardless of income increases.

Credit History Impact of a Formal Debt Solution

A Consumer Proposal will only be reflected as an R7 on your credit history for three years after completion of your Consumer Proposal (or six years from the date of filing, whichever comes first).

  • This is very similar to the credit rating impact of credit counselling programs that require 100% repayment of your debt, and half the time a bankruptcy will show as an R9 (six years from the date you receive your discharge).

It is important to know these notations don’t prevent you from seeking new credit at any time. What’s more, tools and resources aimed at helping you take advantage of the ‘fresh start’ benefits of making a Consumer Proposal or bankruptcy are provided as part of either process.

Can I Get a Mortgage After a Bankruptcy or Consumer Proposal?

More Reasons to Choose a Consumer Proposal Over Personal Bankruptcy

Beyond your personal preference to avoid bankruptcy, Consumer Proposals can have other advantages over declaring bankruptcy. 

Protecting Additional Assets

BC law provides certain exemptions that protect many of your assets from seizure to pay debts. Though most people keep all their assets in a personal bankruptcy, in certain circumstances a person may hold an asset worth more than the BC asset exemption allowances. A Consumer Proposal however has no requirements involving assets unless you decide to offer one as part of your Proposal.

  • A Consumer Proposal can be a simple solution to allow you more control over your assets and ensure certain assets remain protected from your creditors.

What Assets Can I Keep if I Declare Bankruptcy?

Additional Options for Self-Employment Structures

While there is no limit on your earning potential during a bankruptcy or Consumer Proposal, and it is also possible to be self-employed during either process, bankruptcy does restrict the type of business structure that you can operate during the bankruptcy.

  • By choosing to manage your debts with a Consumer Proposal you can continue to be a director of a limited company, whereas a bankrupt individual may not be the director of an incorporated company until they have completed the bankruptcy process and received a discharge.
  • Similarly, there are a few professional accreditations that do not accommodate filing a personal bankruptcy – these restrictions may be avoided by making a Consumer Proposal.

Get Advice About Consumer Proposals and Other Debt Solutions

Whether you’re considering bankruptcy, a Consumer Proposal, a consolidation loan, credit counselling, or other debt solution – it’s important to get all the facts. Licensed Insolvency Trustees are Canada’s only official debt help professionals and it is our goal to help you find a solution to deal with your debt, whether you are struggling to pay debt off, are facing a stressful situation with a creditor, or just want a plan to get out of debt faster.

Sands & Associates’ qualified Licensed Insolvency Trustees can help you evaluate your situation and assess all your potential solutions so you can make an informed decision, moving forward with what you feel is your best option to get out of debt.

During your free, confidential consultation we review all your options together, including strategies for self-directed consolidation, debt repayment plans and Consumer Proposals, also additional resources that may help you in addressing your debts or are relevant to your circumstances.

Book your free confidential debt consultation with a non-judgmental Licensed Insolvency Trustee – in less than an hour you can explore all your options and get a plan to be debt-free.

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