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A Consumer Proposal can allow you to consolidate and cut your personal debt – without borrowing, added interest, or professional fees. Read on to learn about the Consumer Proposal process, and whether you might qualify to file a Consumer Proposal to deal with your debt.

Consumer Proposal Debt Consolidation – Better than a Bank Loan

A Consumer Proposal is a unique legal solution to help Canadian consumers restructure and pay off debt. By making a Consumer Proposal, individuals can settle their debts completely, while repaying as little as 20-50% of their balances. Here’s how it works:

  • You’ll connect with a local Licensed Insolvency Trustee in your province, and together decide how much of your debt you could reasonably afford to pay back over a period of up to five years.
  • Once you’ve signed documents to finalize your repayment plan, your Licensed Insolvency Trustee will contact your creditors, notifying them about your Consumer Proposal.
    • Your creditors will be directed to ‘freeze’ your debts now, and anyone who has been contacting you for payments, or even pursuing you in court over your debt, will need to stop these actions – immediately.
    • Your creditors will have 45 days to consider your offer, and if the majority (by dollar value) agree, the Proposal will be binding on all the creditors included – even any who were silent or didn’t agree.
    • Most Consumer Proposals are accepted as filed, and in rare circumstances where this doesn’t happen, your Trustee can help negotiate different terms that work for everyone.

Learn More About the Steps for Consolidating Debt with a Consumer Proposal

Your Consumer Proposal will be customized to your specific personal situation and circumstances, taking into consideration your debts, family size, household income and expenses, and other relevant factors.

  • Most people will offer to repay a portion of the debt they owe by making monthly payments over a period of anywhere from two to five years.
    • For example: $15,000 total debt may be cut down (by 70%) to $4,500, paid over a 36-month period at $125/month.

Because Consumer Proposals are not financed through a bank or lender, there is no new loan or debt. This comes with several major advantages compared to consolidation loans or other refinancing options, including:

  • Cutting the amount of debt you repay down to what you can afford.
  • The debts being included in your Consumer Proposal are frozen, so no new interest accumulates.
    • With a reduced balance and no interest, your monthly debt payment in a Consumer Proposal is usually substantially less than if you continue paying all your debts separately, plus their ongoing interest and other charges.
  • All kinds of different debts can be included in a Consumer Proposal – from credit cards to overdrafts, payday loans to student loans, outstanding income taxes to CERB overpayments and more.
    • Although a Consumer Proposal can cover virtually all types of debt, you don’t have to owe multiple creditors – you might instead use a Consumer Proposal to reduce one debt that is unmanageable, or multiple accounts with the same lender.
  • Licensed Insolvency Trustees are Canada’s only official debt help professionals, and the administrative costs for your Consumer Proposal are set by a government tariff and paid from the money your creditors receive.
    • What this means is there are no out-of-pocket expenses for you – you just pay what you’re offering your creditors.
  • With a Consumer Proposal you have a clear plan with start and finish dates – so you know when you’ll be debt-free! (You can, however, pay off your Consumer Proposal early any time if you want to.)

Why You Should be Cautious if Offered a Loan as Part of Your Consumer Proposal

How to Qualify for a Consumer Proposal

One of the other big advantages Consumer Proposals have over other consolidation options is that they are very straightforward when it comes to who may be eligible to do one. To qualify for a Consumer Proposal, you need to:

  • Be filing as a person, not a business.
    • It’s no problem if you include personal debt you might have incurred because of operating a business though.
  • Owe total debts of less than $250,000 (excluding mortgages on your principal residence).
    • Or, in the case where two people are filing a joint Consumer Proposal together you could owe a total of less than $500,000 (again excluding your mortgages on principal residence).
  • Be insolvent – either by being unable to pay-out your debt in full, or by owing more than the value of the assets you own outright.
  • Not already have an ‘open’ Consumer Proposal.

Remember, you’re not borrowing – so your credit history and credit score are not considerations and a co-signer is never required. Also, even though this is a legal debt solution that offers built-in creditor protection, there is no need for you to have fallen behind in your debt payments.

  • We work with a lot of people who realize that although they make all their payments every month, they are stuck in a borrow-repay-borrow cycle or are not making significant progress in paying down their debt, and need to find a better way to get out of debt.
  • Others realize that even though they may have a positive credit history, they don’t qualify for any consolidation help from lenders without a high income, major asset, or co-signer.

Another key requirement to know is that a Consumer Proposal is a tool that can only be filed for you by a Licensed Insolvency Trustee. You can’t file a Consumer Proposal by yourself – and you can’t hire any other type of advisor to file one for you.

  • Some credit counsellors and debt settlement agents offer debt repayment services that may sound similar to a Consumer Proposal, but these are not the same thing. If it’s not a Licensed Insolvency Trustee you’re talking with (or an Insolvency Estate Manager working for a Licensed Insolvency Trustee), they are not someone who can do a Consumer Proposal for you – and they aren’t qualified to be giving you advice about one either.
  • Be very careful if you are considering working with any sort of third-party agent, especially anyone offering to help you file a Consumer Proposal or connect you with a Licensed Insolvency Trustee. This is totally unnecessary, and you’ll usually end up paying big fees for a connection you could make for free.

All Licensed Insolvency Trustees offer free, confidential consultations – and you don’t need a referral.

4 Questions to Ask When Choosing a Credit Counsellor

When a Consumer Proposal Isn’t the Right Option

Because they’re designed to be a debt solution tailored to fit your finances, a Consumer Proposal can work for almost every individual – but there could be a few situations where you might consider a different option more appropriate, such as where:

  • You have a very high amount of debt and a very limited income, making even a significantly reduced monthly payment unaffordable. In a situation like this, filing for personal bankruptcy is often a good alternative.
  • Your non-mortgage debts total over $250,000. In this case you would not be eligible to use a Consumer Proposal – but you could instead make a similar type of debt reduction offer called a ‘Division I Proposal’. It closely resembles a Consumer Proposal, but a few different rules and processes apply.
    • Talk with a Licensed Insolvency Trustee to discuss whether this could be an option for you.
  • You have a small amount of basic consumer debt (under $5,000) and a reasonably stable income. In this situation you may want to consider a credit counselling repayment plan, where (for a fee) you would repay all your debt in full, possibly without interest.
  • Your only debt is one of the very few types of debt that cannot be included in a Consumer Proposal. Some common examples include where: You only want to renegotiate an ongoing mortgage or vehicle loan, or only have outstanding child support or alimony payments.

When is Filing for Personal Bankruptcy the Best Option?

Most people never expect to find themselves in a situation where they are having challenges paying off their debt, or experiencing threats or legal action from their creditors – and if you do end up in this situation it can feel overwhelming and scary trying to understand all your options, let alone make a plan.

  • A Licensed Insolvency Trustee is your best ally! We are here for you, with unparalleled expertise to help you understand your situation and all possible solutions, and have the authority to offer you safe, regulated options that can protect you from your creditors and get you back on track.

Whether you are interested in a specific debt solution like a Consumer Proposal, or need general advice figuring out what to do with your debt, the first step (and often the only one needed) is to take an hour to talk with a Licensed Insolvency Trustee at no cost.

Preparing for a Consumer Proposal Consultation with a Licensed Insolvency Trustee

Sands & Associates’ team of qualified debt experts work with people across the province, and when you talk with one of our Licensed Insolvency Trustees or Insolvency Estate Managers you can expect us to take the time to ask about your situation, and what your goals are, hearing your concerns and how we can help you.

You don’t need to have any specific documents or details ready for this conversation, but being able to anticipate what will be discussed can help to put you at ease. Generally, we’ll ask you about:

  • Who your creditors are, and around how much you owe.
  • What income you have, and roughly how much you earn per month.
  • Your household situation and general income and expenses.
  • Whether you own any assets, and what those are.
  • When you last filed an income tax return.

Once we have a better understanding of your situation, we’ll walk you through all the solutions you could consider to deal with your debt and put together an estimate of what your Consumer Proposal might look like.

At the end of your consultation you should have an outline of your next steps, and many people tell us that after just this first conversation they feel relief about their financial situation. It might be difficult to believe, especially if you’ve been struggling to pay off your debt for some time, but you do have options, and you could be debt-free much sooner than you think.

You owe it to yourself to get debt help – take an hour to talk confidentially with a local BC debt expert who cares. Book your free confidential consultation with Sands & Associates today.