Consumer Proposal

What is a Consumer Proposal?

Parachute always recommends debt consolidation before heading down the consumer proposal road.
Caitlin Carter
October 3, 2023
Apply to Parachute and start your journey to financial wellness.
Apply now
Table of Contents

A consumer proposal is a debt management option available to individuals who are struggling with overwhelming debt. It is a legal process that allows debtors to make a formal proposal to their creditors to repay a portion of their debts over a period of time. Understanding the concept of a consumer proposal involves knowing its purpose, how it works, and who can file for it.

The purpose of a consumer proposal is to provide debt relief for individuals by offering an alternative to bankruptcy. It allows debtors to negotiate a manageable repayment plan with their creditors, often resulting in reduced overall debt and more favorable terms.

The process of a consumer proposal involves several steps. It begins with a consultation with a Licensed Insolvency Trustee, who assesses the debtor's financial situation. Then, a proposal is developed, outlining the amount that the debtor can afford to pay and the proposed timeline. This proposal is then submitted to the creditors for review and approval. Negotiations may take place to reach an agreement that satisfies both the debtor and the creditors. Once the proposal is approved, it is implemented, and the debtor begins making payments according to the agreed terms.

While a consumer proposal offers advantages such as debt reduction and protection from creditors, it also has certain disadvantages. Debtors may have to make regular payments for an extended period of time, and their credit score will be affected. It is important to carefully weigh the pros and cons before deciding if a consumer proposal is the right option.

A consumer proposal can have implications on credit and finances. It can negatively impact a person's credit score, making it more challenging to obtain credit during the proposal. However, it can also provide relief from collection calls and prevent wage garnishment.

In addition to a consumer proposal, there are alternative debt management options to consider. Debt consolidation, bankruptcy, and informal negotiations with creditors are among the alternatives that may be more suitable depending on individual circumstances.

By understanding what a consumer proposal is and exploring its various aspects, individuals can make informed decisions about their debt management choices and work towards achieving financial stability.


Key takeaways:

  • Always attempt debt consolidation before considering a consumer proposal.
  • A consumer proposal is a formal agreement made between a debtor and their creditors to settle debts. It is a legally binding process regulated by the Bankruptcy and Insolvency Act in Canada.
  • Consumer proposals provide individuals with an alternative to bankruptcy, allowing them to consolidate their debts and make affordable monthly payments based on their income and assets.
  • To file for a consumer proposal, individuals must work with a licensed insolvency trustee who will guide them through the process of developing a proposal, submitting it to creditors, and negotiating with them to reach an agreement.


What is a Consumer Proposal?

```A Consumer Proposal: A Solution for Debt Relief in Canada A consumer proposal is a legal process available to Canadian residents who are unable to pay their debts. It offers a formal agreement between an individual and their creditors, allowing the individual to propose repaying a portion of their debt over a specific period. This proposal is facilitated by a licensed insolvency trustee, who negotiates on behalf of the debtor with the creditors. If the creditors accept the proposal, the debtor commits to making monthly payments until the agreed-upon amount is fully repaid. With over 100,000 proposals filed annually, a consumer proposal is a popular debt relief option in Canada. It provides an alternative to declaring bankruptcy and offers individuals the opportunity to become debt-free while safeguarding their valuable assets. By utilizing this process, Canadians can regain control of their financial situation and move towards a more secure future.```

Understanding Consumer Proposal


  1. It is essential to have a clear understanding of consumer proposals for individuals facing financial challenges. Here are some steps to guide you through the process:
  2. Educate yourself: Take the time to learn about consumer proposals, their purpose, and the potential benefits they can offer you.
  3. Assess your financial situation: Evaluate whether a consumer proposal is the right solution for your specific circumstances.
  4. Consult a licensed insolvency trustee: Seek professional advice from an expert to gain a comprehensive understanding of the details and implications associated with a consumer proposal.
  5. Create a proposal: Collaborate with your trustee to develop a proposal that clearly outlines your plan to repay creditors.
  6. Submit the proposal: Your trustee will then present your proposal to your creditors for their consideration and approval.
  7. Follow the terms: Once your proposal is accepted, it is crucial to adhere to its terms, which includes making regular payments to your trustee.
  8. Completion of the proposal: After successfully fulfilling all the terms outlined in the proposal, you will be discharged from the debts included in the agreement.


Remember, understanding consumer proposals is paramount when making informed financial decisions. It is always wise to seek professional advice to receive personalized guidance and explore all available options.

What is the Purpose of a Consumer Proposal?

The purpose of a consumer proposal is to provide individuals facing financial difficulties with a legally binding solution to deal with their debts. By filing a consumer proposal, individuals can propose a repayment plan to their creditors that offers a reduced amount of debt in exchange for a structured payment schedule that is manageable for the individual. The primary objective of a consumer proposal is to help individuals avoid bankruptcy and provide them with a more affordable and structured way to repay their debts. It offers a fresh start and allows individuals to regain control of their finances.

The purpose of a consumer proposal is to act as a legally binding solution for individuals facing financial difficulties. This proposal allows these individuals to propose a repayment plan to their creditors, offering a reduced debt amount. In return, they arrange a structured payment schedule that suits their financial capabilities. The main objective of a consumer proposal is to help individuals avoid bankruptcy by providing a more affordable and structured method to repay their debts. Ultimately, it offers them a fresh start, enabling them to regain control over their finances.

How Does a Consumer Proposal Work?

A consumer proposal is a legal process that allows individuals overwhelmed by debt to negotiate with their creditors and create a repayment plan. So, how does a consumer proposal work? The process involves several steps, starting with a consultation with a licensed insolvency trustee. This expert will guide individuals through the process, ensuring they understand their rights and obligations. Next, individuals must develop a proposal that outlines their financial situation and proposed repayment terms. Once completed, the proposal is submitted to creditors for review and consideration. The negotiation phase follows, where the individual and their trustee work with the creditors to reach agreeable terms. If approved, the proposal is implemented, and individuals can begin the process of debt relief. This option provides several advantages, such as stopping collection calls that can be incredibly stressful for individuals dealing with financial difficulties. Additionally, it helps prevent wage garnishment, allowing individuals to regain control of their income. However, it's worth noting that there are also some disadvantages to consider. One of the main drawbacks is the impact on an individual's credit score. A consumer proposal will be reflected on their credit report, which may affect their ability to access new credit in the future. It's crucial for individuals seeking debt relief to understand how a consumer proposal works and to carefully consider all the pros and cons before proceeding.

Who Can File for a Consumer Proposal?

To file for a consumer proposal in Canada, individuals must meet the specified criteria. Those who have unsecured debt, ranging from a minimum of $1,000 to a maximum of $250,000 (excluding mortgage on principal residence), are eligible. This debt includes credit card debt, personal loans, and tax debt. It's important to note that consumer proposals are not open to businesses or individuals with total debts exceeding $250,000. Moreover, individuals who have previously filed for bankruptcy and have not received a discharge are not eligible for a consumer proposal. It's interesting to know that in 2019, more than 57,000 Canadians filed for consumer proposals.

The Process of a Consumer Proposal

The process of a consumer proposal is a journey filled with crucial steps that pave the way towards financial recovery. From the initial consultation with a licensed insolvency trustee to the final approval and implementation of the consumer proposal, each sub-section in this section will uncover the essential stages involved. We'll uncover the ins and outs of developing a proposal, navigating the negotiations with creditors, and the significance of submitting the proposal to creditors. Let's embark on this enlightening path to understanding the consumer proposal process.

Step 1: Consultation with a Licensed Insolvency Trustee

Step 1: Consultation with a Licensed Insolvency Trustee

  • The first step in a consumer proposal is to have a consultation with a licensed insolvency trustee.
  • The consultation involves meeting with a licensed insolvency trustee to discuss your financial situation and explore potential solutions.
  • During the consultation, the trustee will review your debts, assets, and income to determine if a consumer proposal is the best option for you.
  • The trustee will explain the process of a consumer proposal, including the eligibility requirements and the steps involved.
  • They will also discuss the benefits and potential drawbacks of a consumer proposal, and provide guidance on how to proceed.
  • This initial consultation is crucial in understanding your options and making an informed decision about your financial future.

Step 2: Developing a Proposal

Developing a consumer proposal involves a series of steps that are essential for its success in resolving debt issues. These steps include:

1. Consultation with a Licensed Insolvency Trustee: Seek advice from a professional who will assess your financial situation, determine if a consumer proposal is suitable, and guide you through the process. Step 2: Gather and organize financial information: Compile all necessary documents, such as debts, income, expenses, and assets, to determine the amount you can offer to creditors. 3. Draft a proposal: With the guidance of your trustee, develop a proposal that outlines how much you can afford to repay and over what period of time. 4. Submit the proposal to creditors: Your trustee will present the proposal to your creditors, who will then have 45 days to vote on its acceptance. 5. Negotiation with creditors: If necessary, your trustee will negotiate with creditors to reach an agreement on the terms of the proposal. 6. Approval and implementation: If the majority of your creditors accept the proposal, it will be approved and implemented, allowing you to make regular payments and ultimately become debt-free. Fact: The success rate of consumer proposals is high, with more than two-thirds of proposals being accepted by creditors.

Step 3: Submitting the Proposal to Creditors

  1. Consultation with a Licensed Insolvency Trustee
  2. Developing a proposal that outlines your repayment plan
  3. Step 3: Submitting the Proposal to Creditors
  4. Negotiating with creditors to reach a mutually agreeable solution
  5. Once approved, implementing the consumer proposal and adhering to the agreed-upon terms

By following these steps, you can navigate the process of submitting a consumer proposal to creditors effectively.


Step 4: Negotiating with Creditors

  1. Collaborate with your licensed insolvency trustee (LIT) to develop a proposal that outlines how much you can afford to repay.
  2. The LIT will then submit the proposal to your creditors on your behalf.
  3. Upon receiving the proposal, creditors will evaluate it and may offer their own suggestions or modifications.
  4. Negotiating with creditors takes place between your LIT and the creditors to reach a mutually agreeable settlement.
  5. Once an agreement is reached, the consumer proposal is approved, and you begin making the agreed-upon payments to your LIT.


Fact: During Step 4: Negotiating with Creditors, creditors may agree to reduce the overall amount owed or extend the repayment period, providing a feasible solution for individuals facing financial challenges.

Step 5: Approval and Implementation of the Consumer Proposal

  • Step 5: Once the consumer proposal has been submitted to creditors, they will review and vote on its approval.
  • If creditors representing at least 50% of the total debt agree to the proposal, it will be considered accepted.
  • Once accepted, the consumer proposal is legally binding for all creditors, including those who did not vote in favor.
  • Monthly payments outlined in the proposal will need to be made to the Licensed Insolvency Trustee.
  • Upon completion of all payments, the consumer proposal will be considered fulfilled, and the remaining debt will be discharged.


Advantages and Disadvantages of a Consumer Proposal

Consumer proposals come with their fair share of advantages and disadvantages. Let's dive into what makes them so intriguing. From the advantageous side, we'll uncover how consumer proposals provide a fresh start and a chance to consolidate debt. But, on the flip side, we'll also explore the potential pitfalls and considerations that come with this financial option. So, hold tight as we navigate through the pros and cons of consumer proposals, shedding light on what you need to know.

Advantages

A consumer proposal provides numerous benefits to individuals experiencing financial difficulties. Firstly, it enables debt reduction by forgiving a portion of the debt, thereby reducing the overall amount owed. Secondly, it offers protection from creditors as they are legally obliged to cease all collection efforts once a consumer proposal is filed. Additionally, consumer proposals facilitate affordable payments, allowing individuals to make manageable monthly payments over a fixed period of time that are specifically tailored to their financial situation. Unlike bankruptcy, a consumer proposal provides the opportunity to retain assets such as your home or car. Furthermore, although a consumer proposal does impact your credit score, it can be rebuilt faster when compared to bankruptcy.

Disadvantages

The disadvantages of a consumer proposal can impact your financial situation in various ways. Here is a table outlining some of these drawbacks:

Disadvantages1. Impact on Credit Score: A consumer proposal will negatively affect your credit score, making it harder to obtain credit in the future.2. Limited Financial Flexibility: During the proposal, you may be required to make regular payments, limiting your ability to spend or save.3. Public Record: Consumer proposals are publicly recorded, which can affect your reputation and future financial endeavors.4. Difficulty in Mortgage Approval: It may be challenging to get approved for a mortgage while the proposal is still active.5. Impact on Relationships: The stress and strain of dealing with financial issues may affect your personal and professional relationships.

Considering these disadvantages, it's important to weigh the pros and cons before deciding on a consumer proposal. Seeking professional advice is recommended to explore alternative options and choose the best course of action for your financial circumstances.

Implications of a Consumer Proposal on Credit and Finances

A consumer proposal can have significant implications on one's credit and finances. It is important to understand the implications of a consumer proposal on credit and finances before making a decision.

  • Credit Impact: A consumer proposal will have implications on your credit report, affecting your credit score and making it difficult to obtain new credit in the future.
  • Financial Impact: The proposal can require you to make regular payments to your creditors, potentially affecting your budget and financial stability.
  • Rebuilding Credit: After completing your consumer proposal, it is possible to rebuild your credit over time by making timely payments and demonstrating responsible financial behavior.

Consider seeking professional advice to fully understand the implications of a consumer proposal on credit and finances and explore other options like debt consolidation or bankruptcy. Remember, every financial situation is unique, so consult an expert for tailored guidance.

How Does a Consumer Proposal Affect Credit Score?

How Does a Consumer Proposal Affect Credit Score?

A consumer proposal can have a significant impact on an individual's credit score. When a consumer proposal is filed, it is recorded on the individual's credit report, which can lower their credit score. The proposal will remain on the credit report for three years after it has been completed or six years from the date it was filed, whichever comes first. During this time, it may be challenging to obtain new credit. Successfully completing a consumer proposal can demonstrate responsible financial management and may lead to an improved credit score over time. It is important to weigh the potential credit score impact against the benefits and opportunities for debt resolution that a consumer proposal can provide.

Can I Get Credit During a Consumer Proposal?

While in a consumer proposal, it may be challenging to obtain credit, but it is not impossible. Here are some things to consider:

  • Can I get credit during a consumer proposal? It is difficult to get new credit during a consumer proposal because lenders may view it as a higher risk.
  • Secured loans, such as a car loan, may be easier to obtain as they are backed by collateral.
  • Some lenders specialize in providing credit to individuals in consumer proposals, although interest rates may be higher.
  • Rebuilding credit during a consumer proposal is important to improve your creditworthiness once it is completed.

Sarah was able to obtain credit during her consumer proposal by approaching a lender who specializes in assisting individuals in her situation. Although the interest rate was higher, it allowed her to finance a used car, which she needed for work.

Can a Consumer Proposal Stop Collection Calls?

  • Yes, a consumer proposal can stop collection calls from creditors.
  • When you file a consumer proposal, an automatic stay of proceedings is put in place, which prohibits creditors from taking any further legal action against you.
  • This includes stopping collection calls, as creditors are legally required to respect the terms of the proposal.
  • It's important to note that the stay of proceedings only applies to unsecured debts included in the consumer proposal.
  • If you have other debts, such as secured debts or obligations like child support or alimony, collection efforts may continue for those specific debts.
  • To maximize the benefits of a consumer proposal, it's essential to work with a licensed insolvency trustee who can guide you through the process and ensure your rights are protected.
  • They will handle the communication with creditors on your behalf, including stopping collection calls.
  • By successfully completing the terms of the consumer proposal, you can eliminate your debts and regain control of your finances.


If you're struggling with overwhelming debt and constant collection calls, a consumer proposal may be a viable solution to consider. It can provide you with a fresh start and stop the harassment from creditors. It's crucial to consult with a licensed insolvency trustee to assess your financial situation and determine if a consumer proposal is the right option for you.

Can a Consumer Proposal Prevent Wage Garnishment?

A consumer proposal can indeed prevent wage garnishment. When filing a consumer proposal, it triggers an automatic stay of proceedings which applies to all debts, including any ongoing wage garnishments. This legally mandates creditors to immediately cease garnishing wages once the consumer proposal is submitted. Coping with wage garnishment can be a distressing and financially debilitating circumstance, but a consumer proposal grants protection and relief by halting garnishments and allowing an opportunity to renegotiate the debt. Consequently, it empowers individuals to regain financial control and progress towards a manageable debt repayment plan.

Fun Fact: It is crucial to seek advice from a licensed insolvency trustee as wage garnishment laws may vary by jurisdiction. They can offer tailored guidance specific to your situation.

Alternatives to a Consumer Proposal

Looking for alternatives to a consumer proposal? Want to explore different options? In this section, we'll dive into some potential routes to consider. From debt consolidation to bankruptcy and informal negotiations with creditors, we'll uncover various avenues that can help you navigate your financial situation. With these alternatives at your disposal, you'll be equipped with the knowledge to make informed decisions and find the best path forward.

Debt Consolidation

At Parachute we recommend debt consolidation as a viable alternative to a consumer proposal. Our goal is to guide you back to financial wellness

  1. Evaluate your debts: Assess the types and amounts of debts you have, including credit card debt from multiple sources.
  2. Research options: Explore various debt consolidation programs, loans, or balance transfer credit cards to find the best solution for your financial situation.
  3. Choose a debt consolidation method: Decide whether debt consolidation loans, programs, or balance transfer credit cards suit your needs.
  4. Apply for debt consolidation: Complete the necessary applications and provide required documentation for the chosen debt consolidation option.
  5. Pay off existing debts: Once approved, use the debt consolidation funds to pay off all your existing debts, including credit card debt.
  6. Make regular payments: Commit to making timely payments towards your consolidated loan to actively reduce your debt.
  7. Monitor your progress: Track your progress and adjust your budget as needed to stay on track with your debt consolidation plan.


John found himself burdened with credit card debt from multiple sources, and the overwhelming high interest rates made it difficult for him to manage his finances. To alleviate this situation, he made the decision to pursue debt consolidation, which allowed him to combine all of his debts into one manageable monthly payment. With discipline and the benefit of a lower interest rate, John successfully paid off his debt and significantly improved his financial situation.

Bankruptcy

Filing for bankruptcy is a legal process that provides individuals or businesses with overwhelming debts the opportunity to obtain a fresh start. It involves declaring inability to repay debts and having assets evaluated to pay back creditors. Some key aspects to consider when contemplating bankruptcy include:

  • Eligibility: One must meet certain criteria to be eligible for bankruptcy, such as the amount of debt owed and the ability to make payments.
  • Process: Bankruptcy involves submitting necessary paperwork, attending credit counseling, and potentially negotiating with creditors.
  • Implications: Bankruptcy affects credit scores, ability to get credit, collection calls, and wage garnishment.
  • Alternatives: Debt consolidation, informal negotiations, or other alternatives should be explored before deciding on bankruptcy.

Informal Negotiations with Creditors

  • Informal negotiations with creditors can be an alternative solution for individuals facing financial difficulties. This approach involves direct communication with creditors to renegotiate payment terms or settle debts. Here are the steps involved in informal negotiations with creditors:
  • Evaluate your financial situation and determine a realistic repayment plan.
  • Contact creditors and explain your financial hardship, providing supporting documentation if necessary.
  • Negotiate new payment terms, such as lower monthly payments or reduced interest rates.
  • Propose a settlement offer, offering a lump sum payment that is less than the total amount owed.
  • Reach an agreement with creditors and ensure the agreement is properly documented.

Informal negotiations with creditors can provide more flexibility and control compared to formal options like bankruptcy or consumer proposals. It is important to keep in mind that creditors are not obligated to participate in these negotiations, and the success of the process depends on the willingness of both parties to find a mutually beneficial solution.


Some Facts About Consumer Proposals:

  • ✅ Always attempt debt consolidation before a consumer proposal. (Source: Our Team)
  • ✅ It allows individuals to repay a percentage of their debt in exchange for full debt forgiveness. (Source: Our Team)
  • ✅ A consumer proposal is a legally binding agreement between the debtor and creditors. (Source: Our Team)
  • ✅ It is administered by a Licensed Insolvency Trustee. (Source: Our Team)
  • ✅ Payments can be spread out over a maximum of 5 years and are interest-free. (Source: Our Team)

Frequently Asked Questions

What is a consumer proposal?

A consumer proposal is a debt relief solution in Canada that allows individuals to repay a percentage of their debt in exchange for full debt forgiveness. It is a legally binding agreement between the debtor and creditors and is administered by a Licensed Insolvency Trustee.

How does a consumer proposal work?

A consumer proposal is administered by a Licensed Insolvency Trustee who helps the debtor develop a proposal that suits both the debtor and the creditors. The debtor offers to pay creditors a percentage of what is owed or extend the time to pay off the debts. Payments are made through the Trustee, who then distributes the money to creditors.

What debts can be included in a consumer proposal?

Unsecured debts such as credit card debt, bank loans, payday loans, and tax debts can be included in a consumer proposal. Secured debts like mortgages and car loans are not affected, but a consumer proposal can help balance monthly budgets and make it easier to keep up with secured debt payments. Student loans can be included if the debtor has been out of school for seven years, and the trustee can provide guidance on how to handle other types of debts.

What are the benefits of a consumer proposal?

A consumer proposal provides a way for individuals to manage their debts and avoid bankruptcy. It allows for a reduction of overall debt burden, with settlements of 30 cents on the dollar being common. Payments can be spread out over a maximum of 5 years and are interest-free. It is also the only debt settlement option accepted by the Canada Revenue Agency for reducing or eliminating actual taxes owing.

What are the steps involved in filing a consumer proposal?

When filing a consumer proposal, debtors must provide a complete list of assets and liabilities to the Licensed Insolvency Trustee (LIT), attend the first meeting of creditors if requested, attend two counseling sessions, inform the LIT of any address changes, and assist in administering the proposal. Once the proposal is filed with the Office of the Superintendent of Bankruptcy (OSB), debtors stop making direct payments to unsecured creditors and actions such as wage garnishment and lawsuits are halted. Creditors have 45 days to accept or reject the proposal.

How does a consumer proposal affect government debts?

A consumer proposal can address government debts, including income tax debt and unpaid HST or GST tax payments. It is a recognized debt settlement option by the Canada Revenue Agency for reducing or eliminating taxes owing. Including these debts in a consumer proposal can provide individuals with a way to manage their outstanding tax obligations while reducing their overall debt burden.

Caitlin Carter
Caitlin Carter, Parachute’s, Head of Customer Success lives and breathes well-being - her passion over the last few years is how well-being is impacted by finances and conversely how finances are impacted by our well-being. She has a 15+ year career helping international brands execute on their global education and development strategy as well as define and monitor their operational KPIs.
Follow us:

More from our blog:

Start your path to financial well-being today.
Get a loan that gives you cash-back.
We truly believe financial well-being should be accessible to all Canadians. Our three step program empowers, educates, and rewards our customers. We offer the only loan where someone can leave with more savings than when they started.
© 2022 WHF Inc. All rights reserved. Myparachute.co and the Myparachute.co designs are trademarks of White Hat Financial Inc. (‘WHF’) and used here under licence.