A consumer proposal allows you to negotiate a payment plan with your creditors and avoid filing bankruptcy. To help you decide if a consumer proposal is the right option for you, we've provided some answers to the most frequently asked questions we receive about consumer proposals in Canada. Click on any question to get a short answer or watch a short video.

How A Consumer Proposal Works

A consumer proposal is a viable alternative to filing bankruptcy in Canada. The key benefits of a consumer proposal are:

  • keep your assets
  • make one lower monthly payment
  • government program
  • provides creditor protection and court approval
  • early payment options
  • avoid bankruptcy

A consumer proposal is a legal process filed under the Bankruptcy & Insolvency Act through a consumer proposal administrator (bankruptcy trustee).

Any individual who owes less than $250,000 (excluding a mortgage on a personal residence) can file a consumer proposal as a way to settle their debts.

Yes. Once you sign your proposal documents, they will be electronically filed with the government and you immediately gain protection from your creditors.

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 including tax debts and payday loans.

Garnishments for family law support payments cannot be stopped by a consumer proposal.

You must offer more than what your creditors would expect to receive in total in a bankruptcy scenario to satisfy your creditors.

When determining how much to pay, the trustee will look at:

  • What you own and what you earn to determine how much would be available to your creditors in a bankruptcy.
  • Your budget to determine that you can afford the payments.

There are no up front fees when filing a consumer proposal.

The cost for filing a consumer proposal is covered by your agreed upon proposal payments and are not a separate charge.

A consumer proposal is a viable alternative if you have significant surplus income or assets you want to keep.

Payments can be spread over a maximum of 60 months. If you can afford more each month, you can shorten your proposal term or offer a lump sum payment.

Once your proposal documents are signed they will be electronically filed with the government and your creditor protection starts. At that time you stop making payments to your creditors.

A consumer proposal is approved if a majority of creditors (based on the dollar value of proven claims) vote yes after which it is approved by the Court.

  • A meeting is required if at least 25% of your unsecured creditors ask for one (based on the dollar value of proven claims).
  • Creditors have 45 days to vote or request a meeting.
  • Failing to vote is considered a yes vote.
  • It is possible to negotiate to try to obtain agreement.

There are three rules of thumb for a successful consumer proposal:

  1. You must offer more than creditors would receive in a bankruptcy.
  2. It must meet the minimum expectations of your creditors.
  3. Your payments must be affordable.

It is possible to negotiate to try to obtain an agreement.

At Hoyes, Michalos we have a 99% acceptance rate.

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.

You cannot modify the terms of secured debt in a consumer proposal.

Other debts not included:

  • Student loans less than 7 years old.
  • Support and alimony obligations.
  • Court fines and penalties.

Yes. Unsecured tax debts are included in a proposal and CRA is bound by the terms of an accepted proposal.

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.

Yes. While your total payments are fixed once your creditors accept the proposal, you can pay off your proposal early and begin the recovery process sooner.

You can defer up to two payments but if you fall three payments in arrears your proposal will be ‘deemed to be annulled’, your debts are reinstated and you lose your creditor protection.

Choosing The Right Option

Personal bankruptcy is a legal process to assign your non-exempt assets for the benefit of your creditors in exchange for which you receive protection from your creditors. Payments and length are determined by bankruptcy legislation. Upon completion you receive a bankruptcy discharge and your debts are eliminated.

A consumer proposal is a legal arrangement to settle your debts for less than you owe. You negotiate a repayment plan for a period of up to 5 years in exchange for which you keep your assets. Filed under the Bankruptcy & Insolvency Act, a proposal provides the same creditor protections received in a bankruptcy.

A consumer proposal is a viable alternative to declaring bankruptcy. Choosing the right solution depends on your specific situation.

Both options offer:

  • Elimination of debt and fresh start.
  • Immediate legal protection from creditors.
  • Stops collection calls and wage garnishments.
  • Two free credit counselling sessions.
  • You do not surrender assets in a consumer proposal, including tax refunds.
  • Monthly payments are usually lower in a proposal.
  • A proposal requires the pre-approval of your creditors. Bankruptcy is automatic although you 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.

A more detailed comparison can be found  here or in our downloadable fact sheet.

Student Loans

Your student loans are eligible to be automatically discharged if you have been out of school for more than 7 years and:

  • You declare bankruptcy, or
  • You file a consumer proposal.

This waiting period can be shortened to 5 years if you can prove financial hardship.

The seven year period is calculated from your “end of study date”.

  • The end of study date is the last day the government has you registered as a student in a post-secondary education facility.
  • This has nothing to do with when you received your student loans.
  • The time period restarts if you return to school for additional studies.

To determine your end of study date according to government records call:

Canada Student Loans: 1-888-815-4514 (will need SIN NUMBER and pass code if available - press “0” for a live person)

Ontario Student Loans: 1-807-343-7260 (press “*” for a live person)

Eliminating credit card and other unsecured debt through a bankruptcy or proposal can improve your financial circumstances enough that you are able to keep up with your student loan payments.

  • Your student loan lender will receive a pro-rata share of any bankruptcy or proposal payments, reducing your balance owing;
  • Because of the stay of proceedings, your student loan creditors cannot pursue collections during your bankruptcy or proposal.
  • You don’t have to make student loan payments while bankrupt or in a proposal. Interest will continue to accrue during this period.
  • You are still eligible for any government Repayment Assistance programs.
  • You can apply to the court, with the help of legal counsel, to have the waiting period reduced to 5 years.

Rebuilding After A Consumer Proposal

The Office of the Superintendent of Bankruptcy reports all consumer proposals and bankruptcy filings monthly to the different credit bureaus. If you file a consumer proposal a notice will appear, including the date you filed, that indicates that you entered into a repayment arrangement with your creditors.

This notice remains on your report for 3 years after your proposal payments.

Just like it reports new insolvency filings, the OSB also reports discharges and consumer proposal completions each month. The credit bureau should place a notice, along with the completion date, once you have completed your proposal based on this information and should remove the notice after three years.

Be patient. It can take up to 2 months for credit report to be updated.

It is possible to rebuild credit by doing the following:

  • Review your credit report and alert the credit bureau of any errors.
  • Pay all bills on time and in full.
  • Obtain a new credit card (either secured or unsecured) and use it wisely.

We also recommend you begin to build a small emergency fund during your bankruptcy or consumer proposal. This can help you avoid relying on credit and can be used as a down payment or security for a new loan.