A consumer proposal allows you to repay a portion of your unsecured debt with legal protection, while avoiding bankruptcy and keeping your assets.
They’re best suited for people who can’t fully repay their debt but want to avoid bankruptcy and still make regular payments.
Consumer proposals can last up to five years, and early repayment is allowed without penalty.
Your credit score drops to an R7, and access to new credit is limited during the repayment period.
Debt management isn’t a one-size-fits-all solution. While there are many ways you can get out of debt, your choice of debt management will depend on how much you owe, what your interest payments are, what types of debts you have, and your ability to repay them.
If other debt repayment options haven’t worked, a consumer proposal might be the next step. It can help you get out of debt, but it’s important to understand the potential drawbacks before committing.
In this guide, we’ll help you understand consumer proposals and understand when they’re the best solution to help you get out of debt.
What Is a Consumer Proposal and How Does It Work?
A consumer proposal is a legal agreement under the Bankruptcy and Insolvency Act that allows you to repay a portion of your debt over time, typically less than the full amount you owe. If your total unsecured debt (credit cards, payday loans, etc.) does not exceed $250,000, you may be eligible for a consumer proposal.
With a Licensed Insolvency Trustee (LIT), like Remolino & Associates, you review your budget and create a repayment plan tailored to your income, family size, and assets. The LIT proposes this plan to your creditors.
Creditors review your proposal and decide whether to accept it. Most of the time, they are willing to accept the portion of funds; however, no two proposals are alike, and what is approved for one person may not be accepted for others.
This article will help you determine whether a consumer proposal is worth it for your unique situation. If you’re unsure of what a consumer proposal is, read the complete guide to consumer proposals for an overview of this debt management solution.
Can you pay off a consumer proposal early?
You must complete your consumer proposal within five years, and you can pay your debts earlier than proposed if you’re able to. This helps you become debt-free faster and start rebuilding your credit sooner, making it easier to qualify for mortgages and other loans down the line.
Consumer Proposal Pros and Cons
Before jumping into a consumer proposal, it’s important to understand the pros and cons to make an informed decision that works for your unique situation.
Benefits of a Consumer Proposal
Consumer proposals are helpful for those who can reliably pay at least a portion of their debts over time. It gives you a way to manage debt more realistically, with a few advantages:
Wage garnishments will stop immediately.
Interest no longer accrues on your debts.
Creditors and their collection companies can no longer legally contact you for repayment.
You keep all of your assets and resolve your debt without declaring bankruptcy.
You can repay your debts early without penalty or creditor approval.
You receive support from your LIT to build better money management habits.
Consumer Proposal Drawbacks
Consumer proposals have their downsides, which will adversely affect your credit rating and score:
They’re a form of insolvency, similar to bankruptcy, meaning you owe more than you can reasonably afford to repay.
You have the potential for a longer repayment period (up to 5 years) than with bankruptcy.
It drops your credit rating to an R7 (3rd lowest rating) for about three years after you've paid back the agreed amount in full, or six years after you filed the consumer proposal, whichever comes first.
You’re unlikely to qualify for additional credit during your proposal.
You have the potential to default on your proposal if you don’t consistently make your payments. If this happens, you can’t file another proposal.
Consumer proposals are a matter of public record, which means they’re accessible in the Government of Canada’s insolvency databaseand can show up during certain background checks.
Some untrustworthy consumer proposal consultants may try to scam you out of money by charging a variety of fees.
Who Should Consider a Consumer Proposal?
You’re a good candidate for a consumer proposal if you:
Can’t afford to repay 100% of your debt through a Debt Consolidation Program
Can still make partial repayments
Want to avoid filing for bankruptcy (and the drawbacks of that choice).
On the other hand, consumer proposals are not for everyone. It can be difficult to obtain new credit during the repayment period, as most financial institutions consider active proposals to be a significant lending risk factor. This could limit your ability to buy a home, finance a new car, or get a loan during your consumer proposal.
What Makes a Consumer Proposal Worth It?
If you can’t afford to pay your full debt through other programs but can make partial, regular payments, a consumer proposal may be beneficial for you.
It’s a second-to-last resort before bankruptcy for those with overwhelming debt they can’t get under control.
Consumer proposals are not recommended for those with small debt loads who can repay them quickly. Secured debts, such as mortgages or car loans, cannot be included in a consumer proposal. Therefore, if your debts are primarily secured, a consumer proposal may not be the best option for you.
All debt management programs have their own benefits and impact on credit. Always review all your options and consult with a certified Credit Counsellor or Licensed Insolvency Trustee (LIT) to understand how each can affect your future financial goals.
Consumer Proposal vs Other Debt Relief Options in Canada
A consumer proposal is just one way to deal with debt; there are several others, depending on your financial situation. Here’s a quick overview of the most common options. For a deeper look at each one, click the links below:
Consumer Proposal. A legally binding agreement to repay a portion of your debt through a Licensed Insolvency Trustee (LIT), with interest frozen and creditor protection.
Debt Consolidation Program (DCP). A structured, non-profit repayment plan through a non-profit credit counselling agency that consolidates your debts into one monthly payment with reduced or no interest.
Debt Consolidation Loan. A single loan from a bank or lender to pay off multiple debts, usually requiring good credit and a steady income.
Bankruptcy. A last-resort legal process to eliminate debt when repayment isn’t possible, and it has a serious long-term impact on your credit.
Which debt relief option should you use? Are there alternatives to consumer proposals? Before considering any debt repayment solution, we recommend talking to a certified Credit Counsellor to explore your options. They’ll help you understand your full range of options, including how credit counselling compares to a consumer proposal, so you can choose the path that fits your situation best. But first, let’s review consumer proposal alternatives in greater detail.
Debt Consolidation Program (DCP)
A Debt Consolidation Program (DCP, also often referred to as a debt management plan) consolidates your unsecured debts into one monthly payment, without taking on a new loan. It helps you pay off everything you owe, with reduced (or no) interest and a clear repayment timeline.
This option is typically best for those with a steady income, struggling to keep up with multiple high-interest payments, and who may not qualify for a consolidation loan due to their credit score.
A debt consolidation loan combines multiple loans into a single loan payment with a lower interest rate. While it doesn’t reduce the total amount you owe, you can usually save money in the long run with the lower interest rate.
This option may work for you if you have a good credit score (to take on a new loan), a steady income, and you can manage loan repayments as part of your monthly budget.
Bankruptcy
Filing for bankruptcy is often your last resort to get out of debt. It should only be explored once you have exhausted all other debt relief options, have significant debts, have limited income, or can’t make consistent payments through other methods. Bankruptcy is also handled by a Licensed Insolvency Trustee (LIT).
Bankruptcy drops your credit score to the lowest possible level (300), and it can take six to seven years to rebuild your credit again, assuming you practice good credit management.
Comparing Debt Relief Options (At a Glance)
You can use the table below to compare consumer proposals with other debt relief options side by side, based on impact on credit, risks, cost, and more.
Consumer Proposal
Bankruptcy
Debt Consolidation Program (DCP)
Debt Consolidation Loan
Best for…
Someone who has overwhelming debt, doesn’t qualify for a DCP or debt consolidation loan, and needs legal protection from creditors.
Someone who has no other repayment options.
Someone who doesn’t qualify for a debt consolidation loan or has poor credit.
Someone who has a good credit score, earns a good income, and may qualify for lower interest rates.
Impact on Credit
Moderate to High – typically reported as R7; stays on your credit report 3 years after completing the proposal or 6 years from filing, whichever comes first.
High – reported as R9; stays on your credit report for 6-7 years from discharge.
Moderate to High – typically reported as R7; stays on your credit report 2 years after completing the program.
Low to Medium – no special rating as it’s considered a regular loan; payments made on time may improve credit, while missed payments can hurt credit.
Risks
Becomes public record.
Missing payments could. nullify your agreement
Limited access to credit until completion.
Becomes public record.
Most severe credit damage.
May lose assets.
Missing payments could nullify your agreement.
Not legally binding (creditors can withdraw)
Limited access to credit until completion.
Requires good credit.
Could lose secured assets.
May not resolve debt if spending habits remain unchanged.
Costs
$1,500 plus 20% of future payments. Future interest stops on debts included in the proposal.
$1,800 minimum cost for first-time filers (can be split into monthly installments). Surplus income charges may apply.
One-time $50 setup fee plus a small administrative fee included in your monthly payment.
Interest is reduced to 0% or significantly lowered.
Interest plus possible loan admin fees.
Provider
Licensed Insolvency Trustee
Licensed Insolvency Trustee
Non-profit credit counselling agency
Banks and credit unions
For more information about comparing debt reduction programs, check out these additional resources:
We also recommend using our free debt calculator to determine what you can afford to pay back on your own, as this could help you decide what debt management option is best for you.
Review Your Debt Management Options with Credit Canada
Where should you get started? Start by speaking with one of our certified Credit Counsellors for a free debt assessment. You’ll receive an honest, compassionate, and non-judgmental evaluation of your financial situation, as well as all debt solution options tailored to you.
Contact us to get started or call 1 (800) 267-2272. If you're not ready to talk to someone just yet, that’s okay, too. Chat with Mariposa, our AI-powered debt management agent, to get personalized advice when it’s most convenient for you.
Frequently Asked Questions
Have questions? We are here to help.
How Does A Consumer Proposal Compare To Bankruptcy Long Term?
A consumer proposal can offer more flexibility and less long-term impact than bankruptcy. With a proposal, you can usually keep your assets, like your home or car, that you might otherwise lose in a bankruptcy. It also stays on your credit report for a shorter period, which can make it easier to start rebuilding your credit sooner.
Does A Consumer Proposal Make Sense If I Want To Rebuild My Credit Quickly?
Compared to bankruptcy, consumer proposals support faster rebuilding of your credit, as long as you stick with your repayment plan to demonstrate financial responsibility.
Is The Cost Of A Consumer Proposal Higher or Lower Than Other Debt Relief Options?
There is a fee to file a consumer proposal, but this is often lower than the interest you would have paid on your outstanding debt or the financial consequences of filing for bankruptcy.
How Can I Tell If A Consumer Proposal Is The Right Solution For My Situation?
To learn if a consumer proposal is right for you, look at your debt type and amount, and your ability to repay. Consult with a Licensed Insolvency Trustee or a certified Credit Counsellor to discuss your options and determine the best solution for your debt management needs.
Doris Asiedu • Author
Doris is an experienced Credit Counsellor, who specializes in Debt Consolidation, and budgeting help. She has been working on her personal mission of helping people in managing their money since 2006.
Reviewed by
Alexandra Rodriguez
• Credit Counsellor and Eduction Lead
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