Home > 4 Things to Consider When Deciding If a Consumer Proposal Is Right for You

4 Things to Consider When Deciding If a Consumer Proposal Is Right for You

If you are burdened by debt and find it difficult to repay it, there are options available to solve your financial problem. In this article we will discuss the most popular debt solution in Canada, the Consumer Proposal, and provide the questions to ask yourself to know if it is the right solution for your circumstances.

1. Can your debts be included in a Consumer Proposal?

This is the first and most important question. While Consumer Proposals assist people by offering a new payment plan as well as  debt reduction, you have to make sure your debts are eligible.

The good news – All your unsecured debts can be included in the Consumer Proposal:

  • Credit card debts
  • Department store cards
  • Lines of credit
  • Phone bills
  • CRA debts including income tax debt

The bad news – There are other types of debts which cannot be included in the Consumer Proposal, such as:

  • Alimony and maintenance
  • Child support
  • Court fines and penalties
  • Student loans, if you were a student within the last seven years

What type of debts do you have? Are they eligible?

2. Are you eligible for Consumer Proposal in general?

Unfortunately, not everyone is eligible for a Consumer Proposal. However, the requirements are not very hard to meet. You have to:

  • File as an individual person, not as a business.
  • Be insolvent, which means your are having trouble making the payments on your current debts
  • Have total debts below the sum of $250,000, apart from the mortgage on your house. If you file jointly with your spouse, your total debt cannot go above the sum of $500,000.

Are you eligible?

3. What are the advantages and disadvantages of Consumer Proposal?

There are a lot of pros and some cons that a Consumer Proposal brings to the table. How do they impact you?

Key Advantages

You can keep everything you own. If you continue paying your car lease and/or the mortgage on your house, you can keep both of these, as well as other things you may have – clothes, furniture, and personal effects.

You will not be bothered by any of your creditors. This is not legally guaranteed with other debt relief options, but if you file a Consumer Proposal your creditors are no longer allowed to call you, or use any other form of harassment.

Your spouse’s credit rating score will not be negatively affected by your filing. If you do not have joint debts or if your spouse has not guaranteed one of your debts, then he/she is not influenced in any way by your financial problems.

You can get debt relief of up to 70%. For example, neither credit counseling nor a debt consolidation loan can get you any reduction of your debt. With a debt settlement, the reduction depends on how old the debt is (the older, the better), but does not surpass 65%. Consumer Proposals offer the best debt reduction terms available.

The Consumer Proposal has no hidden fees. With debt settlement, for instance, you will have to pay up to 15% of the debt you owe. Credit counseling costs you between $500 and $1500, the monthly payment for bankruptcy depends on your income level, and a debt consolidation loan might require some supplementary property appraisal expenses. In a Consumer Proposal, all you pay is your monthly payments once the terms have been approved, there are no additional costs or fees to pay.

Key Disadvantages

Negative effect on your credit score. If your credit score is not completely damaged, it will suffer when a Consumer Proposal is listed in your credit bureau file. Although not as damaging as bankruptcy, you will have a hard time getting approvals for future unsecured credit for a period of time. It is important to note that if you are in a never-ending cycle of minimum payments, your credit rating will eventually begin to suffer anyway. Unless you have a real solution to your debt situation, the benefits of a Consumer Proposal often outweigh the temporary reduction in credit score.

Hard to get approved for new credit while in the proposal. You will not be able to seek new credit with creditors that are a part of the proposal (at least while proposal is being paid off).

Your existing credit cards will be cancelled. As a part of the proposal, you will have to surrender all your credit cards. The good news is that there are plenty of companies that provide pre-paid credit cards or secured credit cards, so the impact on your daily life will be minimal.

4. How risky is a Consumer Proposal compared to other options available to you?

The good news here is that a Consumer Proposal isn’t risky at all, since:

  • It is filed by a government Licensed Insolvency Trustee.
  • It is protected by the Bankruptcy & Insolvency Act.
  • It can give you an R7 rating on your credit score for the period of the proposal and for three years after the proposal is completed.
  • If the creditors reject your proposal, you have the option of reviewing it and resubmitting a new one.

Now that you have a little more information and have considered these four questions, does a consumer proposal sound like a viable solution for you? If so, don’t hesitate to call us for your free, no-obligation consultation. We’ll gladly answer any other questions you may have and provide unbiased advice on your debt management options in general.

Freedom from debt is possible. Take the first step today, call us.


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