Consumer Proposal (Debt Settlement Arrangement)

A Consumer Proposal (or debt settlement arrangement) is a settlement offer made by a person to his or her unsecured creditors to reduce the amount of debt owed and stop all interest. 

A Consumer Proposal freezes interest and allows you to make one monthly interest-free payment to settle all of your debts. The amount you pay is typically only a portion of the total amount you owe. A Consumer Proposal can be filed by a person owing less than $250,000.00 (excluding the mortgage(s) on your home and your vehicle loan).

Consumer Proposal Advantages

• Repay significantly less than the amount of debt you owe
• Flexible payment terms based on what you can afford to pay, with no interest
• One monthly payment that deals with all of your debts including credit cards, lines of credit and income tax owed to the government
• Immediately stops wage garnishments, legal actions and collection calls
• Does not require the liquidation of assets such as your home or vehicle - as long as you continue to make your payments
• Avoids the need to file for bankruptcy
• Does not impact your ability to sponsor family to immigrate to Canada
• Better impact on your credit rating than bankruptcy

Disadvantages

• A Consumer Proposal does have a negative impact on your credit rating, although not as bad as bankruptcy
• You will have to rebuild your credit rating to improve your credit score and borrow again in the future

Credit Rating

In addition to borrowing/payment history, your credit rating is made up of several factors including job and residence stability, marital status and income. If you file a Consumer Proposal, the credit bureau will keep a record of your filing for a 3-year period after you have met the full terms of the Consumer Proposal. 

Cost

Once the payment terms on your Consumer Proposal are set, there will be no additional cost or fees. Your monthly payment terms will be tailored to your specific circumstances and will include a review of your income, assets, and total debt. 

Basic Conditions for a Successful Consumer Proposal

A Consumer Proposal generally requires that you have some surplus income in your household budget to allow for a single monthly payment and that your family income is stable. The payments you make under the Consumer Proposal accumulate and are divided among your unsecured creditors at regular intervals over time (up to a maximum of 60 months or 5 years).