So, what is a consumer proposal? It is a legally binding agreement between you and the people you owe money to. You offer to repay part of what you owe, over a fixed period. If enough of your creditors agree, the rest is written off and the collection calls stop.

It is set out in federal law, the Bankruptcy and Insolvency Act, so it works the same way in Ontario as it does everywhere else in Canada. It is not a loan. It is not a consolidation. And it is not a private deal worked out in the background. If the payments are choking you, there is a way through it.

Who can use one

A consumer proposal is for an individual, not a company. Your total debts have to be under $250,000, not counting the mortgage on the home you live in. If you owe more than that, there is a different kind of proposal. The process is similar, but the rules differ. The rules are on the Office of the Superintendent of Bankruptcy’s own page.

You also need enough regular income to make the monthly payment you offer. A proposal is a repayment plan. If there is no income to repay from, it is the wrong tool for you, and anyone who tells you otherwise is selling you something.

What debts a consumer proposal covers

It covers unsecured debt. That is money you owe with nothing pledged against it.

Credit cards, lines of credit, personal loans and payday loans.
Money you owe the Canada Revenue Agency: income tax, penalties and interest, and HST if you are a sole proprietor. We wrote a separate page on CRA debt in a consumer proposal.
Student loans, if it has been seven years or more since you were last a student.

It does not touch secured debt. Your mortgage and your car loan carry on as they are, and you keep paying them if you want to keep the house and the car. It also leaves out child and spousal support, most court fines, debts that came from fraud, and student loans younger than seven years. Those survive it.

How does a consumer proposal work?

Your whole situation is reviewed: what you owe, to whom, what you own, and what you earn.
An offer is prepared. It says how much you will repay in total and over how many months.
A Licensed Insolvency Trustee files it with the Office of the Superintendent of Bankruptcy.
The moment it is filed, a stay of proceedings begins. Wage garnishments stop. Collection calls stop. Most lawsuits stop.
Your creditors have 45 days to consider it. If none of them asks for a meeting, it is accepted automatically.
If it goes to a vote, it passes when creditors holding more than half the voting dollar value say yes.
You make the payments. When the last one clears, the remaining balance is legally gone, and you receive a certificate that says so.

Take that first step slowly. How you answer the questions about your file is very important, so understand each question before you answer it. Every file is different, and your buddy’s file is not yours.

How long does it take to be approved?

Count about two months from the filing to a proposal that binds everyone. Your creditors get 45 days. A meeting is held only if creditors holding at least a quarter of the proven claims ask for one. After acceptance there is a further 15 days in which the Superintendent’s office, or anyone else with an interest, can ask for the court to review it. Almost none are reviewed.

You do not wait those two months for the protection. The stay of proceedings starts on the day of filing, and your first payment is usually due within the first month.

How long it lasts

A consumer proposal can run for up to five years. You can pay it out early with no penalty, and many people do when things get better for them.

Here is an example. Say the offer your creditors accept is $24,000 over 48 months. That is $500 a month, fixed, for four years. If you come into money in year two and pay the rest in one go, it is finished in year two. The number does not go up if your income goes up.

Do you keep your house and your car?

In a consumer proposal, yes, as long as you keep up the secured payments on them. Nothing is sold. That is the main reason people choose a proposal over a bankruptcy.

Your equity still matters, because your creditors compare your offer with what they would get if you went bankrupt instead. In Ontario, the law sets what a bankrupt keeps: one vehicle up to $8,578 of value, household furnishings up to $17,091, tools of your trade up to $17,362, and the equity in your home only if it is under $12,997. Those figures are in Ontario Regulation 657/05, and they change every five years. If your equity is above those lines, your offer has to reflect it. That is a number to work out before anything is filed, not after.

What about your spouse?

A consumer proposal is filed by one person. Your spouse does not have to file one because you did. Two things do reach across the table. Any debt in both your names, or that your spouse co-signed, stays fully collectable from your spouse. And your household income is looked at when the offer is built, because the payment has to be one your household can carry. Every file is different. If there is a joint account, a joint card or a spouse on the title of the house, tell us at the start.

What it does to your credit

It goes on your credit report as an R7 rating. That stays for three years after you make the final payment, or six years from the day it was filed, whichever comes first. The rule is on the Financial Consumer Agency of Canada’s page, and we go through it on our page about what a consumer proposal does to your credit.

Here is an example. Say you pay it out at year two. Three years after that final payment is year five, which comes before the six-year mark, so it comes off at year five.

We will be plain with you about this part. A consumer proposal damages your credit. But what it is up against is usually not a clean report. It is up against missed payments, collections and judgments, which are on the report too, and which have no end date attached.

What it costs

The fees for administering a consumer proposal are fixed by federal tariff, not set by whoever files it. They are paid out of the payments you are already making. They do not sit on top of your offer as a separate bill.

Questions people ask

Is a consumer proposal always accepted?

No. It is an offer, and your creditors can say no. In practice most are accepted, because a well-built offer gives creditors more than a bankruptcy would. If one is refused, it can be amended and put back to them. The work is in getting the number right the first time.

Can you pay it off early?

Yes, at any time, with no penalty. Paying it out early also moves the date it leaves your credit report forward.

Can the CRA be included?

Yes. Personal income tax, interest and penalties go in with everything else, and the CRA votes like any other creditor. The details, including what the CRA looks for before it votes yes, are on our CRA and a consumer proposal page.

What is the first step?

Write down what you owe and to whom, what you own, and what comes in each month. Then call. There is nothing to sign to have that conversation, and you can ask the same question five times if you want. Every consultation is free.

What are the disadvantages?

The credit mark, the closed cards, the public record, and the fact that you have to finish it. We put them all on one page, the disadvantages of a consumer proposal, because you should read them before you decide, not after.

Where we fit

Get Total Debt Relief is a debt consulting and representation firm, not a Licensed Insolvency Trustee. Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy. What we do is the work before the filing: we go through your whole situation with you, we answer your questions for as long as it takes, and the path you choose comes from that.

We have spent 35 years on the debtor’s side of this work. You can read more about proposals and bankruptcy, or about the kinds of debt we handle.

DISCLOSURE:

Get Total Debt Relief is a debt consulting and representation firm. We are not a Licensed Insolvency Trustee, and we are not connected to the Canada Revenue Agency or any government body.

Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy.

OUR SERVICE:

However, any Trustee you choose can’t legally represent you over your Creditors nor can he give you any advice that will benefit you over your Creditors. The Trustee’s job is to maximize how much he can get from you and your estate for the benefit of your Creditors and the more he collects in a Proposal, the more he makes.

What we do is the work before the filing and the path you choose will come from the advice and information that goes with it. More importantly, we use tools that are not available to the Trustee because of who’s interests he represents. We go through your whole situation with you. We answer your questions, for as long as it takes and as many times as you need to ask them. Every consultation is free and if or when you decide to move forward, you’ll know which option best suits you, your family and or your business. And, unlike the Trustee, we will NEVER use the information you’ve given us against you in Court. The bottom line is that we don’t look to liquidate your assets and equities, we look to protect them.

Every consultation is free, and you can call as many times as you need. Call 647-276-8844 or talk to us.