Disadvantages Of Consumer Proposal | Consumer Proposal Advantages (2024)

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Consumer Proposals are considered the #1 alternative to bankruptcy. This is for a good reason. They are the only Government approved debt settlement program in Canada. The number of individuals choosing a Consumer Proposal as their preferred debt solution has risen significantly in the past number of years as more people learn about them.

We have compiled a list of advantages and disadvantages of Consumer Proposal in Canada:

Advantages of a Consumer Proposal:

For those who qualify, a Consumer Proposal has several key advantages over bankruptcy:

  1. You keep your assets – One of the main and biggest advantage of a proposal is that your assets are protected and you can keep all including tax refunds, investments and home equity.
  2. Lower monthly payments – In a Consumer Proposal, you repay only a portion of your debt depending on the terms and agreements made with your Trustee. It is not uncommon to see debts reduced as much as 70% of amount owed.
  3. No surplus income – Unlike in a bankruptcy, where the more you earn, the more you pay, Consumer Proposals have a fixed payment amount that does not increase.
  4. Creditor protection – Once a proposal is approved by your creditors, a Consumer Proposal will provide you with creditor protection that will stop collection calls and garnishments.

Key points:

  • It is a negotiated debt settlement
  • Repay only a portion of your total debt
  • One affordable payment is made monthly over no more than 5 years
  • Interest is frozen
  • Filing a proposal is legally binding for you and your creditors.

Disadvantages of a Consumer Proposal:

  1. Time – Although a Consumer Proposal is a top choice for many debtors, they are not always the best option. A proposal will usually take longer to complete than a bankruptcy. Lowering your monthly payment means longer time paying back, however, if your situation improves, you CAN pay off a proposal early.
  2. Credit rating is still affected– A Consumer Proposal DOES affect your credit. It will show as an R7 rating and stay there for 3 years after completion.
  3. Proposal terms – You must adhere to all proposal payments and agreements. You cannot miss payments or fall behind, or your proposal terms will be terminated.
  4. If you do not have a significant income, and do not own assets that would be seized, then a Consumer Proposal would not be of benefit. In this case, filing personal bankruptcy would possibly be your best option.

Only an LIT can act as a Consumer Proposal administrator. If you think a Consumer Proposal is the right solution for you, the next step is to talk with a Licensed Insolvency Trustee. Contact us today to find out if a Consumer Proposal is right for you.

If you want to compare monthly payments for a Consumer Proposal vs Bankruptcy or Debt Consolidation, try our debt calculator.

Disadvantages Of Consumer Proposal | Consumer Proposal Advantages (2024)


Disadvantages Of Consumer Proposal | Consumer Proposal Advantages? ›

Disadvantages of a Consumer Proposal:

What is the downside of a consumer proposal in on? ›

These disadvantages include: Secured debt isn't included: Secured loans won't be reduced or included in your payment plan, which may make a consumer proposal impractical. Affects your credit rating: Your credit rating will suffer as a result of entering a consumer proposal because of the debt write-offs.

What is the success rate of a consumer proposal? ›

With a 99% acceptance rate on any consumer proposals we file, we see many Canadians reducing their debt by up to 80% with a consumer proposal. This means that when you file with Spergel, you have a 99% chance of reducing your debt by 80%.

Is doing a consumer proposal worth it? ›

Consumer proposals can provide significant benefits in managing overwhelming debt, making them worth considering. Here are key reasons to explore a consumer proposal: Debt Relief: Consumer proposals offer a structured way to regain control of your finances, preventing debt from snowballing with fees and penalties.

Do creditors usually accept consumer proposal? ›

Since they'll probably receive more of what they're owed, most creditors would rather approve your consumer proposal than wait for you to declare bankruptcy. That said, a consumer proposal may not offer them as much money back as other debt solutions like debt consolidation and credit counselling would.

What Cannot be included in a consumer proposal? ›

Debts that cannot be included in a consumer proposal

Secured debts like your mortgage or car loan. Support payments or alimony obligations. Court fines and penalties including parking tickets. Debts due to fraud.

What do you lose in a consumer proposal? ›

With a consumer proposal, all your assets are protected. When you claim bankruptcy, you might have to give up some of your property. With a consumer proposal, you will be able to keep your tax refunds for the calendar year during which you file your proposal. But if you file for bankruptcy, you will lose these refunds.

What is the risk of consumer proposal? ›

Filing a consumer proposal may hurt your credit scores, but the damage likely isn't permanent. It's possible to recover your score by practicing good financial habits, including paying bills on time and sticking to a budget.

Do you lose your credit cards after consumer proposal? ›

Credit Cards & Consumer Proposals

The only catch is that the card must have no balance at the time of filing. Since consumer proposals are different from bankruptcy, you can still opt to keep the card to give yourself the option of using it in the future.

What is the maximum debt level for a consumer proposal? ›

Consumer proposals are for insolvent people who cannot meet the payments on their debt. You must have at least $1,000 worth of debt to qualify. Consumer proposals have a debt limit of $250,000, excluding your mortgage. If your debts exceed this amount, you can file a Division I proposal.

Can I keep my savings on a consumer proposal? ›

Only when you file bankruptcy would any contributions made in the past twelve months need to be surrendered to a Licensed Insolvency Trustee. A consumer proposal also allows you to keep any savings, RESPs, and other investments you may have contributed to.

What percentage do you pay in a consumer proposal? ›

Generally speaking, consumer proposal payments result in settling your debts for roughly 30-40 percent on the dollar. However, the cost of a consumer proposal varies for each person based on a few factors, including income, assets, and debts.

Should I pay off my consumer proposal early? ›

If you pay your proposal off sooner than agreed upon, you will speed up your credit recovery. If you reduce your proposal by a year, the R9 rating disappears a year earlier and the R7 rating takes over for it's three-year run.

Do banks accept consumer proposal? ›

With a proposal, banks have voting rights. They can say 'yes' or 'no' to the proposal. If at least half of your creditors vote 'yes,' then the proposal is deemed approved. Banks have 45 days from the date you file the proposal to vote.

Why would a creditor reject a consumer proposal? ›

Here are the key reasons a consumer proposal might get rejected: You are offering insufficient funds. You are offering an unsuitable repayment schedule for your creditors. You contributed to your financial situation by an unjustifiable extravagance in living expenses or by neglecting business matters.

Do you have to include all debt in a consumer proposal? ›

What Debts are Included in a Consumer Proposal? A consumer proposal includes unsecured debt. Unsecured debt is any type of debt not secured by an asset and generally includes the following: Credit cards – all balances as of the date of filing on your Visa, Mastercard, Amex, etc.

Do most consumer proposals get accepted? ›

When a proposal passes, it forces all general unsecured creditors(with minor exceptions)to settle their claims against the debtor for the amount offered in the proposal. Consumer proposals get accepted in our office “eventually” at a rate of 95% or better.

What happens when you pay off a consumer proposal? ›

A successful, and completed consumer proposal will be removed from your credit report 3 years after you've paid off all the debts according to the proposal, or 6 years from the date it was filed whichever occurs first.

How long does a consumer proposal stay on credit report? ›

Depending on the credit reporting agency, a consumer proposal can remain on your credit report for either 3 years after you pay off all the debts included in the proposal, or 6 years after you sign the proposal, whichever is sooner.

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