Pros and Cons of a Consumer Proposal + Alternate Options (2024)

The benefits and disadvantages of a Consumer Proposal

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A consumer proposal is a government-backed unsecured debt settlement that you negotiate with your creditors. As an alternative to filing bankruptcy, a consumer proposal saves your assets from potential liquidation. It also makes it easier to recover from burdensome debt and rebuild your credit than a bankruptcy would.

The Top 6 Advantages of a Consumer Proposal

A consumer proposal is advantageous when you have the income to continue making reduced payments and want to avoid bankruptcy. Below are the eight main reasons you may want to take the consumer proposal route:

  1. Reduce unsecured debts by as much as 75%
  2. Avoid bankruptcy with a payment plan
  3. Consolidate all your debts into a single fixed monthly payment
  4. Legally settle all unsecured debts including those held by the Canada Revenue Agency (CRA)
  5. Suffer less damage to your credit rating
  6. Recover from overwhelming debt faster

The Top 3 Disadvantages of Filing a Consumer Proposal

Filing a consumer proposal does have disadvantages that can make it inappropriate for some debtors. 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.

  1. Affects your credit rating:
    Your credit rating will suffer as a result of entering a consumer proposal because of the debt write-offs.
  2. Higher borrowing rates:
    You’ll be considered a high-risk borrower because of a consumer proposal.
  3. Student loans may not be included:
    Student loans that are less than seven years old won’t be included.

Alternatives to Filing a Consumer Proposal

Filing a consumer proposal is only one option that you have that deals with insolvency and burdensome debt. It’s a tool designed specifically for debtors with a large amount of unsecured debt and enough income to pay a portion of it with a fixed monthly payment. If you lack a stable income, have large secured debts, or aren’t insolvent, then there are other options that a Licensed Insolvency Trustee can help you to consider.


If you’re insolvent but lack the income needed to negotiate a fixed payment plan, then bankruptcy may be the last option you have to get relief from collection efforts. This option is sometimes forced on debtors who have large secured loans like home mortgages that can’t be addressed with a consumer proposal. Compare a Consumer Proposal vs Bankruptcy if you aren’t sure which is right for you.

Debt Consolidation

If you aren’t insolvent and have a stable income, then debt consolidation may be a better option. You’ll be able to combine several payments into a single monthly payment and even reduce your borrowing costs. The biggest advantage to debt consolidation is that you won’t damage your credit rating by forcing loan write-offs onto your creditors.

Debt Counselling

Debt counselling programs can be another way to improve your financial situation before you become insolvent. These programs will analyze your financial status by considering your income and total debt. They’ll then advise you on how to get better control over your budget with suggestions about cutting costs and managing your existing debt. They can also negotiate with your creditors on your behalf to secure better repayment terms and handle creditor payments with a trust account.

Why File a Consumer Proposal?

It’s a formal, legal, government-sanctioned program that can help reduce the total amount of debt you have to repay. A consumer proposal filing makes good sense if you have a large amount of unsecured debt and a stable monthly income. If you can still repay at least 25% of your total debt over a five-year period, it’s likely that creditors will accept a consumer proposal to avoid losing the entire loan balance in a bankruptcy. The option is a better outcome for both you are your creditors when you qualify for a consumer proposal.

Who Should You Speak to Us About Your Options?

You should speak to a Licensed Insolvency Trustee about the possibility of filing a consumer proposal. LITs like Remolino & Associates will assess your qualifications and finances with a free consultation. Don’t pay unqualified debt counsellors for the same services when the law requires a LIT to administer a consumer proposal.

Pros and Cons of a Consumer Proposal + Alternate Options (2024)


What are the downsides of a consumer proposal? ›

Disadvantages of a Consumer Proposal:

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. Credit rating is still affected – A Consumer Proposal DOES affect your credit.

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.

Are consumer proposals 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 you have to include everything in a consumer proposal? ›

Do all debts have to be included in a consumer proposal? You must include all unsecured debts when you file a consumer proposal. It is not possible to exclude one or two specific creditors. The main reason being that a proposal is a legal process that deal with all creditors fairly.

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%.

Do creditors usually accept consumer proposal? ›

Consumer proposals are usually accepted as filed and negotiations can take place between you and your creditors with the help of your Licensed Insolvency Trustee to gain a positive vote.

Do banks accept consumer proposals? ›

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. Banks also have the option to ask for a certain amount of the debt owed to them.

Do you have to give up credit cards with consumer proposal? ›

With a consumer proposal, it is also possible to keep any credit cards with a nil balance, but you may want to have a fresh start. You may also want to consider having some credit counselling sessions to ensure you are well placed for managing your credit with a secured credit card.

Do you have to give up all credit cards in consumer proposal? ›

When you file for a consumer proposal, you will have to hand in any credit cards that are part of the proposal. The creditors will freeze or close the credit card for which you previously qualified. You might have a credit card with a zero balance or a credit balance not included in the proposal.

How badly does a consumer proposal affect your credit? ›

A consumer proposal will affect your credit rating, but less drastically than a Bankruptcy. While both options make it less likely that you will be able to obtain credit a Consumer Proposal will only stay on your record for three years after your last payment.

When should you consider a consumer proposal? ›

If you're dealing with debt and want to pay back at least a portion of that debt, you are likely considering a Consumer Proposal. A consultation with a Licensed Insolvency Trustee (LIT) can help you determine whether or not it's the right option for you.

Is it good to pay off consumer proposal early? ›

If you pay your proposal off sooner than agreed upon, you will speed up your credit recovery.

What happens after you pay off your consumer proposal? ›

FAQ Related to After a Consumer Proposal Is Paid Off

Once you have successfully completed and paid off the Consumer Proposal, it will be removed from your credit report three years after the completion date or six years from the filing date, whichever occurs first.

Does income affect consumer proposal? ›

In consumer proposals, the amount you need to pay in surplus income will only be calculated at the beginning of the proposal and will remain fixed throughout the duration of it. If your income goes up or down during the proposal, the allocation does not change.

How much can a consumer proposal reduce your debt? ›

A Consumer Proposal allows you to make a legal arrangement with your creditors wherein you'll only have to repay a portion of your debts – in full settlement – with no interest, fees or additional penalties. In fact, it's not uncommon for debts to be reduced by 70-80%!

How does a consumer proposal affect my spouse? ›

Filing a consumer proposal won't affect your spouse's credit score, nor will it place any obligations on them to pay your existing debts or make proposal payments. However, they're still accountable for the outstanding balance on any joint debt.

How long does a consumer proposal stay on a 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.

What are the disadvantages of Consumer Credit Act? ›

Disadvantages of Consumer Credit

The main disadvantage of using revolving consumer credit is the cost to consumers who fail to pay off their entire balances every month and continue to accrue additional interest charges from month to month.

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