Consumer Proposal, Can it Help You Avoid Bankruptcy?

Consumer Proposal

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By Jarret Austin, Bankruptcy Canada | Reading time: 2 min, 51 sec | 573 words 

Consumer proposals and bankruptcy are common insolvency solutions. But However, can a consumer proposal help you avoid bankruptcy?

The answer is yes - under certain conditions. Every year, thousands of Canadian consumers who thought they were headed for bankruptcy have solved their debt issues with a consumer proposal.

In a consumer proposal, your unsecured debts like credit cards and loans are combined into one monthly payment plan, which you typically pay for five years. Secured debts (like mortgages and car payments) are not included in a consumer proposal.

Further, with a consumer proposal, the amount you pay to your creditors is usually reduced to a fraction of the original amount.

A Licensed Insolvency Trustee (LIT) is the only professional who can help you file a consumer proposal. The Trustee will work with you to review your income, monthly expenses, assets, and debts to determine an appropriate monthly payment that works with your budget.

Advantages of consumer proposal over bankruptcy

In a consumer proposal, you typically keep your assets, such as your home and vehicles. There are some exceptions, but your Trustee can guide you through this.

For comparison, in bankruptcy, many debtors must forfeit their homes and some of their vehicles for the benefit of their creditors (certain provincial exemptions apply). This is traumatic and can make it hard to get back onto sound financial ground.

Consumer proposals work best for clients with regular income. In the consumer proposal process, your income is used to satisfy your creditors via monthly payments, unlike bankruptcy which places more emphasis on the quick liquidation of assets.

Most Trustees recommend consumer proposals first, if it is practical for the client. Filing bankruptcy may also be considered, as it could be the best option depending on your specific financial situation. Your trustee will give you a detailed explanation of the differences and how each option might work for you.

Consumer proposal and your credit score

How does consumer proposal affect my credit rating? This is the first question for everyone before starting the the consumer proposal process. Similar to bankruptcy, consumer proposals will have a temporary, negative impact on your credit rating. Typically, the credit score on your revolving credit accounts will drop to an R7 or an R9.

But there’s good news: six years after you file your consumer proposal, or three years after you complete it (whichever period is shorter), the record of your proposal will be removed from your credit report.

Ask your Trustee about strategies to improve your credit rating quickly after your proposal. You may be able to make some progress even before the credit bureau removes the record of the proposal. After the record is removed, maintaining a perfect payment record on new credit is the best way to rebuild a good credit rating.

In summary, although a consumer proposal will impact your credit rating, resolving your debt with a single monthly consumer proposal payment is much easier than paying several accounts, and still falling further into debt each month.


Follow this link to find out more about how consumer proposals impact your credit.

Considering a consumer proposal or bankruptcy? Contact us to arrange a free and confidential meeting with a Licensed Insolvency Trustee in your area.

At Bromwich+Smith, Debt Relief Specialists are available by phone at 1.855.884.9243 or you can request a call back via the contact us page. There is no need to travel to a local office. Licensed Insolvency Trustee, Bromwich+Smith, is now offering video appointments, with all services available from the comfort of your home

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