Consumer Proposal Eligibility: Do You Qualify?

Consumer Proposal Eligibility: Do You Qualify?

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By Bromwich+Smith Staff | 1920 words | Reading Time: 9 minutes | Last update: 2023/06/27

You may have be aware of what a bankruptcy is, but more commonly heard these days is a Consumer Proposal. So what is a consumer proposal? A consumer proposal is a legally binding agreement between you and your creditors to pay a reduced amount of the debts you owe within five years. Is is designated to provide you with debt relief. Creditors will often agree to these arrangements to ensure they receive payments with a regular schedule rather than waiting for a full payment that may not come.  To that point, your monthly payments could turn out to be lower than what you may pay otherwise, plus they won’t increase even if your income rises. 

Due to its legally binding nature, a consumer proposal must be administered by a Licensed Insolvency Trustee, according to the rules governed by the Bankruptcy and Insolvency Act of Canada.

While fees vary, your overall fees are part of your monthly payment and there will be no upfront costs. Your Licensed Insolvency Trustee will be sure to clearly outline this for you.  

Advantages of Consumer Proposals:

1- Debt Reduction: Creditors are often willing to accept a lower overall amount through a consumer proposal, which means you will pay less of the overall debt with the remaining portion being forgiven.  

2- Debt Consolidation: A consumer proposal consolidates multiple debts into a single monthly payment, making it easier for you to manage your finances.

3- Asset Protection: Unlike in a bankruptcy, a consumer proposal typically allows individuals to keep their assets, such as their home or car.  

4- Legal Protection: Once a consumer proposal is accepted, creditors are legally prevented from taking legal action or garnishing wages against the individual.

Disadvantages of Consumer Proposals:

1-Credit Impact: Consumer proposals will have a temporary negative impact on credit scores. Your credit score will be impacted for 3 years after you pay off all the debts included in the proposal, or for 6 years after you sign the proposal (whichever is sooner). It is important to know that if you are already missing payments your credit score is likely already being impacted. You are able to start rebuilding your credit back up during your consumer proposal.

2-Monthly Payments: Your agreed upon monthly payments can be challenging if your financial situation doesn't improve or decreases. Be open with what you are able to afford, and your trustee will be able to guide you to all debt relief programs- even if a consumer proposal is not right for you.  

3- Total Debt: Consumer proposals have a maximum debt limit of $250,000 (excluding mortgage debt), which may not be suitable for individuals with higher debt levels.

It is important to note that the specific advantages and disadvantages may vary depending on your specific situation. Seeking professional advice from a licensed insolvency trustee is recommended to understand the implications and determine the most suitable debt relief option.

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Do you qualify for a consumer proposal? 

Eligibility requirements for consumer proposals in Canada can vary slightly depending on the province or territory. Please note that it's always recommended to consult with a licensed insolvency trustee for specific information based on your situation, and where you live. You must be insolvent, which means you are unable to meet your debt obligations as they become due. 

  • Canadian Residency Requirement:
  • You must be a resident of Canada  
  • Debt Threshold:

There is no specific minimum debt threshold required to file a consumer proposal. However, consumer proposals are typically considered for individuals with unsecured debts of $1,000 or more, and can not exceed $250,000 ( mortgage excluded).

Types of Debts Eligible for a Consumer Proposal:

Most unsecured debts are eligible for a consumer proposal, including credit card debt, personal loans, lines of credit, payday loans, some taxes, and student debt older than seven years old.  

Secured debts, such as mortgages and car loans, cannot be included in a consumer proposal unless you are willing to give up the house or car.  


Exclusions and Limitations:

Certain debts are not eligible for a consumer proposal, such as child support, alimony, court-ordered fines, student debt under seven years old and penalties.

Ability to Make Payments:

You must have income or assets to make payment towards your debts.

The payment terms and amount will be determined through the consumer proposal process and will be based on your financial situation.

In order to qualify you must be insolvent to consider a consumer proposal but these are the specific criteria to qualify: 

  • You must be a person to file (businesses may not file consumer proposals).
  • You are insolvent, that is you are unable to pay your debts as they become due.
  • Have total debts less than $250,000 (excluding the mortgage on your principal residence). 
  • Have a stable source of income, to ensure that you will be able to make monthly payments.
  • Have no prior proposal proceedings that are still open.

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Can you file a joint consumer proposal?

You and a spouse (or any two individuals) can file a joint consumer proposal if the debts between you are substantially the same. You can also file a consumer proposal during a bankruptcy, but the date of the consumer proposal will be listed as the same as the bankruptcy, so you can’t add debts incurred during bankruptcy to a consumer proposal.
 
You will be jointly responsible, through co-signing or guaranteeing a loan. Usually, but not always, this occurs with a couple who are living together.

Can I file a consumer proposal if I am bankrupt already?

Yes, this is possible but you may want to consider this if your situation changes after declaring bankruptcy. Changing to a consumer proposal might reduce your monthly payment (by extending the repayment term) and therefore make the payments a bit more manageable. 

If you are eligible for a consumer proposal.



Even if you are eligible, a consumer proposal is best suited to those with money to pay their creditors monthly, and who own assets they don’t want to lose during bankruptcy. However, all of this can be discussed with your Licensed Insolvency Trustee in order to determine the best solution for conquering your debts. 

Differences from Other Debt Relief Options:

1- Bankruptcy: Consumer proposals are an alternative to bankruptcy which is typically seen as a last option. While bankruptcy involves liquidating assets to repay creditors, a consumer proposal offers a structured repayment plan to your creditors.  

2- Debt Consolidation: Debt consolidation involves combining multiple debts into a single loan with a lower interest rate.

Bottom-line, only a Licensed Insolvency Trustee like Bromwich+Smith has the legal authority to administer a Consumer Proposal for you once eligibility has been determined.  In fact, if an online or offline debt relief service offers a Consumer Proposal, ask if they are Licensed Insolvency Trustees. If they are not, they will be required by law to engage an external Trustee, which could add unnecessary fees to the process. 

Remember, we’re here to help you find the solution that works best for you.  At Bromwich+Smith, we do this by offering an initial free, no obligation, confidential consultation by phone at 1-855-884-9243 or video. You can also request a call back at our contact us page. We’re working with you to rebuild your worth.

FAQ Consumer Proposal Eligibility

1: What is a consumer proposal?

A consumer proposal is a legally binding agreement between you and your creditors to pay a reduced amount of the debts you owe within five years. Creditors will often agree to these arrangements to ensure they receive payments with a regular schedule rather than waiting for a full payment that may not come.  To that point, your monthly payments could turn out to be lower than what you may pay otherwise, plus they won’t increase even if your income rises. 
 

2: Who administers a consumer proposal? 

A consumer proposal must be administered by a Licensed Insolvency Trustee, who is responsible for overseeing the process according to the rules governed by the Bankruptcy and Insolvency Act of Canada.

 
3: What are the qualifications for a consumer proposal?

To qualify for a consumer proposal, you must meet the following criteria:

  • You must be an individual (businesses cannot file consumer proposals).
  • You must be insolvent, meaning you are unable to pay your debts as they become due.
  • Your total debts, excluding the mortgage on your principal residence, should be less than $250,000.
  • You must have a stable source of income to make monthly payments.
  • You should not have any prior open proposal proceedings.

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4: Can a joint consumer proposal be filed?

Yes, a consumer proposal can be filed jointly by two individuals, such as spouses, if they have substantially the same debts. Co-signers or guarantors of a loan may also file a joint consumer proposal. However, debts incurred during bankruptcy cannot be added to a consumer proposal.

5. How does a consumer proposal differ from bankruptcy?

While both consumer proposals and bankruptcy provide debt relief, there are significant differences between the two. In a consumer proposal, you propose a repayment plan to your creditors, aiming to pay back a portion of your debts over a specific period of time. Bankruptcy, on the other hand, involves a complete discharge of most debts but may require the liquidation of assets to repay creditors.

6. Can I qualify for a consumer proposal if I have a low credit score?

Yes, a low credit score does not disqualify you from being eligible for a consumer proposal. Consumer proposal eligibility is primarily based on your ability to make regular payments and meet the requirements set by the Bankruptcy and Insolvency Act.

7. Is there an age limit for consumer proposal eligibility?

There is no specific age limit for consumer proposal eligibility. As long as you meet the other criteria, such as being a Canadian resident and having a certain level of debt, you can qualify for a consumer proposal regardless of your age.

8. What types of debts can be included in a consumer proposal?

Most unsecured debts can be included in a consumer proposal, such as credit card debts, personal loans, lines of credit, payday loans, and certain tax debts. However, secured debts like mortgages and car loans are not included in a consumer proposal as they are tied to specific assets.

9. Will I lose all my assets if I file a consumer proposal? 

Filing a consumer proposal does not necessarily mean you will lose all your assets. In fact, consumer proposals are designed to provide a debt relief option while allowing you to keep your assets. However, it is important to consult with a licensed insolvency trustee to understand the specific implications and exemptions that apply to your situation.

10. Can I apply for a consumer proposal if I have already filed for bankruptcy?

If you have already filed for bankruptcy, you cannot apply for a consumer proposal. However, if you have completed your bankruptcy and obtained a discharge, you can consider a consumer proposal as a debt relief option.

11. How long does it take to complete a consumer proposal?

The length of time to complete a consumer proposal can vary depending on individual circumstances. Typically, consumer proposals last for a period of three to five years. During this time, you make regular payments as per the agreed-upon repayment plan.

12. What happens if my financial situation changes during the consumer proposal?

If your financial situation changes during the consumer proposal, such as a decrease in income or unexpected expenses, it is important to inform your licensed insolvency trustee. They can work with you to explore potential solutions, such as modifying the repayment plan, to accommodate the changes in your circumstances.

13. Can I make additional payments towards the consumer proposal to pay it off earlier?

Yes, you have the option to make additional payments towards your consumer proposal to pay it off earlier. Making extra payments can help you become debt-free sooner and potentially save on interest. However, it is advisable to consult with your licensed insolvency trustee to ensure any additional payments align with the terms of your proposal.
 

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