5 Things a Consumer Proposal Can Do for You in Ontario

Benefits of a consumer proposal and how it can help you reduce debt, protect your assets and regain financial control.

Are credit card balances, personal loans or collection calls taking over your life? When debt becomes overwhelming, it can feel like you’re running out of options. There are strategies, however, that you may be able to significantly reduce what you owe without declaring bankruptcy. For instance, a consumer proposal is one of Canada’s most widely used forms of debt relief. 

A legally binding agreement, a consumer proposal gets filed through a Licensed Insolvency Trustee (LIT), in which you offer your unsecured creditors a repayment you can afford, while keeping your assets. Below, we outline five key benefits of a consumer proposal for Ontario residents, along with the limits you should understand before you decide.

1. Reduce Your Debt and Make Repayment Affordable

The biggest benefit of a consumer proposal is that you may only need to repay a portion of your unsecured debt.

A debt consolidation loan requires you to repay everything you borrowed, plus interest. A consumer proposal instead lets you offer your creditors a reduced amount, an extended timeline, or both.

Your Licensed Insolvency Trustee will review your income, expenses, assets and debts to build an offer that is realistic for you and that gives creditors a better return than they would likely receive if you went bankrupt.

For example, suppose you owe $40,000 in credit cards, a line of credit and a personal loan. Depending on your circumstances, you might offer to repay $16,000 over four years, or about $333 a month. That payment includes the trustee’s government-regulated fees, so there is nothing extra on top.

This is a hypothetical example. Your actual offer depends on your situation and on creditor acceptance.

A consumer proposal can also:

• Stop interest on the debts included in the proposal from the date you file.
• Combine multiple unsecured debts into one monthly payment.
• Spread payments over up to five years (60 months).
• Let you pay the balance off early, without penalty.

When you complete the proposal’s terms, you are legally released from the remaining balance of the debts it covers.

2. Stop Collection Calls, Wage Garnishments and Lawsuits

Constant calls, demand letters and the threat of garnishment can make a hard situation feel unbearable. A consumer proposal gives you legal protection.

As soon as your trustee files the proposal, a stay of proceedings takes effect under the federal Bankruptcy and Insolvency Act. Unsecured creditors covered by the proposal must stop most collection activity, including:

• Collection agency calls and letters.
• Wage garnishments for those debts.
• Most lawsuits and enforcement actions to recover those debts.

Your trustee notifies your creditors and handles communication about the proposal from that point on. You stop paying those creditors directly.

What the stay does not stop: payments to secured creditors (such as your mortgage or car loan), child and spousal support obligations, and certain other exceptions set out in law.

3. Keep Your Home, Car and Other Assets

Many people delay getting help because they fear losing their home or vehicle. With a consumer proposal, you generally keep your property, including:

• Your home and the equity you’ve built in it.
• Your car or other vehicles.
• Household goods and personal belongings.
• Savings and investments.

This is a key difference from bankruptcy, where non-exempt assets can be surrendered to the trustee.

Two things to keep in mind. First, you must keep up with secured payments, such as your mortgage or car loan, to keep those assets. Second, the equity in your assets affects your offer: creditors expect to receive at least as much as they would in a bankruptcy, and that calculation includes non-exempt equity.

For homeowners with significant unsecured debt, this is often the deciding factor.

4. Give You Predictable Payments, With No Surplus Income Penalties

When money is tight, knowing exactly what you owe each month matters. A consumer proposal sets a fixed payment that you and your creditors agree on in advance.

In bankruptcy, you may have to make extra surplus income payments if your household income rises above federal thresholds, and a higher income can extend the bankruptcy. A consumer proposal has no surplus income requirement. If you get a raise, take on extra shifts or start a better-paying job, your proposal payment generally stays the same.

If your finances improve, you can also pay the proposal off early with no penalty.

Stay current with payments. If you fall behind by the equivalent of three monthly payments, the proposal is automatically annulled by law. Your creditors could then resume collection for what you originally owed, minus the payments they received through the proposal. If you’re having trouble making a payment, call your trustee right away; options may be available.

5. Help You Build Better Money Habits and Rebuild Your Credit

A consumer proposal resolves your current debt, and it also sets you up for what comes next.

You are required to attend two financial counselling sessions during the proposal. They cover practical topics such as:

• Building a realistic household budget.
• Understanding how credit works.
• Managing spending and borrowing.
• Planning for emergencies and setting financial goals.

A consumer proposal will lower your credit rating. But the record is not permanent, and you can begin rebuilding credit while you’re still making payments, for example with a secured credit card used responsibly. Paying your proposal off sooner also removes it from your credit report sooner (see the FAQ below). 

A consumer proposal is not an instant fix, but for many Ontarians it is the first step toward lasting financial stability.

Is a Consumer Proposal Right for You?

A consumer proposal is designed for people who are insolvent and who have a steady enough income to make regular payments. It may be a good fit if you:

• Owe $250,000 or less, not counting the mortgage on your home.
• Want to keep your home, car or other assets.
• Want to avoid bankruptcy.
• Need relief from interest, collection calls or a wage garnishment.

If you’re not sure which option fits, a Licensed Insolvency Trustee can compare a consumer proposal, bankruptcy and other alternatives for your situation.

Frequently Asked Questions About Consumer Proposals in Ontario

What debts can be included in a consumer proposal?

Most unsecured debts can be included: credit cards, unsecured personal loans, lines of credit, payday loans, and personal income tax owed to the Canada Revenue Agency (CRA).

Some debts survive a proposal or need special treatment, including child and spousal support, certain court fines and penalties, and government student loans if it has been less than seven years since you stopped being a student. Secured debts, such as a mortgage or car loan, are not reduced unless the secured creditor agrees.

How much debt can I have to qualify?

You must be insolvent, and your total debts cannot exceed $250,000, not counting the mortgage on your principal residence. Couples filing a joint proposal can owe up to $500,000.

The federal government has proposed raising the individual limit to $325,000, but that change is not yet in force. Read more about the new consumer proposal limits. If your debts are over the limit today, a Division I proposal may be an option.

Will a consumer proposal ruin my credit?

It will lower your credit rating, but not permanently. Canada’s two credit bureaus, Equifax and TransUnion, generally remove a consumer proposal from your credit report three years after you complete it or six years after you filed it, whichever comes first.

You can start rebuilding credit during the proposal.

Can I keep my house?

Yes, in most cases. You must keep your mortgage payments current, and the equity in your home may affect how much your creditors will accept.

How long does a consumer proposal last?

Up to five years. Many proposals are shorter, and you can pay yours off early without penalty.

Can a consumer proposal stop wage garnishment in Ontario?

Yes. Filing stops garnishments for unsecured debts covered by the proposal. Garnishments for family support can continue. If your wages are being garnished, speak with a Licensed Insolvency Trustee as soon as possible.

Can CRA tax debt be included?

Yes. Personal income tax debt can usually be included. Some tax debts, such as unremitted payroll source deductions from a business, follow special rules. Your trustee can tell you how your tax debt would be treated.

How do creditors decide whether to accept it?

Creditors have 45 days after filing to respond. If creditors holding at least 25% of the proven claims (or the Official Receiver) request a meeting, a vote is held and a majority by dollar value decides. If no meeting is requested, the proposal is automatically accepted. Once accepted, it binds all unsecured creditors included, including those who voted no.

What happens if my creditors reject my proposal?

Your trustee can discuss amending the offer, filing a new one, or another debt solution. A rejected consumer proposal does not automatically make you bankrupt, unlike a rejected Division I proposal.

What if I miss payments?

If you fall behind by the equivalent of three monthly payments, the proposal is automatically annulled. Creditors can then pursue the original balances, minus any amounts creditors received through the proposal. Contact your trustee at the first sign of trouble; in some cases an annulled proposal can be revived.

Does a consumer proposal affect my co-signer?

Yes. A proposal releases you, not your co-signer or guarantor. They can still be asked to repay the full debt they guaranteed.

Is a consumer proposal better than bankruptcy?

It depends on your situation. A consumer proposal often suits people who want to keep assets, avoid bankruptcy and make predictable payments with no surplus income obligation. Bankruptcy may suit someone who cannot afford proposal payments or has few assets to protect. A trustee can walk you through both.

How much does it cost?

Trustee fees for consumer proposals are set by federal regulation and are paid out of your proposal payments, not charged on top of them. At Adamson & Associates, your first consultation is free and confidential.

Take the First Step Toward Becoming Debt-Free

If debt is keeping you up at night, you don’t have to sort it out alone.

A consumer proposal could help you reduce what you owe, stop collection calls, keep your assets and move toward a more stable financial future. Our Ontario Licensed Insolvency Trustees help individuals and families understand every option, whether that’s a consumer proposal, bankruptcy or another solution, clearly and without judgment.

Book your free, confidential consultation today. Call 519-310-5646 or learn more about consumer proposals in Ontario.

This article provides general information only and is not legal or financial advice. Eligibility, creditor treatment and legal protections depend on your individual circumstances. Speak with a Licensed Insolvency Trustee about your situation.