Top 10 Reasons Canadians Are Filing a Consumer Proposal

More Canadians are filing a Consumer Proposal as a way to manage their debt—without the tough consequences of Bankruptcy. For the 12-month period as of September 30, 2024, total Consumer Proposals filed increased by 16.4%.2 It’s becoming a go-to alternative debt relief tool to handle insolvencies.

Why the shift towards Consumer Proposals? What’s causing the increase in insolvencies? Here are the top 10 reasons why Canadians are filing Consumer Proposals to deal with their financial problems:

1. Credit Card Debt and Consumer Debt

A primary cause is the overwhelming burden of credit card debt and other consumer debts. It’s hard to pay down a balance when your debt carries high interest and you only meet the minimum payments. Most Canadians also have more than one credit card on which they accrue debt, which compounds the financial stress.

Filing a Consumer Proposal consolidates these debts into one affordable monthly payment. That’s in addition to a possible reduction of the total amount owed. For those who want a structured period with no extra interest accruals, a Consumer Proposal is an ideal tool.

2. Late Payments and Personal Financial Mismanagement

Late payments on loans, credit cards, and other financial obligations can escalate into unmanageable debt fast. In most instances, personal financial mismanagement—for example, overspending or poor budgeting—leads to missed payments and increased interest charges.

Once you fall behind, it is tough to catch up, and late fees and penalties continue to mount. You will also likely receive collections efforts that can frustrate even the most honest debtor.

A Consumer Proposal stops all collection efforts, making it a helpful tool for those who want to reboot their financial life.

3. Job Loss and Reduced Income

The sudden loss of a job, business failure, or reduction of income is one of the key triggers of financial instability. When you lose your primary source of income, it becomes a challenge to pay debts.

In the turbulent job market of Canada, many employees may feel extended job insecurity. From company downsizing to economic decline, job loss can really set people up to struggle with their financial obligations.

Through a Consumer Proposal, you can find relief by restructuring debts according to your current financial situation, yet another benefit of the debt relief solution.

4. Medical Expenses and Health Issues

Medical emergencies and health complications can be disastrous to family budgets. As good as it is, not all treatments and prescriptions have full coverage in Canada’s publicly financed health care; hence, out-of-pocket expenses arise.

Health issues can also lead to loss of income, like when you are too sick or injured to work. Medical costs combined with lost income can lead Canadians to seek financial relief through a Consumer Proposal.

A Consumer Proposal provides a manageable way to deal with medical-related debts without resorting to Bankruptcy.

5. Divorce / Separation

Divorce or separation is among the most frequent life events that may cause a burden on your finances. Asset division, spousal support, and legal fees are a few reasons you may struggle to pay your financial obligations.

Large amounts of people incur joint debts when they get married, and upon divorce, they could be solely responsible for those debts.

A Consumer Proposal can help manage joint debts, as well as other financial burdens due to separation, through a systematic approach to paying off debts.

6. Sudden Expenses and Emergencies

Life is unpredictable, and an unexpected expense or emergency can quickly turn your finances upside down. Whichever it may be—car repair, home maintenance, or a family emergency—all these sudden expenses drain savings and build heavier debt.

Since most do not have any kind of emergency fund on which to rely, it’s easy to turn to credit cards or personal loans to finance these unexpected expenses. This further increases debt levels.

Consumer Proposals can give you a respite from accrued debt from unexpected expenditures and put you back on your feet again.

7. Lack of Savings / Emergency Funds

An inability to save is viewed as a key issue for most Canadians. A lack of an emergency fund leaves you vulnerable in the case of financial bumps, such as job loss, emergencies, or accidents. And when your savings are low, you often have to resort to credit to survive, which then leads to a downward spiral of debt.

A Consumer Proposal includes a practical payment plan that allows many to rebuild their savings.

8. Tax Debt

Another common reason Canadians file Consumer Proposals is due to Canada Revenue Agency (CRA) obligations. Tax debt may result from underreported income, self-employment taxes, or unexpected tax assessments.

The CRA has additional collection tools, such as wage garnishments and bank account freezes, which make it difficult for you to manage your finances.

Tax debts may be included in a Consumer Proposal, so you can negotiate a payment plan with the CRA and avoid aggressive collection activities.

9. Student Loans

Student loan debt is another common financial burden for a large number of Canadians. With rising tuition costs and limited job prospects for recent graduates, paying back student loans has become increasingly difficult.

While government student loans are generally not included in Consumer Proposals unless you have been out of school for more than seven years, private student loans can be part of a proposal.

A Consumer Proposal offers a way to manage private student loan debts and reduce financial stress for borrowers.

10. The Increased Cost of Living / Inflation

Lastly, the increased cost of living in Canada has further squeezed the budgets of households and likely contributed to a rise in Consumer Proposal Filings. Prices in Canada have gone up, from housing to groceries to utilities.

Inflation has taken away purchasing power, which can make it hard for you to keep up with your debt payments. You may find the urge to use credit for everyday expenses that once again result in the cycle of debt.

A Consumer Proposal is one sure way to reduce overall debt, as many affordable repayment plans take into consideration the increased cost of living.

Why a Consumer Proposal is Better Than Bankruptcy

To many Canadians, a Consumer Proposal is a much better option than Bankruptcy. Here’s why:

• Less damage to credit: Although both Consumer Proposals and Bankruptcies affect credit scores, the former has less impact and will stay on your credit report for a shorter period.
• Asset protection: A Consumer Proposal often allows you to retain assets like homes and cars.
• Wage garnishment avoidance: A Consumer Proposal will stop the wage garnishment and collection calls, bringing peace of mind.
• Flexible payment terms: A Consumer Proposal offers more flexibility in repayment terms compared to Bankruptcies.

Talk to a Licensed Insolvency Trustee

There are many reasons why Canadians are filing a Consumer Proposal, and each factor reflects the various financial stresses people may experience today. Whether it is due to credit card debt, job loss, medical expenses, or the high cost of living, a Consumer Proposal provides a solution—without the stern realities of Bankruptcy.

If you have unmanageable debt, you might consider talking with a Licensed Insolvency Trustee about whether or not a Consumer Proposal is right for you. Explore Bankruptcy alternatives that suit your specific financial situation.

At Adamson & Associates – licensed by the federal government – we offer free consultations to help you achieve a fresh financial start. Your journey out of debt starts here: