The Advantages And Disadvantages Of A Consumer Proposal

The Advantages And Disadvantages Of A Consumer Proposal

A Consumer Proposal is a formal debt settlement arrangement that allows individuals to negotiate new repayment terms with their creditors. There are several benefits to a Consumer Proposal, but there are also some drawbacks to consider. As a Licensed Insolvency Trustee (LIT), we regularly assist people with Consumer Proposals. In our opinion, here are the main advantages and disadvantages of a Consumer Proposal compared to other options you may be considering:


  1. Debt Reduction: Depending on your financial position, creditors will often agree to settle for a fraction of the original debt.
  2. Debt Consolidation: Typically, a Consumer Proposal allows you to deal with all of your unsecured debt in a single monthly payment. As long as a majority of your creditors vote in favour, those who voted against it are bound by it.
  3. Legal Protection: Immediately upon filing a Consumer Proposal, you get legal protection from your creditors, meaning they can't take legal action or garnish your wages.
  4. Interest stops: Creditors cannot charge any more interest when you file a Consumer Proposal, unless the Proposal calls for interest (usually, it doesn’t).
  5. Predictability: Both you and your creditors will have a clear understanding of how much you will pay, the time period, and when the process will end.
  6. Assistance from a Licensed Insolvency Trustee: You don’t have to file the documents, negotiate with the creditors, or manage the distributions to creditors. The LIT handles all of this, and the LIT’s fee comes out of the pot of money you create for the creditors, so you don’t have to pay them separately.


  1. Credit Score Impact: A Consumer Proposal will negatively affect your credit score. It will be on your credit report for several years and, depending on your situation, this may make it more difficult to access credit during that time.
  2. Not Always Feasible: Not everyone can afford payments that are acceptable to their creditors, and you must be able to provide evidence that you can afford to keep up with the proposed payments. If your income fluctuates substantially, it may be hard to commit to a regular payment plan.
  3. Potential for Rejection: Creditors have the power to accept or reject a Consumer Proposal (a majority of your creditors must vote in favour). If the proposal is rejected, you may need to explore other debt relief options, such as bankruptcy.
  4. Potential for Default: Getting your creditors to accept a new payment plan is only the first step. You will have to comply with the terms of the plan, which can last up to five years. If something changes and you are unable to keep up with the payments, the proposal will be annulled, and you may have to explore other options, such as bankruptcy.

The importance of each of these advantages and disadvantages is highly dependent on your personal situation. Therefore, it's essential to consult with an LIT (the only party who can legally provide a Consumer Proposal) before deciding whether to pursue a Consumer Proposal.

Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals review their options for dealing with overwhelming debt, and where appropriate we support them through the filing and completion of a Consumer Proposal. If you'd like some advice about a Consumer Proposal or other options, please reach out to us.

Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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Frequently Asked Questions

Licensed Insolvency Trustees (or LITs) are the only people who can provide bankruptcy or Consumer Proposals as an option for dealing with your debt. They are uniquely qualified to provide these services and give you advice about your debt. For more information, see our blog post: What is a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee is your best resource to discuss whether a Consumer Proposal is right for you. For general information on Consumer Proposals, check out our Consumer Proposal page. However, the best way to find out what a Consumer Proposal would look like for you is to book a free consultation with a LIT.

While technically a person is supposed to hand over all of their assets to the Trustee in a bankruptcy, in reality you typically don't lose your home for several reasons that are explained in this post. But if you own your home and you have available equity which you can't afford to pay into the bankruptcy estate, sometimes it is necessary to sell the home. For more information about what could happen to your assets in bankruptcy, contact us for a free consultation.

Bankruptcy has a similar, though slightly worse, impact on your credit report compared to a Consumer Proposal, and it typically stays on for the period of your bankruptcy, plus six years. Because bankruptcy often lasts for either 9 months or 21 months, the timeline for it to show up on your credit report can be similar to the timeframe for a Consumer Proposal if you take five years to pay the Proposal. 

How a Consumer Proposal or bankruptcy will affect your ability to obtain credit depends on your situation. Check out this blog post or contact us for a free consultation to learn more about how it would impact you.

Check out our blog post that explains about options for settling your debt, or contact us for a free consultation.

The cost of a bankruptcy is determined based on many factors such as your assets, your income, and your family situation. However, you typically pay less in a bankruptcy than you would in a Consumer Proposal, because your creditors don't have as much ability to impact your payments in bankruptcy. For more information about how these options compare, reach out to us for a free consultation.

The process for making a Consumer Proposal is standardized, in accordance with rules and procedures set out in the Bankruptcy and Insolvency Act of Canada. This means it is transparent and predictable, which is good for you and for your creditors (which makes them more likely to accept your proposal). Essentially, you work with your Licensed Insolvency Trustee to prepare documents for your creditors, explaining your situation and your proposal. Your creditors then vote on the proposal and, assuming they vote yes, you follow through on the proposal, including making the payments it sets out.

Contact us if you'd like to find out more about potentially making a Consumer Proposal.

Debt consolidation may be a good option for you, and if so, we would advise you of this during the Financial Assessment stage. However, debt consolidation doesn’t have many of the important features of a Consumer Proposal, which include: providing a legal 'stay of proceedings' immediately stopping actions your creditors might be taking, and dealing with all of your unsecured debt. Debt consolidation also does not allow you to reduce the amount you owe, which may be necessary if your debt level is unmanageable.

For more information on this topic, check out our blog post entitled: Consolidation Loans: the Good the Bad and the Ugly or contact us.


With our experience and our caring approach, we will help you find the best option for debt relief based on your unique situation - from advice on talking to your creditors to a consumer proposal or bankruptcy, and everything in between. We are here to lift the burden caused by overwhelming debt. 

Contact us today at 1-403-899-3890‌ for a FREE, no-commitment meeting, and let us guide you to regaining your financial footing.

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