The Top 5 Pros and Cons of a Consumer Proposal

The Top 5 Pros and Cons of a Consumer Proposal

A Consumer Proposal is a formal insolvency filing which is similar to a consolidation loan in that it brings all of your debt under one payment and allows more time to pay, but it can also include a (sometimes significant) discount on the amount of the debt you have to pay. It can be a lifeline for people who are unable to keep up with their debt payments. However, like any major financial decision, a Consumer Proposal has pros and cons that must be considered when making an informed decision about whether it’s the right choice.


  1. Reduction of debt

For most people, the biggest advantage of a Consumer Proposal is that it often allows you to obtain agreement from your creditors to accept less than the amount owing. In other words, a portion of your debt can be forgiven through this process.

  1. Protection from creditors / interest

When you file a Consumer Proposal, you get an automatic stay of proceedings, which means that your creditors are no longer allowed to pursue collection actions against you. Any interest they were charging also ceases to accrue. This provides the breathing room to allow your creditors to consider your proposal and negotiate if necessary. If the majority of your creditors accept the proposal (which usually avoids any new interest being charged), all of your unsecured creditors are forced to adhere to the new contractual agreement created by the proposal.

  1. Support from a Licensed Insolvency Trustee

A Consumer Proposal must legally be filed with a Licensed Insolvency Trustee, a highly trained and carefully regulated professional. They help you prepare the proposal and act as a go-between with your creditors. You get the benefit of their advice and support throughout the process, and they handle the paperwork and the distribution of your payments to the creditors. They also provide financial counselling, offering a great opportunity to level up your knowledge about budgeting and managing credit, which will help you avoid future financial difficulties

  1. You can keep all of your assets

Unlike bankruptcy, there is no requirement to turn any assets over to the Trustee. The proposal must factor in the value of assets that would otherwise be available to the creditors, but that value can be paid over a period of up to five years, so most people can afford to keep all of their assets while completing a Consumer Proposal.

  1. Opportunity for a fresh start

A Consumer Proposal is an opportunity to start fresh with your creditors and negotiate a new arrangement that is both feasible for you and acceptable to them. This allows you a real chance to pay off your debt and focus on improving your finances going forward. And compared to bankruptcy, many people view this as a less drastic and more respectable solution for dealing with serious financial difficulties.


  1. Damage to credit score

A Consumer Proposal can have a major impact on your credit score. It’ll stay on your credit report during the period you are paying the proposal, plus an additional one to three years. This can make it challenging to obtain credit. However, you can begin taking steps to rebuild your credit score immediately after you start the proposal. In many cases, people end up with a better credit score after the process has ended than they had going into it.

  1. Risk of failure

It’s important that you only offer your creditors a settlement you are confident you can afford. If you stretch yourself too thin and are unable to keep up with the proposal payments, your proposal may end up cancelled, which would allow your creditors to pursue you for full payment again. In some cases, creditors are not willing to accept a payment which is feasible for you, in which case other options will need to be explored.

  1. Public record

A Consumer Proposal is a matter of public record, which means that anyone can access certain information about it. This can be embarrassing and uncomfortable. That said, it’s not publicly advertised, so someone would likely have to go looking for the information (and pay applicable search fees) to get it. And if people do find out, there tends to be less stigma attached to a Consumer Proposal filing as opposed to a bankruptcy.

  1. More expensive than bankruptcy

Creditors typically will not accept a proposal unless if offers to pay them more than what they would get if you filed a bankruptcy. The Licensed Insolvency Trustee will calculate an estimate of what bankruptcy would look like for you and report to the creditors on how your proposal compares to that scenario, and will usually only recommend that creditors accept the proposal if it offers an increase compared to bankruptcy. That said, your proposal can spread the payments out over a period of up to five years (whereas often bankruptcy lasts between 9 months and 21 months in most cases), so, while you will pay more overall, you may have lower monthly payments in a Consumer Proposal.

  1. Emotional toll

It can be scary and embarrassing to ask your creditors for a new, more forgiving, agreement. Just getting to the point of calling a Licensed Insolvency Trustee usually involves a lot of guilt, stress, and shame. However, most people that file a Consumer Proposal are successful in obtaining a new agreement with their creditors and getting out from under their debt. And for many, the feeling of relief starts the moment they take that step.

A Consumer Proposal can be a win-win for you and your creditors. But it’s important that you understand the pros and cons of the process so that you can make an informed decision about whether this option is right for you.

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, including determining whether a Consumer Proposal is the right option. If you'd like to explore this 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

Even though the Canada Revenue Agency (CRA) will not negotiate a reduction of the amount owing when talking directly with a tax debtor, they will typically consider a reduction of the amount owing through a Consumer Proposal. This is because they understand that the individual is insolvent and the case has been reviewed by a Licensed Insolvency Trustee who has assessed that the CRA will get less if the person is forced to file a bankruptcy due to an inability to pay.

With a Consumer Proposal, the amount of the debt that you pay is based on what you can afford (based on the level of your income, your assets, and your family situation). This is often less than the amount owed. If your proposal is accepted and you perform your end of the deal, the unpaid portion is forgiven... even in the eyes of the government.

Contact us if you'd like to find out what a Consumer Proposal might look like for you.

No, you do not need to contact a credit counsellor or debt consultant to be able to meet with a Licensed Insolvency Trustee (LIT). You can contact any LIT directly and ask to set up a free consultation. It is not necessary to have a third party assist you with dealing with the LIT. LITs will work with you directly to gather information, determine your best option, and prepare the paperwork. When giving you advice on your options, an LIT will be considering your best interests. As explained in Who Does A Licensed Insolvency Trustee Work For?, an LIT does not work for your creditors despite what some may say.

For a more detailed explanation about why you do not need to contact a debt consultant, see our blog post Do I Need to Hire a Debt Consultant?

Nothing. We offer free consultations to anyone looking to review their options for dealing with their debt. If we decide together that one of the services we provide is the right option for you, there will be payments you need to make in connection with that, but that will occur only after you have made a decision and signed the formal documents.

The amount you will pay to your creditors depends on a number of factors unique to your situation, such as your income and your assets. Only a Licensed Insolvency Trustee can administer a Consumer Proposal. The fees paid to the Licensed Insolvency Trustee are based on a calculation set by the government, so the fee would be the same regardless of which Licensed Insolvency Trustee firm you choose to work with.

There is no need to pay a debt consultant to see a Licensed Insolvency Trustee. Our government-calculated fee includes all of the work to review your situation, prepare your proposal, and help you get through the process.

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.

No, a Licensed Insolvency Trustee is an impartial facilitator who communicates with all parties to make sure the process is transparent, and that everyone is following the required rules so that the process is orderly and predictable.


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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