Consumer Proposal Ontario: How Does It Work?

How does a consumer proposal work in Ontario? This guide examines the pros and cons, costs and how to file.

What is a consumer proposal?

A consumer proposal is a formal agreement between you and your creditors to repay a portion of what you owe, with the rest forgiven.

It’s a legally binding debt solution filed through a Licensed Insolvency Trustee that allows you to reduce and combine your debt without declaring bankruptcy.

Filing a consumer proposal in Ontario could provide the debt relief you need to regain control of your finances.

How does a consumer proposal work in Ontario?

It’s a legally binding agreement with your creditors that allows you to restructure your unsecured debt into a single monthly payment with zero interest.

In most cases, you only pay back a portion of your debt, with all your unsecured debts eliminated after making payments.

Your debts are consolidated into one monthly payment. Interest is frozen, collection calls stop, and wage garnishments are reversed.

You can spread out payments over five years, but you can complete your proposal early if you can pay more.

It is a debt relief solution that helped 2,425 Ontarians in March 2022 alone.

Consumer proposal Ontario pros and cons

Let’s examine some pros and cons of a consumer proposal in Ontario.

The pros

• A consumer proposal can help lower your debt based on your affordability. Once completed, all your debts are gone.
• Combine your debts into one affordable monthly payment that won’t go up, even if your income does.
• Legal protection from creditors. Stop collection calls, wage garnishments, and all other court proceedings.
• You can keep your assets, like your home, car, and investments.
• Once your proposal starts, interest and charges are frozen.
• It is a debt settlement program carried out by licensed professionals, governed by Canada’s Bankruptcy and Insolvency Act.

The cons

• Like most debt relief solutions, a consumer proposal damages your credit, but it’s not permanent, and you can rebuild your credit score.
• You must have income left over after essential monthly bills to make a payment to your creditors.
• A consumer proposal takes longer than bankruptcy, but your monthly payments are lower.
• You can only include unsecured debts such as credit card debts, loans, lines of credit and CRA debts.
• Not all student loans can be eliminated. You must be out of school for seven years or more to eliminate student loan debt.

Consumer proposal Ontario rules

You qualify for a consumer proposal in Ontario if you meet the following rules:

• Your total debts are less than £250,000 (excluding your mortgage).
• You live in Canada (a permanent resident or under a work permit or another status) or own property in Canada.
• You are insolvent, unable to pay your debts as they become due, and owe more than your assets are worth.
• You can afford to make a monthly repayment towards your debt after essential bills.

You need to offer your creditors more money than they would get if you filed for bankruptcy. This offer must include all of your unsecured creditors.

How much does a consumer proposal cost in Ontario?

The cost of a consumer proposal depends on how much you owe, your creditors, how much money you make, and if you have any assets.

Try our consumer proposal calculator to get a rough idea of your monthly debt repayments.

Your Licensed Insolvency Trustee will decide on a fair offer to your creditors, and you will only pay what you can afford. This payment will never change.

A trustee’s fees are paid from your proposal at no additional cost to you.

What debts can I include in a consumer proposal?

You can include most unsecured debts, such as credit card debts, personal loans, bank loans, overdrafts, income taxes, payday loans and utility bills.

You can sometimes keep a credit card in a consumer proposal if the card has a nil balance.

Can a consumer proposal stop my wage garnishment?

A consumer proposal quickly stops almost all wage garnishments.

Can I include my student loan debt in a consumer proposal?

A consumer proposal can eliminate student loan debt if you have been out of school for seven years or more.

If you have been out of school for less than seven years, a proposal won’t erase your student loan debt.

Is my home at risk in a consumer proposal?

You can keep your home as long as you stay up to date with your mortgage payments and property taxes.

Will a consumer proposal affect my mortgage?

A proposal does not impact your mortgage, and your lender can’t use it as a reason to change the terms of your mortgage.

Will I lose my car in a consumer proposal?

You can keep all your owned vehicles, regardless of their value, if you continue to make the payments on schedule.

Alternatively, you can cancel a car loan or lease agreement before filing a proposal.

Will a consumer proposal affect my credit score?

A consumer proposal affects your credit score, but it won’t be damaged forever.

How long does a consumer proposal stay on your credit report in Ontario?

The proposal appears on your credit report for three years after you’ve completed your proposal or six years from the date you filed (whichever is sooner).

Can I pay off a consumer proposal early?

You can pay off a consumer proposal early without any penalty charges or interest. If you can pay it off quicker, you can improve your credit faster.

Will my creditors accept the proposal?

Most creditors prefer you enter a consumer proposal rather than bankruptcy because they receive more money.

What happens after my proposal is complete?

After making all your monthly payments, your Licensed Insolvency Trustee will release you from your debt, and you will be debt free.

Filing a consumer proposal in Ontario

If you want to file a consumer proposal in Ontario, you must first contact a Licensed Insolvency Trustee (LIT) to establish whether it’s the right solution for you.

Your LIT will review your financial situation and present the debt relief options that best suit your situation. All advice is impartial.

A consumer proposal must be submitted by a Licensed Insolvency Trustee who negotiates with your creditors on your behalf.

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