Consumer Proposal Toronto: Everything You Need to Know

The rising cost of living is forcing many Canadians to choose between buying food and paying their bills.

If you cannot keep up with soaring prices, drowning in debt, and are barely able to keep your head above water, filing a consumer proposal in Toronto could help you avoid bankruptcy and get your finances back on track.

What is a consumer proposal?

A consumer proposal is a negotiated debt settlement with your creditors that lets you settle your unsecured debts for less than you owe, with the rest forgiven. You then repay what you can afford in single monthly payments with zero interest.

If you owe money from credit cards, personal loans and bills that you can’t afford to pay, you can work with a Licensed Insolvency Trustee to come up with a plan to pay back less money.

For example, if you owe $25,000 to your unsecured creditors, you might only have to pay back $10,000, then make monthly payments of $200 until the debt is paid off.

Depending on your situation, you could write off up to 80% of your unsecured debt and resolve your financial difficulties for good.

All collection calls, wage garnishments, and legal action stop when you file a consumer proposal.

You can spread your consumer proposal payments over five years, but you can complete your consumer proposal at any time without penalties or interest.

Most unsecured debts can be included in a consumer proposal, including:

• Credit card debt
• Bank loans
• Payday loans and other finance loans
• Utility bills
• Unsecured lines of credit
• Income taxes and other CRA debts

If you have secured debts, such as a mortgage or car loan, you can keep paying them or give up the asset to your secured creditor. Any outstanding debt is added as unsecured debt to your consumer proposal.

Bear in mind, that you may find it easier to make a monthly payment towards an unsecured creditor when you have consolidated your other debts in your consumer proposal.

You can include student loans in a consumer proposal if you’ve been out of school for seven years or more. Under certain conditions, you can even include debts owed to the Canada Revenue Agency (CRA).

As it’s a legal process, a Licensed Insolvency Trustee is the only person who can administer consumer proposals in Toronto.

Pros and cons of a Toronto consumer proposal

If you are in financial difficulty, filing a consumer proposal is a great way to become debt free. To determine if it’s the right move for you, let’s take a look at the pros and cons of a consumer proposal.

Advantages of filing a consumer proposal

• Pay less than you owe towards your total unsecured debt.
• Affordable monthly proposal payment.
• Zero interest on monthly payments.
• Creditor protection from debt collectors, wage garnishments and court judgments.
• Keep your assets, like your house and car.
• Legally binding on all your unsecured creditors.
• Doesn’t require court approval.
• All your debts, including loans, credit cards and payday loans, are eliminated within five years.
• No hidden fees.
• Avoid bankruptcy (no surplus income payments).

Disadvantages of filing a consumer proposal

• You must have enough money to make monthly payments.
• Negatively affects your credit rating.
• Secured debts cannot be included.

A consumer proposal is Canada’s best debt forgiveness program

A consumer proposal is the only legal way to seek debt forgiveness without filing for personal bankruptcy. It can often be cheaper than other debt-relief options.

How popular are consumer proposals in Toronto?

Consumer proposals are hugely popular: 7,317 Canadians filed a consumer proposal in February 2023.

Due to the rise in the cost of living, there has been a surge in Canadians filing consumer proposals in the past year.

What does a consumer proposal cost?

How much a consumer proposal costs will depend on the amount of debt, the creditors involved, your income, and whether you have assets.

• Pay what you can afford.
• No upfront fees.
• You pay exactly what your creditors agree to.
• The total amount never changes, even if your income increases.
• Trustee fees are paid from your monthly payment at no additional cost.
• A small filing fee is paid to the Office of the Superintendent of Bankruptcy.

Creditors may expect a percentage of the debt to be paid back. You may need to offer more money to major creditors to ensure they accept your offer.

You must offer your creditors more money than they would receive if you filed bankruptcy.

Use the consumer proposal calculator to estimate what your monthly payments might be. A trustee can work out your actual payments after your consultation.

Many debt solutions, such as credit counselling, debt consolidation and a debt management plan, do not allow you to reduce your debt. But most consumer proposals can reduce your total unsecured debt by up to 80% based on affordability.

Will creditors accept my consumer proposal?

Creditors vote to accept or reject your offer, each creditor having one vote per dollar owed. A majority vote amongst creditors is needed for the consumer proposal to be accepted.

Some creditors may attach additional terms before they accept your consumer proposal, but your trustee will ensure your offer has the best chance of success.

Once accepted, the payment arrangement is legally binding for all of your creditors.

Protect your assets by filing a consumer proposal

The great thing about a consumer proposal is that you can protect your assets, including your home, car, savings and tax refunds.

Secured assets aren’t affected as long as you continue making payments to your secured creditors.

Your home in a consumer proposal

You can protect your house in a consumer proposal. Your trustee will calculate the amount you need to offer creditors to protect your home equity.

If you have enough equity to cover your debts, you pay your entire debt in a consumer proposal, with the benefit being that payments are interest-free.

Consumer proposal qualifying criteria

You may qualify for a consumer proposal in Toronto if you meet the following criteria:

• Your total debt is less than £250,000 (excluding your mortgage).
• You are unable to pay your debts.
• After bills, you can afford to make a monthly payment towards your debt.

You must include all of your unsecured creditors to file a consumer proposal. To complete the process, you must attend two credit counselling sessions.

These two credit counselling sessions will teach you how to manage your finances better and are led by a qualified BIA counsellor or a trustee.

Joint consumer proposals

If you shared debts with someone else, you can file a joint consumer proposal. The two individuals have combined unsecured debts of less than £500,000.

How does a consumer proposal affect your credit rating?

Filing a consumer proposal will negatively impact your credit score after you file, but it can help you repair your credit rating faster than you could on your own.

At this point, your priority should be to deal with your debts. A good credit score is worthless if you have unmanageable debt. Lenders want to know if you can repay the loan and look at your debt-to-income ratio to help them decide.

Credit reporting agencies will record your consumer proposal to your credit report. It remains there for either three years after discharge or six years from the date you filed (whichever is sooner). A consumer proposal will drop off your credit report faster if you complete it early.

It will be harder to get credit immediately after a consumer proposal, but you won’t have poor credit forever. Start by applying for a secured credit card.

Debt consolidation loan vs consumer proposal

If you have a good credit score, you can use debt consolidation to get a loan and pay back 100% of your debts.

If you have bad credit or no home equity, it can be difficult to qualify for a debt consolidation loan, home equity loan or second mortgage.

If this applies to you, a consumer proposal can be a great alternative to a debt consolidation loan. Think of a consumer proposal as debt consolidation without interest. You can also file a consumer proposal to protect the equity in your home.

The consumer proposal process

You must meet with a Licensed Insolvency Trustee to file a consumer proposal. Your trustee will offer unbiased advice based on your financial situation and determine if a consumer proposal suits you.

A trustee will work with you to create a payment plan your creditors will accept. Once they do, it becomes legally binding.

A LIT’s role is to manage your proposal and help you through the process.

Beware of expensive debt programs

Beware of debt settlement companies that advertise debt relief programs in Canada. These are unlicensed and unregulated firms (often with bad reviews) that cannot file a consumer proposal or bankruptcy directly – only a Licensed Insolvency Trustee can do so.

Find out more about a consumer proposal Toronto from a Licensed Insolvency Trustee

If you are in financial trouble and want to find out more about a consumer proposal, the next step is to contact a Licensed Insolvency Trustee in Toronto for a free consultation.

They will give you a call to discuss the best way to settle your debts and help you decide whether to file a consumer proposal.

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