How to File a Consumer Proposal in Canada

Imagine reducing your debt to an affordable amount and then consolidating it into one simple interest-free monthly payment.

How about instantly stopping collection calls, removing wage garnishments and ensuring that your home, car and savings are protected?

That’s precisely what happens when you file a consumer proposal. It’s the reason that 6,933 Canadians filed a consumer proposal in March 2022 alone.

In this article, you’ll discover how to file a consumer proposal to resolve your debts.

How to file a consumer proposal

These are the steps you will take to file a consumer proposal in Canada:

1. Check if a consumer proposal is suitable for you

You might benefit from a consumer proposal if you are:

• Behind on your bills.
• Using payday loans or credit cards excessively.
• Being contacted by collection agencies.

You may be insolvent if you can relate to any of the above.

2. Gather your information

Next, gather information about your financial situation.

Make a list of all your creditors and determine how much you owe. The easiest way to do this is to find a letter or statement mailed to you from the creditor.

If you don’t have one, use the creditor’s website to download a bill or statement (sometimes, a screenshot is sufficient). If you can’t find the information, look at your credit report.

You’ll also need a note of your income, expenses and assets.

3. Find a Licensed Insolvency Trustee

To file a consumer proposal, you must appoint a Licensed Insolvency Trustee, licensed and regulated by the Office of the Superintendent of Bankruptcy.

A trustee is the only person that can file a consumer proposal, offer creditor protection and legally release you from your debts.

They act as a mediator between you and your creditors. It’s their job to protect your interests and ensure your rights are respected. You will receive expert and impartial advice before making any decisions.

We work with trusted and experienced Licensed Insolvency Trustees with local offices throughout Canada.

You can also browse the trustee registry.

Some debt settlement companies charge an upfront fee to refer you to a trustee. You don’t need to pay a third party to talk to a trustee or for someone to prepare documents beforehand.

4. Meet with a Licensed Insolvency Trustee

Once you’ve found a Licensed Insolvency Trustee, arrange a consultation.

Bring information about your debts to the meeting. Your trustee will review your debts, income, expenses and what you own.

If a consumer proposal is a good fit, your trustee will suggest an offer to your creditors and a proposed monthly payment.

To entice your creditors, you must offer more than the amount your creditors would receive in bankruptcy. On the other hand, your proposed monthly payment must be affordable based on your income and expenses.

You can file a joint consumer proposal if you share most of the same debts with someone else.

If there is a better debt relief option, your trustee will recommend it. Such alternatives may involve debt consolidation or non-profit credit counselling. They may even suggest that you file for bankruptcy.

You’ll learn the pros and cons of each debt relief option. All advice is impartial, and a trustee will never pressure you into any decision.

If you decide to proceed with a consumer proposal, a trustee will:

• Guide you through the consumer proposal process.
• Complete and file your paperwork.
• Liaise with your creditors.
• Manage and distribute payments to your creditors.
• Guide you through your financial counselling sessions.

5. Paperwork, taxes, assets and filing

Paperwork

If you decide to file a consumer proposal, your Licensed Insolvency Trustee will present you with legal documents.

Your trustee will explain what each document means before you sign. Read over these documents carefully and make sure that they are correct.

Taxes

A consumer proposal provides tax debt relief by lowering your debt and combining it all into a single, straightforward monthly payment.

Before entering into a proposal, you must file all outstanding tax returns so the CRA knows what you owe. If you don’t do so, you cannot file a consumer proposal, as the CRA will vote against it.

You must continue filing your taxes as usual during the consumer proposal and pay them as they are due.

Assets

In a consumer proposal, you can keep your assets because the value of your assets is included in the proposal offer.

To calculate an offer, your trustee will consider the equity in your home, the value of your car and other assets.

This information allows your trustee to present an offer to your creditors that they will approve.

Responsibilities

During the consumer proposal process, make sure you do the following:

• Declare all of your assets and liabilities.
• Attend any necessary meetings.
• Attend the mandatory financial counselling sessions.
• Assist your trustee with the consumer proposal if requested.
• Follow any special conditions outlined in your consumer proposal.

Inform your trustee if you move home, change your phone number or move jobs.

Filing

Your Licensed Insolvency Trustee will file your proposal with the Office of the Superintendent of Bankruptcy and notify your creditors.

A Stay of Proceedings begins, offering immediate automatic protection from your creditors.

Collection calls and legal action will stop. Wage garnishments are also lifted. Creditors must obey these rules throughout the consumer proposal process.

You will know the exact consumer proposal cost before you file.

Filing a consumer proposal affects your credit rating, and your credit score will drop.

6. Creditor vote

Once your creditors are notified, they have 45 days to review your offer and respond. Your Licensed Insolvency Trustee will compose a proposal offer that your creditors will likely approve.

You don’t make any payments during this period, and there is no interest or charge.

If your creditors accept your offer, you stop making payments to your creditors and make payments toward your consumer proposal.

Your proposal is automatically accepted if a creditor meeting isn’t called during this time.

Creditor meeting

Sometimes, a creditor meeting is called by the Office of the Superintendent of Bankruptcy representative or creditors who hold at least a 25% share of your debts.

At this meeting, creditors will vote to accept, refuse, or change your consumer proposal. It’s common for creditors to attend the meeting by proxy or through a voting letter.

Voting

Creditors vote on your proposal. It’s accepted if the number of votes represents over 50% of your unsecured debt. If a creditor doesn’t respond to your offer, it’s assumed that they accept.

If this happens, the court will approve it after 15 days unless a court hearing is requested (this is rare). Once approved, it becomes legally binding with all of your creditors.

Not all creditors vote similarly, and some have higher demands than others. For example, the CRA may attach additional terms before accepting your proposal.

The good news is that your trustee knows how each creditor votes and ensures your offer appeases most of your creditors.

Most consumer proposals are approved. If your creditors or the court do not agree, your creditors can take action to recover what is owed to them.

But this doesn’t mean all hope is lost. Your trustee may discuss alternative terms with your creditors or an alternative solution. Sometimes, it can be as simple as increasing the monthly payment amount or making minor changes to the terms.

7. Payments

If your consumer proposal is accepted, you make monthly payments throughout the consumer proposal, up to a maximum of sixty months.

You can make a lump-sum payment or a combination of a lump sum and monthly payments. There is no interest applied, and there are no additional fees.

Payments go directly to your trustee, who distributes the money to your unsecured creditors based on the terms of the consumer proposal. Your monthly payments will never change, regardless of whether there is a change in your income.

Your monthly payment will remain unchanged if your financial situation improves, such as a lottery win or windfall.

8. Financial counselling

As part of the process, you must attend two financial counselling sessions led by a qualified BIA counsellor or a Licensed Insolvency Trustee.

These sessions will teach you how to manage your finances better.

9. Complete your consumer proposal

Once you make all your payments, you receive a Certificate of Full Performance. This confirms that you have completed the consumer proposal.

Any remaining balance owed from the debts in your consumer proposal is forgiven. Your Licensed Insolvency Trustee will release you from these debts.

If you receive any calls from collection agencies after completion, supply a copy of your Certificate of Full Performance. This is proof that you completed the proposal.

How long does it take to file a consumer proposal?

You can file a consumer proposal with a Licensed Insolvency Trustee in a few days. Once your trustee files your consumer proposal, your creditors have 45 days to review your offer.

How long does it take to complete a consumer proposal?

A consumer proposal cannot take longer than five years to complete. You can complete it earlier if you make larger or additional payments.

Learn more about filing a consumer proposal

A consumer proposal allows you to repay your creditors what you can afford rather than what you owe. You will be guided through the process by a licensed professional called a Licensed Insolvency Trustee.

As with every debt solution, there are pros and cons. Make sure you research every option available and consult a Licensed Insolvency Trustee for expert advice.

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