Consumer Proposal in Canada

A consumer proposal, which is governed under bankruptcy law, is one of many ways to avoid bankruptcy in Canada and, arguably, the preferred alternative. But what is a consumer proposal?

Consumer proposal is a form of debt restructuring that also acts as debt repayment. In Canada it involves a debtor submitting an actual proposal to their creditors.

The Proposal

Working with a trustee in bankruptcy, an insolvent individual can request to negotiate a settlement with their creditors. The request is what is considered the proposal.

The offer being made with a consumer proposal is this:

The debtor offers to not file bankruptcy and instead pay back a larger portion of their debt over a longer period of time, in exchange for having their debts absolved.

When a proposal is made, a licensed trustee begins negotiating a settlement between the debtor and their creditors. Creditors presented with the chance of accepting a consumer proposal, almost always agree to it – as proposal means they will often receive a larger settlement.

Similar to Bankruptcy

There are many similarities between a consumer proposal and a bankruptcy in Canada. Here are just a few:

• Consumer proposal is governed by The Bankruptcy and Insolvency Act, which also governs bankruptcy law in Canada
• Both require a licensed trustee to file
• Individuals in consumer proposal receive protection from their creditors
• A consumer proposal will be visible on your Canadian credit report
• Consumer proposals can decrease your credit score
• You cannot make a proposal unless you are insolvent
• While very similar to bankruptcy, a proposal is still quite different. For instance a consumer proposal is removed from your credit file after only 3 years, where a bankruptcy will remain for 6 or 7 years.

A consumer proposal can last as long as 5 years and the monthly payments required are often considerably higher than those in bankruptcy. If you are thinking about making a proposal to your creditors or filing bankruptcy in Canada, please seek the counsel of a qualified professional.