The Pros and Cons of Filing a Consumer Proposal

The benefits and disadvantages of a Consumer Proposal

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A consumer proposal is a government-backed unsecured debt settlement that you negotiate with your creditors. As an alternative to filing bankruptcy, a consumer proposal saves your assets from potential liquidation. It also makes it easier to recover from burdensome debt and rebuild your credit than a bankruptcy would.

The Top 6 Advantages of a Consumer Proposal

A consumer proposal is advantageous when you have the income to continue making reduced payments and want to avoid bankruptcy. Below are the eight main reasons you may want to take the consumer proposal route:

  1. Reduce unsecured debts by as much as 75%
  2. Avoid bankruptcy with a payment plan
  3. Consolidate all your debts into a single fixed monthly payment
  4. Legally settle all unsecured debts including those held by the Canada Revenue Agency (CRA)
  5. Suffer less damage to your credit rating
  6. Recover from overwhelming debt faster

The Top 3 Disadvantages of Filing a Consumer Proposal

Filing a consumer proposal does have disadvantages that can make it inappropriate for some debtors. These disadvantages include:
Secured debt isn’t included: Secured loans won’t be reduced or included in your payment plan, which may make a consumer proposal impractical.

  1. Affects your credit rating:
    Your credit rating will suffer as a result of entering a consumer proposal because of the debt write-offs.
  2. Higher borrowing rates:
    You’ll be considered a high-risk borrower because of a consumer proposal.
  3. Student loans may not be included:
    Student loans that are less than seven years old won’t be included.

Alternatives to Filing a Consumer Proposal

Filing a consumer proposal is only one option that you have that deals with insolvency and burdensome debt. It’s a tool designed specifically for debtors with a large amount of unsecured debt and enough income to pay a portion of it with a fixed monthly payment. If you lack a stable income, have large secured debts, or aren’t insolvent, then there are other options that a Licensed Insolvency Trustee can help you to consider.


If you’re insolvent but lack the income needed to negotiate a fixed payment plan, then bankruptcy may be the last option you have to get relief from collection efforts. This option is sometimes forced on debtors who have large secured loans like home mortgages that can’t be addressed with a consumer proposal. Compare a Consumer Proposal vs Bankruptcy if you aren’t sure which is right for you.

Debt Consolidation

If you aren’t insolvent and have a stable income, then debt consolidation may be a better option. You’ll be able to combine several payments into a single monthly payment and even reduce your borrowing costs. The biggest advantage to debt consolidation is that you won’t damage your credit rating by forcing loan write-offs onto your creditors.

Debt Counselling

Debt counselling programs can be another way to improve your financial situation before you become insolvent. These programs will analyze your financial status by considering your income and total debt. They’ll then advise you on how to get better control over your budget with suggestions about cutting costs and managing your existing debt. They can also negotiate with your creditors on your behalf to secure better repayment terms and handle creditor payments with a trust account.

Why File a Consumer Proposal?

It’s a formal, legal, government-sanctioned program that can help reduce the total amount of debt you have to repay. A consumer proposal filing makes good sense if you have a large amount of unsecured debt and a stable monthly income. If you can still repay at least 25% of your total debt over a five-year period, it’s likely that creditors will accept a consumer proposal to avoid losing the entire loan balance in a bankruptcy. The option is a better outcome for both you are your creditors when you qualify for a consumer proposal.

Who Should You Speak to Us About Your Options?

You should speak to a Licensed Insolvency Trustee about the possibility of filing a consumer proposal. LITs like Remolino & Associates will assess your qualifications and finances with a free consultation. Don’t pay unqualified debt counsellors for the same services when the law requires a LIT to administer a consumer proposal.

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