When to File a Consumer Proposal in Canada
- bryanlitvack
- 6 days ago
- 4 min read
Key Takeaways
A consumer proposal helps reduce unsecured debt by up to 80% while letting you keep your assets and stopping creditor actions.
It’s a legal alternative to bankruptcy, with less credit impact and more flexibility in repayment.
You qualify if you owe between $5,000 and $250,000 (excluding mortgage debt) and can’t meet your debt obligations.
Common signs it’s time to consider include wage garnishments, constant creditor calls, and financial stress.
What is a Consumer Proposal?
A consumer proposal is a legally binding agreement filed with a Licensed Insolvency Trustee (LIT) that allows you to settle your unsecured debt for less than what you owe. Unlike informal payment plans, this solution has legal weight and stops creditor actions immediately.
How It Differs from Bankruptcy
While bankruptcy can wipe out debt entirely, it involves surrendering assets and carries a greater impact on your credit rating. On the other hand, a consumer proposal lets you retain your assets while paying a portion of your debts over time, with a lower impact on your credit rating.
Who Qualifies for a Consumer Proposal?
Eligibility Criteria
To qualify:
You must owe between $5,000 and $250,000 in unsecured debt (excluding mortgages).
You must be insolvent (i.e., unable to pay your debts as they come due).
You are an individual (not a corporation).
You are either:
Residing in Canada, or
Carrying on business in Canada, or
Having property in Canada.
Debt Limit Thresholds
If your debt exceeds the $250,000 limit (excluding mortgage debt), a different process, such as a Division I Proposal, may be more suitable.
Top Signs It’s Time to Consider a Consumer Proposal
1. Struggling with Minimum Payments
If you're only making minimum payments and not seeing any reduction in your balances, you're trapped in a cycle of debt.
2. Creditors Are Calling Constantly
Persistent calls and collection notices signal that your debt has gone too far for easy fixes.
3. Using Credit to Pay Credit
Paying off one credit card with another is a dangerous and unsustainable habit.
4. Behind on Tax Payments
Owing the CRA and being unable to pay can trigger serious consequences like wage garnishments.
5. Wage Garnishments
Once your paycheque is being garnished, it is a clear sign you need to take action to deal with your debts.
6. Maxed Out Credit Cards
Running out of available credit and depending on overdrafts is a major warning sign of financial trouble.
7. Experiencing Financial Anxiety
If your debt is causing stress, affecting relationships, losing sleep or impairing your work, it’s time to act.
Benefits of Filing a Consumer Proposal
Reduce your debt by up to 80%
Stop interest charges immediately
Legally protect yourself from creditors
Avoid bankruptcy while keeping your assets
Consolidate all debts into one manageable monthly payment
Common Myths About Consumer Proposals
Myth: It Will Ruin My Credit Forever
Not true. It affects your credit temporarily, but you can start rebuilding during the proposal.
Myth: I’ll Lose Everything I Own
Unlike bankruptcy, you keep your home, car, and other assets in most cases.
Myth: It's the Same as Bankruptcy
Consumer proposals are different—they're less damaging to your credit and more flexible to complete.
Step-by-Step Process of Filing a Consumer Proposal
Meet with a Licensed Insolvency Trustee (LIT)
Draft the proposal based on what you can afford
Submit proposal to creditors and wait for approval (majority in dollar value must vote in favour)
Make monthly payments for up to five years, but can finish earlier
How Long Does a Consumer Proposal Last?
Most proposals last 3 to 5 years, but must be completed within 5 years.
You can pay it off early with no penalty.
What Happens After a Consumer Proposal?
Start rebuilding your credit with secured credit cards.
Create a realistic budget to avoid future debt.
Enjoy peace of mind and financial freedom
Starting to plan financial goals
Alternatives to Consumer Proposals
If a proposal isn’t right for you, other options include:
Bankruptcy, as a last resort
Frequently Asked Questions (FAQs)
Q1: What debts can be included in a consumer proposal?
Credit cards, personal loans, lines of credit, payday loans, student loans and tax debts can usually be included.
Q2: Will my employer know I filed a consumer proposal?
No, unless your wages are being garnished or you tell them.
Q3: Can I keep my car and house?
Yes, as long as you keep up with your payments on secured debts.
Q4: Is a consumer proposal legally binding?
Yes, once accepted, all included creditors must abide by it.
Q5: Can I pay off the proposal early?
Absolutely, and there are no penalties for doing so.
Q6: Does a consumer proposal stop interest?
Yes, all future interest on included debts stops once the LIT files the consumer proposal.
Final Thoughts and Next Steps
Knowing when to file a consumer proposal in Canada is critical. Ignoring debt won't make it disappear—but acting early can make a world of difference. If any of the signs above sound familiar, it’s time to take action.
How the Litvack Group Can Help
The Litvack Group offers expert guidance and personalized solutions. They understand the emotional and financial weight of debt and are committed to helping Canadians get back on track.
Free consultations
Licensed Insolvency Trustees
No upfront fees
Client-centered advice
👉 Take the first step toward financial freedom today. Contact the Litvack Group for a free, no-obligation consultation with a Licensed Insolvency Trustee.
Call us at (647)946-2077 or click here to schedule your consultation.
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