If you’re facing financial difficulties and struggling to keep up with debt payments, a consumer proposal could be the solution you need. It’s a legally binding process that allows you to repay a portion of your debt through affordable monthly payments, without losing your assets or declaring bankruptcy.
In this guide, we’ll walk you through how consumer proposals work in Canada, who qualifies, and what kinds of debt are included. Learn how this federally regulated debt relief option can help you regain control and work toward a stronger financial future.
At Baigel Corp, for many years we’ve helped thousands of individuals across Canada find a suitable solution to their debt concerns. If you’d like to discuss your situation over the phone, you can call us on (416) 224-4350.
What is a consumer proposal?
If you are a consumer trying to deal with debt you can’t afford to pay, you have the right to make a special kind of offer to all your creditors through a Consumer Proposal.
Instead of making full payments on all debts, you agree to pay a portion of the debt owed through minimum payments over an extended period, typically up to five years.
Unlike other types of settlements, you don’t need to negotiate with each creditor. The federal Government has set in place laws that when the required majority of your creditors agree to your Consumer Proposal, the minority of creditors are locked into the deal.
A Consumer Proposal is designed to fit your financial situation, providing a powerful, legal method to gain all the protection and debt reduction of bankruptcy without all the negatives, simply by offering your creditors a little more than they would get in a bankruptcy. It’s a win-win!
Only a Licensed Insolvency Trustee, like here at Baigel Corp., is allowed to administer a Consumer Proposal, ensuring your creditors receive fair treatment while protecting you from further collection actions like wage garnishments or lawsuits.
Choosing a Consumer Proposal is usually the fastest way toward becoming debt free and to rebuild your credit. You can reduce financial stress, avoid the harsher consequences of bankruptcy, and work towards becoming debt-free in a structured and manageable way.
How does a consumer proposal work?
By working closely with a Licensed Insolvency Trustee and following these steps, a consumer proposal offers an effective, manageable way to reduce debt and regain financial control without the harsher consequences of bankruptcy. Here’s how it works:
Consult with a Licensed Insolvency Trustee
The Consumer Proposal process begins with a free, no obligation consultation with a Licensed Insolvency Trustee (LIT) based in your province.
During this meeting, you’ll review your income, expenses, and total debt to determine if a Consumer Proposal is the best route for your situation and what your offer over time would need to be.
File a consumer proposal
Once you decide to proceed, the Licensed Insolvency Trustee will help you put together the paperwork, review this with you and file the Consumer Proposal. This formal document outlines the repayment terms you’re offering to your creditors, usually monthly payments over up to five years. There are no other fees for you to pay. Different to a bankruptcy, in a Consumer Proposal, you do not lose your assets (the things you own).
Immediately on filing, your protection from your creditors begins. The Licensed Insolvency Trustee deals with the creditors to ensure they have a claim, and whether they are accepting your proposal as filed or handle any negotiations subject to your approval. Baigel Corp. consistently maintain one of the highest acceptance rates among all Licensed Insolvency Trustees in Canada.
Your personal information related to your Consumer Proposal is handled by Baigel Corp. in accordance with the PIPEDA laws of Canada. The only people who receive the information about your Consumer Proposal are the creditors, the federal Government who issues the certificate that starts your protection, and the court if needed. Before your information is shared with any additional parties, we would receive your consent.
After the required majority of creditors accept it, the Licensed Insolvency Trustee handles the court approval process when on the rare occasion it’s needed. On court approval, the Consumer Proposal becomes legally binding upon all the creditors, even those who voted against accepting it.
Your key duties during a Consumer Proposal
- Tell the truth, fully disclosing everything the Licensed Insolvency Trustee asks you
- Maintain the payment schedule set out in your Consumer Proposal
- Attend two one on one financial counselling sessions with a licensed insolvency counsellor (no extra fee to you) and any other meetings that may occasionally be called
- Keep the Licensed Insolvency Trustee informed of any changes in your contact information
Financial counselling sessions
To support your path to financial health, you will benefit from two mandatory financial counselling sessions with the trustee. These sessions focus on budgeting, money management, and strategies to avoid future debt problems, helping you build better financial habits for the future and prevent the same situation from arising again.
Certificate of Full Performance – Setting your debts to zero!
After completing your Consumer Proposal payments, the Licensed Insolvency Trustee has the authority under the federal law to sign your Certificate of Full Performance. Stopping the creditors’ collection efforts and restoring your budget to a healthy, affordable level was the first step. This certificate is the real goal because all the debts covered by your Consumer Proposal are now legally set to zero.
You are now well on your way to your fresh financial start.
Rebuild your credit report
Although a Consumer Proposal impacts your credit report, it is generally less damaging than bankruptcy. For individuals who have already missed payments on debts or are significantly behind with payments on multiple debts, often a Consumer Proposal proves to be the fastest route to rebuilding credit.
Soon after your Consumer Proposal begins, you can begin rebuilding your credit. There are several important steps you can take, and these will be discussed with you based on your personal situation in your meetings with Baigel Corp.’s Licensed Insolvency Counsellor. Over time, by doing the important steps, your credit score will improve, helping you regain access to credit, loans and financial products such as house mortgage and car loans.
Which debts can be included?
All debts can be included in your Consumer Proposal. Based on the type of debt, they are handled differently as explained below:
Unsecured debt
All your unsecured debts must be included in your Consumer Proposal to ensure that all creditors are treated equally. An unsecured debt is when you have not given the creditor the right to seize something that you own if that loan is in arrears (example: a car finance loan or a house mortgage). The most common of the unsecured debts are credit card balances, payday loans, installment loans, student loans, overdrafts, personal loans and even tax debt owed to the Canada Revenue Agency (CRA). These debts not backed by collateral like secured debts.
These debts can be negotiated and usually reduced through a Consumer Proposal, allowing you to make affordable monthly payments to your creditors. This solution can only be administered by a Licensed Insolvency Trustee, like Baigel Corp.
Secured debt
The most common secured debts are home mortgages or car loans. They include any debt where you allowed the lender to register security against what you are purchasing or what you already own.
It is your right to walk away from a secured debt and included in your Consumer Proposal. However, you would have to allow the secured creditor to seize the asset that you pledged for that loan. This often makes sense where what you owe to that creditor is much more than the value of the asset you would have to surrender. This decision is best made after discussion with the Licensed Insolvency Trustee and before the Consumer Proposal is filed.
You can choose to keep the house/car/etc. but that debt must be paid according to the original terms or through separate arrangements you make directly with the lender. It is important to discuss these debts with the Licensed Insolvency Trustee so he / she can ensure you fully understand your choices.
The most common secured debts are home mortgages or car loans. They include any debt where you allowed the lender to register security against what you are purchasing or what you already own.
It is your right to walk away from a secured debt and included in your Consumer Proposal. However, you would have to allow the secured creditor to seize the asset that you pledged for that loan. This often makes sense where what you owe to that creditor is much more than the value of the asset you would have to surrender. This decision is best made after discussion with the Licensed Insolvency Trustee and before the Consumer Proposal is filed.
You can choose to keep the house/car/etc. but that debt must be paid according to the original terms or through separate arrangements you make directly with the lender. It is important to discuss these debts with the Licensed Insolvency Trustee so he / she can ensure you fully understand your choices.
Excluded debt (debt that does not go away through the Consumer Proposal)
Under the law, all debts need to be disclosed. This includes certain debts that while included in the proposal, may still be owed after your Consumer Proposal is completed. These include court fines, child and spousal support and certain student loans payments which remain your responsibility even after filing a proposal. Payments that you are required to make on the excluded debt during the time of your Consumer Proposal can be a valid reason to reduce what your Consumer Proposal creditors would otherwise expect to be paid. This is a complex area of Consumer Proposal law, and you should discuss all details with your Licensed Insolvency Trustee from Baigel Corp.
How much does a consumer proposal cost?
Together with you, we figure out what is the offer that needs to be made to your creditors to settle. This is all that you pay. Under the terms of your Consumer Proposal, Baigel Corp earns a Government set fee which the creditors allow to be paid out of the settlement payments.
Initial consultations with Baigel Corp. are free, allowing you to explore your options.
A Consumer Proposal can be a cost-effective alternative to bankruptcy because it avoids some of the higher costs and consequences (like losing certain assets) associated with filing for bankruptcy. A Consumer Proposal allows you to spread your payments over as many as 60 months and often results in lower monthly payments than a bankruptcy. Speak to Baigel Corp. about your specific situation so we can design a solution that is going to work for you and be fair to your creditors.
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Will entering a consumer proposal affect my credit rating?
Yes. Unfortunately, this also happens any time a person cannot pay their creditors exactly as the creditors want to be paid, even if it is not your fault. Not paying your creditors, filing a Consumer Proposal or being forced into bankruptcy all lower your credit rating.
When you cannot meet the creditors’ demands and minimum payments are not getting you ahead financially, Baigel Corp. will explore with you what option works best for you, do the least damage to your credit rating and maximize your ability to rebuild your credit rating.
In fact, by getting the debt under control and following some basic steps our financial counsellor will share with you, the Consumer Proposal helps you rebuild your credit. So, yes, entering a Consumer Proposal will affect your credit rating and it may be positive depending on your circumstances.
Once you file a Consumer Proposal, it is recorded on your credit report with the major credit reporting agencies, Equifax, TransUnion, and Experian. This notation indicates that you have made a formal arrangement with your creditors to repay a portion of your debts over time.
A Consumer Proposal typically remains on your credit report for up to three years after you have completed all payments. During this period, it may impact your ability to obtain new credit or loans, as lenders will see that you have had financial difficulties. However, they see that you did something about the situation and many lenders will, for example, finance a vehicle. If your mortgage payments are up to date the lender will usually renew without question even if there is a Consumer Proposal.
Compared to bankruptcy or a credit report showing arrears, missed payments, defaults, collections and judgments, a Consumer Proposal is generally viewed more favorably by creditors since it shows your willingness to repay debts and avoid bankruptcy. Importantly, successfully completing a Consumer Proposal as soon as possible can help you accelerate the rebuilding of your credit sooner.
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Can I end a Consumer Proposal early?
Yes, you can end a consumer proposal early by paying off the full amount of your agreed settlement before the end of the term.
If your financial situation improves, you can choose to pay the remaining balance at any time or increase the monthly payments.
Can a consumer proposal fail? What happens if I cannot afford to continue the CP payments due to a change in circumstances?
A consumer proposal will end (by law) if you fall behind by a total of three payments.
Before you miss that third payment, you should speak with your LIT and he/she can see if an amended offer can be made to your creditors. If you have been honest and making payments and the reason for not being able to continue are understandable, your creditors may accept the change. A few of the changes that can happen (there are many) include: deferring payments for a few months, reducing payments for a few months (sometimes with catch-up payments).
When you fall behind by three months, the proposal is automatically deemed annulled, and your creditors can resume collection actions, including interest charges, legal action, or wage garnishments.
But if you have been honest and in contact with the LIT he/she can recommend to your creditors that they allow the CP to be revived. Speak with your LIT about details.
The key here is to communicate with your LIT when things go wrong – the sooner the better.
If your proposal fails (cannot be amended or revived), you can explore other debt relief options, like filing a new proposal or considering bankruptcy.
Can I get a consumer proposal for joint debts?
It’s possible to file a consumer proposal for joint debts if you and the other person are both legally responsible for the same obligations, like a joint loan or credit card.
In this case, you may choose to file a joint consumer proposal, allowing both parties to include the shared debts in a single, affordable repayment plan. This approach ensures consistency in handling the debt and can simplify the repayment process.
The debts must be substantially the common to both of you.
Keep in mind, though, that the joint proposal will appear on both credit records, and each person must meet the eligibility requirements individually, as well as together as a household.
There are pros and cons to a joint consumer proposal. For example, what if the couple later split up? Or one of you stop helping with the monthly payments. Each situation is unique and by being open with your LIT you will get the benefit of all their education, training and experience to make the best decision for you.
Consumer proposal vs bankruptcy
Both a consumer proposal and bankruptcy are formal debt relief options under the Bankruptcy and Insolvency Act and start your protection from your creditors immediately they are filed. However, they differ significantly in process, impact, and outcome.
A consumer proposal allows you to repay a portion of your debt through an affordable monthly payment, without losing your assets like your home or car (as long as payments are maintained). It requires your creditors to accept the offer. When you declare bankruptcy, on the other hand, everything you own (outside certain exemptions under the law) must be surrendered to help repay your creditors. Creditors do not get to vote on you accessing your protection under bankruptcy. If your household income exceeds certain government set thresholds, you will be required to pay a share of the excess (again there is a government set formula) for a period of at least 21 months. These are referred to as surplus income contribution requirements. Bankruptcy can be over in as little as 9 months but it stays on your credit record for approximately a minimum of 6 years.
While both solutions provide legal protection from creditor actions, a consumer proposal is often preferred by those who can afford partial repayment and want to avoid the more severe consequences of bankruptcy. Most folk want to the best they can in their circumstances and pay what is fair to their creditors. They also never want to answer the question “have you been bankrupt” with a yes.
Are there other debt relief options available?
There are several other debt relief solutions available in Canada beyond consumer proposals. Each comes with its own set of pros, cons, and eligibility requirements.
Bankruptcy
Bankruptcy is often viewed as a last resort when other debt solutions are no longer viable. It’s a legally binding process under bankruptcy law that eliminates most unsecured debts. When you file, creditor collection activity stops immediately.
Unlike a consumer proposal, you may be required to surrender non-exempt assets and make surplus income contribution payments based on your earnings. That said, some people may still maintain ownership of key assets depending on provincial exemptions or arrangements they can make with the bankruptcy trustee to buy back those items. It can get complicated in a hurry so we suggest that you speak with a LIT about your situation for a professional suggestion.
Unlike a consumer proposal, you may be required to surrender non-exempt assets and make surplus income payments based on your earnings. That said, some people may still maintain ownership of key assets depending on provincial exemptions.
Credit counselling
Credit counselling provides professional guidance from a credit counsellor who will assess your budget and help you understand your options.
Non-profit credit counselling agencies can set up structured payment plans through debt management programs. While this doesn’t reduce your principal balance, it can lead to more favorable payment terms and lower interest charges. These plans require full repayment of the debt and not all creditors have to accept the settlement (which they must in a consumer proposal where the majority of the creditors accept the offer the other creditors are forced into the plan by Federal law).
Debt consolidation
Debt consolidation loans combine multiple debts into one single payment, sometimes at a lower interest rate. It simplifies your finances and can reduce high interest rates, especially on credit card balances.
While this option can help save on interest charges, it usually requires a good credit score and stable income to qualify. Often, they ask for a co-signer (which brings its own complications) Consolidation doesn’t reduce the amount you owe but may make budgeting and repayment more manageable.
Debt management plan
A debt management plan (DMP) is arranged through a credit counselling agency. Like consolidation, it combines your debts into a single monthly payment, but instead of taking out a new loan, the agency negotiates with your creditors directly.
You’ll follow a structured payment schedule over 3 to 5 years. While interest may be reduced or waived, full repayment is still required.
Debt settlement
Debt settlement involves negotiating directly with creditors to accept less than the full amount owed, often through a lump sum payment.
Debt settlement may be an option for people who can access funds upfront, though it can negatively impact your credit score, and may come with tax implications if the forgiven amount is a large sum. The agreements need to be legally enforceable (by you) so you may require the assistance of a lawyer.
You will need to negotiate with each creditor separately. Even if a relatively small creditor refuses to settle and takes legal action to collect, that can end your ability to honor settlement arrangements you negotiated with the other creditors.
Where can I get help to become debt free?
If you’re feeling overwhelmed by debt, you’re not alone — and you don’t have to face it alone. Speaking with a professional can help you understand your options and take confident steps toward a stronger financial future.
Baigel Corp offers trusted, personalized advice to Canadians dealing with financial stress. A Licensed Insolvency Trustee can assess your situation and guide you through debt relief solutions.
Our professionals will explain to you how each option works and help you choose a path that makes sense for your income, debt level, and goals. If you’re ready to regain control of your financial life, talk to Baigel Corp. today.