Consumer Proposal Alternative to Bankruptcy in Canada

What is the Consumer Proposal?

In Canada, a consumer proposal is an alternative to bankruptcy. Specifically, it is a negotiated settlement between the debtor and the creditors.

Under a consumer proposal, a debtor is required to monthly payments for a maximum of five years, with the payments distributed to the creditors. Proposals hardly ever cover full payment of all debt, but it is a better alternative than the debtor filing for bankruptcy, in which case the creditors stand to recover even less of what is owed them. The creditors have 45 days to accept or reject the consumer proposal. If they accept the proposal, the creditors can no longer take legal or collection action against the debtor. Payments are made to the Proposal Administrator each month. If the proposal is rejected, the debtor will then have to seriously consider filing for personal bankruptcy. A consumer proposal only covers debts in excess of $5,000 to a maximum of $75,000 not including the mortgage on their principal residence.

Pros and cons of consumer proposal

Among the advantages of a consumer proposal are: 1) it allows you to repay only a portion of the debt you owe; 2) it stops interest from accumulating; 3) it can include all unsecured debts; 4) it gives you flexible payment terms of up to five years; and 5) you get to keep your house and other assets.

Among the disadvantages are 1) it does not allow you to choose which debts you want to pay; 2) it does not eliminate support and alimony obligations; 3) it does not eliminate student obligations; 3) it does not cover secured debts, such as housing mortgage and car loans.