Canada Consumer Proposal Guide
the consumer proposal in Canada. The consumer proposal is the "formal debt settlement" under the "Bankruptcy and Insolvency Act" (the "BIA") — the "offer to the creditors to pay a portion of the debt" (the "debt compromise"). The eligibility: the total debt (excluding the mortgage) must be $1,000 to $250,000. The Licensed Insolvency Trustee (LIT) administers the proposal. The proposal term is the maximum 5 years — the "monthly payments" — the "interest-free debt". The creditor vote requires the "majority in the number of the creditors" and the "2/3 in the value of the debt" voting in the favour (the "double majority"). The CRA generally accepts the "standard consumer proposal" (the "CRA policy on the consumer proposal" — the "CRA considers the commercial reasonableness"). The credit rating impact: the "R9 rating" (the "worst rating") during the proposal, the "gradual improvement after the completion", the "proposal stays on the credit report for 3 years after the completion". The consumer proposal is the "less severe alternative to the bankruptcy" — the "no asset liquidation" — the "keep the home and the car" — the "keep the RRSP".
Consumer Proposal Process
- Step 1: Consultation with the LIT: The "free initial consultation" — the "review of the debt" — the "assessment of the eligibility" — the "discussion of the alternatives" (the "debt management plan", the "debt consolidation", the "bankruptcy").
- Step 2: Proposal preparation: The LIT prepares the "formal proposal document" — the "offer to the creditors" — the "proposal terms" (the "lump-sum payment" or the "monthly payments"). The proposal is filed with the "Office of the Superintendent of Bankruptcy" (the "OSB").
- Step 3: Creditor vote: The "creditors have 45 days to vote" (the "45-day voting period"). The "meeting of the creditors" may be called if the creditor requests it. The proposal is "deemed accepted" if the creditors do NOT request the meeting (the "deemed acceptance" — the "automatic acceptance").
- Step 4: Court approval (if needed): The "court approval" is required if the creditor vote is not achieved or if the "student loan debt" is included (the "student loan proposal needs the court approval for the debt older than 7 years").
- Step 5: Completion: The "certificate of full performance" is issued by the LIT after the proposal is completed. The "debt is discharged".
Consumer Proposal vs Bankruptcy
- Consumer proposal advantages: The "no asset liquidation" (the "keep the home, the car, and the RRSP"). The "less severe credit impact" (the "R9 rating during the proposal" — the "3-year reporting after the completion" vs the "6-year or 7-year for the bankruptcy"). The "fixed monthly payment" — the "interest-free debt".
- Consumer proposal disadvantages: The "maximum 5-year term" (the "must complete the payments"). The "cannot include the secured debt" (the "mortgage and the car loan are NOT included"). The "creditor vote risk" (the "creditors may reject the proposal").
- Bankruptcy advantages: The "fastest debt relief" (the "9-month discharge for the first-time bankrupt" — the "21-month discharge for the second-time bankrupt"). The "automatic debt discharge" (the "no creditor vote required").
- Bankruptcy disadvantages: The "asset liquidation" (the "trustee may sell the assets"). The "more severe credit impact" (the "R9 rating for 6 to 7 years"). The "public record" (the "bankruptcy is published in the Canada Gazette").
For the bankruptcy process and the details, see our Bankruptcy Guide →. For the Licensed Insolvency Trustee selection, see our Licensed Insolvency Trustee Guide →.