What is a consumer proposal in Canada?
A consumer proposal is a legally binding agreement under the Bankruptcy and Insolvency Act that lets you offer creditors a percentage of what you owe, paid over up to 5 years. It must be filed by a Licensed Insolvency Trustee. The proposal is accepted if creditors holding a majority (by dollar value) of your unsecured debt vote to accept. Once accepted, all unsecured creditors are bound — even those who voted against it. You keep your assets, wages cannot be garnished, and collection calls must stop.
Will creditors accept a low offer in a consumer proposal?
Creditors compare your offer to what they would receive if you filed for bankruptcy. If you have no surplus income and few assets, they might receive 5–10 cents on the dollar in bankruptcy. An offer of 25–35 cents on the dollar often makes economic sense for creditors to accept. Creditors with large unsecured balances (banks, CRA) will analyze the numbers carefully. Offers below 20% of total debt are often rejected. Your Licensed Insolvency Trustee will help you structure a realistic and competitive offer.
How does a consumer proposal affect your credit?
A consumer proposal is recorded on your credit bureau report as an R7 rating (proposal under Bankruptcy and Insolvency Act) and remains for 3 years after the proposal is fully paid — or 6 years from the date it was filed, whichever is earlier. This is significantly better than bankruptcy, which stays for 6–7 years. Most people can begin rebuilding credit during the proposal by using a secured credit card responsibly.