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Is a consumer proposal worth it?

Avoid bankruptcy and protect your financial health by filing for a consumer proposal instead.

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If you’re drowning in debt but you don’t feel ready to file for bankruptcy, you have other options. One of the most common ways to protect your financial health in the long term is to file for a consumer proposal.

This agreement will typically forgive a portion of your debt and set you up with manageable monthly payments. The only downfall is that your credit score will go down when you take one out.

What is a consumer proposal?

A consumer proposal is a legal agreement that you’ll develop with a Licensed Insolvency Trustee (LIT). It’s seen as a viable alternative to filing for bankruptcy, particularly because it allows you to keep your assets and negotiate lower payments for your debts.

Once your proposal is accepted, all forms of debt collection from your creditors will stop immediately and they’ll no longer be allowed to bring legal action against you. For your part, you’ll be responsible for paying the balance you owe with regular monthly payments.

You’ll typically get a maximum of five years to pay off your proposal and a record of it will stay on your credit report for three years after you pay it off. Your credit rating will also go down as a result and you’ll need to work to rebuild your credit if you want to apply for future loans.

Is a consumer proposal worth it?

Whether a consumer proposal is worth it for you will depend on your unique set of needs and budget. If you want to protect your credit score, then you might like to look at another option like debt resettlement which is less likely to impact your credit report.

If you’re more interested in making your payments more manageable and getting some relief from your creditors then a consumer proposal could be worth it for you. This will also be the case if you want to retain your assets and avoid paying interest on the amount you owe.

What are the benefits of a consumer proposal?

There are a number of benefits to taking out a consumer proposal if you don’t want to declare bankruptcy or pursue other debt solutions. These include the following:

  • You’ll retain your assets. You won’t have to forfeit your assets (like your home or vehicle) which you’ll typically be required to do if you declare bankruptcy.
  • It will consolidate your debts. A consumer proposal will add all of your outstanding payments together so you only need to make one easy payment.
  • You won’t have to pay interest. Once your consumer proposal is accepted, you’ll no longer have to pay interest on your debts.
  • Your payments can’t go up. You won’t ever have to pay more for your monthly payment, even if your income goes up or you receive a lump sum of cash.
  • You’ll get more time to repay. You may be able to get a longer period of time to repay your loan, which will bring down the cost of your monthly payments.
  • Your credit takes less of a hit than with bankruptcy. A consumer proposal damages your credit less than declaring bankruptcy.
  • Your creditors will cease debt collection. You’ll no longer have to worry about creditors garnishing your wages or bringing legal action against you.

What should I watch out for?

  • Your credit rating will go down. Your credit rating will dip down to at least an R7 as soon as you apply, which is one of the lowest scores possible.
  • You won’t be able to miss payments. If you miss three months of payments, your consumer proposal may be cancelled and you’ll lose whatever money you’ve paid into it.
  • Any secured debt you have won’t be covered. You won’t be able to include asset-based loans like your mortgage or vehicle in your consumer proposal.
  • It will stay on your credit report for three years. Your credit report will be impacted by your consumer proposal for up to three years after you pay it off.

Infobox: How will a consumer proposal affect my credit?

When you file for a consumer proposal, your credit score will go down to an R9 while you’re paying it off. Once you pay it off, it will go up to an R7 and this rating will stay on your credit report for up to three years. This means that if it takes you the maximum five-year term to pay off your consumer proposal, you’ll have a less than optimal credit rating for up to eight years. That’s why it makes sense to pay off your consumer proposal as quickly as possible.

Compare credit builder loans

Name Product Interest Rate Max. Loan Amount Loan Term Fees Min. Credit Score Link
Refresh Financial Credit Builder Loan
19.99%
$25,000
3-5 years
No administration or origination fees.
300
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No funds are provided by Refresh upfront. Instead, funds are placed into a secured account to be accessed later. Your payments are reported to the credit bureaus, potentially impacting your credit score.
Marble Fast-Track Loan
19.44% – 31.90%
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Legal and admin fees of $295 - $1,500 (based on size of loan)
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Marble Financial offer credit builder loans in amounts from $5,000 to $20,000. Improve your financial health within 36 months. This loan is strictly for borrowers exiting a consumer proposal.
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What eligibility criteria do I need to meet to file a consumer proposal?

To file a consumer proposal, you’ll need to meet the following eligibility criteria in most cases:

Eligibility criteria

  • Owe between $1,000 and $250,000 (excluding your mortgage).
  • Have a source of income to make your monthly payments.
  • Be unable to repay all your creditors in full with interest and have trouble getting a debt consolidation loan because your debts are too high.

What information will I need to submit?

Before your trustee can decide if a consumer proposal is the best fit for your needs, you may need to supply the following documents:

  • Debt-to-income ratio. Compile a list of all the debts you owe alongside your current income.
  • List of assets. Add up the values of all the assets you own to demonstrate your total net worth.
  • Outline of monthly expenses. Provide a budget to outline the monthly expenses you have to pay in addition to your outstanding debts.
  • Marital status. You’ll need to say whether or not you’re married, as you may have to file a consumer proposal jointly with your partner.

What are some of my other debt solutions?

If you’re not sure that a consumer proposal is worth it for you, then you might like to check out another debt solution. Some of the most popular financial products available include:

  • Debt settlement. This option allows you to settle your debts with your creditors without having to take a big hit to your credit score.
  • Debt consolidation loan. You can use a debt consolidation loan to combine numerous debts into one easy payment.
  • Credit counselling. You’ll be matched with a credit counsellor to investigate the best approach to tackling your debt.
  • Borrowing from loved ones. It might make sense to ask for a no-interest loan from family or friends to keep your credit score in tact.
  • Bankruptcy. If you can’t qualify for a consumer report, you may need to file for bankruptcy which will force you to forfeit all of your assets.

Bottom line

Whether or not a consumer proposal is worth it for you will depend on your personal financial situation. While this type of agreement can help you lower the amount of money you owe and make your payments more manageable, it will also lower your credit score. If it’s important to you to have good credit, you may need to find some other way to take care of your outstanding debts.

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Frequently asked questions about consumer proposals

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