What Is a Consumer Proposal?

Oct 07, 2023 By Triston Martin

Consumer proposals are legally binding agreements for debt relief between your creditor and you. You will work with a Licensed Insolvency Trustee to establish the amount of debt you are able to afford to repay comfortably. Then, they create an arrangement for payment agreed upon by creditors. After you've made all payments, the creditors release any balances that remain from your accounts.


Consumer proposals are initiated if a business or an individual is unable to pay its debt. It is launched if a business or an individual is insolvent. It's a viable alternative to filing for bankruptcy. For instance, a person could be in debt for $100,000 due in the next day's time but is not able to pay it. In Canada, for a consumer-based proposal to repay a debt, you need to reach out to an Insolvency Trustee Licensed (LIT) federally regulated experts who offer consultation services for those with debt issues. The Licensed Insolvency Trustee creates the consumer proposal, which outlines the way in which the business or individual must pay off their creditors for the debts they owe after a plan is written and submitted to creditors to be approved or denied.

Following the same example, the proposal could state that the person is required to make a monthly payment of $1,500 for five years. The amount gets collected through the licensed Insolvency Trustee, who then distributes the money in the person's name. If the creditors don't like the offer, the person will need to reconsider the plan or think about alternative options (such as filing for bankruptcy).


Imagine a company with an actual ratio of 0.50 between $500,000 and $500,000 in short-term debts and $100,000 in cash, inventories of $100,000 as well as $50,000 of accounts payable. Furthermore, the business has long-term assets, including equipment worth $400,000. If the company is not able to meet its obligations, then the creditors will be able to liquidate the equipment. If the business were to liquidate its business, the company would be unable to recoup its operational assets and would be unable to carry on operations.

The company contacts a LIT, and they draft an offer for consumers with the following conditions for monthly payments of $8,500 over five years. The proposal is then submitted to the creditor who accepts the proposal. In this way, the company is able to stay away from having to sell its equipment to pay its debts. This is done with a user request.

Consumer Proposals and Your Credit

Consumer proposals can damage your credit. The consumer proposal will be reported to your credit reports. Each revolving credit account included in the proposal will be marked with an R7 status notice; every installment account receives an I7 notice. According to an amended payment schedule, these notations show how the accounts were paid using a consolidated payment. The proposal, as well as those R7 as well as the I7 notations, will disappear from your credit report within three years or six years following the date of filing, depending on when it is.

Be aware that although these stipulations can hurt your credit, these notations will appear more attractive to lenders than not paying off bad debts or charge-offs. Also, the penalties are removed from your credit report more quickly than penalties for private debt settlement or bankruptcy when you have completed the request with success.

Who Is Eligible To Submit A Consumer Proposal?

A certified bankruptcy trustee must approve consumer proposals, and it's not a viable option for all. First, you must be a resident or operating an enterprise in Canada and be in debt greater than $1,000. In addition, you must be financially insolvent, meaning you are not able to make your payment on your debt, or your unsecured debt is greater than your assets. Contrary to bankruptcy eligibility, the maximum amount you can owe is 250,000 dollars (excluding any mortgage).

A spouse and you (or any two people) may submit a joint consumer plan if your and your spouse's debts are similar. You may also make a consumer plan during bankruptcy, but the date of your proposed consumer plan will appear as being the same as that of the bankruptcy, which means you aren't able to add any bankruptcy-related debts to the consumer proposal.

If you're in a position to be eligible for a consumer proposal, it's not the best option for you in terms of your debt. A consumer proposal is for those who have the funds to pay their debts monthly or who have assets that they do not want to lose in bankruptcy and whose earnings would cause bankruptcy to be prohibitively costly due to a large amount of payment needed.

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