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How Much Does a Consumer Proposal Cost in Canada?
Discover how to file a consumer proposal, step by step, and other options to consider for your debt.
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Consumer Proposals – How Much Does It Cost In Canada?
As a Licensed Insolvency Trustee, one of the main debt solutions we offer is a consumer proposal. Thousands of BC debtors choose to file a consumer proposal each year to help eliminate their debts. If you’re facing financial challenges and considering personal debt relief options, understanding consumer proposals in BC is essential in making an informed choice. Let’s explore the ins and outs of consumer proposals, their costs, rules, downsides, and alternatives.
How much does a consumer proposal cost in BC?
When it comes to consumer proposals, one of the most frequently asked questions we get as LIT’s is about the cost. The question of how much it will cost varies depending on a few factors including:
– prior formal insolvency proceedings (previous bankruptcy),
– the amount of individual debt, and the
– assets owned by the individual debtor and
– their projected expected earnings over the proposal period.
A proposal is a settlement offer to creditors based on what an individual debtor can afford to pay. At C.E. Craig & Associates Inc., often what works best for debtors is to offer a monthly repayment plan amount. Say the total debt is $50,000, but the debtor can only afford $300 per month. Proposals are drafted to last 5 years or 60 months (with the option to pay it off more quickly if able). In our example, $300 over 6o months is $18,000. That is all the debtors would have to pay, and the balance of the debt is written off.
The best thing to realize that our fees (which are governed by legislation and the courts) at C.E. Craig & Associates Inc. are incorporated into the overall settlement offer to creditors. In the example above, C.E. Craig & Associates Inc., would act as Administrator under the proposal and collect the $18,000 from the debtor over the 60-month period. From the $18,000 paid by the debtor, we would retain a portion for our fee, pay out each creditor their portion of the settlement, and pay a fee to the federal government who oversees the entire process. In this way, the debtor has only one affordable payment each month until the proposal is completed.
As Licensed Insolvency Trustees, we follow a fee structure approved by the Office of the Superintendent of Bankruptcy (OSB). The fees are determined based on a percentage of the total amount of debt being included in the proposal.
Consumer Proposals cost than a Bankruptcy
Under a consumer proposal, the creditors will ultimately collect more than they would if an individual we to declare personal bankruptcy. The beauty about a consumer proposal is that it can be structed in a way to meet individual variances in income. If a debtor’s income is variable, the proposal payments can be structured to vary with expected income changes.
A Consumer Proposal offer a better return to creditors than if a debtor files a personal bankruptcy. This means that the debtor will pay more than they would pay if they filed a bankruptcy. However, filing a Consumer Proposal remains the most popular debt forgiveness option for consumer debtors in Canada, due to many factors including its overall flexibility and perceived negative social stigma.
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Easily understand your debt solutions like a Consumer Proposal or Personal Bankruptcy, book a free consultation with the C.E. Craig & Associates Team. Our experienced Licensed Insolvency trustees will be there to support you through debt relief.
What is the Reason Behind the Rise in Consumer Proposal Rates in Canada over the last 10 Years?
The rise in debtors filing consumer proposals in Canada over the last decade can be attributed to several factors, including changes in economic conditions, shifts in consumer behavior, and alterations in the legal framework surrounding debt management. Here are some key reasons for this trend:
Economic Conditions: Economic downturns or stagnant growth can lead to increased financial strain on individuals, making it difficult for them to manage their debts. Factors such as job losses, reduced income, and rising living costs can push more people towards seeking debt relief solutions like consumer proposals.
Increasing Debt Levels: Canadians have been accumulating higher levels of debt, including mortgages, credit cards, and loans. As debt burdens grow, more individuals may find themselves overwhelmed by their financial obligations and turn to consumer proposals as a way to regain control of their finances.
Awareness and Accessibility: There has been a greater awareness and acceptance of consumer proposals as a viable debt management option. Increased education and information about debt relief solutions, including consumer proposals, have made them more accessible to individuals facing financial difficulties.
Legal Changes: Changes in legislation and regulations governing consumer proposals may have made the process more favorable for debtors. For example, amendments to the Bankruptcy and Insolvency Act (BIA) in Canada may have made it easier for individuals to file consumer proposals and negotiate repayment terms with creditors.
Benefits to Consumers: Consumer proposals offer several benefits to debtors, which may contribute to their increasing popularity. These benefits include:
- Consolidation of debts into a single manageable payment.
- Protection from creditors’ collection efforts, such as wage garnishments and legal actions.
- Avoidance of bankruptcy, which can have more severe consequences for credit and financial stability.
- Opportunity to negotiate more favorable repayment terms, including reduced overall debt amounts and extended repayment periods.
- Potential for a fresh financial start once the proposal is successfully completed.
Benefits to Creditors: While creditors may initially view consumer proposals as less favorable compared to full debt repayment, there are also benefits to them in accepting such proposals:
- Assurance of receiving at least a portion of the debt owed, which may be more than what they would recover through bankruptcy proceedings.
- Avoidance of costly and time-consuming legal actions associated with pursuing unpaid debts through other means.
- Preservation of customer relationships, as consumer proposals offer debtors a chance to repay their debts while avoiding bankruptcy, which can be damaging to both parties.
Defaulting on a Consumer Proposal
Generally, a consumer proposal will last 5 years. The debtor can pay off the proposal more quickly if they have the means to accelerate their payments due to increased earnings or frugal financial management. But what happens if the debtor’s financial situation changes for the worse and the payments cannot be maintained?
If a debtor defaults on the proposal repayments, without an amendment to the consumer proposal, the proposal is deemed defaulted and the creditors can begin collection actions again for the full remaining balance of the debt and restart interest charged. This is problematic if the debtor we 4 years into a 5-year repayment process. Once a debtor defaults, a new proposal cannot be filed, and the debtor may not have any other choice other than to file a personal bankruptcy.
How do I get out of a consumer proposal?
If you find yourself in a situation where you want to get out of a consumer proposal, there are a few options available:
Early Completion
If you can afford to repay the remaining balance of your proposal in a lump sum, you can request an early completion. This allows you to pay off the remaining debt sooner than the agreed-upon timeline.
Amendment to a Consumer Proposal
If a debtor has had a proposal accepted by creditors and they find themselves unable to meet the terms of the proposal as originally agreed, they do have to option to ask the creditors to amend the consumer proposal. The amendment can offer to pay over longer period of time (max 5 years) or accept reduced payments per month.
To amend a consumer proposal that has already been accepted, your LIT must call a formal meeting of creditors to consider the amendment. Just like at the start of the proposal, the creditors must accept the amendment put forward, by simple majority. Creditors may also choose to not accept the amended offer. In these cases, the debtor can either continue with the original proposal or opt for other debt options like a personal bankruptcy.
If a debtor under a consumer proposal feels that they cannot keep up the proposal payments, its always better to inform the LIT before a default occurs. Generally, there is a 3 months grace period before a default occurs. After a default, there is the potential to have the LIT revive a defaulted consumer proposal under the BIA, but this may involve a court application and is significantly more costly and time intensive.
Additional Debt
Some debtors may consider obtaining additional debt to pay off the remaining balance of the proposal. However, this step must be fully considered – it may not ultimately solve the debt problem itself and ultimately switch from a interest free option (consumer proposal) to a more expensive interest inclusive option (loan). The exception to this rule may be in situations where there is a “white knight”, or a family member or friend, who is willing to loan the debtor a lump sum amount to pay off the proposal without charging interest (or at a reduced interest amount)
Ready to Solve Your Debt Puzzle?
Consumer proposals can be an effective debt relief solution for individuals facing financial difficulties. However, it’s crucial to weigh the pros and cons, consider the associated costs, and explore other alternatives before deciding. As Licensed Insolvency Trustees, our Debt Elimination Team is here to help you navigate your options and find the best path toward financial recovery. We offer free video consultations, or in personal consultations at our offices in Victoria, Langford, Nanaimo and Surrey.
Remember, seeking professional advice from a licensed individual is always the best step to ensure you make an informed decision tailored to your unique circumstances and to be sure to avoid unnecessary fees to unlicensed debt consultants.
Need Debt Help?
Book Your Free Consultation
Easily understand your debt solutions like a Consumer Proposal or Personal Bankruptcy, book a free consultation with the C.E. Craig & Associates Team. Our experienced Licensed Insolvency trustees will be there to support you through debt relief.
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