How Much Debt Should I Have Before Filing A Consumer Proposal?

Written by Caitlin Wood

Updated June 8, 2021

How Much Debt Should I Have Before Filing a Consumer Proposal?

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In Canada, there are a variety of different forms of debt relief to choose from, including consumer proposals, debt settlement, debt consolidation, debt management and bankruptcy. While each of these solutions helps to eliminate or deal with the burden of debt, they are intended for specific situations and therefore each has their own set of requirements.

If you’re considering filing a consumer proposal (or are looking into any type of debt relief), it’s likely that one of your biggest concerns is whether or not you have enough debt or too much debt. This is in fact an important concern to have as choosing a form of debt relief relies greatly on how much debt you have accumulated.

What is a Consumer Proposal?

The consumer proposal was created to help out Canadians in need of serious debt help. It is, essentially the last option before bankruptcy and should always be considered before opting for bankruptcy. It is a legally binding process that is filed and managed through a Licensed Insolvency Trustee. The goal of a consumer proposal is for your trustee to create a proposal to present to your creditors that allows you to clear your debts by only paying off a portion of your debts. However, it’s important to note, that your creditors are not legally required to accept your consumer proposal and may reject it if they don’t find it fair.

If your consumer proposal is accepted, typically the principal of your debt will be reduced and your interest rates frozen. You’ll either make one large lump sum payment or smaller payments up to 5 years through your trustee who will then pay your creditors. After your consumer proposal is completed, your credit report will be negatively affected for 3 years. After that, you’ll be able to rebuild your credit.

Consumer Proposal Debt Requirements

In order to qualify for a consumer proposal you must have at least $1,000 worth of unsecured debt and no more than $250,000 worth of unsecured debt as a single person. If you and your spouse, who file your income taxes together, want to file a consumer proposal you can have up to $500,000 worth of unsecured debt.

While it’s required that you owe at least $1,000 worth of unsecured debt, we do not recommend that you file a consumer proposal for this amount. Depending on your trustee, if you have significantly less than the maximum amount of unsecured debt allowed, they may suggest a less drastic debt relief option like a debt management program.

Want to pay off your consumer proposal and start building credit faster?

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Debt Settlement Requirements

In order to qualify for debt settlement you typically need to have at least $10,000 worth of unsecured debt. You’ll work with a debt settlement company who will negotiate with your creditors on your behalf. The main goal of debt settlement is to settle yours debts for an amount less than the actual amount you owe. Because of this, debt settlement is a good option for those who do not have the income to pay off their debts.

Once you enter a debt settlement program you’ll stop making payments to your creditors. You’ll then start paying into your debt settlement fund; this fund will be given to your creditors once a settlement has been agreed upon and signed.

While debt settlement is less drastic than both a consumer proposal and bankruptcy, it still may not be the best option for those who have less than $10,000 worth of unsecured debt. If you have a smaller amount of debt that you need help paying off, you should consider either a debt consolidation loan or consumer credit counselling.

Find out if you need credit counselling.

Bankruptcy Requirements

Finally, if you feel as though a consumer proposal or any of the above debt relief options are not right for you, you may want to consider speaking with a Licensed Insolvency Trustee to discuss filing for bankruptcy. Bankruptcy is the most drastic form of debt relief in Canada and therefore should be carefully considered before any final decisions are made. Bankruptcy is meant for people who do not have the means to pay back their debts even if the amount they owe were to be reduced.

Learn how to rebuild your credit after a bankruptcy.

Overview of Your Debt Requirments

	Debt Amount Required	Types of Debts Included
Consumer Proposal	$1,000 – $250,000	Unsecured debts*
Debt Settlement	$10,0000 +	Unsecured debts
Bankruptcy	$1,000 +	Unsecured debts**

*Certain unsecured debts like student loans, alimony, fines may not be included.
**Your debts that are secured with an asset may be sold to pay off your debts.

Is a Consumer Proposal Right for Me?

To make the best choice possible for your unique financial situation it’s important that you understand what all your options are. A consumer proposal is a serious financial decision, and while it can definitely help those who are in need of debt relief, it’s always best to speak with a professional.

Simply put, if you’ve accumulated a lot of debt and currently do not have a large enough income to pay back your debts in full, a consumer proposal may be the right choice for you.

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Caitlin Wood

Caitlin is one of Canada's leading personal finance writers. She is a graduate of Dawson College and Concordia University. She has been part of the Loans Canada team for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.