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

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

Written by Caitlin Wood
Last Updated November 4, 2021

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 its 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.

debt management options

 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.

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

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 that will negotiate with your creditors on your behalf. The main goal of debt settlement is to settle your 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 RequiredTypes of Debts Included
Consumer Proposal$1,000 – $250,000Unsecured 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.

Rating of 4/5 based on 13 votes.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry 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. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Make Smarter Borrowing Decisions

Whether you have good credit or poor credit, building financial awareness is the best way to save. Find tips, guides and tools to make better financial decisions.

Save With Loans Canada

Special Offers

50 Free Trades Offer

50 Free Trades Offer
Ends August 31st, 2022

Almost $500 in commission-free trades. Code “50TRADESFREE”. Conditions apply.

View Offer
Earn 5% Cash Back With Neo

Earn 5% Cash Back With Neo
No annual fee!

Earn an average 5%¹ cash back at thousands of partners and at least 1%² cashback guaranteed.

View Offer
Build Credit With Refresh

Build Credit With Refresh

Build credit while spending money with the Refresh Financial VISA card.

View Offer
Build Credit For $7/Month

Build Credit For $7/Month

With KOHO’s prepaid card you can build a better credit score for just $7/month.

View Offer
Industry Spotlight

What's happening with Canada's credit industry?

addy ⎯ Making Real Estate Accessible To All Canadians

addy ⎯ Making Real Estate Accessible To All Canadians

Check out our interview with addy; a platform that allows Canadians to invest in different properties across Canada with as little as $1.

Read Post
Find The Best Rate
In Your Region
Best Personal Loan Provider by Greedy Rates

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Keep Track Of Your Credit Score

Subscribe with Credit Verify to monitor your credit rating and get your free credit score.