How Much Consumer Proposal Debt Should You Have Before Filing?

How Much Consumer Proposal Debt Should You Have Before Filing?

Written by Caitlin Wood
Last Updated March 22, 2023

Choosing a form of debt relief relies greatly on how much debt you have accumulated. In Canada, there are a variety of different forms of debt relief to choose from. This includes consumer proposals, debt settlement, debt consolidation, debt management and bankruptcy. Each of these solutions helps to eliminate or deal with the burden of debt.

If you’re considering filing a consumer proposal, it’s likely that one of your biggest concerns is whether you meet the consumer proposal debt requirements. 

How Much Consumer Proposal Debt Do You Need To Qualify?

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.

You must have unsecured debt of at least $1,000 in order to submit a consumer proposal, however, we do not advise doing so. 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.

Overview of Your Consumer Proposal Debt Requirements

Debt Amount RequiredTypes of Debts Included
Consumer Proposal$1,000 – $250,000Unsecured 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. 

Types Of Consumer Proposal Debts Included

Not all debts can be included in a consumer proposal. As such, it’s important that you understand what debts can and cannot be eliminated before filing.

Unsecured Consumer Proposal Debt 

A consumer proposal deals with unsecured debt. Unsecured debts eligible in a consumer proposal include the following:

  • Credit cards
  • Personal loans
  • Payday loans
  • Lines of credit
  • Student loans (as long as you stopped being a student over 7 years before filing a consumer proposal)
  • Income tax debts

Consumer proposals are suitable if your total debts are less than $250,000 (excluding mortgages on a principal residence). 

Secured Consumer Proposal Debt 

Secured debts are not included in a consumer proposal. These are debts backed by an asset of value, such as a mortgage or car loan. If you decide to file a consumer proposal and don’t want to lose your asset, you’ll need to keep up with your secured debt payments. 

Otherwise, you’ll have to surrender the asset if you stop making payments. In this scenario, the creditor is legally allowed to repossess the asset and can sell it to recoup their losses. You can include any losses in your consumer proposal if you choose to surrender your asset. 

In terms of a mortgage, a consumer proposal may help to reshuffle your finances to help you catch up on missed mortgage payments.  

Types Of Consumer Proposal Debts Not Included

According to the Bankruptcy and Insolvency Act (BIA), the following types of debts cannot be included in a consumer proposal: 

  • Secured debts, such as mortgages or car loans
  • Spousal support payments
  • Child support payments
  • Court fines 
  • Debts due to fraud
  • Student loans if you’ve been a student within the past 7 years

How Does A Consumer Proposal Work? 

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. If your creditors find the proposal fair, they may accept it. However, your creditors are under no legal obligation to accept your consumer proposal. This means that your creditors 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 will be 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.

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Other Debt Relief Debt Requirements

Debt Amount RequiredTypes Of Debt Eligible
Debt Settlement~$10,0000 +Unsecured debts
Bankruptcy$1,000 +Unsecured debts**
**Your debts that are secured with an asset may be sold to pay off your debts.

Debt Consolidation Loan

While debt consolidation loans do not have a cap on debt amounts, they do have certain income and credit requirements. Generally, to qualify for a debt consolidation loan, you’ll require an income high enough to cover your payments and a credit score high enough to help you get a low interest rate. 

If you’re unable to qualify for a low interest rate, it would defeat the purpose of consolidating your debts. Debt consolidation is used to consolidate high-interest debts into a larger low-interest loan. This helps borrowers save money and take advantage of low monthly payments. As such, it’s important to check your credit score prior to applying for a debt consolidation loan as it can impact your interest rate. 

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.

How Does A Debt Settlement Work?

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.

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. Debt requirements for bankruptcy are simple, you only need $1,000 or more debt to declare bankruptcy. 

Bankruptcy is the most drastic form of debt relief in Canada. It 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. 

Consumer Proposal Debt FAQs

What is a consumer proposal?

The consumer proposal was created to help Canadians in serious levels of debt. 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

Can a consumer proposal affect your credit?

 After your consumer proposal is completed, your credit report may be negatively affected for 3 years. After that, you’ll be able to rebuild your credit.

Do I have to pay my entire debt with a consumer proposal?

Not necessarily. Your Licensed Insolvency Trustee (LIT) will negotiate with your creditors on your behalf to come up with a proposal that involves paying your creditors a percentage of your outstanding debt. Your creditors may also agree to give you more time to pay back 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 14 votes.

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. 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.

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