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.
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.
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.
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.
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.
| 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** |
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.
Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.
Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
Earn up to 12,000 bonus Scene+™ points in your first year (that’s up to $120 towards travel).
New Offer! Get up to $2,000 cashback + a $50 bonus on signing up. Conditions apply.
Earn an average 5%¹ cash back at thousands of partners and at least 0.5%² cashback guaranteed.
Borrow up to $50,000 from our partner, Fairstone, and don’t pay until 2023*
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.
