Consumer Proposals in Canada: A Complete Guide
A consumer proposal is a legal alternative to bankruptcy, governed by Canada's Bankruptcy and Insolvency Act (BIA). It allows a debtor whose unsecured debts do not exceed $250,000 (excluding the mortgage on the principal residence) to propose a partial repayment plan to creditors. The process must be administered by a Licensed Insolvency Trustee (LIT), the only professional authorized by the Office of the Superintendent of Bankruptcy. The proposal provides immédiate legal protection: upon filing, wage garnishments cease, creditor calls stop, and legal proceedings are stayed.
Step-by-Step Process
- Consultation with a Licensed Insolvency Trustee (LIT): The LIT evaluates your complete financial situation, including assets, income, debts, and expenses. This consultation is generally free and confidential. In Quebec, the LIT registry is available through the Office of the Superintendent of Bankruptcy.
- Preparation and filing of the proposal: The LIT prepares a partial repayment offer to your unsecured creditors. The amount offered is generally between 20% and 50% of total debt, payable over a maximum of 5 years (60 months). The proposal is officially filed, and creditors have 45 days to accept or reject it.
- Creditor vote: Creditors representing the majority in value (over 50%) of the debts must accept the proposal for it to be approved. If no creditor requests a voting meeting within 45 days, the proposal is deemed accepted. The court then ratifies the proposal.
- Making the payments: The borrower makes the scheduled monthly payments to the LIT, who distributes them to creditors. It is essential not to miss any payment: a delay of more than 3 months triggers automatic annulment of the proposal, which can lead to bankruptcy.
- Obtaining the certificate of completion: Once all payments are made, the LIT issues a certificate of full performance. The debts included in the proposal are officially extinguished. The R7 notation on the credit file will begin to clear 3 years after this date.
Impact on Your Existing Mortgage
A consumer proposal does not affect secured debts. Your mortgage, secured by your property, continues under its contractual terms. It is necessary to maintain your mortgage payments throughout the proposal. The mortgage lender will be informed of the filing, but cannot demand early repayment of the mortgage solely for this reason, provided payments are current.
Rebuilding Credit After a Consumer Proposal
Credit rebuilding after a proposal is a methodical process requiring patience and discipline. The goal is to progressively add positive elements to the credit file to counterbalance the R7 notation. The first step is obtaining a secured credit card: a $500 to $1,000 deposit serves as collateral and the card limit matches the deposit. By using this card for small regular purchases (under 35% of the limit) and paying the full balance every month, the borrower begins rebuilding their payment history. After 12 to 18 months of punctual payments, a small secured loan (RRSP loan or secured installment loan) can be added to diversify credit types. The AMF-certified mortgage broker can guide this process toward the ultimate goal: qualifying for a new mortgage or renewal at favourable terms.
It is crucial to regularly check your credit file at Equifax and TransUnion to ensure the proposal is correctly reported and that the debts included show a zero-dollar balance. Any errors must be disputed immediately with the relevant credit bureau. The right to access your own credit file for free is guaranteed by Canadian fédéral legislation.