When overwhelming debt keeps you awake at night, a consumer proposal might seem like a ‘get out of debt’ card that lets you pay back less than you owe. But before you sign on the dotted line, it’s worth considering whether this approach truly benefits your situation.
A consumer proposal isn’t right for everyone struggling with debt. While it can provide genuine relief for some, it can also create long-term financial consequences that might outweigh the benefits.
What Is a Consumer Proposal?
A consumer proposal is a legally binding agreement between you and your creditors to pay back a portion of what you owe over a maximum of five years.
Here’s how it works: You propose to pay your creditors a percentage of your total debt—often between 20% to 50% of what you owe. If your creditors representing the majority of your debt agree to the proposal, it becomes binding on all unsecured creditors. This means you can significantly reduce what you owe on credit cards, personal loans, and other unsecured debts.
For example, if you owe $40,000 in credit card debt, you might propose to pay back $15,000 over four years. Once accepted, the creditor legally forgives the remaining $25,000.
The Hidden Costs of Consumer Proposals
Paying less than what you owe sounds appealing, but consumer proposals come with costs that many people don’t fully consider upfront. Here are some drawbacks to weigh before committing.
Professional Fees
Consumer proposals, regulated under the Bankruptcy and Insolvency Act, must be submitted through a Licensed Insolvency Trustee (LIT).
You make your monthly payments to the trustee who typically charge fees ranging from $1,500 to $3,000. The trustee will then pay your creditors. But, these service fees reduce the amount actually going towards your debt repayment.
Credit Score Impact
A consumer proposal will appear on your credit report for three years after completion. During the proposal period and for years afterward, you’ll face challenges getting approved for mortgages, car loans, or even credit cards at reasonable interest rates.
Limited Credit Access
In an active consumer proposal, getting new credit becomes extremely difficult. Traditional lenders view you as high-risk, leaving you with limited options if emergencies arise.
Opportunity Cost
You could use the money more effectively through other debt management strategies that don’t carry the same long-term credit consequences.
If you owe less than $25,000, the fees and credit impact rarely justify the benefits. You’re better off exploring other options or simply buckling down to pay off the debt.

When Consumer Proposals Make Sense
Despite the drawbacks, consumer proposals can be worthwhile in specific situations:
- Significant unsecured debt: If you owe more than $25,000 in unsecured debt and can’t realistically pay it back within a reasonable timeframe, a consumer proposal might provide necessary relief.
- Stable income: You need a steady stream of income to make the monthly payments for up to five years. If your income is unpredictable, you risk defaulting on the proposal. If you default, not only does it affect your credit, but you become responsible for the full amount of debt again, plus any interest and fees that have accrued since you filed the proposal.
- Asset protection: A consumer proposal allows you to keep your assets, including your home and car, assuming you can maintain payments, whereas bankruptcy usually requires you to surrender certain assets.
- Creditor pressure: If creditors are threatening legal action or wage garnishment, a consumer proposal provides an automatic stay of proceedings, giving you breathing room.
Before You Sign, Consider These Alternatives First
Before signing on the dotted line and legally binding yourself for the next five years, it’s worth exploring more effective debt relief options.
Debt Consolidation Loan
If you qualify, consolidating multiple debts into a single loan with a lower interest rate can significantly reduce your monthly payments and total interest paid. This won’t hurt your credit score, whereas a consumer proposal will.
Credit Counselling
Non-profit credit counselling agencies can help you create a realistic budget and negotiate with creditors directly. This often results in reduced interest rates or payment plans without the legal implications of a consumer proposal.
Debt Management Plan
Similar to credit counselling, these plans involve negotiating with creditors to reduce interest rates and create manageable payment schedules. Your credit score may be affected, but less severely than with a consumer proposal.
If you can realistically pay off your debt within 24 months through other means, avoid the consumer proposal route entirely.
Budget Restructuring & Lifestyle Changes
Sometimes the solution isn’t reducing what you owe, but adjusting how you manage your money. A thorough budget review might reveal areas where you can cut expenses or increase income.
If you’ve recently experienced job loss, divorce, or medical issues, wait until your situation settles before making long-term financial commitments.
Negotiate Directly with Creditors
Many creditors prefer to work with you directly rather than receive pennies on the dollar through a consumer proposal. Call your creditors to discuss hardship programs, reduced payment plans, or interest rate reductions.
Balance Transfer Credit Cards
If you have decent credit, transferring high-interest debt to a low-interest or 0% promotional rate credit card can provide relief while you pay down the balance.
Making the Right Decision for Your Financial Future
Debt can eat away at all areas of your well-being, but you shouldn’t decide to pursue a consumer proposal lightly. Start by honestly assessing your financial situation:
- Calculate your total debt-to-income ratio. If your unsecured debt is substantial relative to your gross annual income and you can’t realistically pay it off within five years, you might be a candidate for a consumer proposal.
- Explore all alternatives first. Contact your creditors, speak with a non-profit credit counsellor, and investigate debt consolidation options. These approaches often provide relief without the long-term credit consequences.
- Consider your future financial goals. Will the three-to-eight-year credit impact interfere with plans to buy a home, start a business, or make other major purchases?
If you decide a consumer proposal is your best option, shop around for Licensed Insolvency Trustees. Their fees and approaches can vary significantly, so find one who takes time to explain all your options, not just the consumer proposal.
Your Path Forward
Consumer proposals can provide relief, but they should be a last resort. If you’re struggling with debt, contact our friendly staff at Blue Copper Capital to explore all your options and build a sustainable financial plan.
If you’re struggling with debt and need guidance on a strong path forward, connect with our Blue Copper Capital team to book a consultation. We can help you achieve your financial goals for a more sustainable future.