Consumer Proposals Explained

Basically, a consumer proposal is part of a legal proposition in which you offer to pay a portion of your debt. If your creditors agree, the amount you must pay back is substantially reduced, often by as much as 50%. Because a consumer proposal is a legal process, it is regulated under the law. This means that there are several mandatory steps that must be carried out in order to satisfy your creditors that you are truly unable to pay the full amount that is owed to them.

Creditors agree to consumer proposals because they can see that a refusal to accept this proposal may lead to the debtor declaring bankruptcy. The portion of debt that creditors recover during bankruptcy is far less than the amount they receive from a consumer proposal.

Most people would prefer not to declare bankruptcy, so a consumer proposal reduces the debt servicing load to a manageable amount (and assumes that the debtor will change spending habits so as to avoid future problems). Another tangible benefit is the fact that consumer proposals are recorded on your credit score for only three years, rather than the six years (or more) that a bankruptcy affects your credit score.