Consumer Proposal Pros & Cons

A Consumer Proposal is a powerful mechanism available to insolvent individuals in need of creditor protection and debt reduction. A Consumer Proposal is a formal, legally binding process which must be filed through a Licensed Insolvency Trustee. While a Consumer Proposal offers many advantages to indebted individuals looking for alternatives to bankruptcy, a Proposal has some disadvantages that must be taken into consideration.

Following is a table of Consumer Proposal "pros" and the associated "cons":​
Consumer Proposal “pros”
Consumer Proposal "cons"
Avoid bankruptcy and associated consequences​
Proposal is a legislated process requiring full disclosure of all aspects of your finances
Formal, legally binding process means clear rules and expectations​
Rules and regulations can make some aspects of the process seem inflexible
Provides immediate protection from unsecured creditors ("stay of proceedings")
​Protection does not apply to secured creditors who may seize assets if you default on payment
Interest clock stops on debts included in the Proposal, except those falling under Section 178​
Interest continues to accrue on secured debts and debts falling under Section 178
Deals with all unsecured debts including credit cards, lines of credit, payday loans, trade suppliers, government debts (income taxes, student loans, medical service plan premiums) and debts owed to family and friends ​
You cannot pick and chose who gets included in your consumer Proposal, which may cause embarrassment if you personally know one or more of your creditors
Limited ability to defer monthly payments​
Proposal is deemed annulled when the payments are default in an amount equal to three months of payments
Impact on credit rating is less severe than bankruptcy
​There is a negative impact on credit rating and credit rating will need to be rebuilt upon completion of Proposal
You maintain ownership and control of your assets, unless the Proposal provides otherwise​
Proposal cannot deal with debts secured against specific assets and you will continue to be responsible for the maintenance and costs associated with your assets - this could be troublesome if a primary cause of your financial difficulties is related to maintenance of expensive assets
Can pay out Proposal term early if you have the financial ability​
Too much focus on paying out Proposal early can sacrifice short term savings and other financial goals
Reduction of total unsecured debt is possible​
Creditors vote on the Proposal and may reject an offer where it is perceived your Proposal is unfair or materially insignificant
You may hold a credit card during a Proposal​
Due to impact on credit rating, access to credit may be limited during Proposal term
Proposal payments in good standing can be considered by some lenders as part of a credit check during your Proposal, such as when applying for a vehicle loan​
Be prepared to pay high interest rates on loans obtained during Proposal​