How Long Does a Consumer Proposal Take?

The debt repayment process can be a stressful and time-consuming journey – especially if you’re trying to make repayments to your creditors on your own schedule.

However, a debt solution like a Consumer Proposal can streamline your monthly payments, allowing you to settle your debts quickly.

But what exactly is a Consumer Proposal? And how long should you expect to continue making monthly payments?

Consumer Proposals might sound complicated, but they can be a lifeline for those looking for a way to repay their debt in a way that suits them.

This article will explore Consumer Proposals further, including how long they last, how they affect your credit score, and how to leave your arrangement early. By familiarizing yourself with the details of a Consumer Proposal, you can be confident you have all the information you need to make an informed decision.

What is a Consumer Proposal?

A Consumer Proposal is a formal and legally binding agreement between you and your unsecured creditors to repay your debt through a series of monthly payments based on how much you can comfortably afford.

The main purpose of a Consumer Proposal is to make your repayments more manageable and affordable than they currently are, allowing you to deal with your unsecured debts while maintaining your other financial obligations, such as housing and bills.

Consumer Proposals can only be managed by Licensed Insolvency Trustees (LITs), who are financial professionals authorized to guide you through the debt repayment process and negotiate with your creditors on your behalf.

There are certain eligibility criteria you must meet to qualify for a Consumer Proposal. For example, if you owe less than $250,000 (excluding your mortgage) and you’re in a position to make a fixed payment towards your debts each month, it could be the right solution for you.

How does a Consumer Proposal work?

It’s important to know how a debt solution works before agreeing to anything. We’ve outlined what you can expect from the Consumer Proposal process below:

Meet with a Licensed Insolvency Trustee (LIT)

The first step in filing a Consumer Proposal is finding and meeting with a Licensed Insolvency Trustee (LIT) in your local area.

This can be done by searching the database on the Government of Canada’s website here.

During your initial consultation, you will discuss your financial situation in more detail to determine whether a Consumer Proposal is the right solution for you.

If a Consumer Proposal is deemed unsuitable for you, your LIT will outline alternative options.

Draft a proposal

Once it has been decided that a Consumer Proposal is the right debt solution for you, your LIT will work with you to outline the terms and conditions of your arrangement.

During this process, they will likely ask for information about your debts, income, expenses, assets, and savings.

This step is crucial to ensure your monthly payments are set at a rate you can comfortably afford and you’re able to make reasonable debt repayments alongside any existing financial obligations, such as your mortgage and utility bills.

Submit a proposal to creditors

Once you have reviewed your Consumer Proposal documents, they will be sent to your creditors for approval.

They will then have 45 calendar days to cast their votes, deciding whether they accept or reject the proposed payment terms.

In order for your Consumer Proposal to proceed, a minimum of 50% of your creditors by dollar value must agree.

It will then become legally binding on all your creditors (including those who rejected it) and your arrangement will officially begin.

Start your arrangement

During a Consumer Proposal, it’s important to stick to your duties as they are outlined in your proposal.

This includes making proposal payments as agreed and attending two credit counselling sessions where you will receive advice on how to better manage your finances going forward.

Failure to complete your arrangement as expected will lead to it failing. When this happens, all protections will be lifted and your creditors will be free to take legal action against you.

How long does a Consumer Proposal take?

Most Consumer Proposals take around three to four years to complete, but they can last anywhere from sixty days to five years depending on your total debt, monthly income, and creditors.

Because they are tailored to your unique circumstances, there is no way to tell how long you’ll be expected to make payments until you meet with a LIT and determine the best outcome for your financial situation.

For example, if you’d rather pay off your debt as quickly as possible and have the monthly income to do so, your monthly payments might be increased to allow you to exit your arrangement at the earliest possibility.

Alternatively, if you have a family member who is willing to give you a one-time payment towards your debt, this can allow you to make a lump sum payment and leave your arrangement earlier than expected.

Lastly, if you can only afford to make small payments towards your debt each month, your payment schedule will likely last the full five years to ensure your creditors receive as much of the debt as possible.

How long does a Consumer Proposal stay on my credit report?

As well as familiarizing yourself with how long a Consumer Proposal typically lasts, it’s also worth knowing how long it’s likely to stay on your credit report.

Generally, it will remain visible on your credit report for six years from the date you sign the proposal or three years after you’ve made your final monthly payment, whichever is sooner.

During this time, your credit score will be affected and you’ll struggle to find a lender willing to give you credit.

This can make it difficult to get a loan, mortgage, phone contract, or even a bank account.

This is because debts included in a Consumer Proposal are labelled as ‘R7’ on a scale of R1 (best) to R9 (worst).

This signifies that while you have debt, you’re in the process of settling it with your creditors.

Some lenders might refuse to lend to anyone with a credit rating of R7, while others may be happy to do so but on the condition that you’re given stricter terms and a higher interest rate to protect them in the event you stop making payments (default).

Can a Consumer Proposal be extended?

Consumer Proposals can be extended in certain circumstances to ensure you’ve met all the necessary conditions to be released from your debts.

For example, if you miss more than one payment, your LIT will likely ask you to make up for the missed payments before you can be discharged.

This is to ensure your creditors receive the amount that was originally agreed when you signed your proposal.

However, the maximum length of time a Consumer Proposal can last is five years. This is to ensure you have a clear deadline for repaying your debt and will be free to make a fresh financial start after this time.

If your circumstances change or you’re worried you won’t be able to stick to the terms you agreed to, you must inform your LIT as soon as possible.

They might be able to amend your payments to make them more manageable for you going forward.

Can I exit a Consumer Proposal early?

Consumer Proposals can be completed before the five-year deadline in certain situations.

This is usually done by making a lump sum payment that’s equal to or close to your remaining debt balance.

For example, if you’re halfway through your arrangement and have inherited money or a family member is willing to give you money, this can be used to repay your creditors and let you leave your arrangement early.

However, it’s important to weigh up the pros and cons of leaving any debt solution before the expected end date.

How can I improve my credit score after a Consumer Proposal?

Entering into a Consumer Proposal will temporarily damage your credit score, but there are steps you can take to rebuild your credit history once you’ve been discharged.

We’ve outlined the steps you should follow below:

Monitor your credit report

The key to achieving and maintaining a healthy credit score after exiting a Consumer Proposal is to continually monitor your credit report for any information that is outdated, incorrect, or inaccurate.

One of the main things you must keep an eye out for is any mention of creditors whose debts you’ve already repaid during your arrangement.

This is a common mistake and can lead to your credit score being unfairly damaged as lenders will wrongly assume your debts haven’t been repaid when they have.

If you notice something that doesn’t look right, you must contact the relevant credit reference agency as soon as possible and request that they update their records.

They will ask for proof that the information is incorrect, which you must provide.

Make payments on time

The most important factor a lender will consider when deciding whether to give you credit is your ability to make payments in full and on time. This includes your housing payments (e.g. rent or mortgage) and bills (e.g. utilities).

Generally, the longer you’re able to prove you can stick to a credit agreement, the more creditworthy you’ll appear and the more your credit score will increase.

It won’t be an overnight difference, but your credit score should see a slow and steady improvement over time.

Apply for a secured credit card

Applying for credit so soon after a debt solution might seem counterintuitive, but it can prove to lenders that you’re a responsible borrower who is capable of making repayments as they’re due.

One of the main benefits of a secured credit card is that every payment gets reported directly to the main credit bureaus.

Because they are responsible for updating your credit report, this can have a direct result on your credit score.

However, you must use a secured credit card responsibly. Ideally, it should only be used to pay for regular expenses that you know you’ll be able to pay off each month.

Stick to a budget

Budgeting is the cornerstone of responsible money management and is key to getting back to a healthy place with your finances – especially after a debt solution.

By sticking to a set spending limit each month, you can ensure you’re spending within your means and avoid the kind of cash flow issues that can lead to debt.

It requires a certain level of discipline to stick to a spending plan each month, but your budget can be as basic or detailed as you want.

As long as you’re tracking your spending and making a conscious effort not to spend more than you earn, budgeting can help you rebuild your credit and transform your finances.

Conclusion

Consumer Proposals can legally last between sixty days and five years, but most arrangements take around three years to complete.

The length of your payment schedule will depend on a number of factors, such as your debt level, monthly income, and creditors.

However, the impact on your finances will typically last longer. This can lower your credit score and make it difficult to get approved for credit during and after your arrangement.

It’s important to familiarize yourself with the effects of a debt solution before you file a Consumer Proposal. Even after you’ve been declared debt-free, your credit score will likely still be affected.

Key Takeaways

• A Consumer Proposal is a legally binding debt solution that lets you repay your debt in smaller monthly instalments that you can reasonably afford
• Consumer Proposals can last anywhere from sixty days to five years depending on how much debt you have
• A Consumer Proposal will stay on your credit file for six years from the date it’s approved or three years after the final payment, whichever happens first
• If you can repay your debt with a lump sum payment, you may be able to exit your Consumer Proposal early
• Once you’ve completed a Consumer Proposal, it’s important you take steps to improve your credit rating