There’s a lot of misinformation about consumer proposals, including what they cover, who qualifies, and what they mean for your credit, your home, and your job. Below is a straightforward breakdown of the most common myths and what the facts actually show.

Myth: A consumer proposal can’t help with government debts.

Reality: A consumer proposal is actually the only option, outside of bankruptcy, that can reduce or settle government debts. Income tax debt, HST debt, and CRA debt can all be included. Student loan debt can also be reduced or eliminated if it has been at least 7 years since you last attended post-secondary, depending on your financial circumstances.

Myth: A consumer proposal is the same as debt consolidation or a debt settlement program.

Reality: A consumer proposal offers protections that debt consolidation and debt settlement programs do not:

• Legal protection: A consumer proposal immediately stops garnishments and asset seizures. Debt consolidation and settlement programs offer no such protection, leaving you exposed to lawsuits, garnishments, or seizure of property.
• Reduced total debt: Debt consolidation requires taking on new credit. Both consolidation and settlement programs are subject to fees and do not reduce the amount you owe. A consumer proposal does.

Myth: A consumer proposal will ruin your credit.

Reality: Accounts associated with a consumer proposal carry an R7 rating. Accounts tied to repossession or seizure are rated R8, which is worse than a proposal. Debt consolidation and debt management programs also result in an R7 rating, so a consumer proposal is not uniquely damaging.

For most people, the more relevant context is where their credit already stands. By the time clients come to Doyle Salewski, many have already accumulated R2 through R5 ratings from missed or late payments, and collections activity. Those marks stay on your credit file for 6 years from the date of last activity.

A consumer proposal, by contrast, drops off entirely 3 years after your final payment. Many clients are surprised by how quickly their score recovers, with one client who went through bankruptcy achieving a credit score of 650 in under a year after discharge.

Myth: I won’t be able to renew my mortgage.

Reality: One of the key benefits of a consumer proposal is that you keep your home. On renewal, if your mortgage payments have remained current, your existing lender should allow you to renew without requiring a new credit application. It is uncommon for a consumer proposal to affect an existing mortgage agreement.

If you switch lenders or refinance, a new credit application will be required, and your R7 rating will be visible for 3 years after the proposal is completed. Lenders may treat you as higher risk and offer a higher rate, which is why most people stay with their current lender until their credit has had time to rebuild.

Myth: I won’t be able to get a mortgage.

Reality: For most people, this is not a practical concern. A consumer proposal frees up monthly cash flow that would otherwise be going toward debt payments, which means you can begin saving for a down payment. If you have RRSP savings (which are protected under a consumer proposal), you may also be able to use the Home Buyers’ Plan to borrow from your RRSP for a first home purchase.

Credit rebuilding can start immediately. Lenders look for a history of on-time payments, including proposal payments, rent, utilities, and cell phone bills. A secured credit card (not prepaid) with a deposit of $600 to $2,000 can be obtained during the proposal and used to actively demonstrate responsible credit use.

Mortgage brokers consider multiple factors, and eliminating overwhelming debt often improves your overall financial profile. If homeownership is a goal after your proposal, your Doyle Salewski counsellor can help you build a plan and connect you with a mortgage broker if needed.

Myth: I won’t be able to finance a vehicle.

Reality: Failing to make loan payments or having a vehicle repossessed results in an R8 rating, which is worse than a consumer proposal’s R7, and stays on your credit file for 7 years. A consumer proposal is a better outcome than repossession from a credit standpoint.

Most lenders will work with borrowers after a proposal is complete, and some will work with you during the proposal. Approval typically requires proof of stable employment, consistent income, and a down payment, and the larger the better. A consumer proposal also creates the opportunity to build savings that can go toward a vehicle purchase or down payment. Given that post-proposal financing often comes with a higher interest rate, having a plan to refinance once your credit has improved is worth considering.

Myth: Only “poor” people file consumer proposals. My income is too high to qualify.

Reality: Financial hardship affects people at every income level. High earners frequently face debt problems stemming from family law disputes, cash flow disruptions, health emergencies, or mismanaged tax obligations. High income often correlates with high debt, and when cash flow tightens, things can deteriorate quickly.

To qualify for a consumer proposal, total unsecured debt must fall between $1,000 and $250,000 (or $500,000 for a couple, excluding the residential mortgage). If your debt exceeds these limits, a legally binding arrangement may still be possible, though it would not fall under the Consumer Proposal framework specifically.

Myth: My partner will be affected by my consumer proposal.

Reality: A consumer proposal applies only to your financial obligations and your credit report. Your spouse’s credit file is not affected.

The exception involves joint debt. If you share credit cards, a line of credit, a bank overdraft, or a co-signed loan, that debt must be included in the proposal. Your partner then becomes responsible for the portion not covered by the settlement.

Myth: People will know I’ve filed a consumer proposal, and it could affect my employment.

Reality: Consumer proposals are filed as public record, but access is not as straightforward as most people assume. Anyone searching the Bankruptcy and Insolvency records must register and pay an $8 search fee. In practice, the people who know about your proposal are your creditors and anyone you choose to tell.

On the employment side, Section 66.36 of the Bankruptcy and Insolvency Act is explicit: no employer may dismiss, suspend, lay off, or otherwise discipline an employee solely on the basis that a consumer proposal has been filed.

Still have questions?

Book a free, confidential consultation with a Licensed Insolvency Trustee at Doyle Salewski. You’ll get a clear picture of your options before making any decisions. Consultations are available in English and French across Ontario and Quebec.