consumer proposal
A formal legal offer to creditors to repay a portion of debt over time as an alternative to bankruptcy.
Example
“The consumer proposal settled $45,000 in debt for $18,000 paid over four years.”
Memory Tip
PROPOSAL — offer creditors a deal. Often better than bankruptcy for both sides.
Why It Matters
A consumer proposal can help individuals avoid bankruptcy while still addressing overwhelming debt through a structured repayment plan. Understanding this option is crucial because it allows people to protect assets, maintain better credit standing than bankruptcy, and regain financial stability without losing everything they have worked to build.
Common Misconception
Many people believe a consumer proposal means paying back all their debt in full, but it actually allows creditors to accept repayment of only a portion of what is owed. Another misconception is that it has the same impact as bankruptcy on credit, when in reality a consumer proposal is generally viewed more favorably by lenders and creditors.
In Practice
Suppose someone owes 50,000 dollars in unsecured debt across multiple credit cards and loans. They could propose to creditors that they will repay 60 percent of the debt, or 30,000 dollars, spread over five years in manageable monthly payments of 500 dollars. If creditors representing the majority of the debt accept this offer, the debtor avoids bankruptcy while creditors recover significantly more than they would through legal proceedings.
Etymology
Canadian insolvency law term — a proposal from the consumer to creditors.
Common Misspellings
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