How Much Does a Consumer Proposal Cost?

If you are struggling with debt and looking for a way to get back on track, you might be considering a consumer proposal. It is a great debt-relief option in Canada that helps you settle your debts by paying back just a portion of what you owe. But before you take the plunge, you are probably wondering, “How much does a consumer proposal cost?”

Let’s break it down so you know what to expect. In this article, we will cover what a consumer proposal is, how much does it cost, and some of the factors that could affect how much you are expected to pay.

What is a Consumer Proposal?

A consumer proposal rolls all your unsecured debts — like credit cards and personal loans — into one easy monthly payment that you can afford. Instead of worrying about multiple bills, you just have one payment, and the rest of your debt is forgiven. Plus, interest charges stop on most debts, and those annoying collection calls come to an end.

With a Licensed Insolvency Trustee (LIT) guiding you through the process, it is all handled fairly and simply, so you can get back on track with confidence. They work closely with you to create a proposal, which is a legally binding offer to your unsecured creditors to repay a portion of what you owe based on what you can realistically afford.

It is one of the best solutions for debt relief that can help take the pressure off your shoulders without having to file for personal bankruptcy.

Consumer proposals often include reducing your total debt by up to 80%, which can be a huge relief for many people. Once your creditors accept the proposal, you will make manageable monthly payments toward this settlement amount, and the rest of your debt will be forgiven.

But, How Much Will a Consumer Proposal Cost?

Essentially, the overall cost of the consumer proposal is whatever your LIT ends up negotiating you need to pay with your creditors. However, there are also a few things you will need to know about when it comes to the other fees.

A Glance at the Mandatory Fees

First off, there are some standard fees you will need to cover through your proposal offer amount. One of these is the filing fee that goes to the Office of the Superintendent of Bankruptcy (OSB) which is around $115.

You will also need to attend two mandatory credit counselling sessions. These sessions are super helpful for getting a grip on your finances and learning how to avoid debt in the future by making sound financial goals. The cost for these is about $85 per session, which also comes out of the amount you offer to your creditors.

A Glance at the Licensed Insolvency Trustee Fees

LITs handles negotiations with your creditors and manages all the paperwork, allowing you to focus on getting back on track. They are different from unregulated debt companies who cannot offer the same solutions, can charge whatever they want and often charge a fee to refer you to a LIT.

The good news is that LIT fees are regulated by the government, which means they are transparent and fair. They are not allowed to set their own fees or rates, unlike lawyers. They must follow government-regulated rules when handling and being paid for managing a consumer proposal.

You do not directly pay a LIT. That means that the fees for any consultation or phone call, as well as any ongoing support, are deducted from the payments you make.

Additional Costs

On top of that, a flat administration fee of $1,500 is paid to the LIT, in addition to 20% of the funds distributed to the creditors, all of which, again, comes out of your offer amount. These administration amounts can vary, so it is a good idea to check with your LIT for the most current details.

Finally, the LIT pays any amounts for taxes, like HST or GST, for professional fees received, and the regulator receives a 5% amount of the funds distributed to creditors, which is called a “levy”, to allow for expenditures related to administering the insolvency process in Canada.

Factors Affecting Consumer Proposal Costs

The cost of a consumer proposal can vary depending on a few factors:

The Complexity of Your Case

If your financial situation is a bit complicated — say you have a lot of debt or a highly complex financial situation — it might take a higher offer to settle with your unsecured creditors. For example, the fees on a smaller debt amount would probably be much less than if your financial situation included large debts from multiple creditors. This is all case by case and we recommend you discuss with a LIT to understand your options and the cost.

Your Location

While LIT fees are regulated across Canada, they might vary a bit depending on where you live. Different regions could have slightly different tax rates, so it is a good idea to ask your LIT if location plays a role in the overall cost, though it may not be a huge difference or driving factor.

Ways to Manage Consumer Proposal Costs

Understanding how much a consumer proposal costs is one thing, but managing those costs is another. Here are some tips to help you stay on top of things:

Free Initial Consultations

Most Licensed Insolvency Trustees, including the ones at Farber, offer a free consultation. This is a great opportunity to discuss your financial situation, understand the costs involved, and figure out if a consumer proposal is the right choice for you. It is a no-pressure way to get the information you need without worrying about having to commit on the spot.

It is recommended to speak with a LIT instead of a debt consultant. Debt consultants are unregulated advisors and charge a fee for their services. They do not have to meet strict legislative requirements and are not required to have any formal training to provide their services. They also charge for information that you can get free from a LIT. It is also important to note that debt consultants cannot file consumer proposals or bankruptcies.

Budgeting for Fees

Once you know how much your consumer proposal will cost, it is important to plan for the monthly manageable payment amount in your budget, from which the fees come out automatically. Since the monthly payment amount and the fees are spread out over the course of the proposal, it is easier to work them into your monthly expenses. This way, you can stay on track financially while you are working to get out of debt.

Can You Get a Credit Card During a Consumer Proposal?

A common question people have is whether they can get a credit card while they are in a consumer proposal. The short answer is yes, but it might not be as straightforward as before. While you might find it challenging to get a regular credit card, many people opt for a secured credit card or prepaid card instead. This type of card requires a security deposit, but it can be a helpful tool for rebuilding your credit during your consumer proposal.

How Farber Can Assist with Your Consumer Proposal

Dealing with debt can feel like a heavy burden, but you do not have to face it alone. At Farber, we are here to help you figure out if a consumer proposal is the best way to tackle your debt.

We offer free consultations to help you understand the process, see what it would cost, and decide if it is the right fit for you. Plus, we will be with you every step of the way, from putting together your proposal to negotiating with your creditors to ensuring you complete the terms of the proposal to put your debt behind you.

With Farber by your side, you can feel confident about taking control of your financial future — starting today!