Posted On: June 12, 2025

Owing CRA tax debts can be overwhelming, especially since it is a known fact that the federal authority does have strong collection powers to collect the debt. A Licensed Insolvency Trustee (LIT) plays a crucial role in helping debtors navigate challenges in handling outstanding taxes owed to the Canada Revenue Agency (CRA).

Recent data shows that many Canadians are struggling with overdue tax obligations. As of March 31, 2023, the CRA reported a total receivable of $207.1 billion, encompassing various tax liabilities such as income taxes, GST/HST, and COVID-19-related debts. ​The report also indicates that tax debt write-offs and enforcement actions remain a major focus by the CRA to collect the outstanding debts. Additionally, financial challenges have led many Canadians to rely on tax refunds to manage their overall debt burden.

What Are CRA Tax Debts?

They refer to any amounts you owe to the Canada Revenue Agency, which can include:

• Personal Income Tax – If you owe after filing your return.
• Self-Employment Income Tax – Especially common for freelancers and contractors who are required by the government to make quarterly tax installment payments throughout the year instead of paying everything at once when filing their annual tax return.
• GST/HST – For businesses or self-employed individuals.
• Payroll Deductions – For employers who fail to remit deductions.
• COVID-19 Benefit Repayments – Like CERB or CEBA if ineligible or overpaid.

How Do You Incur CRA Tax Debts?

Individuals and businesses can accumulate tax debts for various reasons:

• Incorrect Tax Filings – Filing errors, underreporting income, or miscalculating deductions.
• Late or Missed Tax Payments – Not paying taxes on time, i.e. not remitting quarterly tax installment payments by the due dates, which applies to self-employed individuals (and some others).
• CRA Audits and Reassessments – An audit or reassessment may uncover discrepancies, resulting in additional tax liabilities and penalties.
• Business Tax Obligations – Businesses that fail to remit GST/HST or payroll source deductions can quickly accumulate CRA tax debts.
• Over-claimed Tax Credits and Benefits – Receiving tax refunds or benefits through incorrect claims, such as ineligible deductions or excessive credits, can lead to CRA demanding repayment.
• Accumulated penalties and interests on overdue amounts.
• Unexpected financial difficulties—such as job loss, business downturns, or economic struggles—can make it hard to meet tax obligations, leading to unpaid tax debts.

What Happens If You Owe the CRA?

Unpaid CRA tax debts can lead to serious financial and legal consequences. The CRA has strong collection powers, and unlike other creditors, the CRA does not need a court order to take enforcement action, making tax debt a serious financial burden.

• Penalties & Interests – Late payments accrue additional charges, increasing the total debt.
• Wage Garnishments & Bank Freezes – CRA can seize funds directly without a court order.
• Liens & Asset Seizures – Unpaid taxes may result in property liens or forced sales.
• Credit Impact – Legal actions or bankruptcy from tax debts can damage your credit score.
• Business Disruptions – Companies with tax arrears risk account freezes and operational restrictions.

How a Licensed Insolvency Trustee Helps

A Licensed Insolvency Trustee (LIT) is a federally regulated professional authorized to administer insolvency proceedings such as consumer proposals and bankruptcies. They are licensed by the Office of the Superintendent of Bankruptcy (OSB) and ensure compliance with Canada’s insolvency laws.

LITs assist individuals and businesses struggling with debt, including CRA tax arrears, by offering legally binding solutions to reduce or eliminate tax obligations while protecting assets and financial stability.

1. Assessing Financial Situation & Exploring Options

Before recommending a course of action, an LIT analyzes the debtor’s financial position, including:

• Total outstanding CRA tax debts
• Other liabilities and income sources
• Assets and available resources for repayment

The assessment will help determine if you’re insolvent—meaning you cannot meet your debt obligations. Based on this evaluation, the LIT explains legal debt relief options, which may include negotiation with creditors, filing a consumer proposal or bankruptcy. The LIT ensures that individuals understand their options and guides them through the process.

2. Negotiating with CRA

CRA is open to negotiating tax repayment plans, but they rarely reduce the principal owed. An LIT can communicate with CRA officials to seek payment arrangements that provide more manageable terms for debtors. These may include:

• Extended repayment schedules
• Temporary relief from enforcement actions (e.g., halting wage garnishments)
• Reduction of penalties and interest

While CRA does not formally accept reduced debt settlements like private creditors, negotiating terms through an LIT can offer significant financial relief.

3. Filing a Consumer Proposal to Reduce Tax Debt

A consumer proposal is a legally binding arrangement that allows individuals to pay a portion of their debts over a set period (up to 5 years). CRA tax debts are eligible for inclusion in consumer proposals, and LITs negotiate settlement terms on behalf of the debtor.

Benefits of a consumer proposal include:

• Reducing the total amount owed
• Stopping CRA collection actions immediately
• Preventing asset seizure or wage garnishment
• Offering structured payments without accruing further penalties

A consumer proposal must be approved by creditors, including CRA, and is administered entirely by the LIT.

4. Managing Business Insolvency & Corporate Tax Debts

Businesses with unpaid GST/HST and payroll taxes face aggressive collection efforts from CRA. An LIT helps companies resolve tax debts by:

• Negotiating repayment agreements
• Exploring restructuring strategies such as corporate proposals or bankruptcy
• Liquidating assets if necessary to settle tax obligations

Incorporated businesses may file proposals or bankruptcies to address tax debts; however, directors can still be held personally liable for unpaid payroll deductions. LITs guide business owners on how to handle these complexities.

5. Personal Bankruptcy as a Last Resort

If tax debts are insurmountable, bankruptcy may be the most viable option. Bankruptcy eliminates most CRA tax obligations, except for fraud-related debts, and stops collection actions immediately.

LITs oversee bankruptcy proceedings and ensure the fair distribution of assets, if applicable, while guiding debtors through financial recovery steps.

6. Stopping CRA Collection Actions & Legal Enforcement

One of the most significant benefits of working with an LIT is obtaining legal protection against CRA enforcement. Filing a consumer proposal or bankruptcy initiates an automatic stay of proceedings, which puts an immediate stop on:

• Wage garnishments
• Bank account freezes
• Liens on personal or business assets

This legal protection allows debtors time to restructure their finances without CRA interference.

Why Work with a Licensed Insolvency Trustee?

Handling CRA tax debts without professional guidance can be extremely difficult. An LIT provides:

• Expert legal advice on managing tax obligations
• Negotiation support with CRA for better repayment terms
• Financial restructuring solutions to avoid excessive tax penalties
• Debt relief options that align with federal insolvency laws

In Canada, Licensed Insolvency Trustees are the only professionals licensed by the federal government through the Office of the Superintendent of Bankruptcy (OSB) to administer:

• Consumer proposals
• Division I proposals
• Bankruptcies

While debt consultants or financial advisors may offer guidance or budgeting help, they cannot file or manage formal insolvency proceedings under Canadian law.  Managing CRA tax debts often require formal solutions—like proposals or bankruptcy, and LITs are the most qualified and legally authorized professionals to handle them.

Whether through negotiation, structured repayment plans, consumer proposals, or bankruptcy, an LIT ensures debtors receive legal protection and financial relief. If you’re struggling with tax arrears, seeking professional assistance from an LIT can provide the best path toward resolving CRA tax debts and regaining financial stability.

Posted On: May 29, 2025

If you’re struggling with tax debt owed to the Canada Revenue Agency (CRA) you might feel like there’s no way out. The CRA is known for being a powerful creditor with aggressive collection powers, such as wage garnishments, bank account freezes, and liens on property.

Individuals struggling with repayment often seek debt relief solutions. The good news is that there is a legal and manageable way to deal with overwhelming CRA debt: a consumer proposal.

Understanding Tax Debt and CRA Collections

Tax debt occurs when individuals or businesses owe money to the CRA due to:

• Underpaying taxes throughout the year.
• Failing to file returns on time.
• Self-employed individuals not remitting tax installments.
• CRA reassessments increasing the amount owed.
• Accrued penalties and interest on overdue amounts.

Unlike other types of debt, tax debt can be aggressively pursued by the CRA, which has strong collection powers. The CRA can:

• Garnish wages or bank accounts.
• Place liens on assets, such as homes or vehicles.
• Seize property if tax debt remains unpaid.

 What is a Consumer Proposal?

A consumer proposal is a formal, legally binding process under the Bankruptcy and Insolvency Act (BIA). It allows individuals with debt up to $250,000 (excluding mortgage debt) to negotiate a settlement with creditors, including the CRA. This process is facilitated by a Licensed Insolvency Trustee (LIT)—the only professionals legally authorized to administer consumer proposals.

Key features of a consumer proposal:

• Debt reduction – You may only pay a portion of what you owe, often 30–50% of the original amount.
• Fixed monthly payments – The payments are structured over up to five years, making repayment more manageable.
• Protection from creditors – Once filed, creditors—including the CRA—must stop collection actions, such as wage garnishments.
• No interest accrual – Once accepted, tax debt stops accumulating interest and penalties.
• Avoiding bankruptcy – It provides debt relief without full insolvency, allowing individuals to keep assets.

What Types of CRA Debt Can Be Included?

Since tax debt is unsecured, it qualifies for reduction through the proposal. You can include most types of CRA debt in a consumer proposal, such as:

• Personal income tax debt (owed due to underpayment, inaccurate filing, or penalties).
• Business-related tax debt (if you’re personally liable).
• Unpaid GST/HST (for self-employed individuals or business owners).
• Payroll deductions (for business owners who failed to remit employee taxes).
• Penalties and interest (from overdue taxes).

However, not all tax debts are automatically covered. Certain CRA-related debts cannot be eliminated in a consumer proposal, such as:

• Debts arising from fraud or tax evasion
• Court-imposed fines
• Certain restitution orders

In addition to these exclusions, there are other limitations to keep in mind, which can include the following:

• Secured Debts Are Not Included – If the CRA has already placed a lien on assets (such as a home or vehicle), the debt becomes secured, and a consumer proposal cannot remove the lien.
• Future Tax Debts Are Not Included – Only tax debts that exist at the time the proposal is filed are included. Any new tax debt you incur after filing (e.g., from the current or future tax years) is not covered and must be paid in full.

Why the CRA May Accept a Proposal

Even though the CRA has strong collection powers, they may still accept a consumer proposal for several reasons:

1. It often offers a better financial return than bankruptcy.
   The CRA assesses whether it would recover more money through a consumer proposal compared to bankruptcy. In many bankruptcy cases—especially when an individual has few assets—the CRA may receive little to nothing, as the debt could be fully discharged. A consumer proposal, on the other hand, usually offers higher or more consistent payments, making it a more favorable option for the CRA.
2. It’s a structured repayment plan.
    The CRA appreciates the structure and legal enforceability of consumer proposals, as they show a genuine attempt to resolve the debt. It provides a fixed monthly payment over a period of up to five years, making it easier for individuals to repay their tax debt without accumulating additional penalties or interest.
3. It reduces administrative burden.
    A proposal allows the CRA to recover money without ongoing enforcement and legal processes.

CRA’s Role in Accepting a Consumer Proposal

The CRA does not automatically accept consumer proposals. It reviews each proposal carefully on a case-by-case basis and may reject offers if they believe they will recover more through collections or bankruptcy.

Factors the CRA uses for their review:

• Repayment percentage –They assess whether the proposed repayment amount is reasonable.
• Tax filing compliance – They may reject proposals if past tax returns were not filed or if there is a history of non-compliance. They may reject your proposal or delay voting on it until all filings are up to date.
• Prior insolvency history – If an individual has filed for bankruptcy or a previous consumer proposal, CRA may be stricter.
• Earnings and financial situation – CRA evaluates whether the individual could afford to pay more outside a proposal. This includes your income and ability to repay and the value of your assets.
• The percentage of debt being repaid in the proposal compared to what would be recovered in a bankruptcy or other methods of collection. The agency may accept a consumer proposal for tax debts if it believes the proposal offers a better financial return than bankruptcy or other collection methods.

The CRA is often one of the largest creditors in a consumer proposal, and because of this, they can influence the outcome. If they hold more than 25% of your total debt, their vote can be decisive in whether the proposal gets accepted or rejected.

To improve your chances for getting the proposal approved:

• Ensure all tax returns are up to date before filing the proposal.
• Offer a reasonable repayment amount.
• Cooperate fully with the LIT.

What Happens After a Consumer Proposal is Accepted?

Once approved:

• The CRA and other creditors cannot take further collection action.
• The individual makes fixed monthly payments as agreed.
• No additional interest or penalties accumulate.
• After full completion, the remaining balance is legally discharged.

However, a consumer proposal does affect credit scores. It remains on credit reports for three years after completion. Individuals must rebuild financial standing through responsible money management.

Alternatives to a Consumer Proposal for Tax Debt

If a consumer proposal isn’t viable for your unique financial situation, there are other potential solutions which may include:

1. Negotiating a payment plan with CRA – The agency may allow installment payments over time.
2. Applying for taxpayer relief – CRA may waive penalties or interest in cases of financial hardship.
3. Debt consolidation loans – Combining multiple debts into one manageable payment.
4. Bankruptcy – If tax debts are overwhelming, bankruptcy may be necessary.

A Powerful Legal Option for Tax Debt Relief

CRA tax debt can be scary and overwhelming, especially when penalties and interest start piling up or when your wages or bank accounts are threatened.

A consumer proposal is one of the best ways to manage and reduce tax debts owed to CRA. It  is a powerful, government-approved solution that can help you reduce or eliminate your tax debt while protecting your assets and giving you a clear path forward.

If you’re struggling with CRA debt, your first step should be to speak with a Licensed Insolvency Trustee. LITs are the most reliable professionals when it comes to managing CRA tax debts through formal debt relief solutions. They are licensed by the federal government and have the legal authority to negotiate with the CRA on your behalf. Working with a Licensed Insolvency Trustee (LIT) ensures proper negotiations and increases the chances of getting approved.

Posted On: April 1, 2025

Are you having financial difficulties and looking for an alternative to bankruptcy? A consumer proposal offers a way to resolve debt problems while avoiding the more severe consequences of declaring bankruptcy.

In a Consumer Proposal you work with a Licensed Insolvency Trustee to propose a fair settlement to creditors, based on what you can afford to pay. The flexibility it offers in allowing you to manage debt without significantly disrupting your life is what primarily makes it a popular option for debt relief. In fact, between 55% and 75% of all insolvency filings nowadays are consumer proposals.

In addition to this, there are other reasons why many people consider a Consumer Proposal a better choice:

Shorter Time Credit Impact

A Consumer Proposal has a lesser impact on your credit score because the negative effects last for a shorter period compared to bankruptcy.
An R7 Rating stays on your credit report for 3 years after completion of the proposal, or 6 years from the date of filing, whichever comes first. On the other hand, in a bankruptcy, an R9 rating stays on your credit report for 6 years after discharge. This shorter credit impact allows you to rebuild your flagging credit score sooner than after bankruptcy, which can mean a quicker financial recovery.

No Seizure of Assets

In bankruptcy, you will need to surrender many of your assets to your trustee who will take care of selling them and, following that, distribute the proceeds to repay creditors. In a Consumer Proposal, however, you can keep your house, car, investments, and personal belongings while still negotiating a repayment plan as long as you can continue making regular payments for them as they become due.

Manageable Debt Repayment

In a Consumer Proposal you pay only a proportion to what you can pay of your total debt, which can be much less than what you owe. The amount that creditors accept may be as little as 10% or 20% of what you owe, making it a more affordable option. In addition, the terms of the repayment plan are more manageable than what your regular payments are because you can arrange to make monthly payments over a period of 3 to 5 years.

Legal Protection from Creditors

As soon as a Consumer Proposal is filed, creditors are legally prevented from continuing collection efforts, including garnishments, lawsuits, and harassing calls. This provides immediate relief from the stress of dealing with debt collectors. You can get the same legal protection in a bankruptcy, but the personal and financial consequences of filing are more severe.

Debt Consolidation Without Borrowing

A Consumer Proposal consolidates all unsecured debts (credit card debt, personal loans, etc.) into a legal agreement that allows you to make one fixed monthly payment over a set period of time. You don’t need to take on a new loan to pay off your debt, which you will have to do in a traditional debt consolidation loan.

Eligibility and Accessibility

In a bankruptcy, you need to owe more than $1,000 and prove that you are insolvent to be eligible. A Consumer Proposal is more accessible in that you don’t need to show that you’re completely insolvent or hopelessly in debt. If you have a high amount of unsecured debt but need more time to pay them back, you can propose a realistic repayment plan to your creditors through a Licensed Insolvency Trustee. All you need is for the majority of creditors to agree to the proposal for it to be legally binding.

When to Consider a Consumer Proposal Over Bankruptcy

• You can afford to make payments – If you’re capable of making regular payments towards a reduced debt settlement but can’t pay everything in full, a Consumer Proposal may be the better option.
• You have assets you wish to protect – If you own assets like a home or a car that you want to keep, a Consumer Proposal will likely be a better alternative since bankruptcy may require you to surrender these assets.

For many reasons, a Consumer Proposal is a viable and less disruptive alternative to bankruptcy. It enables you to keep your assets, reduce your debts, and avoid the harsh consequences associated with bankruptcy, all while allowing you to achieve debt relief in a manageable way. However, each person’s financial situation is unique, so it’s important to consult with a licensed insolvency trustee who can help you determine the best solution to manage debt for your specific circumstances.

Call us at 1-888-545-5365 for a free consultation or book an appointment here.

Posted On: March 18, 2025

Under certain circumstances, yes, it is possible to adjust a consumer proposal to accommodate changes in your financial situation. This can be done through your Licensed Insolvency Trustee (LIT). Your LIT will file the request for amendment and present a new deal with your creditors. They must agree to the terms requested for the change to be final. Once your creditors accept the offer, it takes effect immediately and you can start making payments according to the new terms.

Although a consumer proposal is a formal, legal agreement in which you agree to abide by the terms and pay a portion of your debts to creditors over a specified period, it may be necessary to adjust or modify it if your financial circumstances change and the original payment plan becomes unmanageable. In some cases, particularly when your income exceeds the prescribed threshold for your family size, this can also trigger a requirement to modify the proposal to increase your payments and pay off the debt sooner.

What are some ways you can amend your consumer proposal?

Amending a consumer proposal involves restructuring your payment schedule to ensure you can keep up with your payments and help you avoid a default.

It is important you make your monthly payments on time. The Bankruptcy and Insolvency Act only allows two missed payments during your proposal. Defaulting on your proposal happens once you miss a third payment, even if the missed payments are not consecutive.

If you’re having trouble making payments under the current terms of your consumer proposal and are at risk of defaulting, you should contact your trustee as soon as possible to discuss potential amendments.

There are three common changes that can be made:

Adjust the amount you have to pay

If you’ve had unexpected financial challenges after filing the proposal, such as a job loss, health issues, or reduced work hours, and you’re having difficulty meeting the current payment schedule, you can request to lower the amount you have to pay. This amendment would be based on your new income level and would need to be approved by your creditors.

Similarly, if your income increases significantly during the proposal, it may need to be adjusted to reflect a higher amount so you can pay more toward your debts as well as ensure that you offer a fair repayment plan to your creditors. Your trustee may reassess the original terms and then propose that you increase your payments and a shorter repayment term to reflect your improved financial situation.

Adjust the time you have to complete the proposal

Another change you can make is extending the time to complete your payments. If you’re struggling to meet the monthly payments of the original repayment timeline but can still make payments over a longer period, you can request an extension of the repayment period. Extending the length of the proposal will help lower the monthly amount you will need to pay and make payments more manageable. Any extension must be within five years (or 60 months), which is the maximum period given by The Bankruptcy and Insolvency Act to complete a consumer proposal.
Adjust both the payment amount and timeline

Both the payment amount and timeline in a consumer proposal can be adjusted, provided the changes are approved by your creditors. If you’re facing challenges in meeting the terms of your proposal, but want to avoid bankruptcy and are committed to paying off your debts under adjusted terms, your trustee may be able to negotiate with creditors to propose a lower monthly payment amount within the 5-year period.

Conditions for Amendment

To successfully amend your consumer proposal, you must be able to demonstrate the following circumstances:

• You’re experiencing severe financial hardship
• The hardship is permanent or likely to remain long-term
• Offer the most fair and reasonable terms you can manage
• Get approval from the majority of your unsecured creditors

Creditors have the right to approve or reject any amendments, and they may be more likely to accept the amendment if it offers a realistic chance of repayment. It is crucial therefore to offer the most fair and reasonable terms you can manage so creditors can see that it is in their best interest for you to continue with your consumer proposal, even if it needs to be amended. Creditors typically prefer a consumer proposal over other options like bankruptcy, as it offers a higher chance of recovering at least a portion of the debt owed.

Steps To Adjust A Consumer Proposal

When you are in a consumer proposal, it’s important to be proactive. Keep track of your income, expenses, and any changes in your financial situation. If you anticipate that you may have trouble making a payment (due to a job loss, illness, or any other reason), contact your LIT right away to discuss adjustments to the payment amount or timeline that may be necessary to help you stay on track.

• Contact your licensed insolvency trustee.
• The trustee will assess your situation and may help you renegotiate the terms of your proposal.
• The creditors must approve any changes to the proposal.
• If approved, the proposal can be modified following the new terms.

Your LIT can help with amendments if necessary. The sooner you reach out, the more likely you are to avoid defaulting on the proposal.

Do You Need To Amend A Consumer Proposal?

Your LIT is your key point of contact during the entire consumer proposal process. If any issues arise—whether it’s difficulty making payments, changes in your financial situation, or challenges in meeting the terms of the proposal—it is crucial to reach out to your trustee immediately.

Your LIT can help adjust your consumer proposal and submit it again for approval with creditors. Your LIT is there to help you, and ensure you can avoid defaulting and stay on track to settle your debts. It’s important to communicate with your trustee so they know about any challenges you’re facing, and will be able to help assess your situation, explore the options available and ensure any changes are properly handled according to the law.

Contact Richard Killen now to learn more about consumer proposals or other options for debt relief. Our Licensed Insolvency Trustees can give you the expertise and support you need to achieve a debt free life.

Posted On: December 23, 2024

The question “Can I keep a credit card during a consumer proposal” is a common concern among individuals while going through this legal process to eliminate unmanageable debt. As you navigate the complexities of a consumer proposal, it’s important to understand how credit cards are impacted. Can you continue using an existing credit card? Is it possible to obtain a new one? And how can you manage credit cards responsibly during this period?

Credit card debt is the most common type of debt in Canada. According to Nerd Wallet’s 2024 Canadian Consumer Credit Card Report approximately 55% of Canadian adults are currently carrying credit card debt, with the average amount owed being around $4,119. It’s also considered the worst kind of debt as credit cards carry high-interest rates, making it difficult to pay off the balance. If you only pay the minimum every month, you could be in debt for years, even decades because of the hefty interest rate on credit card balances.

If you’re struggling with unmanageable credit card debt and worry you’ll never break the cycle of minimum payments and high interest rates, a consumer proposal may offer a solution and help you get back on track financially.

Understanding Consumer Proposals

A consumer proposal is a legal process available in Canada that helps individuals who are struggling with a staggering amount of unsecured debt. The term ‘unsecured debt’ refers to a type of debt that isn’t backed by any asset. This means the lender provides credit without holding any collateral as security. Credit cards, overdrafts, lines of credit, payday loans, personal loans, overdue utility bills such as mobile phone bills are examples of unsecured debt that can be included in a consumer proposal.

Only a Licensed Insolvency Trustee can file a consumer proposal and will help you negotiate with creditors to pay back a portion of your debt over a period of up to five years. A proposal provides a legally binding agreement and a structured method to eliminate debt, helping you avoid bankruptcy.

A consumer proposal provides several benefits, including:

• Debt Reduction – You propose to pay back a portion of your debt, which may be less than the total amount owed.
• Legal Protection – Creditors are prevented from taking legal action against you during the proposal.
• Financial Relief – The monthly payment terms are set according to your ability to pay and do not change even if your financial situation improves,offering you some flexibility in managing your debt.

Credit Cards During a Consumer Proposal

The central question is whether you can keep an existing card or obtain a new credit card while in a consumer proposal. Here are some key points you need to know:

Existing Credit Cards

When you file a consumer proposal, all your existing credit card debts are included. As such, you will need to surrender any credit cards covered by the proposal, and the creditors will freeze or close those cards that you previously held. This means:

• Suspension of Use – You should avoid using these credit cards during the proposal period. Continued use of credit cards included in the proposal could be considered fraudulent and may result in legal issues.
• Account Management – Your Licensed Insolvency Trustee (LIT) will handle negotiations with your creditors, including credit card companies, during the proposal process. This may include negotiating a reduction in the balance or freezing interest rates on these accounts.

Existing Credit Cards With No Balance

Depending on the credit card company, you may be allowed to keep any credit cards that do not have outstanding balances at the date of filing the consumer proposal. However, it’s important to note that some lenders could impose a lower credit limit or may be hesitant to increase existing credit limits while you are under a consumer proposal. While you may keep these cards, taking on new credit or increasing your debt is generally discouraged during the proposal period.

Obtaining New Credit Cards

Getting a new credit card during a consumer proposal can be challenging due to the following factors:

• Credit Score Impact – A consumer proposal has a significant impact on your credit score. It puts an R7 rating on your history, which tells lenders that you are making regular payments through a debt management plan or consumer proposal with your creditors. Credit card companies often view individuals with an R7 rating as higher-risk borrowers. As a result, it may be difficult to obtain new credit cards, and if you are approved, they are likely to come with higher interest rates and lower credit limits.
• Application Process – When you apply for a new credit card, the issuer will examine your credit report, which will reveal that you are currently under a consumer proposal. This disclosure can significantly impact their decision-making process, making it more difficult for you to be approved for new credit. While you are still actively in a consumer proposal, lenders will consider you a higher risk for default, as the proposal indicates ongoing financial difficulties. They may view your current credit situation as unstable, leading to lower approval rates for new credit cards. Even if you are approved, you may face less favorable terms, such as higher interest rates and lower credit limits.
• Credit Limits and Interest Rates – If you manage to obtain a new credit card during a consumer proposal:
  • Lower Credit Limits – New credit cards are likely to have lower credit limits compared to what you had before the proposal. This is a precautionary measure by the credit card issuer to mitigate their risk.
  • Higher Interest Rates – Credit cards obtained during a consumer proposal may come with higher interest rates. This reflects the issuer’s increased risk in lending to someone in a consumer proposal.

Impact on the Consumer Proposal

Managing credit cards responsibly during a consumer proposal is crucial for several reasons:

• Compliance with Terms – Using a credit card responsibly and avoiding the accumulation of new debt are crucial for adhering to the terms of your consumer proposal. By carefully managing your credit card use, you show your commitment to resolving your financial obligations and staying within the boundaries set by the proposal. It is important to avoid taking on any new debt during this period, as doing so can lead to complications and potentially jeopardize the successful completion of your proposal.
• Rebuilding Credit – Responsible use of credit cards, such as making timely payments and maintaining low balances, can help rebuild your credit score. These practices demonstrate financial discipline and can positively influence your credit rating over time. However, it’s important to avoid any misuse of your credit cards or the accumulation of new debt, as these actions can hinder your progress and negatively affect your financial recovery. Consistently managing your credit cards well not only supports your efforts to improve your credit score and maintain a positive financial track record but also supports the overall goal of becoming debt-free and achieving long-term financial stability.

Strategies for Managing Credit Cards

If you need to manage credit cards while in a consumer proposal, consider the following strategies:

Make payments in full and on time

The most crucial strategy for managing a credit card while undergoing a consumer proposal is to ensure that you make your payments on time and in full. This approach demonstrates to lenders that you are capable of using credit responsibly and fulfilling your financial commitments.

Consistently paying your credit card balance in full each month is essential for rebuilding your credit. Although improvements to your credit score and rating won’t happen instantly, this disciplined payment behavior will significantly contribute to a positive change over time. Regular, full payments help build trust with creditors and positively influence your credit profile, paving the way for better credit opportunities in the future.

Consult with your Licensed Insolvency Trustee (LIT)

Before you apply for or use a new credit card, it is crucial to consult with your Licensed Insolvency Trustee (LIT). Your LIT can offer expert advice on how taking on new credit might impact your ongoing consumer proposal and overall financial health. They can help you understand the potential consequences of new credit activity, including how it might affect your ability to complete the proposal successfully and your long-term financial recovery. By seeking their guidance, you ensure that your actions align with the terms of your proposal and avoid complications that could arise from unplanned credit usage.

Monitor your credit report

Regularly reviewing your credit report is essential to ensure that all the information it contains is accurate and that you are complying with the terms of your consumer proposal. By keeping a close eye on your credit report, you can stay updated on your credit status and quickly spot any discrepancies or issues that may arise. This proactive approach allows you to address potential problems early, preventing them from escalating and impacting your financial recovery. Regular monitoring also helps you track your progress and make informed decisions about your credit management.

Budgeting and financial planning

Creating a detailed budget is a key step in managing your finances effectively, especially while undergoing a consumer proposal. Start by outlining all sources of income and listing all your expenses, including both fixed costs (like rent or mortgage, utilities, and insurance) and variable costs (such as groceries, transportation, and personal expenses).

Incorporate any debt repayments into your budget, ensuring that you allocate funds specifically for these debts to stay compliant with your proposal terms. A well-structured budget helps you track your spending patterns, identify areas where you can cut back, and prioritize essential expenses over discretionary spending.

Effective budgeting not only assists you in maintaining control over your financial situation but also helps you avoid the pitfalls of accumulating new debt. By planning your finances meticulously, you can manage your cash flow more efficiently, meet your financial commitments, and work towards achieving long-term financial stability and recovery. Regularly reviewing and adjusting your budget as needed will keep you on track and support your progress throughout the consumer proposal period.

Prioritize essential spending

When managing your credit cards during a consumer proposal, it’s important to focus on using them only for essential expenses. This means allocating your credit card use to necessary purchases such as groceries, utilities, or medical expenses, and avoiding non-essential or discretionary spending. By prioritizing essential spending, you can maintain better control over your finances and prevent the accumulation of new debt.

Responsible spending habits not only help you stay within your budget but also support your overall financial stability. Avoiding unnecessary purchases reduces the risk of overspending and ensures that you can manage your credit card balances more effectively. This disciplined approach helps you adhere to the terms of your consumer proposal and contributes to your long-term financial recovery.

Build an emergency fund

An emergency fund acts as a financial safety net, providing you with the resources needed to cover unexpected expenses such as medical emergencies, car repairs, or urgent home repairs without relying on credit cards.

Start by determining a realistic savings goal based on your monthly expenses and potential emergency costs. Even a modest emergency fund can make a significant difference. Aim to gradually build this fund by setting aside a small portion of your income each month.

Having an emergency fund in place helps you avoid the need to resort to credit cards for unforeseen expenses, which can lead to additional debt and complicate your financial situation further. By reducing your reliance on credit for emergencies, you can stay within the terms of your consumer proposal and continue making progress toward financial recovery.

Regularly review and adjust your emergency fund as your financial situation changes. Maintaining this reserve not only provides peace of mind but also supports your long-term goal of achieving financial stability and successfully completing your consumer proposal.

Explore alternative credit options

As you work on rebuilding your credit during a consumer proposal, exploring alternative financial products can be a practical approach.

1. Secured credit cards – One such option is a secured credit card. Unlike traditional credit cards, secured credit cards require you to make a deposit that serves as collateral. This deposit typically acts as your credit limit, providing the lender with a form of security. Using a secured credit card responsibly can greatly help rebuild your credit score. By making timely payments and keeping your credit usage low, you ensure that positive information is reported to the credit bureaus, which can improve your credit history.
2.  Credit-building accounts – Additionally, consider other financial products designed for individuals working to improve their credit. These might include credit-builder loans or specialized credit accounts offered by financial institutions for credit recovery. Each of these options can help demonstrate your commitment to managing credit responsibly.

When exploring alternative credit options, make sure you understand the terms, fees, and interest rates. Using these options responsibly—by paying on time and keeping balances low—can help improve your credit score.

Incorporating these alternative credit options into your financial strategy can help rebuild your credit while staying on track with your consumer proposal.

Rebuilding Credit After the Proposal

Successfully completing a consumer proposal is a significant step toward financial recovery. Once the proposal is discharged, shift your focus to rebuilding your credit:

• Timely Payments – Continue to make timely payments on any remaining debts and new credit accounts.
• Debt Management – Avoid taking on more debt than you can handle. Gradually building credit through responsible use of credit cards and other financial products can improve your credit score over time.
• Financial Education – Consider seeking financial education resources to improve your understanding of credit management and financial planning.

While it is possible to own a credit card during a consumer proposal, it requires careful management and consideration. If you have existing credit cards, it’s best not to use them during the proposal period. Although not impossible, obtaining new credit cards can be challenging due to the impact of the consumer proposal on your credit score. By gaining a clear understanding of how a consumer proposal affects your credit and adopting sensible financial practices, you can manage your credit cards more effectively. This means being aware of the potential impact on your credit score, avoiding unnecessary debt, and making timely payments. Always check with your Licensed Insolvency Trustee to advise you on the best practices for rebuilding credit and applying for secured credit cards.

If you are falling behind on credit card bills and want to find out if a consumer proposal is the best solution for your situation, talk to a LIT who can assess your unique situation and give the best advice on what debt relief options are available to you.

Posted On: August 15, 2024

When struggling to manage multiple debts and faced with a choice between debt consolidation vs consumer proposal, which option is the best way to get out of debt?

In today’s economic landscape, many Canadians find themselves facing overwhelming debt burdens. In fact, according to the latest statistics, about 45 percent of Canadians are just $200 away from failing to meet their financial obligations.

If debts are becoming overwhelming, it becomes crucial to find an effective way to regain financial control. Two common options that Canadian borrowers consider are debt consolidation and consumer proposals. Both offer pathways to debt relief, but they operate differently and suit different financial situations. Understanding the nuances between these options is essential for making informed decisions about managing your finances.

What is Debt Consolidation?

Debt consolidation involves combining multiple debts into a single, larger debt. This is typically achieved by taking out a new loan, often at a lower interest rate than the existing debts, and using it to pay off all outstanding balances. The main goal of debt consolidation is to simplify and lower the monthly payments, and potentially lower the overall interest rate, making it easier for the debtor to pay his or her way out of debt.

Pros of Debt Consolidation:

• Simplified Payments – Instead of managing multiple types of debts, with multiple creditors, due dates, repayment terms and interest rates, debt consolidation combines everything into one loan. You’ll only be making a single monthly payment, which makes it easier to manage the debt and make payments on time.
• Lower Interest Rates – If you qualify for a lower interest rate on the consolidation loan, you could save money on interest payments over time.
• Preservation of Credit Score – As long as you make payments on time, debt consolidation can help preserve your credit score.

Cons of Debt Consolidation:

• Requires Good Credit – Qualifying for a consolidation loan with favorable terms usually requires a decent credit score. According to Equifax, borrowers with a credit score of 740 or higher typically receive the best interest rates. For those with a credit score of under 670, debt consolidation may not be a good option because lenders may potentially give high interest rates to high-risk borrowers.
• Potential for Additional Debt – If you can’t consolidate ALL your debts you could simply be adding to your debt load and possibly worsen your financial situation.

What is a Consumer Proposal?

A Consumer Proposal works similarly to a debt consolidation loan by combining all debts into a single monthly payment that pays all the debts off gradually over time. However, unlike debt consolidation loans, a Consumer Proposal does not involve borrowing or taking on a new loan in order to consolidate debt. You just make an offer to your creditors to settle the whole amount you owe. They can accept it or negotiate the amount with you, but if you reach an agreement with them (as the vast majority of people do) it will get you out of debt.

The offer you make must be something you can actually do, otherwise the proposal settlement will fail. So most proposals are made for a percentage of your total debt. It’s what people can afford.

Consumer Proposals are usually arranged with monthly payments and can significantly decrease the total debt burden, sometimes by as much as 80% or more.

A Consumer Proposal is a formal agreement made between you and your creditors through a licensed insolvency trustee (LIT) and is ratified by the court, which ensures that it is legally binding.

Pros of Consumer Proposals:

• Legal Protection – A crucial aspect of a consumer proposal is the automatic stay of proceedings. This forces your creditors to respond to your consumer proposal. If they ignore it the proposal will be deemed accepted and ratified by the court.
• Stress Relief – The simple filing of the consumer proposal usually stops all collection calls and will stop any legal proceedings immediately.
• Fixed Amount – A consumer proposal is usually approved for a fixed sum. So you know exactly how much you have to pay to get out of debt.
• All Debts Included – Once a consumer proposal is accepted by the creditors and approved by the court, all your unsecured creditors are legally bound to the terms of the proposal.
• No Interest Charges – In a consumer proposal there are no interest charges. The costs of the proposal, such as the trustee’s fees, are paid from the amount you offer.
• Preservation of Assets – By proposing a structured repayment plan through a consumer proposal, you aim to satisfy creditors without resorting to selling off exempt assets such as an RRSP. This protects your essential possessions and allows you to maintain stability in your quality of life.

Cons of Consumer Proposals:

• Credit Impact – People often ask which is worse for my credit score: a consumer proposal or a bankruptcy. The answer is they both have a negative impact, but the proposal is usually somewhat less than a bankruptcy.
• Creditor Acceptance – For the consumer proposal to be accepted, creditors must agree to the proposal. Creditors representing at least 50% of your total debt must vote in favor of the proposal. Once accepted, the proposal becomes legally binding on all creditors, including those who voted against it. If they reject it, you may need to consider alternative debt relief options.
• Some Negotiation may be needed – You start a consumer proposal by make a settlement offer to all your unsecured creditors – usually basing your offer not on how much you owe, but how much can you afford to pay every month. Your creditors are not obligated to accept your offer, but because of the Stay of Proceedings and the alternative of a bankruptcy they do have some incentive to try to arrive at a mutually agreeable settlement. It may involve some negotiations (carried out by the trustee) but 96% of consumer proposals are eventually accepted.

Choosing Between Debt Consolidation and Consumer Proposals

The decision between debt consolidation and a consumer proposal depends on various factors, including your total debt amount, income level, credit score, and overall financial goals. The only way you can get all the information you may need to decide which is better for you is to obtain a proper assessment by a Licensed Insolvency Trustee.

Posted On: April 30, 2021

Hi it’s Richard Killen it’s tax time again and some of us when we file taxes are going to owe money. And some of us who owe that money have RRSP’s.

I want to suggest to all of you if you’re in that position where you have RRSP’s and you owe money on your taxes this year, don’t cash them in until you’ve talked with us. There are options that would allow you to keep your RRSP’s and still get your taxes taken care of.

I invite you to give us a call.

Posted On:

Hi I’m Richard Killen, if you’re like me you’re pretty fed up talking about covid and lockdowns so, I thought we’d talk about tax returns.

April 30th if you’re weren’t a self-employed person in 2020, is your deadline for filing your taxes. If you were self-employed you got till June 15^th but the important thing I want to get

across is to get your return filed by the deadline. There are penalties for not doing so.

You can avoid all that just by getting it filed even if you can’t pay it, get it filed.

Posted On: December 25, 2019

December is a very exciting and interesting time of year. From the official beginning of Winter to the various religious celebrations, such as Christmas and Hanukkah. It’s also a time for some philosophical pondering; reviewing the year past and formulating our resolutions for the coming year. Yes, December can be a very important month. It certainly is a good time to appreciate all the good things we are given, especially when they occur through no effort of our own.

True, not everything that happens to us is positive and easy to take. Everyone has the challenge of dealing with negative things like health problems and all the other personal trials life throws at us. Sometimes it feels like that’s all there is. But it isn’t, is it?

In the book I wrote, The Glass Is Half Full, I try to make the point that no matter how difficult our problems and challenges, the attitude with which we face them goes a long way to getting us through it and even turning these things around. Most importantly, we cannot let the bade things that happen to us define how we see ourselves.

I can’t think of a more valuable way to wind up the year. Maybe that’s why Christmas and Hanukkah take place at this time. For thousands of years these religious celebrations, and their cousins in other faiths, remind us of all the positive gifts life provides and how we should never take any of it for granted. They also encourage us to believe that facing up to our daily toil and turmoil courageously pays off for us in the end. That’s something we owe to ourselves and to those we love.

So with that thought, I’ll which all of you a very Merry Christmas and Happy Hanukkah and hope that you and yours are blessed with good health and happiness throughout 2020.

Posted On: April 22, 2019

In this video, Sean Killen, President of Richard Killen & Associates Ltd., answers frequently-asked questions on consumer proposals and bankruptcies in Mississauga.

Do you see more consumer proposals or bankruptcies in Mississauga?

Over the history of our office in Mississauga, there are about 60% consumer proposals. People coming into us don’t even want to hear anything about bankruptcy although we are required to go through it with them because it is part of the legalities.

Is there a minimum amount of debt required to be eligible for a consumer proposal or bankruptcy in Ontario?

There is a minimum under the law. The minimum would be $1,000. The law says you cannot declare yourself insolvent unless you meet the criteria of owing more than $1,000.

What’s the average duration of a proposal?

Consumer proposals are designed to be over a 5-year period because that’s the restriction that the law puts. They are not allowed to go beyond five years. However, the person has the freedom and the ability to shorten the term if they want with no interest, no penalties and no restrictions. Although most proposals are designed over five years, they end up paying out right around the four-year mark. Most of the time, after they get over about two and a half years, they start seeing the light at the end of the tunnel and want to pay it off faster. Therefore, they start ramping up their payments a little bit. Furthermore, they have a chance to get reorganized and start realizing the value in getting things out of the way.

What’s the status of the debt during a consumer proposal?

All the debts still exist. The creditors just agreed to sit back and see whether or not you can satisfy the agreement that was made. Ultimately, the final signatures are in place verifying that you have met the terms of your agreement. The debt still exists and can still blow back on you. Every once in a while, we’ll have a file that does that but very rarely will a file ever get past the halfway mark and then not complete. Most files that don’t make it fail in the first year and that’s just because everybody wants to do it but overextends themselves. They don’t properly accommodate to what the reality of their expenses really are. They think they can find money, they can cut back, and they can make this work just so that they can avoid bankruptcy.

If I go bankrupt, can I get a mortgage?

Getting a mortgage is still difficult because your debts still exist. Getting a mortgage renewal is not a problem. We always advise you to look for automatic renewal. You are already in the mortgage and you are already making payments. As long as you have never missed any payments, they’re just going to renew you, anyway.

If I Go Bankrupt or do a consumer proposal, can I get a car loan?

It’s easier to get a car loan while you’re in a proposal as opposed to bankruptcy. However, most lenders don’t really care whether you’re in a bankruptcy or a proposal. They’re just happy that you’re not dealing with outstanding debts and have creditors looming over you. However, you will always have to pay for it with higher interest rates to make sure they make enough money to cover their risks. They’re happy to lend it to you. Their money is in the car and not in you, necessarily. In general consumer proposals in Mississauga are significantly more popular than bankruptcies.