Calculate Your Consumer Proposal Options
Your Consumer Proposal Estimate
Calculations are estimates. Consult a Licensed Insolvency Trustee for personalized advice.
Visualizing Your Debt Relief Options
Detailed Breakdown of Your Proposal
| Item | Original Amount | Proposal Impact | Net Effect |
|---|---|---|---|
| Total Unsecured Debt | $0.00 | N/A | $0.00 |
| Total Proposal Payout | N/A | $0.00 | $0.00 |
| Estimated Bankruptcy Cost | $0.00 | N/A | $0.00 |
| Savings vs. Original Debt | N/A | $0.00 | $0.00 |
| Savings vs. Bankruptcy | N/A | $0.00 | $0.00 |
| Estimated Interest Saved | N/A | $0.00 | $0.00 |
What is a Consumer Proposal?
A consumer proposal is a legal process in Canada (and similar mechanisms exist in other countries) that allows you to make an offer to your unsecured creditors to pay back a portion of what you owe them, over a period of up to five years. It is a less severe alternative to bankruptcy, designed to help individuals avoid bankruptcy while still providing significant debt relief. The proposal is administered by a Licensed Insolvency Trustee (LIT) who acts as an intermediary between you and your creditors.
Who Should Consider a Consumer Proposal?
- Individuals with significant unsecured debt (typically between $1,000 and $250,000, excluding a mortgage on a principal residence).
- Those who have a stable income but struggle to make their current debt payments.
- People who wish to avoid bankruptcy and its more severe consequences, such as losing assets.
- Individuals seeking a structured plan to become debt-free without incurring further interest.
Common misunderstandings include confusing it with debt consolidation loans (which are new loans) or debt management plans (which are informal agreements). A consumer proposal is a legally binding agreement that, once accepted by creditors and the court, stops collection calls, wage garnishments, and freezes interest on your unsecured debts.
Consumer Proposal Calculator Formula and Explanation
Our consumer proposal calculator uses straightforward formulas to give you an estimate of the financial impact. These calculations are designed to illustrate the core components of a proposal and its comparison to other debt relief options.
The primary formulas used are:
- Total Proposal Payout: Proposed Monthly Payment × Proposed Payment Duration (in Months)
- Effective Payout Percentage: (Total Proposal Payout ÷ Total Unsecured Debt) × 100
- Potential Savings vs. Original Debt: Total Unsecured Debt − Total Proposal Payout
- Potential Savings vs. Bankruptcy: Estimated Bankruptcy Cost − Total Proposal Payout (or vice-versa, depending on which is lower)
- Estimated Interest Saved: This is a projection of the interest you would have paid on your original debt over the proposal duration, minus any interest paid within the proposal itself (which is typically zero for the proposal amount). For simplicity, our calculator estimates the interest saved as: (Total Unsecured Debt × Average Interest Rate × (Proposed Payment Duration / 12)) − (Total Proposal Payout × 0), assuming no interest on the proposal itself.
Key Variables in a Consumer Proposal
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| Total Unsecured Debt | The sum of all debts not secured by an asset (e.g., credit cards, lines of credit, personal loans). | Currency ($) | $1,000 - $250,000 |
| Proposed Monthly Payment | The fixed amount you offer to pay each month towards your proposal. | Currency ($) | $50 - $1,000+ |
| Proposed Payment Duration | The length of time, in months, over which you will make your proposal payments. | Months | 1 - 60 months |
| Estimated Bankruptcy Cost | The total cost associated with filing for personal bankruptcy. | Currency ($) | $1,800 - $5,000+ |
| Average Interest Rate on Current Debt | The average annual interest rate applied to your existing unsecured debts. | Percentage (%) | 5% - 30%+ |
Practical Examples of Using the Consumer Proposal Calculator
To better understand how the consumer proposal calculator works, let's walk through a couple of realistic scenarios.
Example 1: Moderate Debt, Stable Income
- Inputs:
- Total Unsecured Debt: $40,000
- Proposed Monthly Payment: $250
- Proposed Payment Duration: 60 months
- Estimated Bankruptcy Cost: $2,000
- Average Interest Rate on Current Debt: 19%
- Results:
- Total Proposal Payout: $250 × 60 = $15,000
- Effective Payout Percentage: ($15,000 ÷ $40,000) × 100 = 37.50%
- Potential Savings vs. Original Debt: $40,000 − $15,000 = $25,000
- Potential Savings vs. Bankruptcy: $2,000 − $15,000 = -$13,000 (meaning bankruptcy would be cheaper by this amount if only considering direct costs. This highlights that a proposal is often chosen for other reasons like asset retention or credit impact.)
- Estimated Interest Saved: Approximately $15,200 (calculated as $40,000 * 0.19 * 5 years)
- Interpretation: In this scenario, the individual would pay back 37.5% of their debt, saving $25,000 compared to paying the original amount. While the direct cost of bankruptcy might be lower, the proposal allows them to avoid bankruptcy's impact on credit and potentially retain assets.
Example 2: Higher Debt, Shorter Term Preference
- Inputs:
- Total Unsecured Debt: $75,000
- Proposed Monthly Payment: $800
- Proposed Payment Duration: 48 months
- Estimated Bankruptcy Cost: $2,500
- Average Interest Rate on Current Debt: 22%
- Results:
- Total Proposal Payout: $800 × 48 = $38,400
- Effective Payout Percentage: ($38,400 ÷ $75,000) × 100 = 51.20%
- Potential Savings vs. Original Debt: $75,000 − $38,400 = $36,600
- Potential Savings vs. Bankruptcy: $2,500 − $38,400 = -$35,900 (again, bankruptcy is cheaper directly, but proposal offers other benefits)
- Estimated Interest Saved: Approximately $66,000 (calculated as $75,000 * 0.22 * 4 years)
- Interpretation: This individual offers a higher repayment percentage over a shorter period. They save significantly on the principal debt and avoid a large amount of interest. The choice between a consumer proposal and bankruptcy often comes down to personal priorities beyond just the lowest direct cost.
How to Use This Consumer Proposal Calculator
Our consumer proposal calculator is designed to be user-friendly, providing quick estimates for your debt relief journey. Follow these simple steps:
- Enter Your Total Unsecured Debt: Input the sum of all your unsecured debts, such as credit card balances, lines of credit, and personal loans. Do not include secured debts like mortgages or car loans.
- Input Your Proposed Monthly Payment: Decide on a realistic monthly payment amount you believe you can afford. This will be a key factor in your proposal.
- Specify Proposed Payment Duration: Enter the number of months you intend to make these payments. Consumer proposals typically last up to 60 months (5 years).
- Estimate Bankruptcy Cost: Provide an estimate for the total cost of filing for bankruptcy in your jurisdiction. This helps the calculator compare options.
- Enter Average Interest Rate on Current Debt: Input the average interest rate you are currently paying across your unsecured debts. This helps illustrate the interest savings a proposal can offer.
- Click "Calculate Proposal": Once all fields are filled, click the button to see your estimated results.
- Interpret Results: The calculator will display your total proposal payout, effective payout percentage, and potential savings compared to your original debt and estimated bankruptcy cost.
- Use the "Copy Results" Button: Easily copy all your calculated results to your clipboard for sharing or record-keeping.
- Reset if Needed: The "Reset" button will clear all inputs and return them to their default values, allowing you to start a new calculation.
Remember, the values provided by this calculator are estimates. For precise figures and professional advice, always consult a Licensed Insolvency Trustee.
Key Factors That Affect a Consumer Proposal
Several critical factors influence the success and terms of a consumer proposal. Understanding these can help you better prepare for discussions with a Licensed Insolvency Trustee:
- Total Amount of Unsecured Debt: The size of your debt portfolio directly impacts the negotiation. Proposals are generally for debts between $1,000 and $250,000 (excluding mortgages).
- Your Income and Expenses: Your ability to make consistent monthly payments is paramount. Creditors will scrutinize your disposable income to determine if your offer is reasonable and sustainable.
- Your Assets: Unlike bankruptcy, a consumer proposal generally allows you to keep all your assets. However, their value might influence the creditors' willingness to accept a lower payout if they believe you could sell assets to pay more.
- Creditor Acceptance: For a proposal to be legally binding, a majority of your creditors (by dollar value of claims) must vote to accept it. Your LIT will help craft an offer likely to be accepted.
- Cost of Bankruptcy: Creditors will compare your proposal offer to what they would likely receive if you declared bankruptcy. Your proposal must offer more than or equal to what they would get in a bankruptcy scenario to be attractive. This is often referred to as the "better off test."
- Licensed Insolvency Trustee (LIT) Fees: LITs administer the proposal process, and their fees are usually paid out of the funds you contribute to the proposal, not directly by you. These fees are regulated and are part of the overall cost considered by creditors.
- Legal Framework and Jurisdiction: While this calculator focuses on general principles, the specific laws governing consumer proposals (e.g., in Canada, the Bankruptcy and Insolvency Act) dictate the rules, maximum terms, and processes.
- Personal Circumstances: Factors like job stability, family situation, and health can also indirectly affect the feasibility and structure of a proposal.
Frequently Asked Questions About Consumer Proposals
Q1: Is a consumer proposal the same as debt consolidation?
A: No. Debt consolidation usually involves taking out a new loan to pay off existing debts, which you then repay with interest. A consumer proposal is a legal process where you offer to pay back a reduced amount of your unsecured debt without interest, over a fixed period, typically up to 60 months. It's a form of insolvency.
Q2: Will a consumer proposal affect my credit score?
A: Yes, a consumer proposal will negatively impact your credit score. It will appear on your credit report for three years after you complete all payments, or six years from the date it was filed, whichever comes first. However, it is generally considered less severe than bankruptcy.
Q3: Can I keep my assets, like my house or car, in a consumer proposal?
A: Generally, yes. One of the main advantages of a consumer proposal over bankruptcy is that it allows you to retain your assets. As long as you continue to make payments on your secured debts (like mortgages or car loans), those assets are typically not affected.
Q4: How are the units handled in this consumer proposal calculator?
A: This consumer proposal calculator uses a generic currency symbol ($) for all financial amounts. You should interpret this as your local currency (e.g., CAD for Canadians, USD for Americans). Payment duration is always in months. Percentages are clearly labeled. There are no unit switchers as these are the standard units for consumer proposals.
Q5: What if my creditors don't accept my consumer proposal?
A: If creditors representing more than 50% of the dollar value of the proven claims vote against your proposal, it is considered rejected. At this point, you would need to explore other options with your Licensed Insolvency Trustee, such as amending the proposal or considering bankruptcy.
Q6: Can I include secured debts in a consumer proposal?
A: No, a consumer proposal only deals with unsecured debts (e.g., credit cards, lines of credit, payday loans, tax debt). Secured debts, such as mortgages or car loans, cannot be included. You must continue to make payments on these debts outside of the proposal.
Q7: How accurate are the results from this consumer proposal calculator?
A: This calculator provides estimates based on the inputs you provide and common scenarios. It's an educational tool, not a financial advisor. The actual terms of a consumer proposal are negotiated with your creditors and administered by a Licensed Insolvency Trustee, who will provide precise figures tailored to your unique situation. Always consult an LIT for professional advice.
Q8: What are the main benefits of a consumer proposal?
A: Key benefits include: stopping collection calls, freezing interest on unsecured debts, avoiding wage garnishments, retaining assets, paying back only a portion of what you owe, and providing a clear path to becoming debt-free without declaring bankruptcy.