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About Informal Proposals

An Informal Proposal is just that; it is “informal”; meaning not formal, not fancy. It is a simple process of a debtor (person in debt) and/or their representative (a lawyer or qualified settlement firm) to negotiate directly with a creditor to reach a settlement to repay back a portion of what is owed. It allows a consumer to avoid filing any official Consumer Proposal or Bankruptcy under the Bankruptcy and Insolvency Act BIA. There can be some advantages to not filing any formal insolvency.

At Debt Victoria (4Pillars), we do not perform informal settlements. We feel that this process is a somewhat outdated process and is generally too risky for most of the situations we see. Therefore, we do not often even recommend this type of proposal as a debt relief option. However it is smart to understand all of your options and for those who are interested, here is how it works:

One of the risks of informal settlements is that it can tough and lengthy to make these types of settlements, and they require very special circumstances to be able to even consider them. And even if a settlement is agreed upon, they can be hard to pay. In the case that you can settle and pay, it is vital that the proper paperwork is provided by the creditors otherwise there could be future credit reporting and credit score problems. The person in debt needs to ensure they get the proper release documents and other proof of settlement to be able to ensure a successful financial rebuilding after.

Because of the difficulty and risk around these, and the rarity of the people who would qualify for this type of settlement, Informal debt restructuring is a service that is not widely offered in Canada. There are just too many extra risks and too many of the creditors are not willing to compromise much on their debt via this process.

That said, there are some very special circumstances where an Informal Proposal might be the best option for a person in debt as well as their creditors, and in those cases it can work.

There are quite a few factors that can affect the outcome of the Informal negotiations, but here are some highlights/benefits for you to consider:

  • You may be able to pick and choose the debts you negotiate (keep some credit cards, get rid of others)
  • You can continue to be a director of an incorporated company (whereas you cannot own a company if you file a bankruptcy)
  • The debts settled are usually reported as an R7 (Settled), instead of in collections (R9 Bad Debt) like they likely were before you made your settlement.
  • Although you are not required to be technically “insolvent” (assets less than your debt) but do need to demonstrate the inability to repay the debt in full.


Additional points to consider about Informal Proposals and some possible drawbacks:

  • This process will not deal with Canada Revenue Agency debt (personal income tax, GST, HST, or source deductions, etc.). This process will not eliminate your tax debt the way other debt relief options can
  • This will not deal with secured debts such as mortgage and car loans
  • This process does not always work and a person could end up getting sued by their creditors and have their wages garnished
  • The banks typically want a lump sum (paid all at once) settlement if they agree to any reduction in the debt, so that means you or your family would need a large lump sum of money sitting ready to be paid immediately if the banks did agree to a debt reducing informal settlement.


So this fact (that the money needs to be paid in a lump sum at once) about informal proposals means that most people in debt (who generally are experience a lack of free cash) are NOT in a position to do any type of informal proposal debt settlements. However, it is our opinion that from time to time there is a very particular special situation that a few people are in that could put them in a position to benefit more from this type of arrangement.

It is all very confusing at first, but the good news is that when you do your free debt freedom consolation with our office, we will cover and explain all your best debt reduction and debt relief options including the pros and cons of each. And we will cover the option of Informal Proposals with you and explain how and when you might want to consider this option for yourself.

If you feel that this type of settlement interests you, then please contact us and we can cover as much as we know about this in your free consultation.

Otherwise, please refer over to our 5 best ways to deal with debt so see our main recommended options for dealing with high debt –

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