Use Tax Refund to Pay Down Consumer Proposal

One of the advantages of filing a consumer proposal is that you get to keep your tax refund.  Many Canadians rely on their tax refund as a “forced savings plan” and use their tax refund to buy spring clothes for their children, make car repairs, or for other expenses.  Here’s another use for your tax refund:

Use your tax refund to pay off your proposal faster.

use tax refund to pay consumer proposal

Another advantage of a consumer proposal is that you can pay it off as fast as you want.  The sooner it’s paid, the sooner you can start rebuilding your credit.  It’s a “win-win”.  Here’s an example:

Your creditors agree to a proposal of $300 per month for 60 months for a total of $18,000.  Each year you get a $3,000 tax refund.  You decide to use $2,000 of your tax refund to make advance payments on your proposal.  So, in the first three years of your proposal, you make three extra $2,000 payments, for a total of $6,000.  During the first 40 months of your proposal you continue to make your $300 per month payments, so at the end of 40 months, you’re done!

You read that correctly: by making your regular monthly proposal payments, and applying half of your tax refund for three years, you complete your 60 month proposal in 40 months!

Your five year proposal is paid in full in just over three years!

Of course you are not required to use some or all of your tax refund to make accelerated payments on your proposal, but it’s good to know that you have that option.

You are in control.

This year at my firm we sent e-mails to everyone who has an active consumer proposal with us, and many people called us back to say “thanks, it’s good to know I can get done sooner!”

If you have debts and want to be in control, a consumer proposal, combined with early payments, is definitely an option to consider.

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4 thoughts on “Use Tax Refund to Pay Down Consumer Proposal

  • Francine B.

    Are there any disadvantages at all to paying off a consumer proposal in one lump some about halfway through it?

    • J. Douglas Hoyes Post author

      Hi Francine. There is no disadvantage to paying the proposal early. The advantage is that once the proposal is paid off nothing can go wrong (you can’t get behind on payments), and your credit score will start to improve after the proposal is paid, so as a general rule, the sooner you can pay it off, the better.

  • Dave

    I filed a consumer proposal November 2018 due because c r a want to garnish my wage.but I got approved for the consumer proposal which all my debt are in one payment. I do pay biweekly.My question is I just filed my 2018 tax this month of March 2019.would I get my income tax refund back or would c r a keep it.please i need an answer.when I check my tax online is say still being processing it had been almost two weeks.

    • Ted Michalos

      If you filed your proposal in 2018 and one of your debts was to CRA then CRA will likely apply your refund this year to your pre-existing debt. This is something you should have discussed with your trustee before you filed – I suggest you give them a call and ask them to explain what is going to happen.


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