If you’re filing a consumer proposal — or already in one — you’re probably wondering what happens to your credit cards. It’s one of the most common questions Canadians have during the process, and the answer isn’t always straightforward. The short version: your existing cards will almost certainly be cancelled, but you do have options for accessing credit again while you’re still making payments.
A consumer proposal is a legal agreement arranged through a Licensed Insolvency Trustee (LIT) that lets you repay a portion of your unsecured debt over up to five years. It’s a powerful tool for getting back on track — but it does change your relationship with credit cards in some important ways. Here’s what you need to know.
What Happens to Your Credit Cards When You File
Once you file a consumer proposal, any credit cards with outstanding balances are included in the proposal. Your creditors — the credit card companies — agree to accept a reduced payment through the proposal instead of collecting the full amount. Because of this, those cards are cancelled immediately.
Even credit cards with a zero balance may be cancelled. Card issuers regularly check your credit report, and when a consumer proposal appears (noted as an R7 rating), many will close your account as a precaution. This is standard practice and not something you can typically negotiate around.
The Financial Consumer Agency of Canada advises consumers to be cautious about any company that promises to maintain or repair credit during a debt relief process. The reality is that a consumer proposal will affect your credit — but it’s a temporary and manageable impact that leads to a much stronger financial position down the road.
Pros and Cons of Getting Credit During a Proposal
Who Should (and Shouldn’t) Get a Card During a Proposal
- Have a stable income and can afford the security deposit without straining your budget
- Want to start rebuilding your credit score before the proposal ends
- Need a card for practical reasons like online shopping or travel bookings
- Are confident you can pay the full balance every month — no exceptions
- Tend to overspend when credit is available — be honest with yourself
- Are already struggling to make your monthly proposal payments
- Don’t have room in your budget for the security deposit and potential fees
- Would be tempted to use the card for non-essential purchases
Financial Example: Secured Card Costs vs. Benefits
By keeping your utilization under 30% and paying the balance in full each month, the only real cost is the annual fee. Compare that to the long-term benefit: 12+ months of positive payment history on your credit report, which matters a great deal when you apply for credit repair and rebuilding after your proposal is completed.
How to Get a Credit Card During a Consumer Proposal
- Talk to your Licensed Insolvency Trustee first. Under the Bankruptcy and Insolvency Act, you must disclose any new credit over $1,000 to your LIT. Even for smaller amounts, it’s wise to get their guidance before applying. They can advise you on timing and what’s appropriate for your situation.
- Choose a secured credit card from a reputable issuer. Look for a card that reports to both Equifax and TransUnion (the two major Canadian credit bureaus). If the issuer doesn’t report your activity, the card won’t help rebuild your credit — and that’s the whole point. Major Canadian banks and some credit unions offer secured card products.
- Save up the required security deposit. Most secured cards require between $200 and $500. This deposit becomes your credit limit. Don’t take this from money earmarked for your proposal payments — wait until you have the funds available without creating financial stress.
- Apply for the card and use it sparingly. Once approved, use the card for one or two small recurring purchases each month — a streaming subscription or a tank of gas. The goal is activity and on-time payments, not volume.
- Pay the full balance every single month. Set up automatic payments or calendar reminders. Carrying a balance at 20%+ interest defeats the purpose and can spiral quickly. Keeping your utilization below 30% of your limit shows lenders you can manage credit responsibly.
Rebuilding Your Credit Score After Completion
A consumer proposal stays on your credit report for three years after you finish paying it off (or six years from the date of filing, whichever comes first). That sounds like a long time, but the good news is that you can start rebuilding immediately — and if you got a secured card during your proposal, you’re already ahead.
After your proposal is completed, your options open up. You may qualify for unsecured credit cards with modest limits, and your secured card issuer may offer to upgrade your account and return your deposit. Many Canadians see their credit score recover to the mid-600s or higher within 12 to 24 months of completing their proposal, especially if they’ve been building positive history along the way. You can read real stories from people who’ve been through the process in our consumer proposal success stories.
If you’re weighing whether a consumer proposal is the right path compared to other options, our guide on bankruptcy vs. consumer proposal breaks down the key differences. And for a broader look at managing what you owe, credit counselling in Canada can help you understand all the tools available to you.
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Can I keep any credit cards when I file a consumer proposal?
Generally, no. Credit cards with outstanding balances are automatically included in your consumer proposal, and those accounts are closed. Even cards with a zero balance are often cancelled by the issuer once they see the R7 notation on your credit report. In rare cases, a card with no balance from a lender not included in the proposal might stay open temporarily, but most issuers will close it once they review your file.
Can I get a new credit card while I’m in a consumer proposal?
Yes, but your options are limited to secured credit cards and prepaid cards. A secured card requires a cash deposit that serves as your credit limit. You’re legally required to disclose any new credit over $1,000 to your Licensed Insolvency Trustee, and it’s best practice to discuss any new credit with them regardless of the amount. Unsecured credit cards are not typically available to people currently in a consumer proposal.
Will a secured credit card actually help rebuild my credit?
Yes — as long as the card issuer reports your account activity to Equifax and TransUnion. When you make your payments on time and keep your balance low relative to your limit, that positive history shows up on your credit report. Over time, it demonstrates to future lenders that you can manage credit responsibly. Always confirm with the issuer that they report to both major Canadian credit bureaus before you apply.
How long does a consumer proposal stay on my credit report?
A consumer proposal remains on your credit report for three years after you complete all your payments, or six years from the date it was filed — whichever comes first. For example, if you file in 2026 and complete your payments in 2029, the notation would be removed by 2032 at the latest. During this time, the R7 rating will affect your ability to get certain types of credit, but building positive payment history with a secured card can offset that impact significantly.
What happens to my credit card rewards and points when I file?
Unfortunately, any rewards points, cash back, or travel points accumulated on credit cards included in your consumer proposal are typically forfeited. Once the account is closed and the debt is included in the proposal, the rewards program terms no longer apply. If you’re considering filing, it may be worth redeeming any available rewards before you begin the process — but speak with your LIT first to make sure this doesn’t create complications with your filing.
