A consumer proposal works best for Canadians carrying more unsecured debt than they can realistically pay back, who want to avoid bankruptcy, keep their assets, and stop collection calls. You must owe $250,000 or less (not counting your mortgage) and be genuinely insolvent. Only a Licensed Insolvency Trustee (LIT) can file one for you.
If you’re struggling with debt and wondering whether a consumer proposal is meant for people in your situation, you’re not alone. In 2024, 137,295 Canadians filed a consumer proposal — that’s 79% of all Canadian consumer insolvency filings that year. This tool isn’t a niche workaround. It’s the most commonly used formal debt relief process in Canada.
But “most common” doesn’t mean “right for everyone.” This guide breaks down exactly who benefits from a consumer proposal, who it’s designed for, and who might be better served by a different approach.
Who Can Actually File a Consumer Proposal?
To be eligible for a consumer proposal under Canada’s Bankruptcy and Insolvency Act, you need to meet a few clear criteria:
- You are an individual (not a corporation)
- You are insolvent — meaning you cannot pay your debts as they come due
- Your total unsecured debt is $250,000 or less (your mortgage does not count toward this limit)
That debt ceiling is more generous than many people expect. Credit card balances, personal loans, payday loans, lines of credit, medical bills, and CRA tax debt can all be included. If you owe more than $250,000 in unsecured debt, there is a separate process called a Division I proposal — but for most Canadians with household consumer debt, the $250,000 threshold is well within range.
Who Benefits Most from a Consumer Proposal?
Consumer proposals are not a one-size-fits-all solution, but certain situations are almost tailor-made for this process. Here’s who tends to get the most out of it:
People with significant unsecured debt and a steady income
If you have a job or regular income but your debt load has grown to the point where minimum payments barely cover interest, a consumer proposal can let you redirect that money toward actually paying things down. You make one affordable monthly payment to your LIT, who distributes it to your creditors. No more juggling five different lenders.
Homeowners who want to keep their property
This is one of the most important differences between a consumer proposal and bankruptcy. When you file a consumer proposal, you keep your assets — including your home. You continue making your mortgage payments as normal, and the proposal only deals with your unsecured debts. If protecting your home is a priority, a consumer proposal is worth a serious look. Read more about how consumer proposals protect homeowners in detail.
People who want the collection calls to stop immediately
The moment your LIT files your consumer proposal with the Office of the Superintendent of Bankruptcy, a legal stay of proceedings takes effect. Creditors must stop all collection efforts — no more phone calls, no more letters, no more wage garnishments, and no lawsuits. This protection is immediate and legally binding.
People trying to avoid bankruptcy
If you’re worried about the consequences of bankruptcy — like losing certain assets, or the impact on professional licences — a consumer proposal offers a formal, court-approved alternative that’s significantly less disruptive. Learn more about the differences between bankruptcy and consumer proposals.
People with tax debt to the CRA
The CRA is a creditor like any other in a consumer proposal. If you owe back taxes and have been unable to work out a payment plan with them, including CRA debt in a consumer proposal can be an effective way to settle it at a reduced amount. The CRA must accept the terms if the majority of your creditors vote in favour.
People who want certainty about when debt ends
One of the most underrated benefits is the clear finish line. A consumer proposal runs for a maximum of five years. Once you’ve made all your payments, your included debts are legally discharged. There’s no interest accumulating, no moving goalposts, no surprises.
- Unsecured debt between $10,000 and $250,000
- Steady income but unmanageable monthly obligations
- Homeowners who want to protect their equity
- Anyone facing wage garnishment or legal action from creditors
- People who owe CRA and want a structured settlement
- Anyone who needs the collection calls to stop right away
- Your debt is mainly secured (mortgage, car loan) — those can’t be included
- Your total unsecured debt is under $5,000 — simpler options exist
- You have no income or assets — bankruptcy may result in faster discharge
- Your debt exceeds $250,000 (excluding mortgage) — a Division I proposal applies
What the Numbers Can Look Like
Here’s a simplified example of how a consumer proposal might change someone’s financial picture:
The exact settlement percentage depends on what you can afford and what creditors are likely to receive if you went bankrupt instead. Your LIT will help you work out a number that makes sense. You can also read real consumer proposal success stories from Canadians who’ve gone through the process.
Honest Pros and Cons
Once your proposal is filed, interest on all included debts stops. Every dollar of your payment goes toward reducing what you actually owe. Learn how consumer proposal interest works.
Your home, car (within reason), and personal belongings stay with you. This is a major advantage over bankruptcy.
Instead of managing multiple creditors with different due dates and interest rates, you make a single monthly payment to your LIT.
Wage garnishments stop. Collection calls stop. Lawsuits are stayed. This happens the moment your proposal is filed.
A consumer proposal appears on your credit report as an R7 rating. It stays for three years after you complete the proposal — shorter than bankruptcy’s impact in most cases.
If creditors holding the majority of your debt vote against your offer, it can be rejected. Your LIT may need to renegotiate the terms.
Secured debts (mortgage, car loan), student loans less than seven years old, alimony, and court-ordered fines cannot be included in a consumer proposal.
You’re agreeing to a payment plan that could run up to five years. Missing payments can annul the proposal and put you back where you started.
Who Should Look at Other Options
A consumer proposal isn’t the only tool available for Canadians dealing with debt. If your situation doesn’t fit the profile above, here are some alternatives worth exploring through a structured debt management program:
Debt consolidation loan: If your credit is still in decent shape and you have a manageable amount of debt, consolidating it into a single lower-interest loan can work well without affecting your credit rating as significantly.
Credit counselling and a debt management plan (DMP): If your debt is mainly credit card balances and you could repay it in full over three to five years, a non-profit credit counselling agency can negotiate reduced interest rates on your behalf.
Bankruptcy: If you have very little income, no significant assets, and no realistic way to repay even a reduced amount, bankruptcy can provide a faster discharge — sometimes as short as nine months for a first-time filer. It carries more serious consequences, but for some people it is the more practical path. See our full comparison of consumer proposals vs. bankruptcy.
How a Consumer Proposal Actually Works
If you decide a consumer proposal might be right for you, here’s what happens from first appointment to discharge:
- Meet with a Licensed Insolvency Trustee. The LIT reviews your income, assets, and debts. This first consultation is typically free. They’ll tell you honestly whether a consumer proposal makes sense, or whether another option fits better.
- The LIT prepares the proposal. Based on your ability to pay and what creditors would receive in a bankruptcy, the LIT drafts an offer — usually a reduced lump sum or monthly payments over up to five years.
- The proposal is filed with the Office of the Superintendent of Bankruptcy. A stay of proceedings takes effect immediately. Collection calls must stop.
- Creditors vote. Your creditors have 45 days to accept or reject the proposal. If creditors representing the majority of the debt (by dollar value) vote in favour, the proposal becomes binding on all unsecured creditors — including those who voted against it.
- You make your monthly payments to the LIT. The LIT holds the funds and distributes them to creditors. You also attend two financial counselling sessions as required by law.
- You receive your Certificate of Full Performance. Once all payments are complete, you’re legally discharged from the included debts. You’re done.
Consumer Proposal vs. Bankruptcy: Key Differences
The most common question people ask is how a consumer proposal compares to bankruptcy. Here’s a direct look:
For a full breakdown, see our detailed guide on bankruptcy vs. consumer proposal in Canada.
Not sure if a consumer proposal is right for your situation? Get a free, confidential assessment today.
Frequently Asked Questions
Who is a consumer proposal best suited for in Canada?
A consumer proposal is best suited for individual Canadians who have significant unsecured debt — typically between $10,000 and $250,000 — who have a steady income but can no longer keep up with their minimum payments, and who want to avoid bankruptcy. It’s particularly valuable for homeowners who want to protect their equity, people facing wage garnishments or lawsuits from creditors, and anyone who owes money to the CRA and needs a structured settlement. The key requirement is that you are genuinely insolvent and that your total unsecured debt (not counting your mortgage) is $250,000 or less.
Does a consumer proposal hurt your credit?
Yes, a consumer proposal does affect your credit. It’s recorded as an R7 rating on your credit report — lower than the R1 (ideal) you’d want, but notably better positioned than bankruptcy in terms of how long it stays. A consumer proposal notation remains on your credit report for three years after you complete the proposal, or six years from the date it was filed, whichever comes first. During that time, rebuilding your credit is possible and actually encouraged — many Canadians get a secured credit card or small loan during the proposal period to start re-establishing their credit history. Once the notation drops off, many people find their score recovers well.
Can you include CRA tax debt in a consumer proposal?
Yes, you can include most types of CRA debt in a consumer proposal, including personal income tax owing, HST or GST balances, and payroll deductions if you were self-employed. This is one of the more powerful aspects of a consumer proposal — the CRA becomes a creditor just like any other, and if the majority of creditors by dollar value accept the proposal, the CRA is legally bound by the terms, even if they voted against it. This is very different from a private negotiation with CRA, where they are under no obligation to accept reduced payments. Keep in mind that student loans under seven years old and certain court-ordered fines cannot be included.
What happens if creditors reject a consumer proposal?
If creditors holding the majority of your proven debt vote to reject your proposal within the 45-day voting period, the proposal is not accepted and the stay of proceedings ends. This doesn’t mean the process is over — your Licensed Insolvency Trustee can call a meeting of creditors to discuss amendments and renegotiate the terms, typically by increasing the payment amount or shortening the term. If a revised proposal is accepted, the process continues as normal. If creditors continue to reject the proposal and no agreement can be reached, you may need to consider other options, including bankruptcy. Outright rejections are not common when the LIT has set realistic terms from the start.
How long does a consumer proposal take, and what happens when it’s done?
A consumer proposal runs for however long it takes you to make all the agreed payments — up to a maximum of five years. Some people complete them earlier if they can afford to pay a lump sum or accelerate their payments. Once your final payment is made and you’ve completed the two required financial counselling sessions, your LIT issues a Certificate of Full Performance. At that point, the debts included in your proposal are legally discharged — they are gone, and creditors can no longer pursue you for them. The notation on your credit report remains for three years after completion, after which it is removed and your credit history returns to a clean slate going forward.
