Who Qualifies for a Consumer Proposal in Canada? Eligibility, Examples, and Expert Tips

If you’re overwhelmed by unsecured debt in Canada, you may wonder who qualifies for a consumer proposal and whether it’s the right path for you. A consumer proposal is a powerful, federally regulated option that can reduce what you owe and stop interest—without declaring bankruptcy. This guide explains exactly who qualifies, what debts are included, how approval works, and when other solutions might make more sense.

What is a consumer proposal?

A consumer proposal is a legally binding agreement under Canada’s Bankruptcy and Insolvency Act. Filed through a Licensed Insolvency Trustee (LIT), it lets you offer creditors a portion of what you owe, paid over up to five years, with interest typically frozen. If creditors accept, the agreement protects you from collections and wage garnishments while you complete the plan. The Financial Consumer Agency of Canada provides a clear overview of how proposals work and your rights as a debtor.

Who qualifies for a consumer proposal?

You may qualify if all of the following generally apply to you:

1) Residency or property in Canada

You are a resident of Canada or have property in Canada. This helps ensure the agreement is enforceable under Canadian law.

2) Total unsecured debt within the cap

Your total unsecured debt is not more than $250,000 (excluding the mortgage on your principal residence). If two spouses or partners file a joint proposal and their debts are substantially the same, the combined unsecured debt limit is $500,000. Above those caps, a different option called a Division I proposal may be considered instead of a consumer proposal.

3) You meet the definition of “insolvent person”

Under federal rules, you’re considered insolvent if you owe at least $1,000 and are unable to meet your obligations as they come due, have stopped paying your debts in the ordinary course, or your total debts exceed the value of your assets. An LIT will confirm this status during your assessment. For more background on consumer proposals and their credit impact, see our guide on how proposals affect your credit and future opportunities.

4) Ability to make regular proposal payments

While proposals reduce and structure your debt, you must still show you can afford the agreed payments. The LIT will review your income, necessary living costs, family size, and any surplus income to design a feasible offer.

5) Prior filings don’t automatically disqualify you

A past proposal or bankruptcy doesn’t automatically prevent you from qualifying. However, it can influence creditor negotiations and the terms your LIT recommends. If you’re currently an undischarged bankrupt, your LIT will discuss separate options, including whether a Division I proposal could be appropriate.

6) Documentation readiness

You’ll need to provide proof of income, a list of creditors and balances, recent bills, and basic ID. Good documentation makes it easier for the LIT to confirm eligibility and prepare a compelling offer creditors are likely to accept.

Which debts qualify—and which don’t?

Consumer proposals target unsecured debts. Here’s how that breaks down:

Unsecured debts typically included

• Credit cards, lines of credit, overdrafts
• Personal loans and instalment loans
• Payday loans and high-cost short-term credit
• Utility arrears and unpaid phone/internet bills
• Tax debt owed to the Canada Revenue Agency (CRA)

Yes, many tax debts can be settled through a proposal. The Canada Revenue Agency is often a key voting creditor when taxes are involved.

Debts not included or not reduced

• Secured debts (like mortgages or car loans) are not reduced by the proposal. To keep the asset, you must stay current on those payments.
• Certain court-ordered debts (for example, fines, penalties) are not discharged.

Special cases: student loans and CRA

Government student loans can be discharged only if it has been 7 years or more since you ceased to be a student at the time of filing. If you’re within 7 years, you may still include other unsecured debts to improve cash flow. For details, see our guide on filing a consumer proposal on student loans.

When a consumer proposal may not be the best fit

Even if you meet eligibility rules, another solution could be more effective in these scenarios:

Your debt is primarily secured

If most of your debt is a mortgage or car loan and you’re up to date, a proposal won’t reduce those obligations. You might focus on budgeting or interest-rate relief for secured debts instead.

You have no reliable income for payments

Proposals require consistent payments. If you’re between jobs or facing unstable income, consider short-term budgeting relief, employment supports, or alternatives while you stabilize. The Employment and Social Development Canada portal lists income support programs you may be eligible for.

Your unsecured debt is quite low

There’s technically no high minimum, but if your unsecured debt is small and manageable with a repayment plan, a proposal might be unnecessary.

You expect a quick financial recovery

If your income is about to rise and you can catch up without formal proceedings, you might avoid the long-term credit impact of a proposal.

How to assess your eligibility the smart way

Before filing, a short self-assessment helps you and your LIT reach the right decision:

• List all unsecured debts with balances, interest rates, and collection status.
• Estimate a realistic monthly payment you could sustain for 36–60 months.
• Compare your expected proposal payment to the interest-only minimums you pay now—will you get meaningful relief?
• Consider your assets and whether bankruptcy would cost you more than a proposal (creditors compare your proposal to what they’d receive in a bankruptcy scenario).

Understanding how creditors evaluate proposals can increase your chance of acceptance. For context and data, see the consumer proposal acceptance rate in Canada.

Steps to file a consumer proposal

If your LIT confirms you qualify, the process is structured and straightforward.

1) Meet with a Licensed Insolvency Trustee

Your LIT will review income, expenses, assets, and debts; verify you’re insolvent; and present options, including a consumer proposal or alternatives.

2) Draft and file your proposal

The LIT designs a payment plan based on what you can afford and what creditors are likely to accept, then files it officially. Filing triggers an automatic stay of proceedings that stops most collection actions and wage garnishments.

3) Creditor review and voting

Creditors have 45 days to vote. A meeting of creditors is held if required. Your LIT handles communications and any negotiation requests.

4) Make payments and complete counselling

Once accepted, you’ll make monthly payments to the LIT for distribution to creditors and complete two financial counselling sessions (a standard requirement). When you finish, remaining eligible unsecured balances included in the proposal are discharged.

How creditors decide to accept your proposal

Understanding approval mechanics helps you set realistic expectations.

Voting threshold

Approval requires a simple majority of voting creditors by dollar value (more than 50%). If the majority approves, all unsecured creditors are bound by the terms—even those who voted against it or didn’t vote.

What if you owe the CRA?

The CRA often participates actively when tax debt is involved. Ensuring your tax filings are up to date and your budget is realistic improves the odds of acceptance. Learn more about CRA’s role and obligations on the CRA website.

Acceptance rates and credibility

Creditor acceptance tends to be higher when proposals are well supported by documentation and when payments compare favourably to the estimated recovery in bankruptcy. See insights on consumer proposal acceptance rates.

Benefits and trade-offs of consumer proposals

Key benefits

• Consolidates unsecured debts into one fixed payment, usually with interest frozen
• Protects against most collections and wage garnishments once filed
• Lets you keep assets, provided you maintain secured debt payments
• Provides a clear timeline—typically 36 to 60 months—with a defined end

Potential drawbacks

• Credit impact (often reported as an R7) during the proposal and for a period after completion
• Missed payments can lead to annulment, reinstating full balances
• Not effective for primarily secured debt problems

To understand how assets are treated, review our guide on what happens to your assets in a consumer proposal. For a comprehensive comparison of options, see Bankruptcy vs Consumer Proposal: Complete Canadian Guide (2025).

Examples: Who often qualifies (and why)

While every case is unique, here are common profiles that tend to qualify:

• Steady income + high unsecured debt: A salaried worker with $45,000 in credit cards and lines of credit, struggling to keep up with rising interest. A proposal can reduce the principal, stop interest, and create one manageable payment.
• Self-employed with tax debt: A contractor who fell behind on remittances and now faces CRA collections. A proposal can include CRA debt and stop wage garnishment once filed.
• Family with multiple unsecured accounts: A household with several credit cards, an overdraft, and a personal loan. If the total unsecured debt is under $250,000, a proposal can simplify and lower payments.
• Recent financial shock: Someone who experienced reduced hours or medical costs and used credit to cover essentials. With stable income restored, a proposal can restructure the previous build-up of debt.

For a broader context of why more Canadians are exploring relief, browse Statistics Canada for current household debt trends.

Consumer proposal vs. other solutions

Not everyone who qualifies should file; sometimes an alternative is better. Compare your options:

• Debt consolidation loan: Useful if your credit score and income qualify you for a lower rate. See our guide on debt consolidation in Canada to understand benefits and risks.
• Debt management program (DMP) via credit counselling: Interest relief and structured repayment without a public record, but balances are typically repaid in full.
• Bankruptcy: If you have little income and few assets, bankruptcy may cost less overall. For a side-by-side comparison, review Bankruptcy vs Consumer Proposal.

Frequently overlooked details that affect eligibility

Joint proposals

Spouses or partners with substantially the same debts can file a joint proposal, doubling the combined unsecured debt cap to $500,000 (excluding the mortgage on the principal residence).

Assets and secured credit

A proposal does not seize assets. However, secured creditors (mortgage, auto loan) retain rights to collateral if you stop paying. Learn more in our assets guide.

Credit report impact and recovery

A proposal affects your credit during the term and for a period after completion. Responsible use of new credit, timely payments, and building savings can accelerate recovery. For details, see our overview of credit impact and rebuilding strategies.

Missed payments matter

Falling three payments behind may lead to an annulment. If that happens, interest and original balances can be reinstated, and collections may resume. Communicate early with your LIT if your circumstances change—adjustments may be possible.

Conclusion

Who qualifies for a consumer proposal? In Canada, it’s typically individuals with steady income, unsecured debts under $250,000 (excluding your home mortgage), and a clear inability to keep up with obligations. If you meet those criteria, a proposal can reduce what you owe, stop interest, and protect you from most collections—while letting you keep your assets. Still, it’s only one tool. Compare it to consolidation, credit counselling, and bankruptcy, and base your choice on affordability, asset protection, and long-term financial health. An informed conversation with a Licensed Insolvency Trustee will clarify what’s best for your situation.