If your monthly debt payments feel impossible and you keep getting calls from collectors, you are not alone — and you are not out of options. A consumer proposal is one of the most powerful debt relief tools in Canada, but it is not the right fit for everyone. Knowing when it makes sense (and when it does not) can save you years of stress and thousands of dollars.
This guide walks through the exact situations where a consumer proposal becomes a viable financial option, who qualifies, what it actually costs, and how to know if you should consider one over bankruptcy, a debt consolidation loan, or credit counselling. No jargon, no judgment — just a clear-eyed look at where this option fits.
What Is a Consumer Proposal?
A consumer proposal is a legally binding agreement between you and your creditors, governed by the federal Bankruptcy and Insolvency Act. You offer to pay back a portion of what you owe — typically 30% to 50% — over a period of up to five years, with no interest accruing during that time. Once a majority of creditors (by dollar value) approve it, every creditor is bound, even the ones who voted no.
It is filed exclusively through a Licensed Insolvency Trustee (LIT), the only professional in Canada legally authorized to administer one. According to the Office of the Superintendent of Bankruptcy, consumer proposals now account for roughly three out of every four consumer insolvencies in Canada — they have quietly become the dominant formal debt solution.
Unlike bankruptcy, a consumer proposal is not designed to eliminate debt entirely. It is designed to reduce it to a manageable, fixed payment that finally moves the needle. The moment your trustee files it, an automatic stay of proceedings stops wage garnishments, collection calls, and most lawsuits.
Why It Works for Many Canadians
You usually pay back less
Most proposals settle for 30%–50% of total unsecured debt. Creditors accept reduced amounts because they would likely recover even less in a bankruptcy.
Interest stops immediately
The moment your proposal is filed, interest charges freeze. Every dollar you pay goes to principal — not the credit card company’s margin.
You keep your assets
Your home, car, RRSP, and personal belongings stay yours. There is no liquidation of property the way there can be in a bankruptcy.
One fixed monthly payment
Instead of juggling six creditors, you make one predictable payment to the trustee for up to five years.
Collection calls stop
The automatic stay of proceedings halts wage garnishments and creditor harassment from the day of filing.
Less severe than bankruptcy
You retain full legal rights, professional licences, and the ability to act as a director of a company.
The Downsides You Should Know
It hits your credit report
Equifax and TransUnion record an R7 rating for three years after the proposal is completed — visible for up to six years from the filing date.
It is a public record
Filings appear in the public OSB insolvency database. Most people will never look, but it is searchable.
Creditors must approve
If creditors holding more than 50% of your debt by value reject the offer, the proposal fails and you are back where you started.
You must complete it
Miss three monthly payments and the proposal is automatically annulled. The original debts (plus interest) come back.
Some debts are excluded
Court fines, alimony, child support, and most student loans less than seven years old cannot be discharged through a proposal.
Trustee fees are baked in
The LIT’s fees come out of your monthly payments — not on top — but it does mean creditors receive slightly less of what you pay.
Who Should Consider One
A consumer proposal is likely a viable option if you:
- Owe between $5,000 and $250,000 in unsecured debt (credit cards, lines of credit, payday loans, tax debt, personal loans), excluding your mortgage
- Have steady, regular income — employment, self-employment, pension, or disability benefits all count
- Cannot realistically repay your debts within five years even with strict budgeting
- Are facing wage garnishment, collection lawsuits, or CRA enforcement
- Have been refused for a debt consolidation loan because of credit damage
- Want to avoid bankruptcy and keep your home, vehicle, or RRSPs
- Are a Canadian resident or have property/business carried on in Canada
Who Should Look Elsewhere
A consumer proposal is probably not the right fit if you:
- Could realistically pay off your debt in 24–36 months on your own — try a budget or credit counselling first
- Have very little income, no job prospects, and almost no assets — bankruptcy may discharge you faster and cheaper
- Owe more than $250,000 in unsecured debt — you will need a Division I Proposal instead
- Have mostly secured debts (mortgage, car loan) — a proposal does not affect those
- Are a corporation — only individuals can file a consumer proposal
- Could qualify for a low-rate debt consolidation loan with decent credit still intact
A Real-World Example
Numbers help. Here is what a typical viable consumer proposal looks like for a Canadian carrying around $48,000 in unsecured debt across three credit cards, a line of credit, and a small CRA balance:
The math is not magic — it works because creditors would rather collect 40 cents on the dollar with certainty than risk a bankruptcy where they might receive 5 cents or nothing at all. The Financial Consumer Agency of Canada explains the trade-offs of each path in its official debt help guide.
How the Filing Process Works
The path from “I think I need help” to “my proposal is filed” is shorter than most people expect. Here is what actually happens, in order:
- Free consultation with a Licensed Insolvency Trustee. The LIT reviews your income, debts, and assets at no cost. You walk out with options, not pressure.
- The trustee builds your proposal. Based on what you can realistically afford and what creditors will likely accept, the LIT drafts a payment offer — often 30%–50% of total debt over up to 60 months.
- Filing with the Office of the Superintendent of Bankruptcy. Your proposal is officially submitted. From this moment, the automatic stay stops collection calls, garnishments, and most lawsuits.
- Creditors vote. They have 45 days to accept, reject, or request changes. If creditors holding more than 50% of the dollar value approve, every creditor is bound — even those who voted no.
- You make monthly payments. One fixed amount goes to the trustee, who distributes it to creditors. No interest accumulates.
- Mandatory financial counselling. You attend two sessions with a qualified counsellor — covered in the trustee’s fees — to build budgeting and credit habits.
- Completion and discharge. Once your final payment clears, the trustee issues a Certificate of Full Performance. The unpaid portion of your debt is legally extinguished.
Most Canadians complete the entire process in 36 to 60 months, with credit rebuilding starting almost immediately after discharge. Real success stories from Canadian filers show what life looks like on the other side. If you’ve been pushed into this situation by a sudden income drop, our guide to managing debt after job loss covers other safety nets too.
Ready to see if you qualify?
Frequently Asked Questions
How much unsecured debt do I need to file a consumer proposal?
You must owe at least $1,000 to qualify under Canadian law, but in practice most Licensed Insolvency Trustees recommend a consumer proposal when you carry more than $5,000–$10,000 in unsecured debt. The upper limit is $250,000 (excluding the mortgage on your principal residence). If you owe more than that, you need a Division I Proposal, which has a similar structure but different rules.
Will a consumer proposal stop wage garnishment and collection calls?
Yes. The day your trustee files the proposal with the Office of the Superintendent of Bankruptcy, an automatic stay of proceedings begins. This legally stops most wage garnishments, freezes lawsuits, and bars creditors from contacting you directly. The CRA stops most collection actions as well, though some Crown debts (like child support) are not affected.
Can I keep my house and car during a consumer proposal?
In most cases, yes. A consumer proposal does not require you to sell or surrender any assets, including your home, vehicle, or RRSP. As long as you stay current on your secured loan payments (mortgage, car loan), those assets are not touched. This is one of the key reasons people choose a proposal over bankruptcy, where some assets can be liquidated.
How long does a consumer proposal stay on my credit report?
An R7 rating appears on your credit report for three years after the proposal is fully paid off, or six years from the filing date — whichever comes first. Most people start rebuilding credit immediately after their discharge by using a secured credit card and paying every bill on time. Many Canadians have credit scores back in the 650–700 range within two years of completion.
What happens if my consumer proposal is rejected by creditors?
If creditors holding more than 50% of your debt by dollar value vote against the proposal, it is deemed rejected. You can then renegotiate with your trustee — usually by offering a higher monthly payment or a longer term — and re-submit. If a revised proposal is also rejected, your remaining options are typically a debt consolidation loan, informal settlement, or personal bankruptcy. A reputable LIT will walk you through each before you make a decision.
