Navigating Consumer Proposals in Canada While Meeting Child Support Obligations

Managing debt and child support at the same time can feel overwhelming. If you’re considering a consumer proposal, it’s crucial to understand how this legal debt solution interacts with court-ordered support. This guide explains what a consumer proposal is, how child support works in Canada, where the two intersect, and practical strategies to stay compliant while rebuilding your finances.

What is a Consumer Proposal?

A consumer proposal is a formal process under Canada’s Bankruptcy and Insolvency Act. It allows you to negotiate with unsecured creditors to repay a portion of what you owe over a fixed period, typically up to five years. The process is administered by a Licensed Insolvency Trustee (LIT), and once creditors accept your proposal, it becomes legally binding.

For a plain-language overview from a federal source, see the Financial Consumer Agency of Canada.

How a Consumer Proposal Works

Here’s the typical flow:

• Assessment: An LIT reviews your income, assets, and debts to determine a fair repayment offer.
• Proposal Filing: The LIT files your proposal and notifies creditors.
• Creditor Vote: Creditors vote; if the majority (by dollar value) accept, the proposal is approved.
• Payments: You make fixed payments (monthly or lump-sum) to the LIT, who distributes funds to creditors.
• Completion: After all payments and required counselling sessions, the remaining included debt is legally discharged.

To compare proposals with bankruptcy, review Bankruptcy vs Consumer Proposal: Complete Canadian Guide (2025).

Who Qualifies

• Owing less than $250,000 in unsecured debt (excluding a mortgage on your primary residence)
• Being insolvent (you can’t pay debts as they become due)
• Having reliable income to make proposal payments

Child Support in Canada: Core Principles

Child support ensures children’s needs are covered after separation or divorce. Amounts are typically based on the payor’s income and the number of children, guided by federal and provincial rules. The obligation is considered a priority and is enforced by courts and provincial Maintenance Enforcement Programs (MEPs).

For general information on federal services and family obligations, visit Canada.ca.

How Child Support Is Calculated

Courts use statutory guidelines and payor income to set support amounts. Adjustments may be made for special or extraordinary expenses (e.g., daycare or medical needs) and shared custody situations. If income changes materially, either parent can request a variation order to update support.

Does a Consumer Proposal Affect Child Support?

Short answer: No. A consumer proposal does not change your child support obligation. Support is a priority, non-dischargeable obligation and remains enforceable throughout and after your proposal. You must continue to pay ongoing support and any court-ordered arrears as required.

Learn more about legal protections that apply during insolvency in Understanding the Stay of Proceedings. Note that child support enforcement may be carved out from some protections; always confirm specifics with your LIT and family lawyer.

Arrears vs. Ongoing Payments

• Ongoing support: Continues unchanged during your proposal.
• Support arrears: Typically cannot be compromised or discharged in a consumer proposal. Arrears remain due unless a family court order varies them.

Because support arrears aren’t included, your proposal should be structured so you can realistically pay both the proposal and your support obligations.

Enforcement During a Proposal

A consumer proposal triggers a stay of proceedings for most unsecured creditors, halting lawsuits and collection calls. However, child support enforcement—including wage garnishment or federal payment interceptions—can continue depending on provincial rules and court orders.

For federal payment interactions and tax matters, consult the Canada Revenue Agency. And see our guide on Consumer Proposals: Impact on Tax Refunds and Responsibilities.

Building a Workable Budget That Prioritizes Support

To keep child support current and manage proposal payments, build a budget that reflects legal priorities and real-life expenses.

Prioritize Essential Obligations

• First: Child support (ongoing plus any arrears under court order)
• Second: Housing (rent/mortgage), utilities, groceries, transportation
• Third: Consumer proposal payment

Map your cash flow monthly. If your budget is too tight, discuss adjusting proposal terms with your LIT before filing or early in the process.

Reduce Nonessentials to Create Breathing Room

• Cut discretionary spending (streaming, dining out)
• Negotiate insurance premiums and phone plans
• Plan meals and limit food waste to reduce grocery costs
• Use public transit or carpool where feasible

Coordinating with Your Trustee and Family Court

Open communication ensures your proposal aligns with your legal obligations and avoids conflicts with family orders.

Documents to Bring to Your LIT

• Latest child support order or agreement
• Proof of arrears or MEP statements
• Income documentation (pay stubs, tax returns)
• Monthly budget with support amounts clearly shown

With complete information, your LIT can propose a payment amount that creditors will accept and that you can sustain without jeopardizing support. For details on what happens to property and savings, see What Happens to Your Assets in a Consumer Proposal?.

Adjusting If Your Situation Changes

If your income drops, or your support amount increases (e.g., due to a variation order), speak to your LIT and family lawyer right away. In some cases, proposal payments can be amended; in others, a different relief option may be more appropriate. Compare your options in Bankruptcy vs Consumer Proposal.

Practical Scenarios and Examples

These simplified scenarios show how a consumer proposal can be managed alongside support.

• Scenario 1: Tight budget, stable support – Alex pays $550/month in child support and owes $28,000 in unsecured debt. Alex’s LIT structures a proposal for $175/month over 60 months, leaving room for rent, utilities, and support. Alex reduces nonessential spending and stays current on support.
• Scenario 2: Arrears plus proposal – Priya has $3,000 in support arrears and $40,000 in unsecured debt. Because arrears aren’t dischargeable, Priya agrees to a manageable arrears repayment plan through MEP and a proposal payment of $220/month. The LIT ensures the budget accommodates both obligations.
• Scenario 3: Income change – Jordan’s work hours are cut, and a variation increases support. Jordan informs the LIT and family lawyer; the proposal is adjusted to a lower payment to avoid default while maintaining support. Jordan also applies for benefits and tax credits to stabilize cash flow.

Alternatives and Complements to a Consumer Proposal

A consumer proposal is not the only option. Depending on your debt mix and income, consider:

• Debt consolidation: A single lower-interest loan to replace multiple debts. Understand trade-offs in Debt Consolidation in Canada: Benefits, Risks, and a Step-by-Step Plan.
• Credit counselling/debt management plans: Structured repayment with potential interest relief (note: support remains unaffected).
• Bankruptcy: For severe insolvency where proposal payments aren’t feasible. Compare using our comprehensive guide.

Whichever route you choose, child support stays a legal priority.

Impact on Credit, Assets, and Tax

Consumer proposals affect your credit score temporarily, but they can help you regain control sooner than making only minimum payments indefinitely. You keep your assets in most proposals, unless an asset is pledged as security to a creditor and you default. Get clarity from our asset guide.

Tax considerations: Proposal filing can affect how certain tax obligations are handled. While consumer proposals may address personal income tax debt, they don’t typically stop federal set-offs or enforcement tied to child support arrears. Review general CRA information at the Canada Revenue Agency and see Impact on Tax Refunds and Responsibilities for context.

Key Takeaways

• Consumer proposals reduce and restructure unsecured debts; they don’t change child support obligations.
• Support payments and arrears remain enforceable; plan your proposal payments around them.
• Use a realistic budget, communicate early with your LIT and family lawyer, and document support obligations clearly.
• Explore alternatives like debt consolidation or bankruptcy if a proposal cannot be made affordable alongside support.

For broader context on income support programs and family-related benefits, visit Employment and Social Development Canada. And for consumer protection and financial decision-making, consult the Financial Consumer Agency of Canada.

Conclusion

Navigating consumer proposals while meeting child support responsibilities requires careful planning, full transparency, and a firm grasp of legal priorities. With the right structure, many Canadians successfully balance proposal payments, ongoing support, and daily living costs. Build a realistic budget, coordinate with your LIT and family counsel, and choose the debt solution that protects your children’s well-being while restoring your financial health.