Consumer Proposals in Canada: Complete 2026 Guide

If debt has become impossible to keep up with — credit cards maxed out, collection calls piling up, sleep getting harder — you may have heard the term “consumer proposal” and wondered whether it could actually help you. The short answer is: for a lot of Canadians, it’s the most powerful debt relief tool available, and most people don’t fully understand what it is or how it works. This guide walks you through everything you need to know, in plain language, without the jargon.

A consumer proposal is a federally regulated legal process that lets you negotiate with your creditors to pay back only a portion of what you owe — often significantly less — over a period of up to five years. It’s not a loan. It’s not a settlement scam. It’s a legal agreement administered by a Licensed Insolvency Trustee (LIT) and protected under Canada’s Bankruptcy and Insolvency Act. Knowing exactly how this works can make the difference between years more of financial suffering and a genuine fresh start.

Quick Answer A consumer proposal lets you legally settle your unsecured debts for less than you owe — typically 20 to 70 cents on the dollar — through a fixed monthly payment over up to five years. It stops collection calls and wage garnishments immediately, and it’s less damaging to your credit than bankruptcy. You must owe between $1,000 and $250,000 in unsecured debt and work with a Licensed Insolvency Trustee.

What Is a Consumer Proposal?

A consumer proposal is a formal, legally binding agreement between you and your unsecured creditors, negotiated through a Licensed Insolvency Trustee. In simple terms, you offer to pay back a percentage of what you owe — say 40 or 50 cents for every dollar — in regular monthly payments spread over a period that cannot exceed five years. Your creditors vote on whether to accept. If the majority (by dollar value) agree, the deal is binding on all creditors, including those who voted against it.

The process is governed by the Bankruptcy and Insolvency Act, which means it has legal teeth. Once you file, a “stay of proceedings” kicks in automatically — creditors must immediately stop wage garnishments, lawsuits, collection calls, and any other enforcement action. Your assets (your home, your car, your savings) are generally protected. You keep living your life while making affordable monthly payments.

Licensed Insolvency Trustees are federally regulated professionals — the only people in Canada legally authorized to administer consumer proposals. They’re not debt settlement companies or credit counsellors selling a product; they’re licensed by the federal government and are required to act in your best interest. A free initial consultation is standard, so there’s no cost to find out if this option applies to you. You can also explore other debt relief options if you want a broader picture before deciding.

Advantages of a Consumer Proposal

✅ You Pay Back Less Than You Owe This is the core benefit. Depending on your income, assets, and what creditors are likely to recover, you may settle your debt for as little as 20 to 50% of the original balance. Interest stops accruing the moment you file, so the number you agree to is the number you pay — nothing more.

✅ Immediate Legal Protection The moment your Licensed Insolvency Trustee files the proposal, a stay of proceedings takes effect. Wage garnishments stop. Collection calls must cease. Lawsuits are paused. This happens automatically, by law — there’s nothing creditors can do to override it.

✅ You Keep Your Assets Unlike bankruptcy, a consumer proposal doesn’t require you to surrender assets. Your home, RRSP, car, and other property are generally protected throughout the process. This is a major reason many Canadians choose a proposal over bankruptcy.

✅ Fixed, Predictable Payments You agree to a single monthly payment at the start — it never changes. There are no surprises, no interest rate adjustments, no penalty fees. This makes it much easier to plan your budget and actually stick to a repayment schedule.

✅ Less Credit Damage Than Bankruptcy A consumer proposal stays on your credit report for three years after you complete it (or six years from the date of filing, whichever comes first). Bankruptcy, by contrast, stays on for six to seven years after discharge for a first-time filer. Many people begin rebuilding their credit while still making proposal payments.

✅ One Payment Replaces Many Instead of juggling five or six minimum payments to different creditors, you make one payment to your LIT, who distributes it. This simplification alone reduces enormous stress for many people.

Drawbacks to Know Before You Decide

❌ Your Credit Score Will Take a Hit A consumer proposal is recorded on your credit report and will lower your score. Most people filing a proposal already have damaged credit, so the practical impact is often less dramatic than feared — but it’s real, and it does affect your ability to borrow in the short term.

❌ Not All Debts Are Included A consumer proposal covers unsecured debts like credit cards, personal loans, and payday loans. It does not cover secured debts like your mortgage or car loan, student loans less than seven years old, court-ordered fines, alimony, or child support. You’ll still need to manage those separately.

❌ Creditors Could Reject the Proposal If creditors representing more than 50% of the dollar value of your debt vote against your proposal, it fails. In practice, this is uncommon — most LITs have experience structuring proposals that creditors will accept — but it’s a risk you should understand going in.

❌ It Takes Time to Complete You’re committing to monthly payments for up to five years. That’s a real obligation. If you miss payments or default, the proposal can be annulled and creditors regain the right to collect the full original debt. Make sure your proposed payment is genuinely manageable.

❌ Limited Access to New Credit During Repayment While you’re in a consumer proposal, getting new credit at reasonable rates is difficult. Most lenders see an active proposal as a risk flag. This can be a helpful guardrail while you rebuild — but it’s worth knowing upfront.

Who Should Consider a Consumer Proposal

A consumer proposal tends to be a strong fit for people in a specific set of circumstances. Consider it seriously if you:

Owe between $10,000 and $250,000 in unsecured debt (credit cards, personal loans, lines of credit, payday loans)
Have a steady income but can’t realistically pay off the full amount you owe
Own a home or other assets you want to protect from creditors
Are already receiving collection calls, facing wage garnishment, or dealing with legal action
Have tried debt consolidation or a repayment plan and it hasn’t worked
Want a legally binding process — not just an informal arrangement that creditors can walk away from

Many Canadians who end up in a consumer proposal are people who did everything right for years — paid their bills on time, worked steadily — until something changed: a job loss, a medical crisis, a divorce, or a slow creep of credit card debt that became impossible to outrun. You can read some of those real experiences in our collection of consumer proposal success stories.

Who It May Not Be Right For

A consumer proposal isn’t the right answer for everyone. It may not be the best fit if you:

Owe less than $1,000 in unsecured debt — there are simpler options available
Owe more than $250,000 in unsecured debt excluding your mortgage — a Division I proposal or bankruptcy may be required
Have no income or assets and genuinely cannot make even a minimal monthly payment
Have primarily student loan debt that is less than seven years old, since these cannot be included
Are already considering bankruptcy and your situation is so severe that any proposal payment would be unworkable

If you’re unsure which path fits your situation, comparing a consumer proposal to bankruptcy side by side can help clarify the differences in cost, credit impact, and asset protection. Some people benefit from starting with credit counselling to understand all available options before deciding.

A Real-World Financial Example

Here’s a simplified illustration of how a consumer proposal can work. Suppose someone has $45,000 in unsecured debt spread across three credit cards and a personal loan, and a steady take-home income of around $3,800 per month. Their LIT determines a proposal of 40 cents on the dollar over 60 months is reasonable and likely to be accepted by creditors.

Total Unsecured Debt Owed$45,000

Proposed Settlement (40%)$18,000

Repayment Term60 months

Monthly Payment to LIT$300/month

Debt Eliminated Upon Completion$27,000

That’s $300 a month — instead of the $900 to $1,100 in minimum payments they may have been struggling to keep up with, while barely touching the principal. And unlike a minimum payment cycle, at the end of 60 months, the debt is gone. Completely. The LIT’s fees are built into the proposal payments and paid out of the settlement funds — you don’t pay them separately.

Interest stops accruing the moment you file. The amount you agree to in the proposal is the total you will pay — nothing more. There are no hidden fees added on top.

How the Process Works, Step by Step

Understanding the sequence helps take away the uncertainty. Here is how a consumer proposal actually unfolds, according to Canada’s Office of the Superintendent of Bankruptcy:

Free consultation with a Licensed Insolvency Trustee. You meet with an LIT at no cost to review your full financial picture — income, debts, assets, and what you can realistically afford to pay monthly. They’ll explain all your options, not just a proposal, and give you a professional assessment of which path makes sense for your specific situation.
The LIT prepares your proposal. If a consumer proposal is the right fit, your LIT calculates an offer that creditors are likely to accept — typically based on what they would realistically recover if you went bankrupt instead. This becomes the formal proposal document, including your repayment terms.
Filing and the stay of proceedings. Once filed with the Office of the Superintendent of Bankruptcy, the legal stay of proceedings takes effect immediately. All collection activity, wage garnishments, and lawsuits must stop by law. This happens on the day of filing — often within hours.
Creditors are notified and given 45 days to vote. Your LIT sends the proposal to all your unsecured creditors. They have 45 days to vote to accept or reject, or to request a meeting of creditors. If no one responds within those 45 days, the proposal is automatically deemed accepted.
Creditors vote on the proposal. If a creditors’ meeting is requested, it takes place within 21 days of the request. A simple majority by dollar value determines the outcome — if more than 50% of the dollar value of debt owed votes in favour, the proposal is accepted and legally binding on all creditors, even those who voted against it.
You make monthly payments to your LIT. Once accepted, you begin making your agreed monthly payments to your LIT. The LIT holds these funds in trust and distributes them to creditors on a schedule. There is no direct contact required between you and your creditors at this stage.
Complete two mandatory financial counselling sessions. You’re required by law to attend two financial counselling sessions during the proposal — one early on and one closer to completion. These sessions help you build money management skills so you can stay financially stable after the proposal ends.
Certificate of full performance issued. Once you’ve made all payments and completed both counselling sessions, your LIT issues a Certificate of Full Performance. This is your legal proof that the debts included in the proposal are discharged. You are free and clear of those obligations permanently.

The Bottom Line A consumer proposal is one of the most effective legal tools available to Canadians dealing with serious unsecured debt. It protects your assets, stops collection action immediately, reduces what you owe, and gives you a structured, manageable path out of debt — typically in five years or less. It’s not for everyone, but for the right situation, it’s often far better than bankruptcy or doing nothing and hoping things improve on their own.

Not sure if a consumer proposal is the right fit for your debt situation?

See If You Qualify — Free, No Obligation

Frequently Asked Questions

How much does a consumer proposal cost?

There is no upfront fee to file a consumer proposal. The Licensed Insolvency Trustee’s fees are set by federal regulation and are paid out of the funds collected from your proposal payments — they come out of what creditors receive, not out of your pocket on top of your monthly payment. In practical terms, the monthly amount you agree to pay covers everything: your debt settlement and the LIT’s fees. This is very different from debt settlement companies, which often charge large upfront or ongoing fees regardless of the outcome. For most people, a consumer proposal is the most affordable structured debt relief option available.

Can I include CRA tax debt in a consumer proposal?

Yes — Canada Revenue Agency (CRA) tax debt can be included in a consumer proposal. The CRA is treated as an unsecured creditor and participates in the proposal process like any other creditor. This is one of the significant advantages of a consumer proposal over many other debt relief approaches, which often exclude government debts. The CRA will review your proposal and vote on it. In many cases they accept reasonable offers — particularly when the alternative is bankruptcy, in which they would likely recover even less. HST/GST arrears, income tax debt, and related penalties can all be included.

What happens to my credit score during and after a consumer proposal?

When you file a consumer proposal, your credit report is updated to show an R7 rating on the accounts included, and the proposal itself is noted as a legal item on your bureau. Your score will drop. However, the damage is generally less severe than a bankruptcy, which results in an R9 rating and a longer reporting period. Most people who file a proposal already have poor credit due to missed payments, so the proposal is often a turning point, not a starting point. The notation stays on your credit report for three years after you complete the proposal, or six years from the filing date, whichever comes first. During and after the proposal, you can begin rebuilding your credit with a secured credit card and responsible use — many people see meaningful score improvement within one to two years of completing their proposal.

What happens if I miss payments on my consumer proposal?

If you miss three monthly payments — they don’t have to be consecutive — your consumer proposal is automatically annulled. This means the legal stay of proceedings is lifted, creditors are no longer bound by the settlement, and they can resume collecting the full original debt including any interest and penalties that had been frozen. However, before it gets to that point, talk to your LIT. Life changes, and LITs can sometimes amend a proposal — for example, reducing the monthly payment or adjusting the timeline — if you apply before the proposal is annulled. It’s much easier to adjust an active proposal than to recover from an annulment, so communicate early if you’re struggling.

How does a consumer proposal compare to bankruptcy in Canada?

Both are federally regulated insolvency proceedings administered by a Licensed Insolvency Trustee, but they work quite differently. In a consumer proposal, you negotiate to pay back a portion of your debt and keep your assets — the process takes up to five years but gives you more control and causes less long-term damage to your credit. Bankruptcy typically discharges your debts faster (often nine to twenty-one months for a first-time filer with no surplus income) but may require you to surrender certain non-exempt assets and make surplus income payments if you earn above a threshold set by the federal government. Bankruptcy also stays on your credit report for six to seven years after discharge, compared to three years for a completed proposal. For most Canadians with steady income and some assets to protect, a consumer proposal is the preferred route. For those with very little income and no assets, bankruptcy may be more practical. See our full comparison of bankruptcy vs. consumer proposals for a detailed side-by-side breakdown of costs, timelines, and credit impact.