If you’re drowning in debt, reading about how a consumer proposal works in the abstract only gets you so far. What most people really want to know is simpler: what does a consumer proposal actually look like for a real person, with real numbers? This consumer proposal example walks you through exactly that — from the sleepless nights before filing, to the monthly payment, to what life looks like after the final payment clears.
We’ll follow Maria, a Toronto marketing professional who owed $50,000 and settled it for $18,000, and break down every stage of her journey. Along the way, you’ll see how the process works under Canadian law, what it costs, how it affects your credit, and how to figure out whether a similar arrangement could work for your own situation.
What Is a Consumer Proposal?
A consumer proposal is a formal debt relief procedure under Canada’s Bankruptcy and Insolvency Act. It lets you offer your unsecured creditors — credit card companies, banks, payday lenders, the CRA — a legally binding deal: you repay a portion of what you owe, in fixed payments over a maximum of five years, and they write off the rest. According to the Office of the Superintendent of Bankruptcy, a consumer proposal is available to individuals whose total debts (excluding the mortgage on a principal residence) do not exceed $250,000.
Only a Licensed Insolvency Trustee (LIT) can file a consumer proposal on your behalf. LITs are federally regulated professionals, and their fees come out of the payments you make — you don’t pay extra on top. That’s a crucial difference from unregulated debt settlement companies, which the Financial Consumer Agency of Canada warns can charge steep fees for promises they may not keep.
Once filed, a consumer proposal triggers an automatic stay of proceedings. Collection calls stop, wage garnishments end, and lawsuits by unsecured creditors are frozen. If you’re not sure whether you’d qualify, our guide to consumer proposal eligibility in Canada covers the requirements in detail.
Maria’s Story: The Situation Before Filing
Maria is a 35-year-old marketing professional in Toronto. After a long stretch of unemployment and a run of unexpected medical expenses, she had accumulated $50,000 in debt across four credit cards and a personal loan. Even after landing a new full-time job, the math didn’t work. Minimum payments alone ate up $1,400 a month, and with interest rates between 20% and 24%, her balances barely moved. She was paying, and paying, and getting nowhere.
Maria’s first instinct was a debt consolidation loan, but with a credit score bruised by missed payments, no lender would offer her a rate that helped. Bankruptcy frightened her — she’d saved a small investment account and didn’t want to lose it. When a friend mentioned Licensed Insolvency Trustees, she booked a free consultation. That conversation changed everything: she learned she could keep her assets, cut her debt by nearly two-thirds, and stop the collection calls — legally.
Advantages of a Consumer Proposal
You Repay Only a Portion
Most proposals settle for 20 to 40 cents on the dollar. Maria repaid $18,000 on $50,000 of debt — a 64% reduction.
You Keep Your Assets
Unlike bankruptcy, a consumer proposal doesn’t put your home equity, car, savings, or investments at risk of surrender.
Interest Stops Immediately
From the day of filing, interest on included debts freezes. Every dollar you pay goes toward the settlement, not interest.
Legal Protection From Creditors
The stay of proceedings ends collection calls, wage garnishments, and most lawsuits the moment your proposal is filed.
One Fixed, Predictable Payment
You make a single monthly payment you helped set — and you can pay the proposal off early with no penalty.
Drawbacks to Consider
Credit Impact
A consumer proposal is recorded as an R7 rating and stays on your credit report for three years after your final payment.
Creditors Must Approve It
Creditors holding a majority of your debt (by dollar value) must accept the offer. Most do, but approval isn’t automatic.
Missed Payments Are Serious
If you fall three monthly payments behind, the proposal is annulled — and your full original debt can come back.
Secured Debts Aren’t Included
Mortgages and car loans stay in place. A proposal only deals with unsecured debt like credit cards and personal loans.
Who Should Consider a Consumer Proposal
- You owe between roughly $10,000 and $250,000 in unsecured debt (not counting your mortgage).
- You have steady income and can afford a reduced monthly payment, but not your full debt load.
- You own assets — home equity, a vehicle, savings, an RESP or investment account — you’d risk losing in bankruptcy.
- You’re facing collection calls, threatened lawsuits, or wage garnishment and need legal protection now.
- You want a clear, fixed end date rather than decades of minimum payments.
Who Should Look Elsewhere
- Your debt is small enough to clear within a year or two through budgeting or a consolidation option that fits your credit.
- You have no reliable income to fund monthly payments — bankruptcy may unfortunately be the more realistic path.
- Your debts are mostly secured (mortgage, car loan) or non-dischargeable, such as recent student loans, child support, or court fines.
- You owe more than $250,000 in unsecured debt — you’d need a Division I proposal instead, which an LIT can also arrange.
If you’re weighing your options, our comparison of a consumer proposal vs bankruptcy lays out the trade-offs side by side.
The Numbers: Maria’s Proposal in Detail
Here’s exactly how Maria’s situation looked before and after filing:
Why did Maria’s creditors accept just 36 cents on the dollar? Because the alternative was worse for them. Had Maria filed for bankruptcy, her creditors would likely have recovered far less. A well-constructed proposal offers creditors more than they’d get in a bankruptcy — which is exactly why the majority vote yes. Her trustee’s fees were regulated and paid out of the $300 monthly payment, so there were no surprise costs stacked on top.
Step by Step: How Maria’s Proposal Unfolded
- Free consultation with a Licensed Insolvency Trustee. Maria’s LIT reviewed her income, expenses, assets, and debts, and walked her through every option — including ones that weren’t a proposal. Working with a Licensed Insolvency Trustee costs nothing at this stage.
- Designing the offer. Together they calculated what Maria could realistically afford: $300 per month for 60 months, or $18,000 total — more than creditors would recover in a bankruptcy.
- Filing the proposal. The LIT filed with the Office of the Superintendent of Bankruptcy. The stay of proceedings took effect immediately: interest froze and collection calls stopped that week.
- The 45-day creditor review. Creditors had 45 days to accept, reject, or request changes. Maria’s creditors — seeing a better recovery than bankruptcy offered — accepted without requesting a meeting.
- Making payments and completing counselling. Maria paid $300 a month to her LIT, who distributed it to creditors, and attended two mandatory financial counselling sessions on budgeting and rebuilding credit.
- Certificate of Full Performance. After her final payment, Maria received her certificate — the legal document confirming the remaining $32,000 was discharged for good.
After completing her proposal, Maria began rebuilding: a secured credit card used lightly and paid in full each month, a small emergency fund, and steady progress. Within a couple of years her credit score had recovered enough to qualify for mainstream credit again — and this time, she was in control of it.
The Bottom Line
Ready to see if you qualify?
Frequently Asked Questions
How much does a consumer proposal cost in Canada?
There’s no upfront fee. Licensed Insolvency Trustee fees are set by federal regulation and come out of the payments you make in your proposal — not on top of them. In Maria’s case, her entire cost was the $18,000 she repaid; the trustee’s fees were included within that amount. Initial consultations with an LIT are free, so you can find out what your proposal would look like before committing to anything.
What percentage of debt do you pay back in a consumer proposal?
It varies with your income, assets, and what creditors would receive in a bankruptcy, but most Canadian consumer proposals settle in the range of 20 to 40 cents on the dollar. Maria repaid 36% of her debt. Someone with more assets or higher income might offer more; someone with less might offer less. Your LIT calculates a figure creditors are likely to accept because it beats their alternative.
How long does a consumer proposal stay on your credit report?
A consumer proposal appears on your credit report as an R7 rating and is removed three years after your final payment, or six years after filing, whichever comes first. That means paying your proposal off early also starts the three-year clock sooner. Many people find their score begins recovering during the proposal itself, because their debt load drops and payments are made on time.
Can creditors refuse a consumer proposal?
Yes, but it’s uncommon when the proposal is well constructed. Creditors holding a majority of the dollar value of your debt must vote to accept. If they reject the initial terms, they usually counter-offer — often asking for a modestly higher monthly payment — rather than refusing outright. Because a proposal typically pays them more than a bankruptcy would, accepting is usually in their own financial interest.
What happens if I miss a payment on my consumer proposal?
One missed payment won’t end your proposal, but if you fall the equivalent of three monthly payments behind, the proposal is automatically annulled. Your full original debt, minus what you’ve paid, comes back — and interest can resume. If money gets tight, contact your LIT right away; payments can sometimes be restructured before things reach that point. Our guide on missed debt plan payments explains how missed payments ripple through any repayment arrangement.
After 20 years of structuring multi-million dollar corporate debt facilities and corporate turnarounds in investment banking, Marcus now leads Canadian Debt Relief to apply those exact same balance-sheet optimization frameworks to Canadian household debt.
