Most people who start reading about consumer proposals are not doing it out of curiosity. They are doing it at 11pm, after a collection call, with a stack of statements they have stopped opening. If that is you, the questions below are almost certainly the ones running through your head — and you deserve plain answers, not a sales pitch.
A consumer proposal is a legal debt settlement filed through a Licensed Insolvency Trustee under Canada’s Bankruptcy and Insolvency Act. It lets you repay part of what you owe, over a fixed term, and have the rest legally forgiven. This FAQ covers what it costs, what it does to your credit, which debts qualify, and the parts most websites gloss over.
What a consumer proposal actually is
A consumer proposal is a formal insolvency proceeding, not a private negotiation. That distinction matters more than almost anything else you will read about it. When a debt settlement company phones your creditors and asks them to take less, your creditors can say no, keep calling you, and keep suing. When a Licensed Insolvency Trustee files a consumer proposal, federal law immediately imposes a stay of proceedings that stops collection activity, wage garnishments, and lawsuits from unsecured creditors.
Only a Licensed Insolvency Trustee — a professional licensed and supervised by the Office of the Superintendent of Bankruptcy — can administer one. Anybody else advertising that they will “file your proposal” is either referring you to a trustee or selling you something else entirely.
Your trustee reviews your income, assets, and debts, then drafts an offer. Creditors have 45 days to vote, and the vote is weighted by dollar value rather than headcount — you need holders of more than half the proven claims to accept. If nobody objects in that window, the proposal is deemed accepted, which is how most of them pass. If it fails you are not bankrupt; you look at other options, including a revised offer. We cover the odds in our guide to whether a consumer proposal can be rejected.
The real advantages
Every dollar you pay after filing goes to principal. On $40,000 of credit card debt at 21%, you were paying roughly $700 a month in interest alone before you touched the balance.
Unlike bankruptcy, a consumer proposal has no seizure of assets and no surplus income payments. Your home, your car, your RRSP, and a tax refund all stay yours.
One monthly amount, set in advance, that cannot rise. For many people it is the first month in years they can actually budget.
The stay of proceedings ends the calls, freezes garnishments, and halts lawsuits from unsecured creditors the day you file.
An R7 rating for three years after completion, versus an R9 and up to seven years for a first bankruptcy.
The real drawbacks
Proposals are recorded in a federal insolvency database anyone can search for a small fee. Almost nobody looks, but the record exists.
An R7 is a significant mark. Expect to be declined for mainstream credit during the proposal and to pay more for it afterwards.
If the proposal is annulled, the legal protection disappears and creditors can pursue the full original balance again.
Your mortgage and car loan stay as they are. If those payments are what is drowning you, a proposal will not fix it.
Up to five years of fixed payments, while life changes around them unless you formally amend the terms.
Who a consumer proposal suits
- You owe between roughly $10,000 and $250,000 in unsecured debt, excluding your mortgage.
- You have steady income and could afford a meaningful monthly payment — just not the full balance plus interest.
- You own something you want to protect: home equity, a paid-off vehicle, or a pension you would rather not risk in bankruptcy.
- Interest is the reason your balances are not moving despite years of payments.
- You have already been declined for a consolidation loan because of your credit or your debt-to-income ratio.
- Collection calls, a wage garnishment, or a lawsuit have already started.
Who should look elsewhere
- Your debt is small enough that a strict budget and 18 to 24 months of focused repayment would clear it.
- Your income does not cover basic living costs, let alone a monthly proposal payment — bankruptcy may genuinely be the more honest option.
- Almost all your debt is secured, such as a mortgage or car loan, since a proposal cannot touch those.
- Your credit is still strong and you can qualify for a consolidation loan at a materially lower rate.
- Your debts are mainly child support, alimony, court fines, or student loans from a program you left less than seven years ago — none of these are discharged.
- You need new credit within the next two or three years for something you cannot postpone.
What the numbers actually look like
Here is a realistic picture for someone in Ontario carrying $45,000 in credit card and line-of-credit debt at an average 21% interest, making minimum payments of about $1,150 a month.
The trustee’s fees are not extra. They come out of the $18,000, set by a federal tariff, so what you pay is the payment and nothing more. Your own numbers will differ — the offer depends on your income, your assets, and what creditors would recover in a bankruptcy, a test the regulator sets out in its guidance on reasonable and fair proposal provisions. Anyone quoting you a figure before reviewing your finances is guessing. For a province-specific walkthrough, see our breakdown of how a consumer proposal works in BC.
How the process runs, start to finish
- Book a free assessment with a Licensed Insolvency Trustee. Bring recent pay stubs, a list of debts, and any collection letters. The first meeting costs nothing and does not commit you to anything.
- Review every option, not just the proposal. A trustee must explain the alternatives — budgeting, consolidation, credit counselling, bankruptcy. If a meeting ends with only one option on the table, get a second opinion. The federal Financial Consumer Agency of Canada publishes a neutral overview worth reading first.
- Agree on the offer amount. Settle on a payment you can sustain for the full term. Be conservative; stretching costs more later than a longer term does.
- The trustee files with the Office of the Superintendent of Bankruptcy. The stay of proceedings begins that moment, and collection action from unsecured creditors stops.
- Creditors get 45 days to vote. Most proposals pass without a meeting because creditors simply do not object.
- Make your monthly payments. Set up an automatic transfer. Three missed payments annuls the proposal, and reinstatement is not guaranteed.
- Complete two credit counselling sessions. Mandatory, about an hour each, included in the cost.
- Receive your Certificate of Full Performance. The trustee notifies Equifax and TransUnion, the remaining debt is legally gone, and the three-year credit clock starts.
Not sure whether a consumer proposal fits your situation? A short, no-pressure conversation will tell you more than another night of research.
Frequently asked questions
How much does a consumer proposal cost?
You do not pay the trustee separately. The trustee’s fees are set by a federal tariff and are paid out of the total amount you offer your creditors, so the monthly payment you agree to is the entire cost. In practice most people repay somewhere between 30 and 50 cents on the dollar, spread over up to 60 months with no interest. On $45,000 of debt, a payment in the range of $250 to $400 a month is common. Your actual figure depends on your income, your assets, and what creditors would recover if you filed bankruptcy instead — which is why any quote given before a trustee reviews your finances is not a real number.
How does a consumer proposal affect my credit score?
Each debt included in the proposal is marked R7 on your credit report, which signals that you settled for less than the full amount. That rating stays on your file for three years after you make your final payment, or six years from the filing date, whichever comes first. It is a real hit and you should expect to be declined for mainstream credit during the proposal. It is still lighter than a first bankruptcy, which is rated R9 and can stay on file for six or seven years. Many people begin rebuilding with a secured credit card during the proposal itself and have a workable score within a year or two of completion.
Which debts can and cannot be included?
Unsecured debts are eligible: credit cards, lines of credit, personal loans, payday loans, overdrafts, cell phone and utility arrears, and income tax debt owed to the CRA. Secured debts stay outside the proposal — your mortgage and car loan continue as normal, and you keep the asset as long as you keep paying. Certain debts survive by law and cannot be discharged: child support, spousal support, court-ordered fines and restitution, debts arising from fraud, and student loans if you have been out of school less than seven years. Tax debt is a common surprise on the eligible side; see our guide to using a consumer proposal for CRA tax debt.
What happens if I miss payments?
Missing one payment is not a crisis, but the arrears accumulate. If you fall three monthly payments behind, the proposal is automatically annulled by operation of law. When that happens the legal protection disappears, your creditors can pursue the full original balance again, and any interest that would have accrued may be reinstated. You also lose the payments you already made. If your income drops or an emergency hits, phone your trustee before you miss anything — proposals can often be amended to a lower payment or a longer term, and creditors generally prefer an amendment to an annulment.
Can I file a consumer proposal more than once?
Yes. There is no legal limit on the number of consumer proposals you can file, and no waiting period between them. That said, a second proposal is a harder sell. Creditors can see your history in the federal insolvency record, and a group that already accepted less than full value once may vote differently the second time — which typically means the offer has to be more generous to pass. Trustees will also examine what changed since the first proposal. If the underlying cause was a one-off event like illness or job loss, that is a very different conversation than a pattern. Our detailed guide covers filing a second consumer proposal.
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.
