Can a Consumer Proposal Help Your Business in Ontario?
If you run a small business in Ontario and debt is piling up, you’re not alone — and you’re not out of options. Between rising costs, unpredictable cash flow, and the pressure of keeping things running, it can feel like the walls are closing in. But a consumer proposal might give you a way forward without shutting everything down.
A consumer proposal is a formal, legally binding process under Canada’s Bankruptcy and Insolvency Act that lets you negotiate with creditors to repay a portion of what you owe over up to five years. For sole proprietors and small business owners in Ontario, it can be a practical path to business debt relief that doesn’t require you to liquidate your assets or close your doors.
A consumer proposal allows Ontario sole proprietors and individuals with business debt to negotiate reduced repayment with creditors — keeping their assets, stopping collection calls, and avoiding bankruptcy. You must owe less than $250,000 (excluding your mortgage) and work with a Licensed Insolvency Trustee to file.
What Is a Consumer Proposal?
A consumer proposal is a debt settlement process governed by the Bankruptcy and Insolvency Act (BIA). It’s administered by a Licensed Insolvency Trustee (LIT) and allows you to make an offer to your creditors — typically to repay a percentage of what you owe, interest-free, over a period of up to five years. According to the Office of the Superintendent of Bankruptcy Canada, consumer proposals are available to individuals who owe $250,000 or less in eligible debt (excluding a mortgage on a primary residence).
Once your creditors accept the proposal and you keep up with payments, you’re legally protected from collection actions, wage garnishments, and lawsuits. At the end of the term, any remaining balance on the included debts is forgiven.
It’s worth noting that consumer proposals are technically for individuals, not corporations. But if your business debts are in your personal name — which is very common for sole proprietors, freelancers, and unincorporated small businesses — you can absolutely include those debts in a consumer proposal.
Who Qualifies as a Business Owner?
This is the key distinction. A consumer proposal is designed for individuals, so it works best for Ontario business owners whose business debts are personally guaranteed or held in their own name. This typically includes sole proprietors, independent contractors, freelancers, and partners in unincorporated partnerships.
If your business is incorporated, the corporation itself cannot file a consumer proposal. However, if you’ve personally guaranteed corporate debts (credit lines, supplier accounts, CRA remittances), those personal guarantees can be included. For incorporated businesses with corporate-only debt, a Division I Proposal or corporate bankruptcy through the CRA process may be more appropriate.
Pros of a Consumer Proposal for Business Debt
Cons to Consider
Who Should Consider a Consumer Proposal
- Sole proprietors in Ontario with $10,000 to $250,000 in unsecured business and personal debt
- Freelancers or contractors who personally signed for business credit cards, lines of credit, or supplier accounts
- Business owners who want to keep operating and protect their equipment and assets
- Anyone who has steady income but can’t keep up with minimum payments and interest charges
- Entrepreneurs who’ve been contacted by collection agencies or faced threats of legal action
Who Should Look at Other Options
- Incorporated businesses with debts held only in the corporation’s name — you may need a Division I Proposal instead
- Business owners with debts exceeding $250,000 (excluding mortgage) — you would need a Division I Proposal
- People with manageable debt who could benefit from credit counselling or a debt consolidation loan instead
- Business owners planning to wind down operations entirely — bankruptcy might be simpler
- Those who don’t have reliable ongoing income to make monthly proposal payments
Financial Example: Consumer Proposal for an Ontario Sole Proprietor
Here’s how a consumer proposal might look for a small business owner in Ontario carrying a mix of personal and business debts:
Under a consumer proposal, this business owner might offer creditors $38,000 — roughly 40 cents on the dollar — paid over 60 months at about $633/month. That’s a single, predictable payment with no interest, compared to struggling with five different creditors and growing balances.
Steps to File a Consumer Proposal in Ontario
- Assess your full financial picture. Add up all your business and personal debts. Separate secured debts (vehicle loans, mortgages) from unsecured debts (credit cards, lines of credit, supplier accounts, CRA arrears). Make sure your total unsecured debt is under $250,000.
- Book a free consultation with a Licensed Insolvency Trustee. Only an LIT can file a consumer proposal in Canada. They’ll review your income, expenses, assets, and debts to determine if a consumer proposal is the right fit — or if another option like debt consolidation would work better.
- Your LIT drafts the proposal. Based on your financial situation, your trustee creates a formal offer to your creditors. This includes how much you’ll pay in total, your monthly payment amount, and the repayment timeline (up to 60 months).
- The proposal is filed with the government. Once filed with the Office of the Superintendent of Bankruptcy, the stay of proceedings takes effect immediately. Creditors must stop all collection activity, wage garnishments, and legal proceedings.
- Creditors vote on your proposal. Your creditors have 45 days to accept or reject the offer. A majority in dollar value must approve it. In practice, most consumer proposals are accepted — especially when the offer is reasonable compared to what creditors would receive in a bankruptcy.
- Make your monthly payments and attend counselling. Once accepted, you make your fixed monthly payments through your LIT and complete two mandatory financial counselling sessions. These sessions cover budgeting and money management — skills that are especially helpful for business owners.
- Complete the proposal and receive your certificate. After making all payments, you receive a Certificate of Full Performance. The remaining unpaid debt is legally discharged, and you can start rebuilding your credit. Many Canadians have successfully completed consumer proposals and moved forward financially.
The Bottom Line
For sole proprietors and small business owners in Ontario who are personally liable for business debts, a consumer proposal offers a realistic way to reduce what you owe, protect your assets, and keep your business running. It’s not a magic fix — you’ll still need steady income and a willingness to follow through — but it’s far less disruptive than bankruptcy and gives you a clear path to becoming debt-free.
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Frequently Asked Questions
Can an incorporated business file a consumer proposal in Ontario?
No. A consumer proposal is only available to individuals, not corporations. However, if you’ve personally guaranteed corporate debts — such as a business line of credit, supplier account, or CRA remittance — those personal guarantees can be included in your consumer proposal. For debts held solely by the corporation, you’d need to explore a Division I Proposal or corporate bankruptcy with a Licensed Insolvency Trustee.
Will filing a consumer proposal shut down my business?
Not at all. One of the biggest advantages of a consumer proposal over bankruptcy is that you keep your assets and can continue operating your business. There’s no requirement to close, and your customers and clients don’t need to be notified. Your LIT handles all communication with creditors, so you can focus on running your business while the proposal takes care of the debt.
Can I include CRA tax debt in a consumer proposal?
Yes. Personal income tax debt, HST arrears, and other amounts owed to the Canada Revenue Agency can be included in a consumer proposal. The CRA is treated as an unsecured creditor and participates in the voting process like any other creditor. In many cases, the CRA will accept a reasonable proposal rather than pursue costly collection actions. As the CRA outlines, proposals in bankruptcy are a recognized process for resolving tax debt.
How long does a consumer proposal stay on my credit report in Ontario?
A consumer proposal creates an R7 notation on your credit report. It remains visible for three years after you complete all your payments, or six years from the date of filing — whichever comes first. While that sounds like a long time, it’s shorter than the impact of a bankruptcy (which stays for six to seven years after discharge). Many business owners start seeing credit improvement well before the notation is removed, especially if they take steps to rebuild their credit during and after the proposal.
What happens if my creditors reject my consumer proposal?
If creditors reject your initial offer, it doesn’t mean the process is over. Your Licensed Insolvency Trustee can negotiate and submit a revised proposal with better terms. Rejection often means creditors want a slightly higher repayment percentage. In practice, outright rejection is uncommon — the acceptance rate for consumer proposals in Ontario is quite high, especially when the offer is clearly better than what creditors would receive in a bankruptcy scenario. If negotiations fail entirely, you still have other options like a Division I Proposal or voluntary bankruptcy.
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.
