Consumer Proposal for Business Owners: What Canadian Entrepreneurs Need to Know
Running a small business in Canada comes with real financial risk. When business debts start piling up — unpaid suppliers, overdue CRA remittances, maxed-out credit lines — it can feel like the walls are closing in. You might worry about losing everything you’ve built.
A consumer proposal can be a lifeline for many business owners struggling with debt. It’s a legally binding process that lets you negotiate to repay only a portion of what you owe, while keeping your assets and — in many cases — continuing to run your business. But it’s not available to everyone, and the rules work differently depending on how your business is structured. Here’s what you actually need to know.
What Is a Consumer Proposal?
A consumer proposal is a formal, legally binding agreement between you and your creditors. It’s filed through a Licensed Insolvency Trustee (LIT) under Canada’s Bankruptcy and Insolvency Act. Instead of repaying everything you owe, you negotiate to pay back a percentage — often between 20% and 50% — over a period of up to five years.
Once your creditors accept the proposal (and a simple majority by dollar value is all you need), all interest charges stop immediately. Collection calls stop. Wage garnishments stop. You make one fixed monthly payment to your LIT, who distributes it to your creditors. It’s a structured way to deal with debt without the more severe consequences of bankruptcy.
Consumer proposals are governed by Part III, Division II of the Bankruptcy and Insolvency Act, and they’re only available to individuals — not to corporations. That’s where things get interesting for business owners.
How a Consumer Proposal Works for Business Owners
Whether a consumer proposal can help with your business debts depends entirely on your business structure.
Sole Proprietors and Independent Contractors
If you operate as a sole proprietor, your business debts are legally your personal debts. There’s no separation between you and the business in the eyes of the law. That means a consumer proposal can cover everything — credit card balances, unpaid supplier invoices, business lines of credit, HST/GST arrears, and personal debts — all in one filing. This is actually an advantage because it lets you deal with the full picture at once.
Incorporated Business Owners
If your business is incorporated, the corporation is a separate legal entity. A consumer proposal filed by you personally cannot include debts that belong to the corporation. However, many small business owners have signed personal guarantees on business loans or credit lines. Those personal guarantees are your personal debts and can be included in a consumer proposal. If the corporation itself is insolvent, it would need its own restructuring process — typically a Division I proposal or receivership.
Partnerships
Partners in a general partnership are jointly liable for business debts. Each partner can file their own consumer proposal to address their share of the debt, but coordination with your partner and your LIT is essential to make sure nothing falls through the cracks.
Pros of a Consumer Proposal for Business Debt
Cons to Consider
Who Should Consider a Consumer Proposal for Business Debt
- Sole proprietors or contractors with combined business and personal debts under $250,000
- Incorporated business owners who signed personal guarantees on business loans
- Self-employed Canadians who owe CRA for unpaid HST/GST or income tax
- Business owners with steady enough income to make fixed monthly payments
- Entrepreneurs who want to keep operating their business while resolving debt
Who Should Look at Other Options
- Incorporated businesses with debts held entirely in the corporation’s name (a Division I proposal or corporate restructuring may be needed)
- Business owners with total unsecured debts over $250,000
- Anyone whose income is too unstable to commit to a fixed payment plan
- Business owners who primarily have secured debts (equipment financing, commercial mortgages)
- Those who may benefit more from other debt relief options like credit counselling or debt consolidation
Financial Example: Sole Proprietor With Mixed Debts
In this example, the business owner files a consumer proposal offering to pay 35 cents on the dollar — a total of $32,200 — over 60 months. That works out to roughly $537 per month, compared to the $1,800+ they were paying in minimum payments before (much of which was going to interest alone).
Steps to File a Consumer Proposal as a Business Owner
- Gather your financial records. Collect documentation for all business and personal debts, income statements, tax returns, and a list of your assets. If you’re a sole proprietor, remember that business and personal finances are combined.
- Book a free consultation with a Licensed Insolvency Trustee. Only a Licensed Insolvency Trustee can file a consumer proposal. During the consultation, they’ll review your full financial picture and confirm whether you qualify. This meeting is confidential and costs nothing.
- Work with your LIT to design the proposal. Your trustee will help you determine a realistic monthly payment based on your income and expenses. They’ll also advise on which debts can be included — especially important if you have a mix of personal guarantees and corporate obligations.
- File the proposal with the Office of the Superintendent of Bankruptcy. Once filed, the stay of proceedings takes effect immediately. Creditors must stop all collection activity, and interest freezes on all included debts.
- Creditors vote on the proposal. Your creditors have 45 days to accept or reject the terms. If creditors holding a majority of the debt by dollar value approve (or don’t respond, which counts as approval), the proposal becomes legally binding on all unsecured creditors — even those who voted against it.
- Make your monthly payments and attend two counselling sessions. You’ll make fixed monthly payments to your LIT for up to five years. You’re also required to attend two financial counselling sessions, which cover budgeting and money management — skills that are genuinely useful for business owners rebuilding their finances.
- Receive your Certificate of Full Performance. Once all payments are made, your LIT issues a certificate confirming you’ve completed the proposal. The remaining debt is legally discharged, and you can focus fully on growing your business.
Ready to see if you qualify?
Frequently Asked Questions
Can I file a consumer proposal for my incorporated business?
Not directly. A consumer proposal is only available to individuals, not corporations. However, if you’ve personally guaranteed any of the business’s debts — which is common with small business loans and credit lines — those personal guarantees can be included in your consumer proposal. If the corporation itself needs debt relief, your Licensed Insolvency Trustee can advise on options like a Division I proposal or orderly wind-down.
Will I have to close my business if I file a consumer proposal?
No. Unlike bankruptcy (which can restrict certain business activities and require you to surrender assets), a consumer proposal lets you keep operating your business. You retain your assets, your contracts stay in place, and your clients don’t need to know unless you choose to tell them. Many business owners successfully continue and even grow their business during and after a consumer proposal.
Can CRA debts like unpaid HST/GST be included in a consumer proposal?
Yes. Personal income tax debt, HST/GST arrears, and most other amounts owed to the Canada Revenue Agency can be included in a consumer proposal. CRA is treated as an unsecured creditor and participates in the voting process just like any other creditor. However, if CRA has already registered a lien against your property, that secured portion may need to be dealt with separately.
How much does a consumer proposal cost for a business owner?
There’s no upfront fee to file a consumer proposal. The LIT’s fees are built into the payments you make to your creditors and are regulated by the federal government. The total amount you pay depends on your income, assets, and the deal your LIT negotiates — but most proposals settle debts for 20–50% of the total owed. Your free initial consultation will give you a clear picture of what the monthly payment would look like for your specific situation.
What happens to my business if creditors reject the consumer proposal?
Rejection isn’t common — the vast majority of consumer proposals are accepted. If yours is rejected, you can revise the terms and resubmit with a higher repayment offer. Your LIT will typically have a good sense of what creditors will accept before filing, so surprises are rare. If a revised proposal still doesn’t work, you may need to explore other options like a Division I proposal (for debts over $250,000) or personal bankruptcy as a last resort.
