If you’re staring at a credit card balance that won’t go down and the collection calls are starting, “consumer proposal” might be the term that keeps showing up in your research. You want to know if it actually works — not the legal definition, but what real Canadians say after they’ve finished one. This guide pulls together what the law says, what Licensed Insolvency Trustees explain in their reviews, and what people who’ve gone through the process wish they’d known before signing.
You’ll see the honest version: where consumer proposals genuinely help, where they hurt, and how to decide if it’s the right fit for your situation. No sales pitch — just the trade-offs laid out so you can think clearly about your next step.
What Is a Consumer Proposal?
A consumer proposal is a formal agreement you make with your unsecured creditors — credit cards, lines of credit, payday loans, CRA tax debt — to settle for less than you owe. The arrangement is filed under the federal Bankruptcy and Insolvency Act and must be administered by a Licensed Insolvency Trustee (LIT), the only professional in Canada legally permitted to file one on your behalf.
According to the Office of the Superintendent of Bankruptcy, the proposal cannot exceed five years and must be paid through the trustee, who distributes funds to creditors. It’s available to Canadians who owe between $1,000 and $250,000 in unsecured debt (your mortgage doesn’t count toward that ceiling). Once filed, an automatic stay of proceedings stops wage garnishments, lawsuits, and collection calls — that protection is one of the first things people in reviews mention as life-changing.
It’s often confused with bankruptcy, but the two are distinct. A proposal lets you keep your assets and avoid the bankruptcy stigma, while still discharging eligible debt. If you’re weighing the two, our bankruptcy vs. consumer proposal guide breaks down the differences side by side.
The Real Benefits People Mention
Immediate Stop to Collections
The most common phrase in proposal reviews is “instant relief.” The day your trustee files, the calls stop, garnishments halt, and lawsuits freeze. For people who’ve spent months dodging the phone, this alone changes daily life.
Pay Back Less Than You Owe
Most accepted proposals settle for 30–50% of the original debt. Reviewers describe debts cut from $45,000 to $15,000, or $20,000 down to $7,000 — payments that finally felt possible.
Interest Stops Accruing
From the moment of filing, interest on included debts is frozen. For high-interest credit card balances, this is often where the math finally starts working in your favour again.
You Keep Your Assets
Unlike bankruptcy, you don’t surrender your home, car, RRSPs, or other assets. People with equity to protect repeatedly cite this as the deciding factor.
Fixed, Predictable Payment
One monthly payment to the trustee replaces a tangle of minimums and due dates. Reviewers consistently call the budgeting clarity a quiet but huge win.
Less Severe Than Bankruptcy
The credit impact is real but shorter, your name doesn’t appear in bankruptcy databases the same way, and reviewers say the emotional weight feels markedly lighter.
The Drawbacks Reviewers Warn About
Credit Score Hit Lasts Years
Your credit file gets an R7 rating, and the proposal stays on your report for three years after completion (or six years from filing, whichever comes first). Most reviewers say the credit impact was their biggest regret.
Not All Debts Are Eligible
Secured loans (mortgages, car loans you want to keep), child support, alimony, court-ordered fines, and recent student loans (under seven years old) typically can’t be included.
Public Record
Consumer proposals are part of the public insolvency record. While employers rarely check, certain regulated professions and security clearances may.
Banking Inconvenience
Some reviewers mention having to switch banks if their existing institution was a creditor — overdraft and credit lines often get closed during the process.
Two Counselling Sessions Required
You must complete two financial counselling sessions to receive your Certificate of Full Performance. Most people find them helpful, but they’re a non-negotiable commitment.
Miss Three Payments and It Fails
Fall three months behind and the proposal is automatically annulled. Creditors can resume collections, with interest, on the original balances. Reviewers urge picking a payment you can sustain even in a bad month.
Who Consumer Proposals Work For
A consumer proposal tends to be a strong fit if you:
- Owe between $10,000 and $250,000 in unsecured debt and can’t realistically repay it in full within five years
- Have stable enough income to commit to a fixed monthly payment for up to 60 months
- Want to keep a home with equity, a car, RRSPs, or other assets that bankruptcy could put at risk
- Are dealing with collection calls, wage garnishment threats, or pending lawsuits and need legal protection now
- Have already tried credit counselling or debt consolidation and they didn’t move the needle
- Owe CRA tax debt that’s been growing despite repayment attempts
When a Consumer Proposal Isn’t Right
A proposal probably isn’t your best move if you:
- Have unstable or seasonal income and can’t reliably make a fixed monthly payment
- Owe less than about $10,000 — credit counselling or a debt management plan is often cheaper and gentler
- Owe more than $250,000 in unsecured debt — you’d need a Division I proposal or different solution
- Are mostly dealing with secured debt, child support, or recent student loans, which can’t be included
- Could realistically pay off the balance in three years or less with budget changes
- Need a major mortgage approval in the next 12–18 months — the credit impact will complicate it
A Realistic Numbers Example
To make the math concrete, here’s a typical scenario based on what reviewers describe — a Canadian carrying high-interest unsecured debt across several cards and a line of credit.
These numbers vary based on your assets, income, and what your specific creditors typically accept. NerdWallet Canada notes the LIT’s regulated fees come out of your proposal payments — not on top — so the figure you agree to is the figure you pay. For more real Canadian examples, see our consumer proposal success stories.
How the Process Actually Works
Book a free consultation with a Licensed Insolvency Trustee
This is a no-obligation 60–90 minute meeting. The LIT reviews your income, assets, and debts, then walks through every option — not just a proposal. Bring pay stubs, a list of debts, and a list of assets. Most LITs offer this for free.
Your trustee builds the proposal offer
The LIT calculates an amount that’s high enough creditors will likely accept (the legal floor is whatever they’d recover in a bankruptcy) but low enough you can actually afford. This step takes a few days to a couple of weeks.
The proposal is filed with the OSB and the stay begins
The moment the LIT files with the Office of the Superintendent of Bankruptcy, your legal protection starts. Garnishments stop, calls stop, interest stops. You receive your filed copy.
Creditors have 45 days to vote
Creditors can accept, reject, or request a meeting. If creditors representing more than 50% of your debt by dollar value reject it, the proposal fails. In practice, most well-prepared proposals are accepted, often by default with no meeting required.
You make your monthly payments to the trustee
One fixed amount, each month, for up to five years. The LIT distributes funds to creditors quarterly. You also complete two mandatory financial counselling sessions during the term.
You finish and receive your Certificate of Full Performance
Your remaining included debts are legally extinguished. The proposal stays on your credit file for three years after completion or six years from filing, whichever is sooner. You’re free to start rebuilding your credit right away.
Ready to see if you qualify?
Frequently Asked Questions
Are consumer proposals legitimate or a scam?
Consumer proposals are a federally regulated debt solution under Canada’s Bankruptcy and Insolvency Act. They can only be filed by a Licensed Insolvency Trustee, who is licensed and supervised by the federal Office of the Superintendent of Bankruptcy. The process itself is fully legitimate. What you should be cautious of is “debt consultants” or “settlement companies” who charge thousands of dollars to refer you to a trustee — that referral is something an LIT will do for free in your initial consultation.
What do most consumer proposal reviews complain about?
The two most common complaints in honest reviews are the credit score impact and the length of the commitment. Most people accept the credit hit as a fair trade for the relief, but they wish someone had explained sooner that rebuilding starts the day the proposal ends — and can begin earlier with a secured card. The five-year term feels long, especially in years three and four, which is why many reviewers recommend paying off early if you get a windfall.
How much will a consumer proposal cost me out of pocket?
You don’t pay separate fees on top of your proposal — the LIT’s regulated fees come out of the monthly payments you’re already making. For a typical proposal of $20,000–$40,000 in total payments, the LIT’s share works out to roughly $3,500–$8,000, all built into the structure your creditors agreed to. You make one payment; the trustee divides it.
Can I get credit during a consumer proposal?
Yes, though your options are limited. Many Canadians in proposals are approved for secured credit cards within a few months of filing — one reviewer received a Capital One card with a $2,000 limit just four months in. Auto loans and mortgages are tougher and usually require waiting until after completion, but a properly used secured card during the proposal can rebuild your score by the time you finish, sometimes higher than where you started.
How is a consumer proposal different from debt consolidation or settlement?
Debt consolidation rolls your debts into a single loan — you still owe 100% of the principal, just at (hopefully) a lower rate, and it requires decent credit to qualify. Informal debt settlement through a private company has no legal protection, no automatic stay, and creditors can refuse the deal or sue anyway. A consumer proposal is the only debt settlement program sanctioned by the Canadian government, with full legal protection from creditors and a binding outcome once accepted.
