Consumer Proposal in Canada: Reduce Your Debt by Up to 80%

A consumer proposal is a legally binding agreement that lets you settle your debt for less than you owe — without losing your home, your car, or filing for bankruptcy. It is the most popular insolvency option in Canada, with over 150,000 filed annually.

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What Is a Consumer Proposal?

A consumer proposal is a formal, legally binding process administered by a Licensed Insolvency Trustee (LIT). It allows you to negotiate with your creditors to repay only a portion of your total unsecured debt — typically between 20% and 50% of what you owe — over a period of up to five years.

Once your creditors accept the proposal, interest stops accumulating immediately and all collection calls, wage garnishments, and legal actions against you are halted. You make one affordable monthly payment to your LIT, who distributes the funds to your creditors.

Unlike bankruptcy, a consumer proposal lets you keep your assets — including your home, vehicle, and savings. It is governed by the Bankruptcy and Insolvency Act (BIA) and can only be filed through a Licensed Insolvency Trustee.

Quick Facts About Consumer Proposals

  • Reduce total debt by 50% to 80%
  • Interest stops immediately
  • Keep your home and vehicle
  • One fixed monthly payment
  • Legal protection from creditors
  • No surplus income payments

How a Consumer Proposal Works

The process is straightforward and most Canadians complete their proposal ahead of schedule.

1

Free Consultation

Speak with a debt relief specialist to review your financial situation and explore all options.

2

Meet Your LIT

A Licensed Insolvency Trustee assesses your debts, income, and assets to draft your proposal.

3

Proposal Is Filed

Your LIT files the proposal with the Office of the Superintendent of Bankruptcy. Collections stop immediately.

4

Creditors Vote

Creditors have 45 days to accept or reject. Most proposals are accepted without a meeting.

5

Make Payments, Get Free

Make your fixed monthly payments for up to 5 years. Once complete, remaining debt is legally eliminated.

Benefits and Drawbacks of a Consumer Proposal

A consumer proposal is a powerful debt relief tool, but it is important to understand both sides before deciding.

Advantages

  • Reduce your total debt by 50% to 80%
  • All interest charges stop immediately
  • Keep your home, car, and other assets
  • Legal protection: stops garnishments, lawsuits, and collection calls
  • One fixed monthly payment you can afford
  • No surplus income requirements (unlike bankruptcy)
  • Can be paid off early with no penalty
  • Less severe credit impact than bankruptcy

Things to Consider

  • Appears on your credit report for 3 years after completion
  • Only covers unsecured debts (not mortgages or car loans)
  • Must be administered by a Licensed Insolvency Trustee
  • Creditors can reject the proposal (though most are accepted)
  • Missing 3 payments can void the proposal
  • Maximum unsecured debt limit of $250,000 (excluding mortgage)
  • Existing credit cards will be cancelled

What Debts Can Be Included in a Consumer Proposal?

A consumer proposal covers most types of unsecured debt, but some obligations are excluded by law.

Debts That Can Be Included

  • Credit card balances
  • Personal lines of credit
  • Payday loans
  • Income tax debt and HST/GST owing
  • Student loans (if 7+ years out of school)
  • Medical bills and collection accounts
  • Unsecured personal loans
  • CERB repayment obligations

Debts That Cannot Be Included

  • Mortgage or secured car loan
  • Student loans (less than 7 years out of school)
  • Child support or alimony
  • Court-ordered fines or restitution
  • Fraud-related debts

Who Qualifies for a Consumer Proposal?

To file a consumer proposal in Canada, you must meet the following requirements under the Bankruptcy and Insolvency Act:

  • Owe between $1,000 and $250,000 in unsecured debt (excluding your mortgage)
  • Be insolvent — unable to pay your debts as they come due
  • Have a stable source of income (employment, pension, or self-employment)
  • Be a Canadian resident or own property in Canada
  • Not currently have an active consumer proposal in place

Not Sure if You Qualify?

Get a free, confidential assessment from a debt relief specialist. There is no obligation and no impact on your credit score.

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Consumer Proposal vs. Bankruptcy vs. Other Options

See how a consumer proposal compares to other debt relief solutions available in Canada.

Consumer ProposalBankruptcyDebt Management PlanDebt Consolidation Loan
Debt reduction50% to 80% eliminatedUp to 100% eliminatedInterest reduced, full principal repaidNone — consolidates into one loan
Keep your assetsYes — all assets protectedMay lose non-exempt assetsYesYes
Legal protectionYes — stay of proceedingsYes — stay of proceedingsNoNo
Credit report impactR7 for 3 years after completionR9 for 6–7 yearsR7 for 2 years after completionNew loan on report
Surplus income requiredNoYes — may extend to 21 monthsN/AN/A
Typical timelineUp to 5 years9 to 21 months3 to 5 years2 to 5 years
Administered byLicensed Insolvency TrusteeLicensed Insolvency TrusteeCredit counselling agencyBank or lender
Credit score requiredNoneNoneNoneGood to excellent

Not sure which option fits your situation? Get a free assessment and we will help you decide.

How a Consumer Proposal Affects Your Credit

A consumer proposal does impact your credit, but the effect is temporary and far less severe than bankruptcy or continuing to miss payments.

When You File

Your credit report will show an R7 rating on the debts included in your proposal, indicating you are making payments through a third-party arrangement. Existing credit cards will be closed.

During Your Proposal (Years 1–5)

Each on-time payment demonstrates responsible financial behaviour. Many people begin rebuilding credit during their proposal by applying for a secured credit card after 12 to 18 months.

After Completion

The R7 notation is removed from your credit report 3 years after you complete your proposal. In contrast, a bankruptcy stays on your report for 6 to 7 years after discharge.

Long-Term Recovery

Most Canadians who complete a consumer proposal rebuild their credit to a good score within 2 to 3 years of completion. With responsible credit use, many qualify for a mortgage within 2 years of finishing.

Frequently Asked Questions About Consumer Proposals

Everything you need to know before deciding if a consumer proposal is right for you.

There is no upfront cost to you. The Licensed Insolvency Trustee's fees are included in your monthly payment and are regulated by the federal government. You will never pay more than the amount specified in your accepted proposal. In most cases, the total you repay is significantly less than your original debt.
Yes. Unlike bankruptcy, a consumer proposal does not require you to surrender any assets. As long as you continue making payments on your mortgage and car loan, those assets are fully protected. This is one of the biggest advantages of choosing a consumer proposal over bankruptcy.
If creditors reject your initial proposal, your Licensed Insolvency Trustee can negotiate amended terms. In practice, the majority of consumer proposals are accepted — often without a formal meeting of creditors. If a revised proposal cannot be agreed upon, you can explore other options like a debt management plan or bankruptcy.
Yes. When your Licensed Insolvency Trustee files your consumer proposal, a "stay of proceedings" takes effect immediately. This legally stops all garnishments, collection calls, lawsuits, and other creditor actions against you. This protection remains in place for the duration of your proposal.
Yes. Income tax debt, HST/GST balances, and other amounts owed to the Canada Revenue Agency (CRA) can be included in a consumer proposal. This is a significant advantage, as the CRA is often one of the most aggressive collectors. Filing a proposal also stops CRA garnishments and frozen bank accounts.
The key differences are: in a consumer proposal, you keep all your assets, there are no surplus income payments, and the credit impact is less severe (R7 for 3 years vs. R9 for 6 to 7 years). In bankruptcy, you may lose non-exempt assets and are required to pay surplus income if your earnings exceed a government threshold. A consumer proposal gives you more control over your repayment terms.
Yes, you can pay off your consumer proposal at any time with no penalty. Many Canadians pay off their proposal ahead of schedule when their financial situation improves — through a raise, bonus, or tax refund. Paying early means you are debt-free sooner, though the credit report notation timeline starts from completion, not filing.
Once you have made all your payments and completed your required financial counselling sessions, your Licensed Insolvency Trustee issues a Certificate of Full Performance. Any remaining debt included in the proposal is legally eliminated. You receive a fresh start and can focus on rebuilding your credit and financial future.
In most cases, no. A consumer proposal is a matter of public record, but your employer is not notified unless they are a creditor or there is an existing wage garnishment that needs to be stopped. The process is designed to be confidential and has no impact on most types of employment.
A consumer proposal can last up to a maximum of 5 years. However, many people pay theirs off in 3 to 4 years or less. Your Licensed Insolvency Trustee will work with you to create a payment schedule that fits your budget while being acceptable to your creditors.

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