If you’re drowning in credit card balances, payday loans, or a tax bill you can’t pay, a consumer proposal can feel like a lifeline. It’s a legal way to settle most unsecured debts for a fraction of what you owe, with no more interest piling on. But before you sign anything, you need to know what actually goes into a consumer proposal — because what’s included (and what’s left out) shapes the rest of your financial life.
This guide walks through the key elements to include in a consumer proposal in Canada, what the law allows, what your Licensed Insolvency Trustee will ask for, and how to think through the trade-offs honestly. No jargon, no judgment — just the facts you need to make a clear-headed decision.
What Is a Consumer Proposal?
A consumer proposal is a formal, legally binding agreement between you and your unsecured creditors, filed under Canada’s Bankruptcy and Insolvency Act. Instead of paying back everything you owe, you offer creditors a percentage of the total — often 30% to 50% — paid over up to five years, with no interest. Once the proposal is accepted, collection calls stop, wage garnishments are halted, and lawsuits are paused.
According to the Office of the Superintendent of Bankruptcy (OSB), you can file a consumer proposal if your total unsecured debts are between $1,000 and $250,000, not counting a mortgage on your principal residence. Only a Licensed Insolvency Trustee (LIT) — a federally regulated professional — can administer one. If you owe more than $250,000, you’d file a Division I proposal instead, which has different rules. For a side-by-side look at how this compares to bankruptcy, our bankruptcy vs. consumer proposal guide breaks down the key differences.
Key Elements You Must Include in a Consumer Proposal
A proposal isn’t just a number — it’s a full financial story that creditors will scrutinize. The legal framework in Section 66.12 of the Bankruptcy and Insolvency Act sets out the formal requirements, but in practice your LIT will help you assemble five core pieces.
1. A Complete Statement of Your Finances
Your proposal starts with a sworn statement of affairs — a full inventory of your assets (bank accounts, vehicles, investments, home equity), your liabilities (every debt you owe), your monthly income, and your monthly expenses. This isn’t optional or a place to round numbers. Creditors compare what you’re offering against what they would receive if you went bankrupt, so the numbers must be accurate and complete.
2. Every Unsecured Debt You Owe
You can’t pick and choose which creditors to include. By law, a consumer proposal must be made to your creditors generally — meaning every unsecured debt comes in. That covers credit cards, lines of credit, payday loans, personal loans, overdrafts, old phone or utility bills in collections, and even income tax debts owed to the Canada Revenue Agency. If you guaranteed a business loan personally, that liability is included too.
3. A Realistic Repayment Plan
The heart of the proposal is the offer itself: how much you’ll pay each month and for how long. The law caps the term at five years, but many proposals run shorter. Your LIT will help you calculate a payment that’s affordable for you and reasonable enough that creditors will accept — usually somewhere between what you could realistically save and what they’d recover in a bankruptcy.
4. Clarity on the Assets You Keep
Unlike bankruptcy, a consumer proposal lets you keep your assets — your home, vehicle, RRSPs, and personal belongings — as long as you keep up payments on any secured loans (mortgage, car loan). The proposal document spells out which assets stay with you and confirms there’s no surprise sale or surrender.
5. Disclosure of Foreseeable Financial Changes
If you know a raise is coming, your spouse is going back to work, or you’re about to lose overtime, that information belongs in the proposal. Trustees and creditors want a true picture, and surprises later — like a windfall — can complicate things. Honest disclosure up front protects you.
Pros of a Consumer Proposal
Pay back less than you owe
Most proposals settle for 30% to 50% of the total debt, with all interest frozen the moment the proposal is filed.
Keep your stuff
You retain your home, car, RRSPs, and personal property — provided secured loan payments continue.
Legal protection from creditors
Wage garnishments stop, collection calls end, and lawsuits are paused as soon as the proposal is filed with the OSB.
One predictable payment
Instead of juggling minimums across cards and loans, you make one fixed monthly payment to your trustee.
Cons to Weigh Honestly
Credit hit lasts years
A proposal stays on your credit report for the term plus three years after completion — often around six to eight years total.
Public record
The filing appears in the OSB’s public insolvency database, which is searchable.
Not all debts qualify
Recent student loans, child support, alimony, court fines, and secured debts can’t be wiped through a proposal.
Strict payment discipline
Miss three monthly payments and the proposal is automatically annulled — your creditors can resume collection.
Who a Consumer Proposal Suits
- You owe between $10,000 and $250,000 in unsecured debt and can’t realistically pay it off in five years.
- You have a steady income that can cover a fixed monthly payment.
- You want to avoid bankruptcy and keep your home, car, or RRSPs.
- Creditors are calling, garnishing wages, or threatening lawsuits.
- You’ve already tried credit counselling or a debt management plan and it isn’t enough.
Who Should Look at Other Options
- Most of your debt is secured (mortgage, car loan) — a proposal won’t touch those.
- Your debt is mostly recent student loans (within seven years of leaving school).
- You owe more than $250,000 in unsecured debt — you’d need a Division I proposal.
- You have enough breathing room to handle the debt with a debt consolidation loan at a reasonable rate.
- Your income is unstable — missing three payments cancels the proposal.
A Real-World Example
In this scenario, the borrower legally settles $45,000 of debt for $18,000, paid as a flat $300 a month with no interest. Real numbers vary by income, asset value, and creditor mix — your LIT will calculate a figure that fits your situation. You can read more cases like this in our consumer proposal success stories.
Step-by-Step: How a Proposal Gets Built
- Free consultation with a Licensed Insolvency Trustee. You’ll review your full financial picture — income, expenses, debts, and assets. The LIT explains every option, not just a proposal.
- Gather documents and complete the statement of affairs. Pay stubs, tax returns, bank statements, debt notices, and a list of assets. This is where accuracy matters most.
- The LIT drafts the proposal. Together you decide on the monthly payment, term, and total settlement amount based on what’s affordable and what creditors are likely to accept.
- Filing with the Office of the Superintendent of Bankruptcy. The moment the LIT files, a “stay of proceedings” kicks in — collection calls, garnishments, and lawsuits stop immediately, as the OSB confirms.
- Creditors review and vote. They have 45 days to accept or reject. Acceptance only requires creditors holding the majority of the debt value to agree. Most proposals are accepted.
- You make payments and attend two counselling sessions. Sessions cover budgeting and money management — they’re built into the process and required by law.
- Completion and legal discharge. Once you finish all payments, you receive a Certificate of Full Performance and you’re legally released from the included debts.
Ready to see if you qualify?
Can I leave one creditor out of my consumer proposal?
No. A consumer proposal must be made to your creditors generally, meaning every unsecured debt has to be included. The Bankruptcy and Insolvency Act treats all unsecured creditors equally, and your LIT cannot file a proposal that excludes specific creditors — it would be rejected by the OSB. The good news is that this also means no creditor can opt out once a proposal is accepted by the majority.
What happens to my mortgage and car loan?
Secured debts like a mortgage on your home or a loan on your car aren’t included in the proposal. You continue making those payments separately to keep the asset. If you choose to surrender the asset — for example, returning a vehicle you can no longer afford — any shortfall the lender claims after selling it can be added to your proposal as an unsecured debt.
Are CRA tax debts included in a consumer proposal?
Yes. Income tax debt, GST/HST debt, and source deductions can all be included, and the Canada Revenue Agency is legally bound by the terms of an accepted proposal — same as any other creditor. CRA does have voting power, so for larger tax debts your LIT will structure the proposal to reflect what the agency typically accepts. This is a big reason proposals are popular for self-employed Canadians dealing with back taxes.
Will a consumer proposal show up publicly?
The filing is recorded in the Office of the Superintendent of Bankruptcy’s public insolvency database, which anyone can search for a small fee. It’s not advertised in newspapers, but employers running formal background checks or landlords doing thorough screenings could find it. It also appears as an R7 rating on your credit report for the duration of the proposal plus three years after you complete it.
What if I can’t afford my proposal payments anymore?
Talk to your trustee right away — don’t just stop paying. If your situation has changed, your LIT can file an amendment to extend the term or reduce the payment, subject to creditor approval. If you miss three monthly payments without taking action, the proposal is deemed annulled by law, and creditors can restart collection. There’s also an option to revive an annulled proposal under certain conditions, but it’s far simpler to address problems before they reach that point.
