Understanding What a Consumer Proposal Is in Canada: A 2025 Guide to Safer Debt Relief

This guide breaks down, in plain language, how consumer proposals work in Canada, who qualifies, what you can include, the pros and cons, the full process and timeline, costs, credit impact, and how proposals compare to other options. You’ll also see real scenarios and expert tips to improve your chances of success.

If you’re trying to understand what a consumer proposal is and whether it can help you get out from under debt, you’re not alone. Many Canadians are weighing this option as interest costs rise and household budgets tighten. A consumer proposal is a formal, legally binding way to reduce and restructure unsecured debt—without declaring bankruptcy—so you can make a single affordable payment and protect your assets.

What is a Consumer Proposal in Canada?

A consumer proposal is a federally regulated debt solution under Canada’s Bankruptcy and Insolvency Act. Working with a Licensed Insolvency Trustee (LIT), you formally offer to repay a portion of what you owe to unsecured creditors over a fixed period of up to five years. If creditors holding the majority of your debt (by dollar value) accept within the 45-day voting window, the proposal becomes binding on all unsecured creditors.

Once filed, most collection actions stop due to a legal stay of proceedings, including wage garnishments and lawsuit activity (family support and some court fines are exceptions). Interest on included debts stops, and you make one fixed monthly payment you can afford.

For foundational, government-backed details, review the Government of Canada’s official information on consumer proposals and LITs.

Who Qualifies—and When to Consider a Consumer Proposal

You may qualify if you are insolvent (unable to pay your debts as they come due) and your total unsecured debt is within the consumer proposal limit: generally up to $250,000, excluding any mortgage on your principal residence. Couples can file a joint proposal up to $500,000. If you owe more than this, a Division I proposal may be considered instead.

Consider a consumer proposal if:

• Your unsecured debts (credit cards, lines of credit, personal loans, payday loans, CRA tax debt, utility arrears) have become unmanageable.
• You need to stop interest and collection actions.
• You want to avoid bankruptcy and keep your assets, while making a realistic, fixed payment.

Recent Statistics Canada releases highlight rising household financial stress and insolvency filings, which is pushing more Canadians to evaluate proposals alongside other options.

What Debts Can You Include—and Which Are Excluded?

One of the biggest advantages of a consumer proposal is the scope of debts it can manage.

Common Debts Included

• Credit cards and unsecured lines of credit
• Personal loans and payday loans
• Overdue utility bills and cell phone balances
• Government debts such as income tax, HST, and some benefit overpayments
• Old student loans (generally discharged if you’ve been out of full-time studies for at least seven years)

Debts Not Discharged

• Secured debts (e.g., mortgages, car loans) unless you surrender the collateral
• Alimony, child support, and certain court-ordered fines
• Recent student loans (less than seven years since end of studies)

For more on protecting what you own, see our guide on what happens to your assets in a consumer proposal.

Consumer Proposal Pros and Cons

Understanding both sides helps you make an informed choice.

Benefits

• Repay only a portion of your unsecured debt—often 20–50% depending on your situation.
• Interest stops on included debts once filed.
• One affordable monthly payment (up to 60 months).
• Legal protection: collection calls and most wage garnishments stop.
• Keep your assets (you don’t surrender property like in bankruptcy).

Drawbacks

• Impacts your credit (typically reported with a negative rating until completion and for a period after).
• Requires strict on-time payments for the term; three missed payments can annul the proposal.
• Public record on the insolvency registry.

To compare trade-offs with bankruptcy, read our expert comparison: Bankruptcy vs Consumer Proposal (2025).

Step-by-Step Process and Timeline

Here’s how a typical consumer proposal unfolds from first call to completion.

1) Initial Consultation with a Licensed Insolvency Trustee

You meet with an LIT for a confidential assessment. They review your income, household budget, assets, and debts, discuss all options (including consolidation and bankruptcy), and estimate a realistic proposal payment.

2) Filing and Stay of Proceedings

The LIT files your proposal. Immediately, a stay of proceedings takes effect. This typically halts collection activity and most garnishments, letting you stabilize your budget while creditors review your offer. If you’re between jobs or relying on EI or other supports, you can learn more about programs via Employment and Social Development Canada.

3) Creditor Review and Vote (45 Days)

Creditors have 45 days to accept or reject. If a majority in dollar value votes yes—or if they don’t object—the proposal is accepted for everyone. A creditor meeting may be requested in some cases to negotiate terms.

4) Making Payments and Completion

You make your fixed payments to the LIT, who distributes funds to creditors and handles statutory duties. You’ll complete two mandatory financial counselling sessions to strengthen your money skills. Finish the payment plan, and you receive a legal release from included debts.

Payments, Costs, and Fees

Your monthly payment is tailored to your budget and creditor expectations. Proposal payments consolidate multiple debts into one predictable amount.

How Payments Are Calculated

• Ability to pay: Your income, essential expenses, and family size.
• Creditor recoveries: What creditors might receive in bankruptcy versus your offer in a proposal.
• Asset equity: If there’s appreciable equity in assets, creditors may expect a higher offer than the bankruptcy alternative.

Trustee fees are set by regulation and come out of your proposal payment; you don’t pay extra on top. If you’re curious about the economics behind proposal success, see consumer proposal acceptance rates.

What Happens if You Miss Payments?

Miss three payments and your proposal can be annulled, which restores creditors’ rights to pursue the full amount. If you hit a short-term snag, speak to your LIT immediately—there may be options to amend the proposal or catch up.

Impact on Credit, Assets, and Daily Life

Credit Score and Reporting

A proposal is noted on your credit file and lowers your score while active. The mark is removed after a period following completion. Rebuilding is possible with on-time payments, responsible use of credit, and a stronger budget. Explore the details in our guide to how a consumer proposal affects your credit.

Assets and Secured Debts

Unlike bankruptcy, you typically keep your assets in a consumer proposal, provided you maintain payments on secured loans (like your mortgage or car loan). If you can’t afford a secured payment, you may choose to surrender the collateral; the shortfall (if any) generally becomes unsecured and can be included in the proposal.

Employment and Privacy

Your employer is not notified unless a wage garnishment needs to be lifted. Most professions aren’t affected; however, roles requiring high-level security or bonding may review your credit history. A consumer proposal is public record on the federal insolvency database, but it doesn’t appear in day-to-day background checks outside of credit pulls.

Consumer Proposal vs Alternatives

Before filing, compare other tools to ensure the best-fit solution.

Debt Consolidation

With consolidation, you take a new loan to pay off multiple debts, ideally at a lower rate. It can simplify payments and reduce interest if you qualify for a competitive rate. There’s no debt reduction, though—so monthly affordability depends on your interest rate and term. Learn more in our guide to debt consolidation in Canada.

Bankruptcy

Bankruptcy is a separate legal process that can eliminate most unsecured debt faster, but it has stricter duties and may involve contributions based on income and, in some cases, non-exempt assets. Compare trade-offs in Bankruptcy vs Consumer Proposal (2025).

Debt Management Programs

Through a non-profit credit counsellor, a Debt Management Program (DMP) consolidates payments and may reduce interest substantially, but it doesn’t reduce the principal. DMPs are not legally binding like proposals; creditors can opt in or out.

Real-World Examples and Scenarios

Scenario 1: Credit Cards and Utility Debt

Amira owes $32,000 across four credit cards (average 22% interest) and $1,800 in overdue utility bills. She’s been paying only minimums and her balance barely moves. An LIT assesses her budget and drafts a proposal that reduces her total unsecured debt and stops interest. Her new single monthly payment fits her budget, the stay of proceedings halts collection calls, and utility arrears are included—helping her keep essential services. For deeper guidance on this type of situation, read our utility debt consumer proposal guide.

Scenario 2: Job Loss and Partial Income Recovery

Daniel lost his job, then found new work at a lower salary. With $45,000 in unsecured debt and a car he needs for commuting, he files a proposal. The stay stops a looming garnishment and he keeps the car by maintaining the car loan. By offering a reasonable monthly payment based on his new income, he avoids bankruptcy and stabilizes his finances. If you’re navigating income changes, see our resource on debt management after job loss in Canada, and review benefits via ESDC.

Acceptance Tips and Success Strategies

Creditors evaluate proposals against what they might receive in bankruptcy, your income stability, and the realism of your budget.

What Creditors Look For

• Offer that exceeds expected bankruptcy recovery
• Proof you can afford the payments
• Transparent, accurate financial disclosure
• Reasonable term (most run 36–60 months)

See trends in consumer proposal acceptance rates to understand what drives approvals.

Staying on Track During the Proposal

• Set up automatic payments and maintain a small emergency fund.
• Attend both financial counselling sessions and implement a written budget.
• If something changes (income or expenses), contact your LIT early to discuss amendments.
• Rebuild credit gradually after filing by paying all bills on time and limiting new credit.

FAQs About Consumer Proposals

Does a consumer proposal stop wage garnishment?

In most cases, yes. The legal stay of proceedings stops most garnishments once your proposal is filed. Exceptions include family support orders.

How long does the process take?

The creditor voting period is 45 days after filing. If accepted, your repayment term usually runs 36–60 months. The exact timeline depends on your negotiated terms and whether any amendments are needed.

Will I lose my assets?

Typically no. Unlike bankruptcy, proposals are designed so you keep assets while repaying a portion of debt. You must maintain payments on secured loans you choose to keep. For more, see what happens to your assets in a consumer proposal.

How does a proposal affect my credit?

Your score will drop when the proposal is filed, and the record remains for a period after completion. With on-time payments, prudent use of credit, and a stable budget, most people see steady improvement. Explore details in our guide on credit impact.

How is it different from bankruptcy?

Both are legal processes, but a proposal lets you repay part of the debt without surrendering assets, and it often has a gentler long-term credit impact. Bankruptcy can be faster but has stricter duties and potential asset implications. Compare options in our complete guide.

Conclusion

A consumer proposal is a powerful, legally binding way to make debt manageable in Canada. It consolidates multiple unsecured debts into one interest-free payment, pauses most collection actions, and helps you protect your assets—without declaring bankruptcy. The best proposals are realistic, transparent, and tailored to your budget, giving creditors a better recovery than bankruptcy while helping you regain financial stability. For authoritative information, consult the Government of Canada and the latest insights from Statistics Canada, and consider professional guidance from a Licensed Insolvency Trustee to assess your personal situation in detail.