If you have been researching debt relief, you have probably wondered which consumer proposal will best fit your financial needs. It is a fair question, and the honest answer surprises most people: there is only one consumer proposal. What changes from one filing to the next is the size of your debt, the monthly payment you offer and how long you take to pay it.
The real fork in the road is between a consumer proposal and its bigger sibling, the Division I proposal, and which one you file is decided by how much you owe rather than by preference. This guide walks through that threshold, how your monthly offer gets built, and how to tell whether a proposal suits your situation at all.
What is a consumer proposal?
A consumer proposal is a formal, legally binding agreement between you and the people you owe money to. It is filed under the federal Bankruptcy and Insolvency Act and can only be administered by a Licensed Insolvency Trustee, supervised by the Office of the Superintendent of Bankruptcy. No debt settlement company, whatever its advertising says, can file one for you.
The trustee helps you put together an offer: you repay a portion of your unsecured debt over a set period, and your creditors write off the rest. Creditors then vote, and if those holding more than half the voting dollar value accept, the proposal binds every unsecured creditor in it, including those who voted against it or did not vote at all.
The moment your trustee files, a stay of proceedings kicks in. Collection calls stop. Wage garnishments stop. Lawsuits over the included debts stop. For many people that pause is the first full night of sleep in months. Our guide on whether a consumer proposal is the same as bankruptcy covers that comparison in detail.
The $250,000 line: consumer proposal or Division I
Here is the one genuine choice-point, and you do not really get to choose it: your unsecured debt total decides which door you walk through.
If you owe between $1,000 and $250,000 in unsecured debt, excluding the mortgage on your principal residence, you file a consumer proposal. Credit cards, lines of credit, payday loans, personal loans, tax debt and old collection accounts all count toward that total. Filing jointly with a spouse raises the limit to $500,000.
If you owe more than that, you file a Division I proposal. It does a similar job under stricter rules: a formal creditors’ meeting, court approval of the outcome, and a much harsher consequence for failure. If creditors reject a Division I proposal, you are automatically deemed bankrupt. A rejected consumer proposal carries no such penalty.
Advantages of a consumer proposal
Your debt is reduced, not just reorganized
Unlike a consolidation loan, a proposal settles your unsecured debt for less than the full balance. The forgiven portion is gone for good once you finish.
Interest stops immediately
The day your proposal is filed, interest on the included debts stops accumulating. Every dollar you pay from then on reduces the balance.
You keep your assets
Unlike bankruptcy, a proposal has no seizure of assets. Your home, vehicle and RRSP stay yours, provided you keep up any secured payments.
The payment is fixed
One predictable monthly amount that does not rise if your income does. Bankruptcy surplus income payments can.
Drawbacks worth knowing about
It marks your credit report
Each included debt is reported with an R7 rating. The proposal generally stays on your report for three years after your final payment or six years from filing, whichever comes first.
Secured debts are not included
Your mortgage and car loan sit outside the proposal. You keep paying them on their original terms or you risk losing the asset.
Missing payments can void it
Fall three months behind and the proposal is annulled. Your original debts return, with the interest that would have accrued.
Not all debts qualify
Court fines, child and spousal support, and most student loan debt less than seven years old survive a proposal.
Who should consider a consumer proposal
- You owe between $1,000 and $250,000 in unsecured debt, not counting your mortgage.
- You have steady income and can commit to a fixed monthly payment, but cannot realistically clear the full balance.
- Your minimum payments are mostly going to interest and the balances barely move.
- You own a home or vehicle with equity you want to protect.
- You have been turned down for a consolidation loan, or offered a rate that would not actually help.
Who should look at something else
- Your income does not cover essential living costs. A proposal you cannot fund will fail, and bankruptcy may be the more honest route.
- Your unsecured debt is modest and a stricter budget or lower-rate consolidation would clear it in two or three years.
- Nearly all your debt is secured, or consists of support obligations and court fines a proposal cannot touch.
- Your income is highly irregular. A comparison with Orderly Payment of Debts may be more useful.
- You expect a lump sum soon that would settle the debt outright.
What the numbers actually look like
Consider someone carrying $48,000 in unsecured debt across three credit cards, a line of credit and an old collection account, with take-home pay of $3,400 a month.
These figures are illustrative, not a quote. What creditors accept depends on your income, assets, household size and what they would recover from a bankruptcy instead, so two people with identical debt totals can end up with very different offers. The trustee’s fees come out of the money you pay in, so the $320 is your total cost, not a payment plus fees on top.
How to file, step by step
- Gather your numbers. List every debt, every source of income and your monthly living costs. The clearer this is, the faster everything else moves.
- Meet with a Licensed Insolvency Trustee. The first consultation is free and carries no obligation. The trustee confirms whether you fall under the $250,000 threshold.
- Work out an affordable offer. Together you set a monthly payment you can sustain over a term of up to five years. Be conservative rather than optimistic here.
- The trustee files with the OSB. The stay of proceedings takes effect on filing, so garnishments and collection calls stop at this point, not later.
- Creditors vote. They have 45 days, and if no meeting is requested the proposal is deemed accepted. Our guide on who prepares and files the paperwork explains what the trustee handles for you.
- Make your payments and attend two counselling sessions. Both sessions are mandatory and included in the process.
- Receive your certificate of full performance. Once the final payment clears, the remaining balance is legally discharged.
The bottom line
Ready to see if you qualify?
Frequently asked questions
Are there different types of consumer proposals to choose from?
No. There is a single consumer proposal under the Bankruptcy and Insolvency Act, for people owing between $1,000 and $250,000 in unsecured debt excluding their principal residence mortgage. What differs between filings is the monthly payment and the term, up to five years. Above $250,000 you file a Division I proposal, which is a separate process rather than a variety of consumer proposal.
What happens if my creditors reject my proposal?
Nothing automatic, and you are not pushed into bankruptcy. Your trustee will usually find out what the objecting creditors want and file an amended offer, which often succeeds. If a revised offer is still rejected, you can withdraw and consider other options. That is a meaningful difference from a Division I proposal, where rejection means automatic bankruptcy.
Can I include tax debt owed to the CRA?
Yes. Income tax debt, GST or HST arrears and most other balances are unsecured and can be included, and the agency votes like any other creditor. Because it often holds a large share of the debt, its vote carries real weight. The CRA publishes its own overview of proposals and bankruptcy. If a lien is already registered against your property, that secured portion is treated differently and should be raised with your trustee early.
Will I lose my house or my car?
A consumer proposal has no seizure of assets, so your home, vehicle and registered savings stay with you, provided you keep up payments on any secured loan attached to them. Your mortgage and car loan sit outside the proposal on their original terms, so budget for those alongside your proposal payment.
How soon can I rebuild my credit afterwards?
You can start straight away. The R7 notation stays on your report for three years after your final payment or six years from filing, whichever comes first, though Equifax and TransUnion have been shortening these windows and their practices differ. Many people begin rebuilding with a secured credit card while still making payments. Our guide on getting a loan during a consumer proposal sets out what is realistic before you finish.
After 20 years of structuring multi-million dollar corporate debt facilities and corporate turnarounds in investment banking, Marcus now leads Canadian Debt Relief to apply those exact same balance-sheet optimization frameworks to Canadian household debt.
