If you’re struggling with debt and wondering whether a consumer proposal could work for you, you’re not alone. Thousands of Canadians file consumer proposals every year — but it’s not the right fit for everyone. Understanding the eligibility criteria before you start can save you time, stress, and money.
In this guide, we’ll walk through exactly who qualifies for a consumer proposal in Canada, show you a real-world example of how it works, and help you figure out whether this debt relief option makes sense for your situation.
A consumer proposal is available to Canadian residents who owe between $1,000 and $250,000 in unsecured debt (excluding their mortgage), have a stable source of income, and are unable to pay their debts in full. You must work with a Licensed Insolvency Trustee (LIT) to file one.
What Is a Consumer Proposal?
A consumer proposal is a formal, legally binding agreement between you and your creditors. It’s filed through a Licensed Insolvency Trustee (LIT) — the only professional authorized to administer one in Canada. Under a consumer proposal, you agree to pay back a portion of what you owe (typically 20% to 50%) over a period of up to five years. In return, your creditors agree to forgive the remaining balance.
Consumer proposals are governed by the Bankruptcy and Insolvency Act (BIA) and are administered under the oversight of the Office of the Superintendent of Bankruptcy Canada. Unlike informal debt settlement, a consumer proposal gives you legal protection from creditors — once filed, wage garnishments stop, collection calls end, and interest on your unsecured debts freezes.
It’s one of the most popular alternatives to bankruptcy in Canada, and for good reason: you keep your assets, make one affordable monthly payment, and get a clear timeline for becoming debt-free.
Who Qualifies? The Eligibility Criteria
Not everyone can file a consumer proposal. According to the eligibility requirements outlined by Licensed Insolvency Trustees, you must meet all of the following criteria:
You must be an individual (not a corporation). Consumer proposals are only available to people, not businesses. If you have business debts tied to you personally, those may still qualify.
Your total unsecured debts must be $250,000 or less. This limit does not include the mortgage on your primary residence. Unsecured debts include credit cards, personal loans, lines of credit, payday loans, tax debts, and medical bills. If you owe more than $250,000 in unsecured debt, you may still be able to file a Division I proposal, which has no debt ceiling.
You must be insolvent. This means you’re unable to pay your debts as they come due. If you can comfortably afford all your minimum payments, a consumer proposal may not be necessary — other options like credit counselling or a debt management plan might be a better starting point.
You need some form of income. While there’s no minimum income requirement, you need to be able to make regular payments under the proposal. This could come from employment, self-employment, a pension, or even support from a family member.
You must be a Canadian resident or have property in Canada. The BIA applies to individuals who are resident in Canada, carry on business in Canada, or have property in Canada.
Pros of a Consumer Proposal
Cons of a Consumer Proposal
Who Should Consider a Consumer Proposal
- You owe between $10,000 and $250,000 in unsecured debt and can’t realistically pay it all back
- You have a steady income (even a modest one) and can commit to regular monthly payments
- You want to avoid bankruptcy and keep your home, car, and other assets
- You’re being contacted by collection agencies, facing wage garnishments, or dealing with lawsuits
- You’ve tried budgeting or a debt consolidation approach but the debt is still unmanageable
Who Should NOT File a Consumer Proposal
- You can afford to pay your debts in full — a consumer proposal is designed for people who cannot keep up with payments
- Your debts are mostly secured (mortgage, car loan) — these aren’t covered by a consumer proposal
- You owe more than $250,000 in unsecured debt — you’d need a Division I proposal instead
- You have no income at all and cannot make any monthly payments — bankruptcy may be a more realistic option
- Your debt is primarily student loans less than seven years old — these can’t be discharged through a consumer proposal
Consumer Proposal Example: Sarah’s Story
Let’s look at a realistic example to see how a consumer proposal works in practice.
Sarah is a 34-year-old administrative assistant in Winnipeg earning $3,400 per month after taxes. Over the past few years, a combination of unexpected car repairs, a job loss, and reliance on credit cards has left her with $42,000 in unsecured debt:
Sarah meets with a Licensed Insolvency Trustee who reviews her income, expenses, and assets. Together, they determine she can afford $350 per month. Her LIT prepares a consumer proposal offering creditors $21,000 over 60 months — that’s 50 cents on the dollar.
Her creditors accept the proposal. From that point on, Sarah makes one $350 payment each month with zero interest. Collection calls stop, her wage garnishment is lifted, and after five years, the remaining $21,000 is legally forgiven. She read about others in similar situations through consumer proposal success stories before deciding to move forward.
How to File a Consumer Proposal Step by Step
- Assess your financial situation honestly. Make a complete list of your debts, income, and monthly expenses. This will help you understand whether a consumer proposal is realistic for you, or whether another option like debt relief counselling might be more appropriate.
- Book a free consultation with a Licensed Insolvency Trustee. Only an LIT can file a consumer proposal. During this initial meeting (which is free and confidential), they’ll review your finances and explain all your options — including alternatives you may not have considered.
- Work with your LIT to prepare the proposal. Your trustee will help you determine how much you can afford to pay and will draft a formal proposal to present to your creditors. This document outlines the total amount offered, the monthly payment, and the repayment timeline.
- Your creditors vote on the proposal. Once filed, your creditors have 45 days to accept or reject the proposal. Creditors representing a majority of your debt (by dollar value) must vote in favour for it to pass. In practice, the vast majority of consumer proposals are accepted because creditors typically receive more than they would in a bankruptcy.
- Begin making your payments. Once accepted, you start making your fixed monthly payments to the LIT, who distributes the funds to your creditors. You’ll also need to attend two financial counselling sessions as required by law.
- Complete the proposal and rebuild your credit. After you make your final payment, you receive a Certificate of Full Performance. Your debts are legally discharged, and you can begin rebuilding your credit. The R7 notation is removed from your credit report three years after completion. Many people find that comparing their options — such as bankruptcy vs. consumer proposal — helped them feel confident in their choice.
A consumer proposal is one of the most effective debt relief tools available to Canadians — but it’s not a one-size-fits-all solution. If you owe up to $250,000 in unsecured debt, have some form of income, and want to avoid bankruptcy while keeping your assets, you likely qualify. The best way to know for certain is to speak with a Licensed Insolvency Trustee who can review your specific situation at no cost.
Ready to see if you qualify?
Frequently Asked Questions
What is the minimum amount of debt needed to file a consumer proposal?
Technically, the Bankruptcy and Insolvency Act sets the minimum at $1,000. However, in practice, most Licensed Insolvency Trustees recommend a consumer proposal for debts of at least $10,000. For smaller amounts, a debt management plan through a credit counselling agency or simply negotiating directly with your creditors may be more cost-effective and less impactful on your credit report.
Can I file a consumer proposal if I’m self-employed?
Yes. Self-employed Canadians are fully eligible to file a consumer proposal. Your Licensed Insolvency Trustee will look at your average income over recent months to determine what you can afford to pay. You may need to provide additional documentation such as invoices, bank statements, or tax returns to demonstrate your income. The process works the same way as it does for salaried employees.
Will a consumer proposal affect my spouse or partner?
A consumer proposal only covers your debts — it does not directly affect your spouse’s credit or their separate debts. However, if you have joint debts (like a shared credit card or a co-signed loan), your creditors can still pursue your spouse for the full amount of those joint obligations. In some cases, couples choose to file a joint consumer proposal together to address shared debts, which your LIT can help arrange.
What happens if my consumer proposal is rejected by creditors?
If creditors reject your initial proposal, it’s not the end of the road. Your Licensed Insolvency Trustee can negotiate with creditors and submit an amended proposal with better terms — such as a higher monthly payment or a larger lump-sum offer. If a revised proposal still isn’t accepted, you may need to consider other options such as bankruptcy or a Division I proposal. Outright rejection is relatively uncommon; most creditors prefer to receive something rather than risk getting less through bankruptcy.
Can I include CRA tax debt in a consumer proposal?
Yes, personal income tax debt, GST/HST debt, and other amounts owed to the Canada Revenue Agency can be included in a consumer proposal. This is actually one of the key advantages of a consumer proposal — the CRA is treated as an unsecured creditor and is bound by the terms of the proposal once it’s accepted. However, the CRA is known for being a tougher negotiator, so your LIT may need to offer a higher percentage to secure their vote, especially if tax debt makes up a large portion of what you owe.
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.
