Complete Guide to Consumer Proposals in Canada

A consumer proposal is a formal, legally binding process under the Bankruptcy and Insolvency Act (BIA) that allows you to negotiate a settlement with your creditors. Unlike informal debt settlement, a consumer proposal is administered by a Licensed Insolvency Trustee (LIT) — the only professionals authorized by the federal government to file insolvency documents.

When you file a consumer proposal, you make an offer to your creditors to repay a portion of what you owe. Creditors accept the proposal if it gives them more than they'd receive if you filed for bankruptcy. Once accepted, it's legally binding on all unsecured creditors — even those who voted against it.

Key Features

• Legal protection: An automatic stay of proceedings stops wage garnishments, collection calls, and lawsuits the moment you file
• Asset retention: Unlike bankruptcy, you keep all your assets — home, car, RRSPs, everything
• Single monthly payment: One affordable payment replaces all individual creditor payments
• Interest freeze: No more interest accrues on debts included in the proposal
• Maximum 5 years: Payments cannot extend beyond 60 months
• Debt reduction: Most people pay back 20–50% of their total unsecured debt

Step 1: Free Consultation with a LIT

You meet with a Licensed Insolvency Trustee for a free, confidential assessment. The LIT reviews your income, expenses, assets, and debts to determine if a consumer proposal is your best option. There is no obligation to proceed.

Step 2: Proposal Preparation

If a consumer proposal makes sense, the LIT prepares the formal documents. This includes calculating what you can realistically afford to pay and what creditors are likely to accept. The LIT's fee is included in your monthly payment — you don't pay extra.

Step 3: Filing

The LIT files the proposal with the Office of the Superintendent of Bankruptcy (OSB). The moment it's filed, the automatic stay of proceedings takes effect. Creditors must stop all collection activity.

Step 4: Creditor Voting

Creditors have 45 days to accept or reject the proposal. Each creditor votes based on the dollar amount of their claim. The proposal passes if creditors holding a simple majority (50% + 1) of the total debt vote in favour. If no creditor requests a meeting of creditors within 45 days, the proposal is deemed accepted.

In practice, about 90% of consumer proposals are accepted by creditors.

Step 5: Monthly Payments

Once accepted, you make your agreed-upon monthly payment to the LIT, who distributes it to creditors. Payments are fixed — they don't change even if your income increases.

Step 6: Counselling Sessions

You must attend two financial counselling sessions during your proposal. These cover budgeting, money management, and rebuilding credit. The sessions are included in the process at no extra cost.

Step 7: Completion and Discharge

Once you've made all payments and completed your counselling sessions, you receive a Certificate of Full Performance. Your remaining debts covered by the proposal are legally discharged.

To file a consumer proposal in Canada, you must meet these requirements:

• You owe between $1,000 and $250,000 in unsecured debt (excluding your mortgage on your principal residence)
• You are insolvent — unable to pay your debts as they come due, or you owe more than your assets are worth
• You are an individual — not a corporation (corporations use Division I Proposals)

Debts That Can Be Included

• Credit card balances
• Lines of credit
• Personal loans
• Payday loans
• CRA tax debts (income tax, HST, payroll source deductions)
• Student loans (if you've been out of school for 7+ years)
• Medical bills
• Utility arrears

Debts That Cannot Be Included

• Secured debts (mortgage, car loan) — unless you surrender the asset
• Child support and alimony
• Court-ordered fines or penalties
• Debts arising from fraud or misrepresentation
• Student loans (if you've been out of school for less than 7 years)

If your unsecured debts exceed $250,000, you can still file a Division I Proposal, which has no debt limit but follows a slightly different process.

Here's the key thing to understand: you don't pay the LIT separately. The LIT's fees are regulated by the BIA and come out of the payments you make to creditors. There are no upfront fees to file a consumer proposal.

How LIT Fees Work

The LIT receives:

• A filing fee (currently around $1,800, paid from your proposal funds)
• A percentage of each distribution to creditors (typically 20%)
• A counselling fee for the two mandatory sessions

These fees are already factored into your monthly payment. You pay one amount, and the LIT takes their regulated fee from that before distributing the rest to creditors.

Typical Monthly Payments

Monthly payments vary based on your income, debts, and assets, but here are rough ranges:

| Total Debt | Typical Monthly Payment | Typical % Repaid | |-----------|------------------------|-----------------| | $10,000–$20,000 | $150–$300/month | 30–50% | | $20,000–$40,000 | $250–$450/month | 25–40% | | $40,000–$80,000 | $350–$600/month | 20–35% | | $80,000–$150,000 | $500–$900/month | 15–30% |

These are estimates only. Your actual payment depends on your specific financial situation. Use our Consumer Proposal Calculator for a personalized estimate.

Beware of Debt Consultants

Some "debt consulting" companies charge upfront fees of $2,000–$5,000 to "prepare" your consumer proposal, then refer you to a LIT anyway. Only a LIT can file a consumer proposal. Go directly to a LIT for a free consultation and save yourself thousands.

A consumer proposal affects your credit, but the impact is less severe and shorter-lasting than bankruptcy.

During Your Proposal

• A consumer proposal is noted as an R7 rating on your credit report (compared to R9 for bankruptcy)
• The note remains for 3 years after completion or 8 years after filing, whichever comes first
• Your credit score will drop initially, but many people start rebuilding within 12–18 months

Rebuilding Your Credit

You can take active steps to rebuild credit during your consumer proposal:

1. Get a secured credit card — Apply after 6–12 months into your proposal. Put down a $500–$1,000 deposit, use the card for small purchases, and pay it off monthly
2. Pay all current bills on time — Rent, utilities, phone bills all contribute to your credit profile
3. Monitor your credit report — Check that debts included in the proposal are correctly reported
4. Avoid new debt — Don't take on debt you can't manage during or immediately after your proposal

Typical Credit Score Timeline

• Filing: Score drops to 500–550 range
• 12 months: Score begins recovering if you're building positive history
• 24 months: Many people reach 600–650 with active rebuilding
• Completion + 3 years: R7 notation removed; scores often reach 680–720+

For a detailed rebuilding plan, see our guide on rebuilding credit after a consumer proposal.

You keep everything. This is the single biggest advantage of a consumer proposal over bankruptcy.

Assets You Keep

• Your home (even with equity)
• Your car
• RRSPs and pension funds
• Tax refunds
• Investments
• Personal property

In bankruptcy, provincial exemption rules determine what assets you can keep. In a consumer proposal, there are no exemptions to worry about because you're not surrendering any assets.

Your Home

If you own a home, a consumer proposal is almost always preferable to bankruptcy. In bankruptcy, you'd need to pay the equity value of your home to your creditors or potentially lose it. In a consumer proposal, you keep your home and continue making mortgage payments normally.

Your Car

Same principle — keep your car, keep making payments if it's financed. A consumer proposal only affects unsecured debts, not secured debts like a car loan.

Surplus Income

In bankruptcy, if your income exceeds a threshold set by the OSB, you must pay surplus income — 50% of every dollar above the threshold. This can make bankruptcy very expensive for higher earners. A consumer proposal has no surplus income requirement. Your payments are fixed regardless of income changes.

Both are formal insolvency proceedings under the BIA, but they differ significantly:

| Factor | Consumer Proposal | Bankruptcy | |--------|------------------|------------| | Assets | Keep everything | Must surrender non-exempt assets | | Credit rating | R7 for 3 years after completion | R9 for 6–7 years after discharge | | Duration | Up to 5 years | 9–21 months (first time) | | Income changes | Fixed payments | Surplus income payments increase | | Cost | Pay 20–50% of debt | Pay surplus income + asset equity | | Employer notification | Not required | Not required (but some professions restrict) | | Director positions | Can continue | Must resign (until discharged) | | Professional licenses | Unaffected | Some may be affected | | Tax refunds | You keep them | May be seized |

When Bankruptcy May Be Better

• You have very few assets and low income — bankruptcy may be cheaper and faster
• Your debts are overwhelming relative to your income — a 9-month bankruptcy may be more realistic than 5 years of proposal payments
• You've already completed a consumer proposal and defaulted

When a Consumer Proposal Is Better

• You have assets to protect (especially a home with equity)
• Your income is above the surplus income threshold
• You want a fixed payment with no surprises
• You hold professional licenses or corporate directorships
• You want a less severe credit impact

For a side-by-side comparison tool, visit our comparison page.

A consumer proposal is one of several debt relief options. Here's how it compares:

vs. Debt Consolidation Loan

A consolidation loan rolls multiple debts into one lower-interest loan. It works if you can qualify (good credit, steady income) and the interest rate is meaningfully lower. Unlike a consumer proposal, it doesn't reduce what you owe — you pay 100% plus interest. Learn more about debt consolidation.

vs. Credit Counselling / Debt Management Plan (DMP)

A DMP arranged through a non-profit credit counselling agency negotiates reduced interest rates but you repay 100% of the principal. Good for moderate debt with manageable payments. A consumer proposal typically costs less overall because you pay a reduced percentage. Learn more about credit counselling.

vs. Debt Settlement

Private debt settlement companies negotiate lump-sum settlements with individual creditors. Unlike a consumer proposal, settlements aren't legally binding, have no automatic stay of proceedings, and companies charge hefty fees (15–25% of enrolled debt). We generally recommend a consumer proposal over private settlement. Learn more about debt settlement.

vs. Doing Nothing

If your debts are within the statute of limitations and creditors are actively collecting, doing nothing means continued calls, potential lawsuits, wage garnishments, and accruing interest. If your debts are old and past the limitation period, waiting may actually be reasonable — consult a LIT to understand your specific situation.

Take our Debt Relief Quiz to find which option fits your situation.

Only a Licensed Insolvency Trustee can file a consumer proposal. Here's how to find a good one:

What to Look For

1. Licensed by the OSB — Verify their license on the OSB's searchable database
2. Free initial consultation — Every reputable LIT offers a free, no-obligation first meeting
3. No upfront fees — LIT fees come from your proposal payments, not your pocket
4. CAIRP membership — Members of the Canadian Association of Insolvency and Restructuring Professionals follow additional ethical standards
5. Experience with your debt type — If you have CRA debt or business-related personal debt, find a LIT experienced with those situations
6. Transparent about alternatives — A good LIT will tell you if a consumer proposal isn't your best option

Red Flags

• Upfront fees — Legitimate LITs don't charge you to file
• Pressure to decide immediately — Take your time; get a second opinion
• "Debt consultant" middlemen — They add cost without value; go directly to a LIT
• Guarantees about creditor acceptance — No one can guarantee how creditors will vote
• No mention of alternatives — A LIT should discuss all options, not just the one that benefits them

Browse our verified provider directory to find LITs in your area, or use the OSB's official search tool to verify any trustee's license.

Consumer proposals are federal legislation (the BIA), so the core process is the same across Canada. However, some practical differences exist:

Asset Exemptions (Matter for Bankruptcy Comparison)

When comparing a consumer proposal to bankruptcy, provincial exemptions determine what you'd lose in bankruptcy — and therefore how much your consumer proposal needs to offer creditors. Provinces with lower exemptions (like Ontario) make consumer proposals more attractive because there's more at risk in bankruptcy.

| Province | Home Equity Exemption | Vehicle Exemption | |----------|----------------------|-------------------| | Ontario | $10,783 | $7,117 | | Alberta | $40,000 | $5,000 | | BC | $12,000 (Metro) / $9,000 (elsewhere) | $5,000 | | Saskatchewan | $50,000 | $10,000 | | Manitoba | $2,500 | $3,000 |

These exemptions are for bankruptcy — in a consumer proposal, you keep everything regardless. But they influence how much creditors expect in your proposal.

Provincial Licensing

Some provinces have additional licensing requirements for insolvency practitioners. All LITs are federally licensed, but check if your province requires additional registrations.

Regional Cost of Living

Your proposal payments are based on what you can afford after essential expenses. LITs use regional cost-of-living standards set by the OSB to calculate your disposable income.

Find debt relief options in your province at our provincial pages or browse all options.

1. Waiting Too Long

Many people wait until they're facing a lawsuit or wage garnishment before exploring a consumer proposal. The earlier you act, the more options you have and the better your proposal terms are likely to be.

2. Using a Debt Consultant Instead of Going Directly to a LIT

Debt consultants charge thousands in upfront fees to do what a LIT does for free. They cannot file a consumer proposal — only a LIT can. You're paying a middleman for a referral.

3. Not Being Fully Honest with Your LIT

Your LIT needs a complete picture of your finances. Hiding assets, debts, or income can lead to your proposal being rejected or annulled later. LIT consultations are confidential.

4. Missing Payments

If you miss three monthly payments, your consumer proposal is automatically annulled. This means you lose the legal protection and could face bankruptcy. If you're struggling to make payments, contact your LIT immediately — proposals can sometimes be amended.

5. Taking on New Debt During the Proposal

While there's no legal prohibition on borrowing during a consumer proposal, it's counterproductive and can signal to creditors that you're not serious about resolving your debt. Focus on living within your means and rebuilding your financial foundation.

6. Not Completing Counselling Sessions

The two mandatory financial counselling sessions are a requirement for your Certificate of Full Performance. Don't neglect them — schedule them early in your proposal.

7. Choosing Based on Monthly Payment Alone

A lower monthly payment over 5 years might mean paying more total than a higher payment over 3 years. Work with your LIT to understand the total cost, not just the monthly figure.

Completing a consumer proposal is a fresh start. Here's what to expect:

Immediate Steps

1. Get your Certificate of Full Performance from your LIT
2. Check your credit report — ensure all included debts show as satisfied/included in proposal
3. Dispute any errors — contact Equifax and TransUnion if debts aren't correctly reported

Credit Rebuilding Timeline

The R7 notation stays on your credit report for 3 years after completion. During this time, actively rebuild:

• Secured credit card — Your most important tool. Use it responsibly and pay in full monthly
• Credit-builder loan — Some credit unions offer small loans designed for rebuilding
• Authorized user — If a family member adds you to their credit card, their positive history can help your score
• Rent reporting — Services like Borrowell can report your on-time rent payments to credit bureaus

Financial Habits for the Long Term

The counselling sessions in your proposal teach valuable skills. Keep applying them:

• Build an emergency fund — Even $1,000 prevents relying on credit for unexpected expenses
• Follow the 50/30/20 rule — 50% needs, 30% wants, 20% savings and debt repayment
• Review your credit report regularly — Free through Equifax and TransUnion in Canada
• Avoid high-interest products — Payday loans and high-interest credit cards got many people into trouble in the first place

You're Not Alone

Over 150,000 Canadians file consumer proposals every year. Completing one shows financial responsibility — you chose to repay what you could rather than walking away. Many people who complete consumer proposals go on to qualify for mortgages, car loans, and credit cards within a few years.

Ready to explore if a consumer proposal is right for you? Take our Debt Relief Quiz or find a Licensed Insolvency Trustee in your area.