In this guide
If you’re struggling to pay your bills and want to avoid declaring bankruptcy, a consumer proposal is a safe way to reduce and consolidate your debts into a simple, interest-free monthly payment.
In this guide to consumer proposals, we explain everything you need to know, including how it works, the pros and cons, costs and how to file.
What is a consumer proposal?
A consumer proposal is a formal, legal debt relief option in Canada for individuals with less than $250,000 in unsecured debt (excluding mortgages), allowing them to offer creditors a settlement for less than the full amount owed, paid over up to five years, thereby avoiding bankruptcy, stopping collection actions, and freezing interest.
It’s managed by a Licensed Insolvency Trustee (LIT) and becomes legally binding once approved by creditors holding more than 50% of the debt, providing a structured way to repay debts based on affordability.
Consumer proposals are governed by Canada’s Bankruptcy and Insolvency Act and administered only by Licensed Insolvency Trustees.
According to the Office of the Superintendent of Bankruptcy, consumer proposals accounted for 79% of all Canadian consumer insolvencies in 2024.
Source: Government of Canada – Canadian Consumer Debtor Profile 2024
How does a consumer proposal work?
A consumer proposal restructures your unsecured debt into one monthly payment based on what you can afford, not what you owe. The payment amount is fixed and never increases, even if your income rises.
Once filed, a Stay of Proceedings provides legal protection that immediately stops collection actions, freezes interest, and halts wage garnishments. A consumer proposal allows you to keep your assets, including your home, car, savings, and tax refunds. Upon completion, you are debt free.
How much does a consumer proposal cost?
The cost of a consumer proposal is based on what you can afford to pay, not the total amount you owe. A Licensed Insolvency Trustee reviews your income, assets, and what creditors expect to recoup to determine your payment amount. Typically, a consumer proposal reduces your debt by 20% to 80%.
Your creditors accept a reduced, interest-free payment over up to five years. After you complete all payments, the remaining debt is forgiven.
What debts are included in a consumer proposal?
You can eliminate most of your unsecured debts by filing a consumer proposal.
Unsecured debts are debts that are not secured against your assets, such as:
- Credit card debts
- Personal loans
- Payday loans
- Bank overdrafts
- Utility bills (You can’t include bills for services you are continuing to use)
- Unsecured lines of credit
- Tax debts (unless the CRA registers a lien on your property)
- Student loan debt if you haven’t been a student for seven years or more
- Unpaid rent
- Debts owed to friends and family.
You must include all of your unsecured debts in a consumer proposal.
Can I include secured debts?
A consumer proposal won’t affect secured debts, such as your mortgage or any secured car loan. You can keep your house and vehicle if you make payments on time.
You also have the option to stop paying and surrender the asset to the lender before you file your proposal. You can add any resulting shortfall to your proposal as an unsecured debt.
Resolving your unsecured debts in a consumer proposal can free up money, making it easier to pay your secured creditors.
Can I include tax debts?
It is possible to eliminate tax debt in a consumer proposal if the Canada Revenue Agency (CRA) hasn’t registered a lien on your property. This includes income tax, payroll deductions and GST/HST.
If you proceed with a consumer proposal, the CRA is treated the same as other creditors. However, they can attach specific clauses, such as requiring you to complete future tax returns (and payments) on time.
You’ll also be required to file all tax returns for previous years so that your proposal includes all outstanding income tax debt.
If most of your creditors accept your consumer proposal, debt collection agencies cannot take further action and interest is frozen.
Then, once you complete your proposal, any taxes owed to the CRA are eliminated.
As it is a government debt relief program, a consumer proposal is the only option the CRA will consider. They may attach specific conditions, such as clauses requiring you to file and pay future taxes on time.
Each creditor has one vote for each dollar they are owed, and if a majority of creditors accept your proposal, it becomes legally binding even if the CRA disagrees.
Can I include student loans?
You can include student loan debt in a consumer proposal if it has been seven years or more since you attended school.
If your student loans are under seven years old, you cannot include them in a consumer proposal, but consolidating your other debt payments into one monthly payment could free up money to pay your student loans.
You can also take a break from student loan payments while eliminating your other debts. Alternatively, you could wait until the limitation period expires before filing your proposal.
Can I include property tax debt?
Property taxes are one of the costs of owning a home and cannot be eliminated in a consumer proposal.
However, you can free up money to pay your property tax by using a proposal to consolidate unsecured debts into one monthly payment.
How long is a consumer proposal?
A consumer proposal can last up to five years (60 months). The exact duration depends on your payment amount and total debt. If your financial situation improves, you can pay more to complete your consumer proposal early with no penalty.
The pros and cons of a consumer proposal
A consumer proposal is Canada’s only government-approved debt settlement program, allowing you to settle debts for less than the full amount owed while avoiding bankruptcy.
Advantages of consumer proposals
1. Reduce your debt
Many debt relief options, such as credit counselling, debt management plans, and debt consolidation, do not allow you to reduce your debt. A consumer proposal could reduce your debt by up to 80% based on affordability. Upon completion, all your debts are eliminated.
2. One fixed payment
A proposal lets you pay off your debts with one affordable monthly payment that won’t go up, even if your income does.
3. Stop collections
Give yourself breathing space with legal protection from creditors. Stop debt collection agencies and wage garnishments.
4. Keep your assets
Consumer proposals allow you to keep your assets, such as your home, car and investments. Secured assets remain unaffected, unlike in bankruptcy or debt consolidation.
5. Freeze interest
Upon entering a proposal, interest and charges are frozen.
6. Government legislated
It is a debt settlement program governed by Canada’s Bankruptcy and Insolvency Act and carried out by professionals licensed by the Government Office of the Superintendent of Bankruptcy (OSB). This makes it one of the safest debt relief options available.
7. Avoid bankruptcy
It is the number one alternative to filing for personal bankruptcy.
Disadvantages of consumer proposals
Here are the disadvantages:
1. It will affect your credit score
Like most debt relief solutions, a consumer proposal will lower your credit score. Revolving credit accounts receive an R7 rating, and installment accounts receive an I7 rating while the proposal is active. A consumer proposal remains on your credit report for three years after completion.
Source: Equifax Canada – Consumer Credit Report User Guide
Your credit won’t be affected forever, and you can rebuild it faster after your proposal because you have cleared your debts.
2. You need disposable income
You can file a consumer proposal if you have some income left over after essential monthly bills. If you have no assets or a low income, bankruptcy might be a better option.
3. A consumer proposal takes longer
You pay creditors less over a longer period, but you can pay more to complete your proposal early.
4. Not all types of debts can be eliminated
Not all debts can be discharged through filing a consumer proposal. Secured debts, property taxes, fines, child support and some student loans cannot be eliminated.
What happens after a consumer proposal?
After you complete your consumer proposal payments, meet the terms of the agreement and complete two financial counselling sessions, any outstanding balance from your debt is forgiven, and your Licensed Insolvency Trustee will release you from these obligations.
You will receive a Certificate of Full Performance to confirm that you have met the terms of the consumer proposal.
If you get a call from a debt collector after completion, show them this certificate as proof.
Consumer proposal eligibility requirements
A consumer proposal is available to individuals with less than $250,000 in unsecured debt (excluding mortgage) who meet these eligibility requirements. If you owe more than $250,000, you can file a Division I proposal instead.
- You live in Canada (a permanent resident or under a work permit or another status) or own property in Canada.
- You cannot pay your debts as they become due, and owe more than your assets are worth (you are insolvent).
- You can afford to make a monthly repayment towards your debt after essential bills.
Your proposal to your creditors must offer more money than they would receive if you filed for bankruptcy.
Bankruptcy vs consumer proposal
Choosing between a consumer proposal and bankruptcy depends on your financial situation. A consumer proposal is the best choice if you have assets to protect and a stable income. Bankruptcy may be better if you have no regular income, no assets, and overwhelming debt.
There are also alternatives, such as debt consolidation and non-profit credit counselling. To determine the best solution, arrange a free consultation with one of our Licensed Insolvency Trustees.
How to file a consumer proposal
A consumer proposal is managed by a Licensed Insolvency Trustee (LIT), a professional licensed and regulated by the Office of the Superintendent of Bankruptcy. Only an LIT can file and administer a consumer proposal on your behalf, unlike credit counsellors and debt settlement agencies.
They are responsible for working with your creditors to negotiate a repayment amount that is affordable to you and acceptable to your creditors. This amount will depend upon your income and your assets.
A trustee protects the rights of both you and your creditors, and will ensure you receive the best possible financial advice.
During the consumer proposal process, a trustee will complete and file paperwork, liaise with creditors and arrange your financial counselling sessions.
The first step is to arrange a free consultation with a trustee who will listen to your problems and recommend the best option for your financial situation.
Learn more about a consumer proposal
A consumer proposal is a powerful debt relief solution for Canadians who can repay a portion of their debts and want to avoid bankruptcy.
It offers legal protection, predictable payments, and the chance to move forward without giving up your assets.
At Moses Advisory Group, our Licensed Insolvency Trustees have helped thousands of Canadians resolve their debt problems.
To find out if a consumer proposal is right for you, speak to a Licensed Insolvency Trustee for free by video, phone or in person.
Frequently Asked Questions
What is a consumer proposal in Canada?
A consumer proposal is Canada’s formal, legal debt-relief option under the Bankruptcy and Insolvency Act. It allows individuals with less than $250,000 in unsecured debt to offer creditors a settlement for less than the full amount owed, paid over up to five years, avoiding bankruptcy while stopping collection actions and freezing interest. A consumer proposal is managed by a Licensed Insolvency Trustee and becomes legally binding once approved by creditors.
How will a consumer proposal affect my credit rating?
Like most debt repayment programs, a consumer proposal will lower your credit score, and all included accounts will be marked R7/I7 on your credit report while the proposal is active.
The proposal stays on your report for 3 to 6 years, depending on how quickly you complete it.
It isn’t permanent. Once the proposal is complete, the debt is cleared, and the record drops off.
Do I have to include all creditors in a consumer proposal?
You must include all unsecured debts in a consumer proposal to ensure that all creditors are treated equally. This also ensures that no debts are missed, so you are entirely free of debt.
How much debt can be included in a consumer proposal?
A consumer proposal can eliminate unsecured debts up to $250,000. This amount doesn’t include your mortgage. If your debts exceed $250,000, consider filing a Division I proposal instead.
What happens to my utility bills in a consumer proposal?
Utility bills, such as your cell phone, are usually not affected as long as your account payments are up to date and you continue to make your monthly payments.
Any services you wish to include in your consumer proposal should be cancelled so that you can add the final balances.
Will my consumer proposal be accepted?
Creditors have 45 days to review and vote on your proposal. You don’t pay anything during this time.
If no creditor meeting is called, the proposal is automatically accepted. If a meeting is requested, creditors vote to accept, reject, or amend your offer.
You need over 50% of the debt value to approve it, and anyone who doesn’t vote is counted as a yes vote.
If creditors agree, the court approves it after 15 days. Most proposals go through, and if creditors push back, your trustee can amend the terms to get it over the line.
Will my spouse be affected by my consumer proposal?
Your spouse is not affected by your consumer proposal, and their credit remains unaffected.
The only exception is if you share joint debts, such as a joint credit card or loan.
If this applies to you, you might both choose to file a joint proposal to address the shared balance in one go.
What if I miss a consumer proposal payment?
If you miss a consumer proposal payment, contact your Licensed Insolvency Trustee immediately to resolve the issue. Please note that if you miss three payments, in any order, the proposal will be cancelled.
Can I pay off a consumer proposal early?
Yes. You can pay off a consumer proposal early by making larger payments or by paying it off in a lump sum. There’s no penalty for finishing ahead of schedule.
