A consumer proposal is one of the most powerful debt relief tools available to Canadians. It's a formal, legally binding agreement between you and your creditors — administered by a Licensed Insolvency Trustee (LIT) — that lets you settle unsecured debts for a fraction of what you owe, with no interest, over up to five years.
Unlike bankruptcy, you keep your assets. Unlike debt consolidation, there's no credit check required and interest stops immediately. For Canadians with $100 to $250,000 in unsecured debt who can't realistically repay in full, a consumer proposal is often the best path forward.
If your unsecured debt exceeds $250,000, you must file a Division I Proposal instead, which follows a slightly different process but has the same general structure.
Consumer proposals cover most unsecured debts:
Some debts cannot be included: secured debts (mortgage, car loan), child support, alimony, fines and penalties imposed by courts, and student loans if you've been out of school for less than 7 years.
| Feature | Consumer Proposal | Bankruptcy |
|---|---|---|
| Keep assets? | Yes | Some assets surrendered |
| Debt reduction | Partial (negotiated) | Full discharge |
| Duration | Up to 5 years | 9–21 months (first-time) |
| Credit report | 3 years after completion | 6–7 years after discharge |
| Monthly payments | Fixed, interest-free | Surplus income payments |
| Business/self-employed | No restrictions | Some restrictions |
A consumer proposal remains on your Equifax and TransUnion credit reports for 3 years after the date you complete all payments (not 3 years from when you filed). If you file and take 4 years to pay, it stays on your report until 7 years from the filing date — because the 3-year clock starts at completion.
During the proposal, your individual accounts included in it are marked as "included in consumer proposal." Your credit score will drop significantly at filing, but many Canadians begin rebuilding successfully within 1–2 years of completion.
Consumer proposals are governed by federal law (the Bankruptcy and Insolvency Act), so the core rules are the same across Canada. However, provincial exemptions affect what assets creditors can claim if the proposal is rejected and bankruptcy becomes the alternative:
LITs are paid from the funds you pay into the proposal — you do not pay additional fees out of pocket. The Trustee takes a regulated fee (an administration levy of 20% of the funds distributed to creditors, capped). The initial consultation is always free.
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Get KOHO + Credit Building — Code 45ET55JSYAOnce your proposal is complete, rebuilding begins. Start with a secured credit card or a product like KOHO's Credit Building feature. Make every payment on time. Keep credit utilization below 30%. Many Canadians achieve scores in the 680–720 range within 2–3 years of completing their proposal.
Search the federal government's LIT directory at ic.gc.ca (Industry Canada). All LITs are licensed and regulated by the federal government. You can also call the OSB's toll-free line. Initial consultations are free and confidential by law.