Consumer Proposal Canada — Complete Guide

A consumer proposal lets you settle debt for less than you owe through a legally binding agreement with creditors. Here's everything you need to know before filing.

What Is a Consumer Proposal?

A consumer proposal is a formal, legally binding debt settlement agreement available under the Bankruptcy and Insolvency Act (Canada). It allows you to offer creditors a settlement — typically 30–70 cents on the dollar — payable over up to 5 years. Once accepted by the majority of creditors (by dollar value), all creditors are bound by the terms.

Only a Licensed Insolvency Trustee (LIT) can file a consumer proposal on your behalf. LITs are federally regulated professionals. Initial consultations are typically free.

Who Qualifies for a Consumer Proposal?

• Total unsecured debts must be under $250,000 (excluding mortgage on principal residence)
• You must be insolvent — unable to pay debts as they come due
• You must be a Canadian resident or have Canadian assets
• You must have sufficient income to make the proposed payments

If your unsecured debt exceeds $250,000, a Division I proposal under the BIA applies (similar structure, different thresholds).

The Consumer Proposal Process

• Step 1 — Free consultation with an LIT: Review your debts, income, assets, and options
• Step 2 — Proposal preparation: LIT calculates an offer that creditors are likely to accept and that you can afford
• Step 3 — Filing: LIT files the proposal with the Office of the Superintendent of Bankruptcy (OSB). An automatic stay of proceedings immediately stops all collection action, wage garnishments, and lawsuits.
• Step 4 — Creditor vote: Creditors have 45 days to accept or reject. If creditors representing more than 25% of total debt call a meeting, a vote is held. A simple majority by dollar value accepts the proposal.
• Step 5 — Making payments: Monthly payments to the LIT, who distributes to creditors
• Step 6 — Completion: Attend two mandatory financial counselling sessions. Once paid in full, you receive a Certificate of Full Performance.

How Much Does a Consumer Proposal Reduce Debt?

The offer amount depends on what creditors would receive in bankruptcy. The proposal must offer more than they'd get in bankruptcy — otherwise there's no incentive to accept.

Typical outcomes:

• $50,000 in unsecured debt settled for $15,000–$30,000
• $100,000 settled for $30,000–$60,000
• Some proposals settle for as little as 20 cents on the dollar in severe cases

Consumer Proposal vs. Bankruptcy

Factor	Consumer Proposal	Bankruptcy
Asset protection	Yes — keep assets	Non-exempt assets surrendered
Debt reduction	30–70% typically	100% of unsecured debt eliminated
Duration	Up to 5 years	9–21 months
Credit record	3 years after completion (R7)	6–7 years after discharge (R9)
Employment impact	Generally less serious	Can affect certain licensed professions
Surplus income	Not required to pay	Must pay surplus income to trustee

Credit Impact — The Honest Picture

A consumer proposal is reported to Equifax and TransUnion as an R7 rating (making arrangements to pay). This appears on your credit report for 3 years after the date of completion (not filing). If you complete the proposal in 3 years, it stays on record for 6 years from filing. If you complete in 5 years, it stays for 8 years from filing.

During the proposal period, you can still open bank accounts, get a secured credit card, and begin rebuilding. Most people can qualify for secured credit within 12–18 months of completing a proposal.

What Debts Are Included — and Excluded

Included in a consumer proposal:

• Credit card balances
• Personal loans and lines of credit
• Payday loans
• Medical bills and utility arrears
• Income tax debt (with some CRA limitations)

Excluded (cannot be discharged):

• Student loans less than 7 years old
• Child and spousal support arrears
• Court-ordered fines
• Secured debts (mortgage, car loan — you keep paying or surrender the asset)