Updated: April 2025  |  bremo.io financial guides

Consumer Proposal in Canada: A Complete Guide

A consumer proposal is a legally binding debt settlement process available exclusively to Canadians under the Bankruptcy and Insolvency Act. It allows you to negotiate with creditors to repay a portion of what you owe — often 20–50 cents on the dollar — over up to five years, while keeping your assets and avoiding bankruptcy.

Consumer proposals are one of the most powerful debt relief tools available to Canadians. In 2023, Canadians filed over 100,000 consumer proposals — more than double the number of bankruptcies.

How a Consumer Proposal Works

1. You meet with a Licensed Insolvency Trustee (LIT), who is required by law to administer proposals
2. The LIT assesses your financial situation and helps determine a proposal amount
3. The proposal is filed with the Office of the Superintendent of Bankruptcy (OSB)
4. An automatic stay of proceedings stops all collection calls, lawsuits, and wage garnishments immediately
5. Creditors have 45 days to vote — if the majority (by dollar value) accept, all unsecured creditors are bound
6. You make fixed monthly payments to the LIT over up to 60 months
7. Upon completion, your remaining unsecured debt is legally discharged

Who Qualifies for a Consumer Proposal

To file a consumer proposal in Canada, you must:

• Be insolvent (unable to pay debts as they come due)
• Have total debts of no more than $250,000 (excluding mortgage on your principal residence)
• Be an individual (businesses use Division I proposals)

If your debt exceeds $250,000, you may need a Division I proposal, which has different rules and is administered by the same LIT.

What Debts are Included

Consumer proposals cover unsecured debts:

• Credit card balances
• Personal loans
• Lines of credit
• Payday loans
• Income tax debt owed to CRA
• Student loans (if it has been 7 years since you were a full-time student)
• Utility arrears

Debts NOT included: secured debts (mortgage, car loan), child support, alimony, fines, student loans less than 7 years old, and debts from fraud.

Cost of a Consumer Proposal

LIT fees are regulated by the federal government and come from the payments you make under the proposal — you don't pay the LIT separately upfront. The typical structure is an initial filing fee plus a percentage of funds distributed to creditors.

Total LIT fees on a typical consumer proposal are $1,500–$3,000, built into the payment plan. There is no separate cost to you beyond the proposal payments themselves.

Impact on Credit Score

A consumer proposal appears on your credit report as an R7 rating — meaning you're repaying debts through a special arrangement. It remains on your credit report for three years after you complete the proposal (or six years from the filing date, whichever comes first).

This is less severe than bankruptcy (R9, which remains for 6–7 years). Most Canadians who complete a consumer proposal can qualify for a secured credit card during the proposal and rebuild credit actively once it's complete.

Consumer Proposal vs. Bankruptcy

• Asset retention: A proposal lets you keep all assets. Bankruptcy may require surrendering assets above exempt amounts.
• Income surplus: In bankruptcy, you pay surplus income to creditors if you earn above a threshold. Proposals have fixed payments regardless of income changes.
• Credit impact: Proposal stays 3 years post-completion. First bankruptcy stays 6 years post-discharge.
• Cost: Proposals often result in creditors receiving more, but your total payments may be lower than all debt repayment in bankruptcy for some income levels.

Finding a Licensed Insolvency Trustee

Only Licensed Insolvency Trustees can legally administer consumer proposals in Canada. Find them at the OSB website (canada.ca/en/insolvency) or through the Canadian Association of Insolvency and Restructuring Professionals (CAIRP.ca).

Initial consultations with LITs are typically free. Be wary of debt settlement companies that claim to negotiate with creditors — they are not licensed to administer proposals and often charge high fees for results that a LIT can achieve legally and at regulated cost.