Updated: April 2025  |  bremo.io financial guides

Consumer Proposal in Canada: Complete Guide

A consumer proposal is one of the most effective debt relief tools available to Canadians. It lets you repay a negotiated portion of what you owe — often 20 to 50 cents on the dollar — and have the remainder legally written off, all without filing for bankruptcy.

Consumer proposals are governed by the Bankruptcy and Insolvency Act (BIA) and must be filed through a Licensed Insolvency Trustee (LIT), the only professionals in Canada legally authorized to administer them.

What Is a Consumer Proposal?

A consumer proposal is a legally binding agreement between you and your unsecured creditors. You offer to pay back a portion of your total debt over up to five years. If creditors holding the majority of your debt by dollar value vote to accept, the proposal binds all unsecured creditors — even those who voted against it.

Once a proposal is filed, all interest immediately stops accruing and you make a single fixed monthly payment to the LIT, who distributes funds proportionally to creditors.

Who Qualifies?

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

• Total unsecured debt of $250,000 or less (excluding a mortgage on a primary residence)
• You are insolvent — unable to pay your debts as they come due
• You are a Canadian resident or have assets or business activity in Canada

If your unsecured debt exceeds $250,000, a Division I Proposal under the same Act may be an option. A LIT can assess your situation and recommend the right path.

How the Process Works

1. Free consultation: Meet with a Licensed Insolvency Trustee at no cost. The consultation is confidential.
2. Proposal preparation: The LIT reviews your income, assets, expenses, and debts to craft a realistic offer to creditors.
3. Filing: Upon filing, an automatic stay of proceedings takes immediate legal effect. Wage garnishments stop, collection calls must cease, and no new legal action can be taken against you for included debts.
4. Creditor vote: Creditors have 45 days to accept or request a meeting. If creditors holding more than 25% of the dollar value of debt request a meeting, it is held within 21 days.
5. Approval: If accepted — or if no creditor meeting is requested and 45 days pass — the proposal is deemed court-approved.
6. Payments: You make fixed monthly payments over the agreed term (maximum 60 months).
7. Completion: After all payments are made and two credit counselling sessions are completed, you receive a Certificate of Full Performance and all remaining included debts are legally discharged.

Which Debts Are Included?

Consumer proposals cover most unsecured debts:

• Credit card balances
• Personal loans and unsecured lines of credit
• Payday loans
• CRA tax debt (in most cases)
• Medical bills and utility arrears

Some debts cannot be included: child or spousal support arrears, student loans (if you left school fewer than 7 years ago, with some exceptions), court-imposed fines, and debts from fraud or misrepresentation.

What Does a Consumer Proposal Cost?

There is no upfront fee. LIT fees are embedded in your monthly payments and are federally regulated. The trustee takes a percentage of the funds distributed to creditors — it is not an extra charge on top of your proposal payments.

Impact on Your Credit Report

A consumer proposal appears as an R7 rating on your credit file and remains for three years after completion or six years from the date of filing — whichever comes first. This is significantly better than bankruptcy, which shows as R9 and stays on your file for six to seven years from discharge.

Consumer Proposal vs. Bankruptcy

In a consumer proposal you keep assets, pay a fixed negotiated amount, and the credit impact is shorter. Bankruptcy may involve surrendering non-exempt assets and payments that fluctuate with income. Both provide immediate legal protection from creditors. See our full comparison guide.

Provincial Context

Consumer proposals are federal law and function identically across all provinces and territories. What does vary by province is the list of exempt assets — what you're allowed to keep. A LIT in your province will explain local exemptions.

Is a Consumer Proposal Right for You?

A consumer proposal tends to be the right fit when you:

• Have regular income but cannot service minimum payments
• Want to protect specific assets (home equity, vehicle, RRSP)
• Prefer a single fixed payment with no further interest
• Have unsecured debt under $250,000

The best starting point is always a free, confidential consultation with a Licensed Insolvency Trustee. Canada's national LIT directory is maintained by the Office of the Superintendent of Bankruptcy at ic.gc.ca.