Consumer Proposal for Self-Employed Canadians: Complete Guide

Self-employed Canadians file consumer proposals every day. You do not have to close your business. You do not have to give up clients, contracts, or equipment. A consumer proposal lets you eliminate 50-80% of your unsecured debt — including CRA tax debt — while your business keeps running. If you owe less than $250,000 in unsecured debt (excluding your mortgage), you qualify to file.

How Consumer Proposals Work for Self-Employed Income

A consumer proposal is a legal agreement between you and your creditors. You offer to pay a percentage of what you owe over a maximum of 60 months. A Licensed Insolvency Trustee files the proposal with the Office of the Superintendent of Bankruptcy, creditors vote, and if accepted, you make one fixed monthly payment until the proposal is complete.

The process works the same whether you earn a salary or run your own business. The difference is how the LIT verifies your income.

For salaried employees, the LIT pulls pay stubs and T4s. For you, the LIT reviews your T1 General, T2125 Statement of Business Activities, and Notices of Assessment from CRA. These documents show your net business income after legitimate expenses — the number that matters for structuring your proposal.

Naomi, a freelance graphic designer in Halifax, owed $62,000 across four credit cards, a personal line of credit, and $11,000 in HST remittances to CRA. Her LIT reviewed two years of NOAs showing average net income of $54,000. The LIT structured a proposal at 30 cents on the dollar — $18,600 paid over 54 months at $344 per month. Creditors accepted within 30 days. Naomi kept every client and her home studio.

The process from first consultation to creditor acceptance typically takes 4-6 weeks. Your free consultation with a LIT is confidential and carries no obligation. Bring your NOAs, T2125, and a list of debts to that first meeting to move faster.

What Debts Are Included

Not every debt goes into a consumer proposal. Here’s what counts for self-employed filers:

CRA debt deserves special attention. Many self-employed Canadians assume CRA tax debt can’t be included. It can. Income tax, HST/GST arrears, penalties, and interest are all unsecured debts under the Bankruptcy and Insolvency Act. Filing a proposal stops CRA collections immediately — no more garnishment threats, no more frozen bank accounts.

Derek, a general contractor in Brampton, owed $38,000 to CRA in unremitted HST and personal income tax plus $27,000 across credit cards and a business line of credit. He thought his only option was a CRA payment arrangement at $1,800 per month he couldn’t afford. His LIT rolled all $65,000 into a single consumer proposal at 25 cents on the dollar. Derek’s payment: $271 per month for 60 months. CRA voted yes because they’d receive more than in a bankruptcy scenario.

For a full breakdown of CRA debt relief options, including taxpayer relief and payment arrangements versus proposals, read the dedicated guide.

Surplus Income: How It’s Calculated for Self-Employed

Surplus income determines the minimum amount your creditors expect in a consumer proposal. The Office of the Superintendent of Bankruptcy sets income thresholds each year. In 2026, the threshold for a single person is approximately $2,543 per month. For each dollar your net income exceeds that threshold, 50 cents goes toward your proposal payment.

Here’s where it gets different for self-employed filers. The LIT uses your net business income — not gross revenue. This is line 15000 on your T1 General, derived from your T2125 after subtracting legitimate business expenses.

Say your freelance business generates $110,000 in gross revenue. After deducting $40,000 in business expenses (materials, subcontractors, vehicle, home office), your net business income is $70,000 — or $5,833 per month. For a single-person household, surplus income kicks in at $2,543. Your surplus is $3,290 per month. At 50%, that’s $1,645 per month that creditors expect as a minimum baseline.

Your LIT doesn’t just plug in last year’s number. They typically average your net income over 2 years of NOAs to account for the income swings that come with self-employment. If you earned $70,000 net one year and $55,000 the next, the LIT uses $62,500 as the baseline. This averaging works in your favour during a down year.

The consumer proposal calculator can give you a rough estimate of your payment. But surplus income for self-employed files requires a LIT’s judgment call on which expenses are legitimate and how to average variable income. That’s why the free consultation matters more for self-employed filers than anyone else.

Use the calculator for a starting number, then book a free consultation with a LIT near you who handles self-employed files regularly.

Can You Keep Operating Your Business?

Yes. This is the single most important fact for self-employed filers, and the most misunderstood.

A consumer proposal is not bankruptcy. In bankruptcy, self-employed individuals face restrictions: reporting monthly income and expenses, potential loss of assets, and limits on acting as a corporate director. A consumer proposal has none of these restrictions.

During your consumer proposal:

• Your business keeps running. No interruption to operations, client work, or contracts.
• You keep your tools and equipment. Consumer proposals don’t seize assets.
• You remain a director. No corporate governance restrictions apply.
• You can take on new clients. No reporting obligations on new revenue beyond your annual income reports to the LIT.
• You can apply for new business credit. Lenders may check your credit (R7 rating during proposal), but there’s no legal bar.

Linda owns a small Vietnamese restaurant in Edmonton. She accumulated $48,000 in credit card debt and $14,000 in CRA payroll source deductions during a slow 18-month stretch after a nearby road construction killed foot traffic. She was terrified filing would mean closing. Her LIT filed a consumer proposal covering all $62,000 in debt at 28 cents on the dollar — $288 per month for 60 months. Linda’s restaurant stayed open through the entire process. Her suppliers never knew. Her staff never knew.

The only people who find out about your consumer proposal are your creditors and the OSB’s public database. There’s no notification to clients, suppliers, or business partners.

If a consolidation loan is still on your radar, compare the two options side by side. Self-employed borrowers often struggle to qualify for consolidation loans because lenders discount net income aggressively. A consumer proposal doesn’t require credit approval — it’s a legal process, not a lending decision. Read the full breakdown of debt consolidation for self-employed Canadians to see where you stand.

What a LIT Reviews for Self-Employed Filers

Your first consultation is free. Here’s exactly what to bring:

• 2 years of T1 General tax returns (filed with CRA)
• T2125 Statement of Business Activities for each year
• Notices of Assessment from CRA for the past 2 years
• 6 months of business bank statements (showing deposits and expenses)
• 6 months of personal bank statements
• Complete list of debts with creditor names, account numbers, and balances
• HST/GST filing history and any CRA correspondence about arrears

The LIT uses these documents to calculate your net income, verify your debt load, and structure a proposal creditors will accept. Missing documents slow the process. Having everything ready at your first meeting can cut weeks off the consumer proposal timeline.

The LIT also assesses whether a consumer proposal is actually your best option. If your debts are under $10,000, a debt consolidation loan might work better. If your debts exceed $250,000 (excluding mortgage), you’d need a Division I proposal instead. The LIT reviews the full picture — income, expenses, assets, debt — and gives you a recommendation. That recommendation is part of the free consultation. There’s no cost unless you decide to file.

Learn exactly how much a consumer proposal costs and how the federal fee tariff works, or review the step-by-step filing process.

Your Next Step

You built your business from nothing. Debt doesn’t have to take it away. A consumer proposal lets you keep what you’ve built while eliminating 50-80% of what you owe.

Find a Licensed Insolvency Trustee near you who handles self-employed files. The consultation is free, confidential, and takes about an hour. Bring your NOAs, T2125, and debt list. You’ll leave with a clear number — what your monthly payment would be and how much debt gets eliminated.

You can also run a quick estimate with the consumer proposal calculator or compare all your debt relief options side by side before you book.