What is a Consumer Proposal Canada? Complete Guide 2026

A consumer proposal is a legally binding agreement under the Bankruptcy and Insolvency Act where you offer creditors 20-40% of your unsecured debt paid over a maximum of 60 months, with the remaining 60-80% permanently forgiven—filed exclusively by Licensed Insolvency Trustees with 97-99% creditor acceptance and immediate legal protection from collections.

In Q3 2025, 36,256 Canadians filed consumer insolvencies, the highest quarterly total since the 2009 financial crisis. Of these filings, 78.9% chose consumer proposals over bankruptcy because proposals reduce debt substantially while keeping all assets and imposing less severe credit consequences. With the 2026 financial crisis putting additional pressure on household budgets, understanding your debt relief options has never been more important.

What Is a Consumer Proposal and How Does It Work

A consumer proposal is a formal debt settlement arrangement governed by Section 66.12 of the federal Bankruptcy and Insolvency Act. You make an offer to creditors to repay a portion of your unsecured debt over a period of up to 60 months, and creditors vote whether to accept your offer.

Only Licensed Insolvency Trustees regulated by the Office of the Superintendent of Bankruptcy can file consumer proposals. The LIT calculates what creditors would receive if you filed bankruptcy instead, then structures your proposal offer to exceed that amount by 10-30%. This makes acceptance highly likely.

Filing triggers an immediate stay of proceedings that stops all collection calls, wage garnishment, and lawsuits from unsecured creditors. The stay takes effect the moment the LIT files your proposal electronically with the OSB, not after the 45-day creditor voting period.

Unlike bankruptcy, which discharges 100% of debt but may require surrendering assets, a consumer proposal is a negotiated settlement where you repay a reduced amount while keeping all property. Unlike private debt settlement, proposals are federally regulated with transparent fees and 97-99% acceptance rates.

Who Can File a Consumer Proposal in Canada

You must meet four basic eligibility requirements to file a consumer proposal. First, you must owe between $10,000 and $250,000 in unsecured debt, excluding your mortgage on a principal residence. Second, you must be a Canadian resident.

Third, you must be legally insolvent, meaning you are unable to pay your debts as they become due or your total liabilities exceed your total assets. Fourth, you must have sufficient regular income to fund monthly proposal payments over 3-5 years.

There is no credit score requirement for consumer proposals. Even individuals with severely damaged credit or multiple collection accounts can file. The key factors are your debt amount, income stability, and insolvency status.

Calculate your estimated monthly payment based on your current debt and income.

The Consumer Proposal Filing Process

The filing process follows six structured steps from initial consultation to binding acceptance. Step one is booking a free consultation with a Licensed Insolvency Trustee, which typically lasts 60-90 minutes and reviews your complete financial situation including debts, income, assets, and alternatives.

Step two involves gathering required documents over 3-7 days: a complete debt list with creditor names and balances, income proof such as pay stubs or tax returns, an asset list including home equity and vehicles, recent bank statements, and identification. The LIT uses this information to calculate what creditors would receive in bankruptcy, which forms the baseline for your proposal offer.

Step three is reviewing and approving the proposal terms drafted by your LIT. The LIT structures an offer that exceeds the bankruptcy alternative by 10-30%, typically resulting in creditors receiving 20-40% of what you owe. You choose your payment term between 1-60 months based on affordability.

Step four is signing the documents and filing electronically with the OSB. Filing occurs within 24 hours of your signature. The stay of proceedings takes effect immediately upon filing, stopping collections, garnishment, and lawsuits.

Step five is the 45-day creditor voting period. Creditors vote based on dollar value of their claims; a majority of 50% plus one dollar is required for acceptance. If no creditor meeting is requested within 45 days, the proposal is deemed automatically accepted. The 97-99% industry acceptance rate means rejection is rare.

Step six is automatic court approval 15 days after acceptance if no objections are filed, followed by commencement of your monthly payments to the LIT. Total timeline from consultation to binding acceptance is 60-75 days.

Learn the detailed step-by-step filing process including document checklists and timeline expectations.

What Debts Can Be Included in a Consumer Proposal

Consumer proposals can include most types of unsecured debt. Credit card balances, personal lines of credit, payday loans, and personal loans are fully eligible for inclusion. CRA tax debt including income tax, HST, GST, and payroll remittances can be included, and the proposal stops CRA garnishment and bank account freezes. For more on dealing with the Canada Revenue Agency, see our complete guide to CRA debt relief options.

Medical bills, utility arrears, rent arrears, and overpayments from government benefits can be included. Student loans that are 7 or more years old from your last date of study are dischargeable. Student loans less than 7 years old cannot be eliminated but the proposal may help you manage other debts and free up income to repay student loans.

Secured debts cannot be included in a consumer proposal. Your mortgage, car loan, and other secured loans must continue to be paid in full if you want to keep the asset. Creditors with security interests are not bound by the proposal.

Certain debts are excluded by law. Court fines, criminal restitution orders, child support, and spousal support cannot be eliminated. Debts arising from fraud cannot be discharged through a proposal.

How Creditors Vote on Consumer Proposals

Creditors vote on consumer proposals based on the dollar value of their proven claims, not the number of creditors. A majority of 50% plus one dollar is required for acceptance. If you owe five creditors and the largest holds 60% of your total debt, that single creditor can accept or reject your proposal regardless of how the other four vote.

The 45-day voting period begins the day your LIT files the proposal with the OSB. Creditors must request a meeting within the first 45 days if they wish to vote. The meeting, if requested, must be held within 21 days of the request.

If no creditor holding at least 25% of the proven claims requests a meeting within 45 days, the proposal is deemed automatically accepted without a formal vote. This deemed acceptance mechanism is how most proposals are approved.

The 97-99% industry-wide acceptance rate reflects the fact that Licensed Insolvency Trustees structure offers to exceed what creditors would receive in bankruptcy. Creditors recognize that a proposal is more beneficial than bankruptcy, where they typically receive 0-5 cents per dollar owed.

Compare consumer proposals to other debt relief options including bankruptcy, consolidation, and settlement.

Consumer Proposal Costs and Monthly Payments

Consumer proposal fees are set by federal tariff and are identical across all Licensed Insolvency Trustees. The tariff includes $750 plus tax for filing the proposal, $750 plus tax upon creditor acceptance, $85 plus tax per mandatory counselling session for a total of $170, and 20% of all funds distributed to creditors. An OSB filing fee of approximately $100 is also included.

Total LIT fees typically range from $1,800 to $2,500 depending on the size of your proposal. All fees are paid from your monthly proposal payments over the 3-5 year term. You never pay fees separately or upfront.

For example, if you owe $40,000 and your proposal is accepted at 30%, you pay $12,000 total over 5 years at $200 per month. From this $12,000, approximately $2,500 goes to LIT fees and $9,500 goes to creditors. Your $200 monthly payment covers both fees and creditor distributions.

You can pay off your consumer proposal early at any time with no penalty. Using tax refunds, bonuses, raises, or inheritance to pay off early shortens the R7 credit rating duration.

Review the complete consumer proposal cost breakdown including fee explanations and payment examples.

Credit Impact: R7 Rating and Rebuilding Timeline

Filing a consumer proposal results in an R7 credit rating on all accounts included in the proposal. R7 means “debt settlement arrangement” under the Bankruptcy and Insolvency Act. This is less severe than an R9 rating, which is assigned to bankruptcy and debt settlement accounts.

The R7 rating remains on your Equifax credit report for 3 years after you complete all proposal payments OR 6 years from the filing date, whichever comes first. Most proposals are completed in 4-5 years, meaning the R7 clears 3 years after completion for a total of 7-8 years of credit impact.

For a proposal filed in February 2026 and completed in February 2031 (5 years), the R7 would be removed in February 2034 (3 years post-completion). For a proposal filed in February 2026 and completed in February 2029 (3 years), the R7 would be removed in February 2032 (6 years from filing, since “3 years post-completion” would be 2032 anyway).

You can begin rebuilding credit immediately by obtaining a secured credit card with a $300-500 deposit, making small purchases, and paying the balance in full each month. Maintaining utilization under 30% and making all payments on time are the two most important factors.

Many Canadians achieve 700+ credit scores within 2-3 years of completing their proposal by following disciplined rebuilding strategies. B-lender mortgages become available 1-2 years after completion with 10-20% down payments and rates 0.5-1.5% higher than A-lenders.

Learn how to rebuild credit after a consumer proposal with month-by-month timelines and specific product recommendations.

Consumer Proposal vs Bankruptcy vs Debt Consolidation

Consumer proposals differ from bankruptcy and debt consolidation in asset protection, credit impact, and cost structure. In a consumer proposal, you keep all assets including home equity, vehicles, and RRSPs as long as you maintain secured loan payments. In bankruptcy, you must surrender non-exempt assets based on provincial exemption limits.

Consumer proposals impose no surplus income requirement. Your monthly payment is fixed for the entire term and never increases even if your income rises. In bankruptcy, you must pay 50% of income above federal thresholds, recalculated monthly, which can significantly increase total costs.

Consumer proposals result in R7 credit ratings removed 3 years after completion or 6 years from filing. Bankruptcy results in R9 ratings that remain 6 years after discharge for first-time bankruptcies. The R9 is more damaging and makes obtaining credit significantly harder.

Debt consolidation requires good credit of at least 650, repays 100% of principal plus interest, and provides no legal protection from creditors. It works best for smaller debts under $25,000 when you can afford full repayment at lower interest rates.

Compare consumer proposals versus bankruptcy in detail to understand which option is right for your specific financial situation.

2026 Consumer Proposal Statistics Canada

Consumer insolvencies in Canada reached the highest levels since the 2009 financial crisis in 2025. Q3 2025 saw 36,256 consumer insolvencies filed, with 78.9% choosing consumer proposals over bankruptcy. This proportion represents the highest preference for proposals ever recorded.

For the 12-month period ending September 2025, Canadians filed 139,335 consumer insolvencies, an increase of 2.9% year-over-year. Calendar year 2024 recorded 137,295 total consumer filings. The upward trend reflects economic pressures from mortgage renewals, inflation, and layoffs—if you’ve recently lost your job, see our job loss debt protocol for immediate steps.

In Ontario, 82% of insolvencies are consumer proposals, significantly higher than the national average. Residents seeking local guidance can find Toronto debt relief resources and LIT directories for their area. The MNP Consumer Debt Index for January 2026 found that 71% of Canadians expect the cost of living to worsen in 2026, and 41% of Canadians are within $200 per month of being unable to meet their financial obligations.

The 97-99% acceptance rate for consumer proposals has remained stable across all major Licensed Insolvency Trustee firms. Spergel reports 99% acceptance, 4 Pillars reports 97%, and BDO reports similar rates. This consistency demonstrates that properly structured proposals are accepted by creditors in virtually all cases.

The stay of proceedings provided by consumer proposals remains the primary reason for their popularity. Immediate protection from wage garnishment, which can seize 20-30% of income depending on the province, makes proposals attractive to Canadians facing collection actions.

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Bottom Line

Consumer proposals are Canada’s most effective debt relief option, chosen by 78.9% of the 36,256 Canadians who filed insolvency in Q3 2025. Proposals reduce unsecured debt by 60-80% through a legally binding agreement filed exclusively by Licensed Insolvency Trustees, with 97-99% creditor acceptance and federally regulated fees of $1,800-$2,500 paid from your monthly payments over 3-5 years. Filing triggers immediate legal protection stopping collections, wage garnishment, and lawsuits the day you file, not after the 45-day creditor voting period. You keep all assets including your home, car, and RRSPs while making fixed payments that never increase regardless of income changes, and the R7 credit rating clears 3 years after completion or 6 years from filing for 6-8 years total impact. If you owe $10,000-$250,000 in unsecured debt and have regular income, calculate your potential monthly payment to see if a consumer proposal is right for your situation.

This article provides general information and should not be considered legal or financial advice. Consult a Licensed Insolvency Trustee for advice specific to your situation.

Last updated: February 2, 2026