What Is a Consumer Proposal in Canada? How It Works, Who Qualifies, and What It Does Not Do (2026)

A consumer proposal is a formal process under the Bankruptcy and Insolvency Act where a Licensed Insolvency Trustee files an offer to settle unsecured debt for less than the full balance over a period of up to 60 months. Once it is filed with the Office of the Superintendent of Bankruptcy, most unsecured collection action stops immediately.

This page owns the overview question: what a consumer proposal is, who qualifies, what debts it covers, and what it does not do. If you already know your next question is about cost, timeline, credit impact, spouse impact, or how to file, use those specialist pages instead of treating this page like the answer to everything.

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 can require surrendering non-exempt assets, a consumer proposal is a negotiated settlement where you repay a reduced amount while keeping your property. Unlike private debt settlement, proposals are federally regulated, filed through a trustee, and backed by a statutory stay of proceedings.

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 $1,000 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.

The legal minimum matters because many people incorrectly hear that proposals “start at $10,000.” That is a practical rule of thumb, not the statutory threshold. In real life, proposals are usually used once unsecured debt is large enough that a formal insolvency filing makes sense after trustee costs and the broader debt picture are considered.

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.

See if you qualify: Enter your debt amount and income in our Consumer Proposal Calculator to see your estimated payment and savings — free and anonymous.

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, but use the dedicated comparison pages when you are trying to make an actual choice.

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.

This is only the short version. If cost is your actual search intent, use the dedicated consumer proposal cost guide, which separates total payment math from the trustee-fee breakdown.

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 accounts included in the proposal. R7 means a debt settlement arrangement under the Bankruptcy and Insolvency Act. That is materially different from bankruptcy’s R9, but it is still a serious credit event.

On Equifax, the proposal notation is generally removed 3 years after completion or 6 years from filing, whichever comes first. TransUnion can use different reporting windows depending on the file and province, so the dedicated credit-impact page is the better source when you need exact bureau timing.

The important overview point is simpler than the exact formulas: a proposal is usually easier on credit than bankruptcy, but it still has a long reporting tail. If credit recovery is your next question, use the consumer proposal credit impact guide and the post-completion rebuild guide.

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. See our detailed consumer proposal vs debt consolidation comparison.

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

Why Consumer Proposals Matter in 2026

Consumer proposals now make up the majority of formal consumer insolvency filings in Canada. That matters because most readers are not deciding between “proposal or nothing.” They are deciding between keeping up with impossible unsecured debt, trying to refinance the problem, or using a formal legal process that creates a fixed path out.

The key takeaway for this overview page is not the headline filing count. It is the role proposals play in the decision set: they sit between full repayment and bankruptcy, protect assets better than bankruptcy, and give stronger legal protection than debt consolidation or private settlement.

For current filing activity, trustee regulation, and official insolvency materials, start with the Office of the Superintendent of Bankruptcy.

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Bottom Line

Consumer proposals are the overview answer for Canadians who need real debt relief but are not sure whether the process fits their situation. The important points are straightforward: a trustee files it under federal law, most unsecured collections stop immediately, you repay only part of the unsecured balance over up to 5 years, and you keep your assets as long as secured debts stay current. If your next question is about qualification or payment size, calculate your potential monthly payment. If your next question is about timing, credit, or comparisons, use the dedicated spoke pages linked above.

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: March 21, 2026