Consumer Proposal Canada: Eliminate 60-80% of Debt (2026)

A consumer proposal is a legally binding agreement that lets you pay back a reduced amount of your debt—typically 30-40 cents per dollar—over a fixed 3-5 year period, eliminating 60-80% of what you owe. It’s governed by federal law under the Bankruptcy and Insolvency Act, administered exclusively by Licensed Insolvency Trustees regulated by the Office of the Superintendent of Bankruptcy, and provides immediate legal protection from collections, wage garnishment, and lawsuits the day you file. Over 144,000 Canadians filed for insolvency in 2025, with 78% choosing consumer proposals over bankruptcy because they’re less severe, let you keep all your assets, and have a 97-99% creditor acceptance rate when properly structured.

Consumer proposals work by having a Licensed Insolvency Trustee calculate what creditors would receive if you filed bankruptcy, then offering them a better deal—usually 10-30% more—paid over 60 months maximum. Collections stop immediately on filing day through a legal stay of proceedings, not after the 45-day creditor voting period. Creditors holding 50% or more of your debt by dollar value must approve, which happens in 97-99% of cases because the proposal beats bankruptcy recovery. Once approved by court, your monthly payment is fixed regardless of income increases, interest stops accruing, and you keep every asset including your home, vehicle, RRSP, and savings accounts.

How Consumer Proposals Work

Consumer proposals follow a six-step process from initial consultation to legal approval, taking 60-75 days total with immediate creditor protection starting the day your Licensed Insolvency Trustee files electronically with the Office of the Superintendent of Bankruptcy. The process is set out in the Bankruptcy and Insolvency Act.

Step 1: Free Consultation with a Licensed Insolvency Trustee

Only Licensed Insolvency Trustees hold federal licensing to file consumer proposals in Canada. The initial consultation costs nothing and carries no obligation to proceed. You can meet in person at their office or virtually via video call, with most LITs offering same-day or next-day appointments. The first meeting typically lasts 60-90 minutes.

During the consultation, the LIT reviews your complete financial situation including all debts, assets, income, and monthly expenses. They examine any significant payments or asset transfers you made in the past five years to ensure compliance with insolvency law. The LIT explains all available debt relief options including consumer proposals, bankruptcy, debt consolidation loans, and credit counselling debt management plans.

The LIT calculates whether you qualify for a consumer proposal based on your total unsecured debt, which must fall between $10,000 and $250,000 excluding your mortgage. They estimate what monthly payment amount you can afford and what offer creditors would likely accept based on what they’d receive in bankruptcy. You receive a clear comparison of consumer proposal versus bankruptcy outcomes specific to your situation. Learn more about the complete filing process before your consultation.

Step 2: Document Gathering and Proposal Preparation

Licensed Insolvency Trustees need comprehensive financial documentation to calculate your proposal offer and prepare mandatory government forms accurately. Bring creditor statements showing names, account numbers, and current balances including collection agency letters with original creditor information. Provide CRA notices of assessment for tax debt and student loan statements with dates of study completion.

Income proof includes recent pay stubs if employed, bank statements showing direct deposits if receiving government benefits, notice of assessment if self-employed, or pension statements if retired. Asset documentation covers property deeds and recent mortgage statements, vehicle ownership documents and loan statements, RRSP, TFSA, and investment account statements, plus savings account statements.

The LIT uses this information to calculate what creditors would receive if you filed bankruptcy instead, which establishes the minimum baseline your proposal must exceed. More complete documentation leads to more accurate proposal calculations and higher creditor acceptance rates. Most people can gather required documents within 3-7 days of the initial consultation.

Typical consumer proposal offers range from 30-40 cents per dollar of total debt paid over 3-5 years. The LIT structures the offer to exceed bankruptcy recovery by 10-30% so creditors have financial incentive to accept. Your monthly payment stays fixed throughout the entire term regardless of income increases, unlike bankruptcy’s surplus income formula. Read about how LITs calculate proposal amounts to understand the math behind offers.

Step 3: Electronic Filing with the Office of the Superintendent of Bankruptcy

Your Licensed Insolvency Trustee files your consumer proposal electronically with the Office of the Superintendent of Bankruptcy, not with courts or creditors directly. Filing can happen within 24 hours of you signing the proposal documents after reviewing and approving the terms.

The moment your LIT files, a legal stay of proceedings takes effect under federal law. Collection calls must stop immediately by law. Creditors cannot legally contact you for payment. Wage garnishment ends and your employer stops deducting payments from your paycheque within one pay period. Creditor lawsuits freeze and cannot proceed while your proposal remains active. Interest stops accruing on all debts included in your proposal.

You receive this immediate legal protection before creditors vote on your proposal and before any court approval. The stay of proceedings gives you breathing room to stabilize your finances without collection pressure. Understanding how to file a consumer proposal helps set realistic expectations.

The Office of the Superintendent of Bankruptcy assigns your proposal a unique file number and enters it into the national insolvency database. The OSB notifies all creditors you listed in your proposal within five days of filing. Creditors receive copies of your Statement of Affairs, Cash Flow Statement, and the proposal terms including payment amount and duration.

Step 4: 45-Day Creditor Voting Period

Creditors have exactly 45 days from the filing date to review your proposal and vote to accept or reject it. The 45-day period is fixed by federal law and cannot be shortened or extended. Your proposal needs approval from creditors holding 50% or more of the total debt by dollar value, not by number of creditors. If the largest creditors approve, smaller creditors are bound by the majority decision even if they voted no or didn’t vote at all.

Most creditors don’t vote until the final week of the 45-day period because they wait to see if other creditors request a meeting of creditors. If no creditors request a meeting, your proposal is deemed accepted automatically after 45 days. This deemed acceptance is the most common outcome for proposals properly structured by experienced LITs offering more than bankruptcy would pay.

If creditors holding 25% or more of the debt request a meeting, your LIT schedules a creditors’ meeting, usually conducted virtually. You may attend but your LIT represents you and answers creditor questions. Creditors at the meeting vote to accept, reject, or propose amendments to your proposal terms such as higher monthly payments or longer duration.

Creditors evaluate proposals based on three factors: whether the offer exceeds what they would receive if you filed bankruptcy instead, whether you have realistic ability to make the proposed payments over 3-5 years, and whether the debts are legitimate and accurately stated. Proposals offering 30-40 cents per dollar over manageable payment periods have 97-99% acceptance rates when the debtor has regular income and the LIT properly calculated the bankruptcy alternative.

Step 5: Court Approval and Payment Commencement

After creditors accept your proposal, a 15-day court approval period follows automatically. Court approval is typically a formality unless a creditor or the Office of the Superintendent of Bankruptcy objects to the proposal terms on legal grounds. If the court requests a review hearing, your Licensed Insolvency Trustee represents you and addresses any concerns raised.

Once court-approved—which is nearly automatic for standard proposals—your consumer proposal becomes a legally binding contract. You begin making fixed monthly payments to your LIT who acts as administrator. The LIT distributes funds to creditors on a pro-rata basis according to each creditor’s percentage of total debt. You must complete two mandatory credit counselling sessions during your proposal term covering budgeting and money management.

Your proposal can last anywhere from 1 to 60 months depending on what you and the LIT agreed when structuring the offer. Most proposals run 48-60 months to keep monthly payments affordable. You can pay off the proposal early at any time with no penalty if you receive a raise, bonus, inheritance, or tax refund. Early payoff removes the R7 credit rating faster since it’s calculated from completion date.

Step 6: Completion and Debt Discharge

After making your final payment and completing both credit counselling sessions, your LIT issues a Certificate of Full Performance. This certificate legally discharges you from all debts included in the proposal. The remaining debt—typically 60-80% of what you originally owed—is permanently forgiven and creditors can never pursue it again.

The LIT files your completion certificate with the Office of the Superintendent of Bankruptcy, which updates the national insolvency database. Your R7 credit rating remains on your credit report for 3 years after completion or 6 years from filing date, whichever comes first. For a 5-year proposal, the R7 typically remains for 6 years total (from filing), while a 3-year proposal clears after 6 years total as well. Learn how to rebuild your credit after completing a consumer proposal to maximize your score recovery.

Who Qualifies for a Consumer Proposal

Consumer proposals have four mandatory eligibility requirements set by federal law. You must have unsecured debt between $10,000 and $250,000 excluding your mortgage. You must be a Canadian resident in any province or territory. You must be legally insolvent, meaning unable to pay debts as they come due. You must have regular income sufficient to maintain monthly payments over 3-5 years.

Debt Amount Requirements

The $10,000 minimum exists because proposals below this threshold have administrative costs approaching the debt amount itself, making debt consolidation or credit counselling more cost-effective. The $250,000 maximum applies to individuals; couples can file joint proposals covering up to $500,000 combined unsecured debt. Debt over $250,000 for individuals requires filing a Division I proposal, which is more complex and expensive but follows similar principles.

Unsecured debt includes credit card balances, personal loans and lines of credit, payday loans, CRA tax debt covering income tax, GST/HST, CPP, and EI arrears, medical and dental bills, utility arrears, collection agency debts, and student loans if 7 or more years have passed since you were last a full-time or part-time student. Check whether your specific debts qualify before consulting an LIT.

Excluded debts that cannot be included in proposals are secured debts like mortgages and car loans which continue separately outside the proposal, child support and spousal support obligations, court fines and restitution orders, debts obtained by fraud or misrepresentation, and student loans if less than 7 years have passed since completion of studies. You remain fully responsible for excluded debts and must continue regular payments.

Income Requirements

Licensed Insolvency Trustees calculate what monthly payment you can realistically afford based on your income minus essential living expenses. The payment must be high enough that creditors receive more than they would in bankruptcy, but low enough that you can maintain it for 3-5 years without defaulting.

These are estimates only. LITs calculate based on your specific expenses, family size, provincial cost of living, and what creditors would receive in bankruptcy. Income can come from employment, self-employment, government benefits including EI, CPP, OAS, or disability, pension income, or rental income. The key is consistency—you need reliable income for 3-5 years.

What Counts as Insolvency

Legal insolvency means you’re unable to pay debts as they become due, or your total liabilities exceed your total assets. If you’re missing payments, facing collection calls, or can only afford minimum payments while balances grow, you’re likely insolvent. If you’ve depleted savings, maxed out credit, or borrowed from one creditor to pay another, insolvency is typically established.

Licensed Insolvency Trustees assess insolvency by comparing your monthly debt obligations to your net income after essential expenses. If debt payments exceed what you can afford while maintaining basic living standards for food, shelter, utilities, and transportation, you meet the insolvency test. Recognizing the signs you need a consumer proposal helps determine if you qualify.

Geographic Coverage

Consumer proposals are governed by federal law and work identically across all Canadian provinces and territories. Whether you live in Ontario, British Columbia, Alberta, Quebec, or anywhere else in Canada, the same eligibility rules, process, timelines, and legal protections apply. If you move provinces during your proposal, nothing changes—just notify your LIT of your new address.

Consumer Proposal vs Other Debt Relief Options

Consumer proposals compete with four main alternatives: bankruptcy, debt consolidation loans, debt settlement, and credit counselling debt management plans. Each has different eligibility requirements, costs, outcomes, and impacts on credit. Understanding when each option is superior helps you choose the right debt relief strategy.

Consumer Proposal vs Bankruptcy

Bankruptcy eliminates 100% of unsecured debt with conditions, while consumer proposals eliminate 60-80% through negotiated settlement. Bankruptcy may require surrendering assets like home equity over provincial exemption limits and non-exempt investments, while proposals let you keep every asset you own. Bankruptcy imposes surplus income payments that increase with earnings, while proposal payments remain fixed regardless of income changes.

Bankruptcy works better when you have no income or extremely unstable income that can’t support proposal payments, debt exceeds $250,000 (the consumer proposal limit for individuals), no significant assets to protect such as home equity or investments, or you need the fastest possible discharge which bankruptcy delivers in 9-21 months versus 3-5 years for proposals.

Consumer proposals work better when you have steady income to maintain payments for 3-5 years, own a home with equity you want to protect, have RRSP or TFSA investments above bankruptcy exemption limits, want to avoid bankruptcy’s stigma and credit impact, or earn income high enough that bankruptcy’s surplus income payments would exceed proposal payments. Read the complete consumer proposal vs bankruptcy comparison to understand which suits your situation.

Consumer Proposal vs Debt Consolidation Loan

Debt consolidation loans replace multiple high-interest debts with a single loan at lower interest, but you repay 100% of principal plus interest. Consumer proposals reduce principal by 60-80% and charge zero interest. Consolidation requires good to fair credit (typically 650+) while proposals have no credit requirements since your credit is likely already damaged.

Try debt consolidation first if your credit score is 650 or higher, total unsecured debt is under $25,000, you can afford full repayment of principal at 10-15% interest over 3-5 years, you’re not facing wage garnishment or lawsuits, and you want to minimize credit impact. Consolidation preserves your credit rating if you make on-time payments and costs less total since you avoid the R7 rating.

Choose a consumer proposal if you can’t qualify for a consolidation loan at reasonable rates (under 20% APR), payments on 100% of debt are unaffordable even at reduced interest, you’re facing wage garnishment or lawsuits requiring immediate legal protection, debt exceeds $25,000 making full repayment unrealistic, or your credit is already severely damaged (under 600) so the R7 rating matters less. Compare consumer proposal vs bankruptcy outcomes based on your debt level and credit score.

Consumer Proposal vs Debt Settlement

Debt settlement involves negotiating with individual creditors to accept lump-sum payments of 40-60% of balances, while consumer proposals use federal law to bind all creditors to a structured 30-40% payment plan. Settlement offers no legal protection so creditors can continue collection activities, lawsuits, and wage garnishment during negotiations. Proposals provide immediate legal protection the day you file.

Debt settlement can work better if you have lump sum cash available from savings, inheritance, or asset sale, only 1-3 creditors making negotiation simpler, creditors are known to settle such as credit card companies (versus CRA which rarely settles), you want a shorter timeline of 2-3 years versus 5 years, and you’re willing to accept risk that some creditors may refuse to settle and sue instead.

Consumer proposals work better when you lack lump sum cash and need structured monthly payments, have many creditors making individual negotiation impractical, owe CRA tax debt which rarely settles but must accept proposals, need immediate legal protection from wage garnishment or lawsuits, want guaranteed outcomes rather than depending on creditor cooperation, or prefer tax-free debt forgiveness versus potentially taxable settlement amounts. Review debt settlement vs consumer proposal to understand the legal protection difference.

Consumer Proposal vs Credit Counselling

Credit counselling agencies offer debt management plans that consolidate payments and negotiate reduced or zero interest with creditors, but you repay 100% of principal over 4-5 years. Consumer proposals reduce principal by 60-80% and are legally binding. Debt management plans depend entirely on creditor cooperation—if creditors refuse to participate or withdraw later, the plan fails.

Credit counselling works better for debt under $15,000 where proposal fees represent too large a percentage of total debt, situations where you can afford 100% repayment at zero interest over 4-5 years, when you want to repay creditors in full for ethical or relationship reasons, or if creditors are willing to freeze interest making full repayment affordable. Counselling has less severe credit impact with R7 rating only during the plan versus 6-8 years total for proposals.

Consumer proposals work better when debt exceeds $25,000 making 100% repayment unaffordable even at zero interest, you need legal protection from wage garnishment or lawsuits that counselling can’t provide, you want guaranteed outcomes versus relying on creditor cooperation, creditors refuse to participate in debt management plans which is common with CRA tax debt, or you need 60-80% debt reduction to achieve financial stability. Compare all debt relief options based on your debt level and need for legal protection.

How Much Does a Consumer Proposal Cost

Consumer proposals cost between $1,800 and $2,500 in total Licensed Insolvency Trustee fees with zero upfront payment required. All costs are included in your monthly proposal payments over the 3-5 year term. Fees represent 10-15% of your total proposal payment, with the remaining 85-90% distributed to creditors on a pro-rata basis.

Fee Structure Breakdown

LIT professional fees range from $1,500 to $2,200 covering proposal preparation, government form completion, creditor negotiations, meeting representation, payment administration, and completion certification. Administrative costs of $200-$300 cover document preparation, electronic filing systems, payment processing, and creditor communication. The Office of the Superintendent of Bankruptcy charges an $86 filing fee paid to the government.

Two mandatory credit counselling sessions are included in LIT fees at no additional cost. These sessions cover budgeting, money management, credit rebuilding, and financial planning to prevent future insolvency. GST or HST applies to LIT fees based on your province, adding 5-15% to the professional fee portion but not the government filing fee.

No upfront payments are required or requested by legitimate Licensed Insolvency Trustees. If an LIT asks for money before filing, find a different trustee—this violates professional standards. All fees come from your monthly payments over the proposal term, meaning you get immediate collection protection without any out-of-pocket costs.

Cost Examples by Debt Level

These examples assume a 35% offer (paying 35 cents per dollar) which is typical for properly structured proposals. Actual offers vary based on what creditors would receive in bankruptcy, which depends on your assets, income, family size, and provincial exemption limits. Higher-income debtors may need to offer 40-45% to beat bankruptcy recovery, while lower-income debtors with no assets may offer 25-30%.

How Licensed Insolvency Trustees Calculate Your Offer

LITs start by calculating your bankruptcy alternative—what creditors would receive if you filed bankruptcy instead of a proposal. This becomes the baseline your proposal must exceed for creditors to accept. Bankruptcy recovery includes liquidation value of non-exempt assets plus surplus income payments for 9-21 months based on your income and family size.

For example, if bankruptcy would deliver $12,000 to creditors through asset liquidation and surplus income, your proposal must offer at least $13,200-$15,600 (10-30% more) to gain creditor approval. The LIT then tests whether you can afford monthly payments to reach this total over 36-60 months based on your net income minus essential living expenses.

If you can comfortably afford the bankruptcy-beating amount, the LIT structures your proposal. If you can’t afford enough to beat bankruptcy, bankruptcy becomes the better option since proposals that don’t exceed bankruptcy recovery get rejected by creditors. Understanding how LITs calculate proposal costs helps you predict your offer amount before the consultation.

Fee Justification and What You Receive

Licensed Insolvency Trustees provide substantial services for their fees. They handle all creditor negotiations and communications so you never deal with creditors directly. They prepare complex government forms including Statement of Affairs and Cash Flow Statement that must comply with federal regulations. They represent you at creditor meetings if requested and answer all creditor questions.

LITs administer your payments by receiving your monthly payment, distributing funds to creditors on a pro-rata basis, tracking payments and balances, and providing annual statements. They monitor compliance with proposal terms, ensure you complete credit counselling sessions, and issue your Certificate of Full Performance upon completion which legally discharges remaining debt.

LITs also provide ongoing support if circumstances change such as job loss, income reduction, or unexpected expenses. They can negotiate payment holidays, term extensions, or proposal amendments with creditors if needed to prevent default. This ongoing administration and advocacy justifies the $1,800-$2,500 fee over the 3-5 year term.

Pros and Cons of Consumer Proposals

Consumer proposals offer significant advantages over bankruptcy and other debt relief options, but also have drawbacks that make them unsuitable for some situations. Understanding both sides helps you make an informed decision.

Advantages of Consumer Proposals

Massive debt reduction through legal settlement eliminates 60-80% of unsecured debt permanently. Typical proposals pay 30-40 cents per dollar, forgiving the remaining 60-70 cents. A $50,000 debt becomes a $15,000-$20,000 payment, saving $30,000-$35,000. This debt forgiveness is tax-free under insolvency law unlike some debt settlement arrangements.

Complete asset protection lets you keep everything you own. Unlike bankruptcy which may require surrendering home equity above provincial exemption limits, vehicles above certain values, and non-exempt investments, consumer proposals never require asset seizure. Your home, vehicles, RRSP, TFSA, savings accounts, and personal property remain fully protected regardless of value.

Immediate legal protection stops collections the day your LIT files, not after the 45-day creditor vote. The stay of proceedings ends all collection calls by law. Wage garnishment stops within one pay period. Creditor lawsuits freeze and cannot proceed. CRA collection action including bank account freezes halts immediately. Learn about how to stop wage garnishment using proposals and other legal methods.

Fixed monthly payments provide certainty and protection from income increases. Your payment amount is set when you file and never changes regardless of raises, bonuses, promotions, or windfalls. Unlike bankruptcy’s surplus income requirement that takes 50% of income above thresholds, proposals let you keep all extra earnings. You can use raises and bonuses to pay off the proposal early with no penalty.

Better credit outcome than bankruptcy means an R7 rating for 3 years after completion versus R9 rating for 6-7 years after bankruptcy discharge. R7 indicates making payments through special arrangement while R9 indicates bad debt written off. The R7 is less severe and clears from your credit report faster, typically 6-8 years from filing versus 7-14 years for bankruptcy.

Zero interest on remaining debt means every dollar of your monthly payment goes toward principal reduction. No interest accumulates during the 3-5 year payment period. This differs from debt consolidation loans charging 7-25% interest or credit cards at 19-29% interest. The interest savings often equals 30-40% of the original debt over 5 years.

High creditor acceptance rate of 97-99% provides near certainty when properly structured by experienced LITs. Creditors accept because proposals offer more than bankruptcy would pay. Rejection is rare and usually indicates an offer below bankruptcy recovery or unrealistic payment ability. Properly calculated proposals almost always gain approval.

Early payoff flexibility lets you accelerate completion using tax refunds, bonuses, inheritances, or asset sales. There’s no prepayment penalty like many debt consolidation loans impose. Paying off early removes the R7 rating faster since the 3-year credit reporting period starts from completion date. A $15,000 proposal paid off in 2 years instead of 5 clears your credit 3 years sooner.

Disadvantages of Consumer Proposals

Significant credit impact through R7 rating damages your credit for 3 years after completion or 6 years from filing, whichever comes first. Most proposals run 5 years, meaning the R7 remains for 6 years total. During this period you’ll struggle to qualify for credit cards, loans, or mortgages. When you do qualify, interest rates will be significantly higher reflecting the insolvency notation.

Public record status means proposals are searchable in the Office of the Superintendent of Bankruptcy database for 3 years after completion. While employers rarely check this database, it is publicly accessible. Some professional licenses in finance, law, or accounting may require disclosure of insolvency filings. Government security clearances often review insolvency records.

Income requirement creates a barrier for unemployed or irregularly employed people. You need steady income to maintain monthly payments for 3-5 years. Job loss during the proposal can lead to default if you can’t resume payments quickly. Self-employed people with volatile income may struggle with fixed payment obligations during slow periods.

Long commitment period of 3-5 years locks you into monthly payments through job changes, moves, family changes, and economic fluctuations. While you can pay off early, many people take the full term making it a significant multi-year obligation. Circumstances can change substantially over 5 years making completion challenging.

Included fees reduce creditor recovery because the $1,800-$2,500 LIT fees come from your total payment. On a $15,000 proposal, $2,000 in fees means creditors only receive $13,000. While LITs provide substantial services justifying the fees, it means creditors get less than the gross proposal amount.

All creditors must be included with no exceptions allowed by law. You can’t keep a favorite credit card, exclude a family member’s loan, or leave out a debt you want to repay separately. Every unsecured creditor must be listed. Secured debts like mortgages and car loans continue normally outside the proposal but all unsecured creditors must participate.

Secured debts excluded means proposals don’t reduce mortgage or car loan balances. These continue with regular payments outside the proposal. If you’re struggling with secured debt, proposals don’t help directly though reducing unsecured debt frees up cash flow for secured payments. Consider whether your financial distress stems from secured or unsecured debt.

Default consequences are severe if you miss 3 total payments or all payments for 3 consecutive months. Default annuls the proposal, returns creditors to full collection mode with interest reinstated, voids all legal protection, and prohibits filing another proposal for 5 years. About 15-20% of proposals default, usually due to job loss or income reduction. Understanding signs you need a consumer proposal helps you assess whether this option is right for you.

How Consumer Proposals Affect Your Credit

Consumer proposals impact your credit through an R7 rating that remains on your credit report for 3 years after completion or 6 years from filing date, whichever comes first. This rating indicates you’re making payments through special arrangement (consumer proposal or orderly payment of debts). Individual accounts included in the proposal show “Included in consumer proposal” notation with R7 rating.

Credit Rating Mechanics

During your active proposal, each debt included receives an R7 rating. Your credit report shows the proposal filing date, total amount owing, monthly payment amount, and expected completion date. Credit bureaus receive updates from your LIT confirming you’re making payments as agreed or noting any missed payments.

Your credit score typically drops to 400-550 range when you file a proposal if it wasn’t already there from missed payments and collections. The R7 rating itself causes this drop. If you were already in collections with R9 ratings, the proposal may not drop your score much further since it’s already severely damaged.

After completing all payments and receiving your Certificate of Full Performance, the R7 rating remains on your credit report for 3 years from completion date. However, there’s a 6-year maximum from filing date that often applies first. For a 5-year proposal, the R7 remains for 6 years total (from filing) since 5 + 3 would be 8 years which exceeds the maximum. For a 3-year proposal, the R7 remains for 6 years total (3 years active + 3 years after completion).

Credit Score Timeline

This timeline assumes you maintain on-time proposal payments, obtain a secured credit card within 6-12 months of filing, make all secured card payments on time, and avoid new collections or missed payments. Results vary based on your specific credit rebuilding efforts.

Rebuilding Credit During Your Proposal

Active credit rebuilding during your proposal accelerates score recovery. Obtain a secured credit card requiring a $500-$1,000 deposit that becomes your credit limit. Use the card for small purchases like gas or groceries and pay the full balance every month. The card issuer reports your on-time payments to credit bureaus, building positive payment history that partially offsets the R7 rating.

Become an authorized user on a spouse’s or family member’s credit card if they have excellent payment history. Their positive payment history may appear on your credit report, though this strategy became less effective after 2020 credit bureau changes. It’s worth trying but don’t rely on it exclusively.

Your LIT reports your proposal payments to credit bureaus. Making all payments on time demonstrates you can handle debt obligations responsibly. Missing payments during your proposal further damages credit and delays rebuilding. Setting up automatic payments ensures you never miss the monthly amount.

Use free credit monitoring tools like Borrowell or Credit Karma to track your score monthly and identify reporting errors. Dispute any inaccuracies immediately since errors prolong credit damage. These tools show which factors hurt your score most and provide personalized rebuilding recommendations.

Avoid applying for new credit during your proposal unless it’s a secured card for rebuilding. Each credit application creates a hard inquiry that drops your score by 5-10 points. Multiple applications signal desperation to lenders and can lower your score by 30-50 points. Wait until after completion to apply for unsecured credit. Learn more strategies to rebuild credit after a consumer proposal to maximize your score recovery.

Mortgage Qualification After a Proposal

Getting a mortgage during an active consumer proposal is extremely difficult. Most A-lenders (major banks) have policies prohibiting mortgages to active proposal participants regardless of down payment or income. B-lenders (alternative lenders) may approve with 20-25% down payment and interest rates 2-3% higher than A-lender rates.

After completing your proposal, mortgage qualification improves but remains challenging for 1-2 years. Wait at least 12-24 months after completion before applying for A-lender mortgages. Expect to need 10-20% down payment versus 5% minimum for borrowers without insolvency history. Interest rates will be 0.5-1.5% higher than best rates initially.

Work with mortgage brokers who specialize in post-insolvency lending rather than applying directly to banks. Brokers have relationships with lenders willing to consider insolvency applicants and know which documentation strengthens applications. Demonstrate 12-24 months of clean credit after completion, stable employment, and savings for down payment.

If you already own a home when filing a consumer proposal, you keep it by continuing regular mortgage payments outside the proposal. Your mortgage lender cannot call the loan or change terms because you filed a proposal. Proposals don’t affect existing secured debt, only unsecured debt. This lets you protect your home while eliminating credit card, loan, and other unsecured debts.

Common Questions About Consumer Proposals

Will My Spouse Be Affected?

Your spouse is only affected if they co-signed your debts or have joint debts with you. If your spouse didn’t co-sign anything, their credit is completely separate and your consumer proposal has zero impact. Their credit score won’t drop, their credit report won’t show your proposal, and their ability to obtain credit remains unchanged.

If your spouse co-signed a loan or credit card included in your proposal, they remain 100% responsible for the full debt amount. Your proposal eliminates your obligation but doesn’t affect co-signers. Creditors will pursue your spouse for the full balance. Most couples in this situation file a joint consumer proposal together to eliminate both obligations.

Joint proposals let married or common-law couples file one proposal covering combined debts up to $500,000 total unsecured debt. You make one combined payment based on combined household income and expenses. Joint proposals are common when couples have joint credit cards, co-signed loans, or both partners are struggling with individual debts.

Can I Travel During My Proposal?

Yes, consumer proposals impose no travel restrictions domestically or internationally. You’re not bankrupt—you’re making payments on a negotiated legal agreement. You don’t need permission from your LIT to travel and there are no reporting requirements. Your passport is completely unaffected by filing a consumer proposal.

The only consideration is maintaining your monthly proposal payments while traveling. Set up automatic payments through your bank so you never miss a payment during trips. If you’re traveling for extended periods, ensure your payment method remains funded and notify your LIT of temporary contact information in case they need to reach you.

This differs significantly from bankruptcy, where you must request permission from your trustee for international travel and may be denied if the trustee has concerns about your return or ability to fulfill bankruptcy obligations. Proposal participants have full freedom of movement.

Will My Employer Find Out?

Unlikely. Consumer proposals are public records searchable in the Office of the Superintendent of Bankruptcy database, but employers rarely check this database. There’s no legal requirement to inform your employer about filing a consumer proposal unless your employment contract specifically requires disclosure of insolvency proceedings (uncommon except for certain financial positions).

Proposals don’t appear on standard background checks or criminal record checks. Employers would need to specifically search the OSB database by your name to find your proposal, which most never do. Government security clearances and certain professional licenses in finance, law, or accounting may review insolvency records as part of thorough background investigations.

The exception is if you had wage garnishment that stops when you file your proposal. Your payroll department will notice the garnishment deduction ending, but this is actually good news signaling your financial situation is improving through legal debt relief. They won’t know whether you filed a proposal, bankruptcy, or settled the debt directly unless they specifically investigate.

What If I Can’t Complete My Proposal?

You default on your consumer proposal if you miss 3 total payments throughout the term, miss all payments for 3 consecutive months, or fail to complete the two mandatory credit counselling sessions. Default annuls (cancels) your proposal, returning creditors to full collection mode with all legal protection lost.

When your proposal is annulled, creditors can resume collection calls, restart wage garnishment, pursue lawsuits, and add interest that stopped accruing during the proposal. You’re back where you started minus any payments already made to creditors. Those payments aren’t refunded—creditors keep what they received but can pursue the remaining balance.

After default, you have three options: file bankruptcy immediately to regain legal protection, file a new consumer proposal with modified terms (but must wait 5 years from the original filing date), or deal with creditors directly through payment arrangements or debt settlement. About 15-20% of proposals default, usually due to job loss, income reduction, divorce, or medical issues.

Most proposals include hardship provisions allowing up to 3 missed payments over the full term without triggering default. You can also request a term extension from 48 to 60 months if you’re struggling with payments, or pause payments temporarily during job loss if creditors agree. Talk to your LIT immediately if you’re struggling—they can often help negotiate adjustments before you hit the 3-missed-payment threshold that triggers automatic annulment. Learn more about consumer proposal costs and payment structures to understand your obligations.

Can I Get Out of My Proposal Early?

Yes, you can exit your consumer proposal early through three methods. Paying off the remaining balance early is the most common and beneficial method. There’s no prepayment penalty so you can pay the full remaining amount anytime using tax refunds, bonuses, raises, inheritances, or asset sales. Early payoff removes the R7 credit rating faster since the 3-year post-completion period starts from completion date.

Annulling your proposal by paying creditors 100% of the original debt plus accrued interest plus LIT fees is rare but possible. This option makes sense only if you come into substantial money and want to completely erase the proposal from your credit history. Full payment to creditors voids the proposal as if it never happened, though it’s already on your credit report so the benefit is limited.

Defaulting by missing 3 payments is the worst way out since it voids all legal protection and returns creditors to full collection mode. This isn’t a strategic exit—it’s a failure that severely damages your financial situation and credit. Avoid default by communicating with your LIT about payment difficulties before hitting 3 missed payments.

What If I Move Provinces During My Proposal?

Moving provinces during your consumer proposal has no impact on your proposal terms, payments, or legal protection. Proposals are governed by federal law under the Bankruptcy and Insolvency Act, not provincial law, so moving from Ontario to British Columbia or Alberta to Quebec changes nothing.

Simply notify your LIT of your new address for proper record-keeping and communication. Your monthly payment amount stays the same, creditor protection continues, and the timeline to completion is unaffected. If you move far from your LIT’s office, meetings and consultations can happen by phone or video call rather than in person.

Provincial differences in exemption limits for bankruptcy don’t affect consumer proposals since proposals don’t involve asset seizure. The only provincial variation in insolvency law applies to bankruptcy exemptions, which is irrelevant once you’ve filed a proposal instead.

Can I File a Second Consumer Proposal?

Yes, you can file multiple consumer proposals over your lifetime, but timing restrictions apply based on what happened with your previous proposal. If your first proposal was completed successfully with all payments made and counselling sessions finished, you can file a second proposal immediately with no waiting period if you accumulate new debt.

If your first proposal defaulted or was annulled for missed payments, you must wait 5 years from the original filing date before filing another consumer proposal. This 5-year restriction prevents serial proposals used to abuse the system. During the 5-year waiting period, you can file bankruptcy immediately if needed since bankruptcy has no waiting period after proposal default.

If you filed bankruptcy previously and received discharge, you can file a consumer proposal immediately with no waiting period. Previous bankruptcy doesn’t restrict proposal filing. Most people who default on proposals convert to bankruptcy rather than waiting 5 years to file another proposal.

Do Consumer Proposals Affect Government Benefits?

No, consumer proposals don’t affect any government benefits or income support programs. You continue receiving CPP, OAS, CPP disability, EI, social assistance, Ontario Works, child tax benefits, Canada Child Benefit, GST/HST credits, and disability benefits exactly as before.

Filing a proposal doesn’t require reporting to government benefit programs and they won’t reduce or suspend payments because you filed. Benefits you receive count as income when your LIT calculates what monthly payment you can afford, but the benefits themselves continue unchanged.

This differs from bankruptcy where your trustee may seize tax refunds to distribute to creditors. In consumer proposals, you keep all tax refunds and government benefit payments as your money.

What Happens to My Tax Refunds?

You keep 100% of your tax refunds during and after your consumer proposal. Unlike bankruptcy where tax refunds are seized by your trustee and distributed to creditors, proposal participants retain all tax refunds as their personal money.

This is a significant advantage of proposals over bankruptcy. Many people use annual tax refunds to accelerate proposal payoff, reducing the term from 5 years to 3-4 years and clearing the R7 credit rating faster. CRA tax debt can be included in consumer proposals, and you still keep future refunds.

Strategic approach: File your proposal after receiving your tax refund so you can use the refund for living expenses during the transition period, then use future refunds to pay down the proposal early. If you file before receiving a refund, CRA may apply that refund to tax debt included in the proposal before the stay of proceedings takes effect.

Can I Include CRA Tax Debt in My Proposal?

Yes, CRA tax debt including income tax arrears, GST/HST debt, CPP contributions, and EI premiums can all be included in consumer proposals. CRA is bound by the proposal like any other creditor and must stop collection action when you file. This includes ending wage garnishment, releasing bank account freezes, and halting seizure of assets.

CRA often votes against proposals initially but is bound by the majority decision if 50%+ of creditors by dollar value approve. Even if CRA holds a large percentage of your debt, if other creditors approve giving CRA 50%+ total, the proposal binds CRA. Most LITs structure proposals to exceed what CRA would receive in bankruptcy, which typically gains their acceptance or at least doesn’t block majority approval.

Including CRA debt in proposals provides the same 60-80% reduction as other debts. A $30,000 CRA tax debt becomes a $9,000-$12,000 payment through your proposal, with the remaining $18,000-$21,000 permanently forgiven tax-free under insolvency law. Learn more about CRA debt relief options and how LITs negotiate with CRA.

Is a Consumer Proposal Right for You?

Consumer proposals work best for Canadians with $10,000-$250,000 in unsecured debt who have steady income but cannot afford full repayment, want to protect significant assets like home equity or RRSPs, and need immediate legal protection from wage garnishment or lawsuits. You’re an ideal candidate if your credit is already damaged from missed payments or collections, bankruptcy feels too extreme, and you can commit to 3-5 years of fixed monthly payments.

Strong Candidates for Consumer Proposals

You should seriously consider a consumer proposal if you have $15,000-$150,000 in unsecured debt with no realistic path to full repayment even at zero interest. Your debt-to-income ratio exceeds 40% meaning debt payments consume nearly half your take-home pay. You’ve been making minimum payments for years with balances growing despite consistent payments due to 19-29% credit card interest.

Steady employment or regular income from any source including employment, self-employment, government benefits, pensions, or disability provides the foundation for proposal payments. You need reliable income for 3-5 years, but it doesn’t need to be high income—LITs structure payments around what you can afford after essential living expenses.

Significant assets to protect make proposals far superior to bankruptcy. If you have home equity above your province’s exemption limit (often $10,000-$40,000), RRSP or TFSA investments, vehicles worth over exemption limits, or savings you want to preserve, proposals protect everything while bankruptcy may require asset surrenders.

Active wage garnishment, lawsuits, or aggressive collection requiring immediate legal protection makes proposals attractive. The stay of proceedings stops garnishment within one pay period, freezes lawsuits, and ends collection calls on filing day. You get breathing room to stabilize finances without creditor pressure.

Credit already damaged from missed payments or collections means the R7 rating has less incremental impact. If your score is already 450-550, dropping to 400-500 matters less than if you had 700+ credit. Proposals make sense when you’re already in financial distress, not as a preventive measure while your credit is still good.

Weak Candidates for Consumer Proposals

You’re not a good candidate if your total unsecured debt is under $10,000. The $1,800-$2,500 LIT fees represent 18-25% of your total debt, making debt consolidation loans or credit counselling debt management plans more cost-effective. Small debts are better handled through direct negotiation or consolidation.

No income or very unstable income prevents you from maintaining fixed monthly payments for 3-5 years. If you’re unemployed, on temporary disability, or have seasonal income with long gaps, you’ll likely default. Bankruptcy works better when you lack steady income since it completes in 9-21 months versus 3-5 years for proposals.

Ability to qualify for debt consolidation loans at reasonable interest rates (under 15% APR) makes consolidation preferable if you can afford full repayment. If your credit score is 650+ and debt is under $25,000, try consolidation first. You’ll pay 100% of debt but preserve your credit rating and avoid the R7 notation.

Debt consisting mostly of secured debts like mortgages and car loans won’t benefit from proposals since secured debt is excluded. Proposals only reduce unsecured debt like credit cards, personal loans, and tax debt. If your financial distress stems from mortgage payments or car loans, proposals won’t help directly.

Judgment-proof status meaning you have no income or assets that creditors can seize makes proposals unnecessary. If you’re on social assistance with no property, savings, or garnishable income, creditors can’t collect anything from you. Waiting out the provincial limitation period (typically 2-6 years) may be smarter than filing a proposal. Check your province’s statute of limitations on debt to see if this strategy applies.

Alternatives to Try First

Before committing to a consumer proposal, explore these alternatives that may work better depending on your situation:

Debt consolidation loan if you have decent credit (650+) and debt under $25,000. You’ll pay 100% of principal plus interest but preserve your credit rating and avoid the R7 notation. Compare rates from 50+ lenders through our debt consolidation hub to see if you qualify for affordable rates under 15% APR.

Credit counselling debt management plan if creditors are willing to freeze interest and you can afford 100% repayment over 4-5 years. Free services from non-profit credit counselling agencies negotiate with creditors on your behalf. Works best for debt under $25,000 when you want to repay creditors in full. Visit our credit counselling hub to understand the DMP process.

Direct negotiation with creditors if you have lump sum cash from savings, inheritance, or asset sale. Some creditors settle for 50-70% if you can pay immediately in full. This avoids LIT fees and may have less credit impact, though success depends entirely on creditor cooperation. Review debt settlement strategies to understand negotiation tactics.

Wait out limitation period if debts are old and you’re judgment-proof with no assets or garnishable income. Most provinces have 2-6 year limitation periods after which creditors can’t sue. Once past the limitation period, debts become legally uncollectible though they remain on your credit report. This strategy works only if you can tolerate collection calls and have nothing creditors can seize.

If these alternatives don’t work due to damaged credit, unaffordable payments, need for legal protection, or debts exceeding $25,000, a consumer proposal is usually the best option before considering bankruptcy. Compare all options side-by-side using our debt solution comparison tool to see which fits your situation.

Next Steps: How to File a Consumer Proposal

Filing a consumer proposal requires working with a Licensed Insolvency Trustee who handles all legal paperwork, creditor negotiations, and government filings on your behalf. The process starts with a free consultation and leads to immediate creditor protection within 24 hours of filing.

Step 1: Calculate Your Potential Savings

Use our consumer proposal calculator to estimate your monthly payment and total debt reduction based on your income, expenses, and total debt. The calculator shows what you’d likely pay over 3-5 years and how much debt would be forgiven. This gives you a realistic preview before meeting with an LIT.

Calculate your savings using the consumer proposal calculator.

Step 2: Book Free Consultation with Licensed Insolvency Trustee

Only federally licensed LITs can legally file consumer proposals in Canada under the Bankruptcy and Insolvency Act. The initial consultation is free with no cost and no obligation to proceed. You can meet in person at their office or virtually via video call depending on your preference and location.

Bring your complete debt list with creditor names, account numbers, and current balances. Provide recent pay stubs or income proof showing gross and net income. List all assets including home value and mortgage balance, vehicle values and loan balances, RRSP and TFSA balances, and savings accounts. Bring your monthly expense breakdown covering rent or mortgage, utilities, food, transportation, insurance, and other regular expenses.

The LIT reviews your complete financial situation and calculates whether you qualify for a consumer proposal based on the $10,000-$250,000 debt limit and your ability to maintain payments. They estimate what monthly payment you can afford and what offer creditors would accept based on bankruptcy recovery calculations. You receive clear comparisons of consumer proposal versus bankruptcy versus other debt relief options specific to your situation.

Step 3: Review Your Options with the LIT

The Licensed Insolvency Trustee explains all available options including consumer proposal terms you’d likely receive based on your financial situation, whether bankruptcy might deliver better outcomes considering your assets and income, alternative options like debt consolidation or credit counselling debt management plans, and doing nothing which means continuing to deal with collections and potential wage garnishment.

LITs are federally regulated and must act in your best interest while also representing creditors fairly. They’re legally neutral and required to present all options honestly without pushing you toward any particular solution. Legitimate LITs never pressure you to file immediately—they provide information for you to make an informed decision over several days or weeks.

Review the proposed monthly payment amount and total you’d pay over the term. Consider whether you can commit to 3-5 years of fixed payments through potential job changes, moves, or life events. Discuss the proposal with your spouse or family members who may be affected or who can provide input on affordability. Ask questions about anything unclear regarding process, timeline, costs, or impacts on credit and assets.

Step 4: Make Your Decision

Take time to consider whether a consumer proposal is right for your situation. There’s no rush—collection pressure continues but the LIT can usually file within 24-48 hours once you decide to proceed. Most people decide within 3-7 days of the initial consultation after reviewing the proposed terms and discussing with family.

If you decide to proceed, you’ll sign the proposal documents either in person or electronically depending on your LIT’s process. The LIT then files electronically with the Office of the Superintendent of Bankruptcy within 24 hours. Collections stop immediately on filing day through the legal stay of proceedings.

If you decide a proposal isn’t right, you haven’t lost anything—the consultation was free and you gained valuable information about your options. You can revisit filing later if circumstances change or explore the alternative options your LIT discussed.

Step 5: File and Get Immediate Relief

Once you sign the proposal documents, your LIT files electronically with the Office of the Superintendent of Bankruptcy. Filing happens within 24 hours and triggers immediate legal protection. Collection calls must stop by law the moment the OSB receives your filing. Wage garnishment ends within one pay period. Creditor lawsuits freeze and cannot proceed. Interest stops accruing on all included debts.

You receive breathing room to stabilize your finances without creditor pressure while creditors review and vote on your proposal over the next 45 days. The stay of proceedings protects you throughout the voting period regardless of the eventual outcome. Even if creditors reject your proposal, you had 45+ days of collection relief while exploring next steps.

Read our complete step-by-step filing guide to understand what happens at each stage from initial consultation through final completion certificate.

Related Debt Relief Resources

Consumer Proposal Guides

• What Is a Consumer Proposal in Canada? — Complete introduction
• How to File a Consumer Proposal — Step-by-step filing guide
• Consumer Proposal Cost Breakdown — Fee structure with examples
• Signs You Need a Consumer Proposal — Eligibility self-assessment

Comparison Guides

• Consumer Proposal vs Bankruptcy — Complete comparison
• Debt Settlement vs Consumer Proposal — Legal protection comparison
• Compare All Debt Relief Options — Side-by-side comparison

Credit Impact and Rebuilding

• Rebuild Credit After Consumer Proposal — Score recovery timeline
• Collection Accounts on Credit Report — Understanding credit impact

Alternative Debt Solutions

• Bankruptcy Canada — When bankruptcy is better
• Debt Consolidation Loans — Consolidation options
• Debt Settlement Canada — Private settlement risks
• Credit Counselling Services — Debt management plans
• Find a Licensed Insolvency Trustee — LIT directory by province

Calculators and Tools

• Consumer Proposal Calculator — Estimate payment and savings
• Wage Garnishment Calculator — Provincial limits
• Debt Payoff Calculator — Compare payoff strategies
• CRA Debt Calculator — Tax debt relief options

Provincial Resources

• Ontario Debt Relief — Ontario debt laws
• British Columbia Debt Laws — BC rules
• Alberta Insolvency Rules — Alberta rules
• Statute of Limitations by Province — Collection time limits

Bottom Line

Consumer proposals eliminate 60-80% of unsecured debt through federally regulated agreements that provide immediate legal protection, let you keep all assets, and have 97-99% creditor acceptance rates when properly structured by Licensed Insolvency Trustees. They work best for Canadians with $10,000-$250,000 in debt who have steady income but cannot afford full repayment, want to protect home equity or retirement savings, and need certainty over the negotiation risks of private debt settlement. The R7 credit rating remains for 6-8 years total but is less severe than bankruptcy’s R9 rating, and you can rebuild credit during the proposal using secured cards and on-time payments. Collections stop immediately on filing day, not after the 45-day creditor vote, giving you instant breathing room from garnishment and lawsuits. For most Canadians with significant unsecured debt and regular income, proposals offer the best balance of debt reduction, asset protection, and credit impact.

Calculate your savings using the consumer proposal calculator.

Disclaimer: This article provides general information about consumer proposals in Canada and should not be considered legal or financial advice. Consult a Licensed Insolvency Trustee for advice specific to your situation.

Last updated: February 1, 2026