What Is a Consumer Proposal? (2025 Canadian Guide)

What is a consumer proposal? Updated July 28, 2025 — It’s a legal way for Canadians to reduce debt by up to 80% and avoid bankruptcy. This guide explains how it works, who qualifies, and what to expect in 2025.

What Is a Consumer Proposal?

Consumer proposal definition: A consumer proposal is a legally binding agreement — a legal debt solution in Canada that lets you settle your unsecured debts for less than you owe. It’s filed through a Licensed Insolvency Trustee (LIT) and provides immediate protection from creditors — including stopping interest, collections, and wage garnishments.

You make one affordable monthly payment, and once complete, the rest of your debt is forgiven. As a result, you can rebuild your financial life without ongoing collection pressure. Learn more from the Government of Canada.

How Does a Consumer Proposal Work?

The process is simple:

• A Licensed Insolvency Trustee reviews your financial situation
• They submit a proposal to your creditors
• If the majority (by dollar value) accept, all are bound by it
• You make fixed monthly payments over up to five years
• Once complete, you’re legally debt-free

Who Qualifies for a Consumer Proposal?

You may be eligible if you:

• Owe less than $250,000 (excluding mortgage)
• Are unable to repay your debts in full
• Have stable income to make monthly payments

Interestingly, you don’t need to be behind on your bills to qualify.

Consumer Proposal vs Bankruptcy

Feature	Consumer Proposal	Bankruptcy
Asset Protection	Keep home, car, RRSPs	May lose assets
Credit Rating	R7	R9
Duration	Up to 5 years	9–21 months
Payment Structure	Based on income	Based on income & assets
Legal Protection	Yes	Yes
Credit Recovery Time	3 years after completion	6–7 years after discharge

What Debts Can Be Included?

• Credit card debt
• Lines of credit
• Personal loans
• Payday loans
• CRA tax debt (income tax, HST, and GST)
• Student loans (if over 7 years old)

Many people are surprised to learn that CRA debt is fully covered in this federal repayment option, making it one of the most effective solutions for tax debt in Canada.

What Debts Can’t Be Included?

• Secured debts like mortgages and car loans
• Court-imposed fines or penalties
• Child or spousal support payments

Consumer Proposal in Ontario

Did you know: Ontario has the highest number of consumer proposals filed annually (42,222 consumer proposals filed in 2024, with a growth of 17.9% compared to the previous year*). With rising living costs and interest rates, more people are choosing this alternative to bankruptcy.

How Does It Affect My Credit?

A consumer proposal results in an R7 credit rating and stays on your report for 3 years after completion. That’s less damaging than bankruptcy (R9), and you can begin rebuilding your credit while still in the proposal.

How to File a Consumer Proposal in Canada

1. Book a free consultation with a Licensed Insolvency Trustee
2. Review your debts and income
3. If appropriate, your trustee files the proposal
4. Creditors vote
5. If accepted, you make a single monthly payment

You stay protected throughout the process.

Watch: How a Consumer Proposal Works

Pros and Cons of a Consumer Proposal

A consumer proposal is one of the most effective and flexible ways to deal with debt in Canada — but it’s not right for everyone. Here’s a breakdown to help you decide:

Pros

• Stops collection calls and legal action immediately
• Freezes interest and penalties
• You only repay part of what you owe
• You keep your home, vehicle, and RRSPs
• One fixed monthly payment
• Avoids bankruptcy and stigma
• Credit recovery starts during the proposal

Cons

• Affects your credit (R7 rating)
• Public record for the term of the proposal
• You must have a reliable source of income
• Payments are legally binding — you can’t skip them
• Not suitable for people with mostly secured debts

Still unsure? A Licensed Insolvency Trustee can review your situation and show what your payments would look like — with no cost or obligation.

Frequently Asked Questions

How Much Can You Save in a Consumer Proposal?

very situation is different, but most people reduce their total debt by 50% to 80%. If you owe $40,000 in credit cards and lines of credit, your monthly payment could be as low as $250–$400. These savings are possible because your creditors would rather accept a portion of what’s owed than risk getting nothing if you go bankrupt. To find out how much you could save, speak with a Licensed Insolvency Trustee for a free, confidential estimate.

Speak with a Licensed Insolvency Trustee

If you’re exploring options to get out of debt legally in Canada, this debt settlement plan may be your best next step. With no upfront costs and protection from creditors, it’s a trusted solution for thousands of Canadians every year.

Disclaimer: This page provides general information only and does not constitute legal advice. For personalized help, speak with a Licensed Insolvency Trustee.

_{*Source: Office of the Superintendent of Bankruptcy: Insolvency Statistics in Canada — 2024}