What Is a Consumer Proposal and How Does It Work?

November 17, 2025, by Todd Sheriff, CPA, CIRP, Licensed Insolvency Trustee

A consumer proposal is a legal debt-relief process that allows Canadians to reduce unsecured debts by as much as 80 percent and avoid bankruptcy. This guide explains how it works, who qualifies, and what to expect under Canadian law in 2026.

A consumer proposal is a formal, legally binding agreement between you and your unsecured creditors under the Bankruptcy and Insolvency Act (BIA). It lets you settle what you owe for less than the full balance while keeping your assets and avoiding bankruptcy. Only a Licensed Insolvency Trustee (LIT)—a federally regulated debt professional—can administer one.

Once filed, the proposal immediately triggers a stay of proceedings, a legal protection that stops interest charges, collection calls, lawsuits, and wage garnishments. You make one affordable monthly payment for up to five years. When you finish, any remaining debt is legally forgiven, and you receive a Certificate of Full Performance.

According to the Office of the Superintendent of Bankruptcy (OSB), consumer proposals are now the most common debt-relief solution for Canadians struggling with unsecured debt. They balance repayment and forgiveness while preserving credit stability and financial recovery.

How Does a Consumer Proposal Work?

The process is highly regulated to ensure fairness and transparency.

Step 1 – Free Consultation
You begin with a confidential, no-cost assessment with a Licensed Insolvency Trustee Office. They review your income, debts, assets, and monthly expenses to see if a proposal fits your situation.

Step 2 – Proposal Preparation
If you qualify, the trustee’s office helps draft your offer to creditors. The offer outlines a realistic monthly payment over up to 60 months or a single lump-sum amount—usually more than creditors would receive in a bankruptcy.

Step 3 – Filing with the Government
The trustee office files your proposal electronically with the OSB. From that moment, the stay of proceedings takes effect—ending interest, calls, and garnishments.

Step 4 – Creditor Voting
Once your proposal is filed, creditors have 45 days to review it and vote on it. Each dollar of proven debt counts as one vote. If creditors holding a majority of the total dollar value of voting claims approve it, the proposal is accepted. If no majority objects within 45 days, it is automatically accepted. During this time, your trustee may negotiate with any creditor who votes against the proposal to adjust the terms if needed.

Step 5 – Payments and Completion
You make a single monthly payment to the trustee’s office, which then distributes funds to creditors. You can pay off early with no penalty. After your final payment, you receive a Certificate of Full Performance, and all included debts are discharged.

Who Qualifies for a Consumer Proposal?

You may be eligible if you:

• Owe up to $250,000 in unsecured debt (excluding your mortgage)
• Are insolvent — unable to pay debts as they come due
• Have a stable income to support consistent payments

Married or common-law couples can file a joint proposal if their combined unsecured debts are under $500,000. Even if you’re current on bills but struggling to stay ahead, you may still qualify. Most joint debts must be shared between both parties.

How Does a Consumer Proposal Compare to Bankruptcy?

Aspect	Consumer Proposal	Bankruptcy
Asset Protection	You keep your home, car, and savings if secured payments continue.	Some assets may need to be surrendered under provincial exemption limits.
Credit Rating	R7 for 3 years after completion (or 6 years from filing).	R9 for 6–7 years after discharge.
Duration	Up to 5 years (max) – can be paid off early.	Typically, 9–21 months for a first bankruptcy.
Payment	Fixed and predictable.	Fluctuates with income based on surplus rules.
Privacy	Not advertised publicly.	Also private but perceived with greater stigma.
Credit Rebuild	It can begin during the proposal.	Usually, after discharge only.

Consumer proposals have become the preferred option because they preserve assets, allow faster credit recovery, and demonstrate accountability to creditors.

What Debts Can Be Included in a Consumer Proposal?

Most unsecured debts can be reduced or settled through a proposal, including:

• Credit cards, personal loans, and lines of credit
• Payday loans and high-interest installment loans
• Tax debts owed to the CRA (income tax, GST/HST/CERB)
• Student loans (if studies ended 7 years ago or earlier)
• Unsecured overdrafts and utility bills

If you include current phone or utility accounts, those services may be discontinued. Even government debts like tax arrears can be included—making a consumer proposal one of the few legal methods to reduce CRA obligations while avoiding bankruptcy.

What Debts Cannot Be Included?

Certain obligations are excluded under the BIA:

• Secured loans (mortgages, car loans—unless you surrender the asset)
• Court fines or penalties
• Spousal or child-support arrears
• Student loans less than seven years old

If you voluntarily surrender a secured asset, any shortfall becomes an unsecured claim and can be included in your proposal.

How Common Are Consumer Proposals in Ontario and Across Canada?

According to the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), consumer proposals account for nearly two-thirds of all insolvency filings nationwide.

• Ontario: In 2024, over 42,000 Ontarians filed consumer proposals — a 17.9 percent increase from the previous year.
• Canada-wide: More than 108,000 Canadians chose proposals in 2024, up 11.6 percent year-over-year.

These trends show a clear shift toward repayment-based debt solutions that protect assets and credit ratings. Rising living costs and higher interest rates continue to make proposals an appealing alternative to bankruptcy.

(Source: Office of the Superintendent of Bankruptcy, Insolvency Statistics Canada 2024)

How Does a Consumer Proposal Affect Your Credit and Financial Recovery?

A consumer proposal is recorded as an R7 on your credit report for three years after completion (or six years from filing—whichever comes first). While it temporarily limits borrowing, many people start rebuilding credit before completion by using a secured credit card or RRSP loan, while keeping all secured debts—such as mortgage and car payments—current.

Bankruptcy, by contrast, is rated R9 and remains for 6–7 years after discharge. That’s why a consumer proposal is often the better choice for those prioritizing credit recovery and long-term financial health.

How Do You File a Consumer Proposal in Canada?

1. Consult a Licensed Insolvency Trustee – They review your debts, income, and budget and explain every option available.
2. Draft Your Proposal – Your trustee calculates a realistic repayment plan (usually 20–50 percent of total debt).
3. File with the OSB – Filing stops all interest, collections, and wage garnishments immediately.
4. Creditor Voting – Creditors have 45 days to vote; a majority approval makes it binding.
5. Payments and Counseling – You make monthly payments and attend two mandatory credit-counseling sessions.
6. Completion and Discharge – When payments are finished, you receive a Certificate of Full Performance and your included debts are forgiven.

What Is an Example of a Successful Consumer Proposal?

Watch: Wendy’s Consumer Proposal Success Story

“My name is Wendy, and I filed a consumer proposal. I thought I was managing well, but my bills grew faster than my income. I used one credit card to pay another and realized I was in trouble. My Licensed Insolvency Trustee explained this was common and helped me design a five-year repayment plan that I finished early. Now I’m debt-free.

If you’re unsure when to contact a trustee, do it as soon as debt starts to feel unmanageable. There’s no risk in learning your options. They’ll help you make informed decisions and take control again.”

Stories like Wendy’s show how consumer proposals empower ordinary Canadians to rebuild their financial stability with dignity.

What Are the Pros and Cons of a Consumer Proposal?

Advantages

• Stops all collections immediately through the stay of proceedings
• Freezes interest, so every payment reduces principal
• Reduces total debt by up to 80 percent (typical repayment 20–50 cents on the dollar)
• Lets you keep assets such as homes, vehicles, and RRSPs
• Simplifies budgeting with a single affordable payment
• Avoids bankruptcy stigma and maintains privacy
• Enables faster credit recovery (credit clears three years after completion)

Potential Drawbacks

• A temporary R7 credit rating may limit borrowing
• Requires a steady income; missed payments can void the proposal
• Applies only to unsecured debts; secured loans remain outside the process
• Includes administrative fees set by law and built into payments

For most Canadians, the advantages far outweigh the drawbacks—especially when protecting assets and rebuilding credit are priorities.

Frequently Asked Questions About Consumer Proposals in Canada

When Should You Speak with a Licensed Insolvency Trustee?

If you’re overwhelmed by debt, a consumer proposal could be your path to financial relief. Licensed Insolvency Trustees are government-regulated professionals who offer confidential, unbiased advice.

References and Sources

• Office of the Superintendent of Bankruptcy – Consumer Proposals
• Canadian Association of Insolvency and Restructuring Professionals – Consumer Proposal Overview
• Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3)

About the Author

Todd Sheriff, CPA, CIRP, Licensed Insolvency Trustee
Todd Sheriff leads Sheriff Sole & Madej Inc. and has over 30 years of experience helping Canadians achieve debt relief. His expertise includes bankruptcy, consumer proposals, and financial restructuring under the Bankruptcy and Insolvency Act.