Consumer Proposals in Canada
When you’re struggling to pay off overwhelming debt, it can feel like you’re drowning with no way out. If monthly bills are piling up, credit card balances never seem to shrink, and the calls from creditors keep coming, you’re not alone. Thousands of Canadians face this challenge every year. One of the most practical and government-regulated solutions available is a consumer proposal. It’s a legal agreement that allows you to settle your unsecured debts for less than what you owe, while stopping interest, collection calls, and wage garnishments.
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Consumer Proposals in Canada: A Complete Guide to Debt Relief
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What is a Consumer Proposal in Canada?
A consumer proposal is a formal, legally binding agreement between you and your unsecured creditors, facilitated by a Licensed Insolvency Trustee (LIT). Through this process, you offer to repay a portion of your debt over a period of up to five years, often at a significantly reduced amount. Creditors typically accept because proposals generally offer a better return than bankruptcy.
A consumer proposal in Canada can be a life-changing solution for people overwhelmed with debt. It gives you breathing space, protects your assets, and provides a structured plan to become debt-free without the stigma of bankruptcy. If you’re tired of struggling and want to explore your options, take the first step today. Apply for debt relief with Lend For All and see if a consumer proposal is the right solution for you.
When you apply online through our platform, you are matched with a debt specialist. The specialist will evaluate your debt profile and help you decide if a debt consolidation program or consumer proposal will be the best option for you.
Key Highlights of Consumer Proposals in Canada
- Exclusively available in Canada under the Bankruptcy and Insolvency Act
- May reduce unsecured debt by as much as 70–80%
- Halts collection activities, lawsuits, and wage garnishments
- Allows you to keep essential assets (such as your home or vehicle, if payments are current)
- Offers a structured, dignified path to becoming debt-free without resorting to bankruptcy
Ready to explore your options? Take the first step towards debt relief and financial freedom by considering a consumer proposal. Contact us for more information or apply online.
How the Consumer Proposal Process Works
- Step 1: Consult with a Licensed Insolvency Trustee (LIT) – Your trustee will assess your income, debts, and assets to determine eligibility and the best solution for you.
- Step 2: Proposal Development – Based on your financial circumstances, your LIT will draft a proposal outlining what you can reasonably afford to repay each month.
- Step 3: Creditor Vote – Creditors review the proposal. If creditors holding the majority of your debt (by dollar value) accept, the agreement is legally binding on all parties.
- Step 4: Repayment – You will make a single, manageable monthly payment to your trustee, who will distribute funds to your creditors.
- Step 5: Completion and Debt Discharge – Upon fulfilling your proposal, any remaining eligible debt is legally forgiven, providing a fresh financial start.
Here is an example of how a consumer proposal works: Reba owed $45,000 in credit cards and loans. Her LIT negotiated a proposal of $300 per month for 60 months (totaling $18,000). Creditors accepted, helping Sarah avoid bankruptcy and become debt-free in five years by paying less than half her original debt.
Eligibility Criteria for a Consumer Proposal
The following criteria apply to individuals. (If you are a business, you must pursue a Division I proposal.)
- Must be insolvent (owe more than you can pay back)
- Unsecured debts must total less than $250,000 (excluding your mortgage)
- Stable income to support monthly payments
Note: If your unsecured debt exceeds $250,000, alternatives such as a Division I proposal or bankruptcy may be better suited to your needs.
Weighing the Pros and Cons of Consumer Proposals in Canada
Benefits / Pros | Considerations / Cons |
Substantial debt reduction (up to 70–80%) | Impacts credit (R7 rating) for up to 3 years post-completion |
Immediate halt to interest and collection actions | Requires consistent income for payments |
Asset protection (home, car, RRSPs, etc.) | Missing payments can annul the proposal |
Structured, predictable repayment plan | Longer credit impact versus paying debts in full |
Binding on all unsecured creditors | Not available for unsecured debts exceeding $250,000 |
All fees are included in your monthly payments |
Begin your journey to debt relief today and consider applying for a consumer proposal.
Consumer Proposal vs. Bankruptcy: Choosing the Right Path
Both consumer proposals and bankruptcy offer protection from creditors, but each has distinct implications:
- Consumer Proposal: Best for those with steady income who wish to protect their assets and avoid the stigma of bankruptcy.
- Bankruptcy: Suitable if income is insufficient to repay any portion of your debts; offers a faster, but more severe, credit impact and potential asset loss.
A consumer proposal generally allows you to retain more control over your finances and has less of a long-term impact on your credit score.
A consumer proposal can be a life-changing solution, providing immediate relief, asset protection, and a structured path to a debt-free future, without the lasting stigma of bankruptcy. If you’re ready to take control and explore your options, reach out to a Licensed Insolvency Trustee today. Take the first step towards your financial renewal. Apply for debt relief and discover if a consumer proposal is the right solution for you.
Your Credit and the Consumer Proposal
Filing a consumer proposal results in an R7 rating on your credit report, which remains for three years after completion or six years after filing, whichever comes first. While this initially limits borrowing, many Canadians rebuild their credit sooner than anticipated by:
- Obtaining a secured credit card
- Paying all bills promptly
- Maintaining low credit balances
Life After Completing a Consumer Proposal
If you are feeling overwhelmed by unmanageable debt, you’re not alone. Many Canadians face mounting bills, persistent credit card balances, and constant calls from creditors; situations that can be emotionally and financially draining. Thankfully, there are proven, government-regulated solutions designed to help you regain control. Among the most effective is the consumer proposal, a legal tool offering significant relief while protecting your assets and bringing peace of mind. The Financial Consumer Agency of Canada offers useful guidelines on paying off debt and repairing your credit.
Finishing a consumer proposal marks a new beginning. Once you make your final payment, all the debts included in your proposal are permanently erased. Many individuals feel a renewed sense of hope and financial freedom. You’ll receive credit counselling throughout the process, empowering you to develop healthy financial habits and avoid future debt cycles.
Debts Covered by Consumer Proposals
Consumer proposals typically cover unsecured debts, such as:
- Credit cards
- Lines of credit
- Personal loans
- Payday loans
- Income tax debt
- Student loans (if more than 7 years since you left school)
- Secured debts (e.g., mortgages, car loans) remain your responsibility if you wish to retain the underlying asset.
In this video, the Financial Consumer Agency of Canada explains what is involved in submitting a consumer proposal to your creditors.
Other Debt Solutions in Canada
If a consumer proposal isn’t the right fit, you might consider:
- Debt consolidation loans: Combine multiple debts into a single payment
- Credit counselling and debt management plans: Reduce interest and payments through voluntary arrangements
- Bankruptcy: A last resort, but sometimes necessary for unmanageable debt
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About Consumer Proposals in Canada
Find answers to all your questions about loans, credit, and financial services in Canada. Explore our comprehensive FAQ for clear, reliable information to guide your financial decisions.
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A consumer proposal is a legally binding agreement between you and your unsecured creditors and must be administered by a Licensed Insolvency Trustee (LIT). It reduces what you owe and allows you to make a more manageable payment over time, but it affects your credit history. Always weigh the benefits (debt relief, creditor protection) and limitations (impact on credit, strict requirements) before choosing this path.
In general, you qualify if your unsecured debts (excluding a mortgage on your principal residence) do not exceed about $250,000. Also, residents of Canada may typically file. The LIT will assess whether your income, assets, and debt load make a consumer proposal feasible.
You can include most unsecured debts:
- Credit cards, lines of credit, personal loans, payday loans
- Tax debts (income tax, GST/HST, penalties/interest)
- Older student loans (if at least seven years have passed since you last studied)
The following debts will be excluded or may be handled differently:
- Secured debts (mortgage, car loans) remain your responsibility, though you may keep the asset by maintaining those payments.
- Some student loans, if less than seven years since study, may still remain outside the proposal.
- Other debts that typically cannot be discharged include child or spousal support, court fines, and certain obligations from fraud or intentional harm.
Yes, in most cases:
- Home and car: As long as you stay current on their secured payments, you can generally retain them.
- Retirement savings/pensions: These are usually protected and not seized as part of a proposal.
- Savings accounts/liquid assets: Funds in your savings may be considered during the proposal negotiation. In some proposals, part of that equity is used in the settlement (if doing so still gives creditors more than they would get if you filed for bankruptcy).
- You will not lose all your assets, and there is no “vesting” of your property into the Trustee.
There is no upfront fee. The Trustee’s fees are set by federal law and are built into the payments you make under the proposal. You are not separately billed for submitting a consumer proposal.
Most proposals last 3 to 5 years, with a maximum of five years. You are allowed to pay it off early through lump sums or increased payments. Doing so can help shorten how long it stays on your credit file.
- Stay of proceedings: As soon as your proposal is filed, all collection activity, lawsuits, wage garnishments, and phone calls must stop.
- Creditors have 45 days to respond (either accept or reject your proposal). If they don’t respond, they are deemed to have accepted.
- Creditors vote by dollar amount. If a majority accepts, the proposal becomes binding on all unsecured creditors.
- If some creditors reject, your Trustee may negotiate or revise the proposal to seek acceptance.
Missing three payments is grounds for annulment, meaning the proposal will be cancelled and creditors may resume collection. If your circumstances change, you may be able to file an amended proposal. Creditors must vote on the amendment, and if accepted, the new terms take effect.
- While in the proposal, included debts are coded as R9 on your credit report.
- After completion, the status typically shifts to R7 for about three years.
- The record stays on your credit report for either three years after completion or six years from filing, whichever is earlier.
Yes. From the moment a stay of proceedings is in place (upon filing), unsecured creditors may no longer pursue collection, sue you, garnish wages, or call you about included debts.
Once accepted, all unsecured creditors are bound by the proposal; no creditor can opt out.
Yes, it’s possible to get credit even during a proposal, though it can be difficult. It’s best to only seek new credit if it is absolutely necessary and manageable. You may also retain credit cards with zero balances (i.e., they are not included in the proposal).
If a majority of creditors vote against it, your Trustee may revise the offer and resubmit it. If it’s still rejected, your next option may be bankruptcy.
Your spouse is unaffected unless they co-signed or are jointly responsible for the debts you are including. In some cases, spouses file a joint proposal, but it’s not required.
Yes, it’s possible to file a consumer proposal after a prior bankruptcy or after having completed a proposal. However, you can only have one active proposal at a time.
In recent years, consumer proposals have become a more common choice than bankruptcy. A key reason is the 2009 change to the Bankruptcy and Insolvency Act (BIA), which raised the maximum eligible debt (excluding mortgages on a principal residence) from $75,000 to $250,000. This opened the door for many more Canadians to qualify. Proposals are also seen as a less severe alternative because they allow you to reduce your debt, protect most of your assets, and avoid some of the long-term consequences associated with bankruptcy.
Advantages:
- Avoid bankruptcy and many of its consequences
- Protect your assets and stop creditor actions
- Interest stops accumulating on included debts
- Fixed, manageable payments
- Better credit rating impact (than bankruptcy) in many cases
Drawbacks:
- It remains on your credit file for several years
- It requires discipline and missing payments can annul it
- Creditors must vote; they may reject the offer
- Some debts (e.g. newer student loans, support payments) may survive the proposal
- Use your secured credit cards responsibly.
- Pay all your bills on time.
- Keep balances low or fully paid.
- Be patient: over time, a positive history will outweigh the proposal’s negative mark on your credit history.
Once you have made all payments and attended the two mandatory financial counselling sessions, the Trustee issues a Certificate of Full Performance, and your included debts are discharged. After that, you can begin rebuilding your credit, applying for new credit, and working to restore financial freedom. You can find credit counselling agencies through these associations: