Benefits of a Consumer Proposal in Canada: Key Advantages & When It’s Right

Short Answer: What Are the Main Benefits of a Consumer Proposal?

A consumer proposal is a legal debt settlement that lets you repay only part of what you owe, with no interest, while keeping most of your assets and avoiding bankruptcy. Key benefits include:

• Reduce your unsecured debt—often to a fraction of the original amount.
• Stop interest on included debts from the day the proposal is filed.
• Protect assets like your home, car, and RRSPs in most cases.
• Stop collections and wage garnishments through a legal stay of proceedings.
• Avoid bankruptcy and its more severe consequences.
• Make one affordable payment each month for a fixed period (up to 5 years).

Consumer proposals are governed by Canada’s Bankruptcy and Insolvency Act and must be filed by a Licensed Insolvency Trustee.

What Is a Consumer Proposal and How Does It Work?

A consumer proposal is a legally binding debt settlement in which you offer to repay only a portion of your unsecured debt over a period of up to 5 years. It is filed and administered by a Licensed Insolvency Trustee (LIT), the only professional in Canada authorized to do so.

In a typical consumer proposal:

• Your LIT reviews your budget, assets, and debts.
• You and the LIT agree on a fair monthly payment you can afford.
• The LIT presents your proposal to your unsecured creditors.
• If the majority (by dollar value) vote to accept, the proposal becomes binding on all unsecured creditors included.
• You make one consolidated payment to the LIT, who distributes it to your creditors.

For a detailed overview of the process, see our main guide: Consumer Proposal in Canada.

Several national firms provide consumer-friendly summaries of the benefits, including:

• Key Benefits of a Consumer Proposal – Hoyes Michalos
• Consumer Proposal Benefits – BDO Debt Solutions

Top Benefits of a Consumer Proposal in Canada

Here are the major benefits of a consumer proposal, broken down so you can see how each one might apply to you.

1. Reduce Your Unsecured Debt

One of the most important benefits is that you can legally reduce the total amount of unsecured debt you owe. Instead of paying 100% of your balances plus interest, you may only repay a portion—sometimes as little as 20–40% of the original amount, depending on your situation.

Debts that are often included:

• Credit cards and department store cards.
• Lines of credit and personal loans.
• Payday loans and high-interest instalment loans.
• Income tax debt and Canada Revenue Agency (CRA) balances.
• Some student loans (depending on timing rules).

2. Stop Interest and Penalties

Once your consumer proposal is filed, interest on included unsecured debts stops. You are no longer fighting a growing balance—your proposal payment is fixed, and there are no additional interest charges on those debts.

This benefit is highlighted by many trustees and non-profit organizations, including BDO’s overview of consumer proposal benefits.

3. Keep Most of Your Assets

Compared to bankruptcy, a major benefit of a consumer proposal is that you normally keep your assets, as long as you maintain any secured payments (such as mortgage or car loan), including:

• Your home (subject to mortgage and provincial exemptions).
• Your car, if you keep up payments and equity is manageable.
• RRSPs (except for recent contributions), pensions, and many other savings vehicles.
• Basic household belongings and personal items.

Instead of surrendering non-exempt assets, your proposal is designed to offer creditors at least as much as they would receive in a bankruptcy, but paid over time from your income.

4. One Affordable Monthly Payment, Up to 5 Years

In a consumer proposal, you make one fixed monthly payment to your LIT, usually for a period of up to 60 months (5 years). That payment is based on what you can realistically afford after essential living expenses.

Benefits of this structure:

• No juggling multiple due dates and minimum payments.
• No surprise interest rate changes on included debts.
• Clear, predictable schedule to become debt free.

5. Protection from Creditors and Wage Garnishments

When your proposal is filed, you immediately receive a stay of proceedings—a powerful legal protection that:

• Stops most collection calls and aggressive recovery actions.
• Can stop ongoing wage garnishments for unsecured debts.
• Prevents most new lawsuits over debts included in the proposal.

This is a major advantage for people already facing legal actions or threats from creditors.

6. Avoid Bankruptcy and Its Consequences

For many Canadians, one of the biggest benefits of a consumer proposal is that it allows them to avoid personal bankruptcy. That can matter if:

• You want to protect your professional or business reputation.
• Your employment or industry is sensitive to bankruptcy filings.
• You prefer the somewhat less severe credit impact compared to bankruptcy.

For a good comparison of proposal vs bankruptcy, see external resources like RBC’s “A Consumer Proposal or Bankruptcy?” and our own guide: Consumer Proposal in Canada.

7. Faster Credit Rebuilding than Bankruptcy (for Many People)

While a consumer proposal does affect your credit, the impact is generally less severe and shorter than a first-time bankruptcy. With good habits after your proposal is completed, many people begin rebuilding credit within 1–2 years.

How the Benefits Compare to Bankruptcy

Both a consumer proposal and bankruptcy are legal debt solutions, but they come with different trade-offs.

To understand the pros and cons of bankruptcy itself, see: Advantages of Bankruptcy in Canada and Effects of Claiming Bankruptcy.

Who Benefits Most from a Consumer Proposal?

A consumer proposal is often a good fit if you:

• Have significant unsecured debt (credit cards, lines of credit, tax debt, etc.).
• Can afford some payment each month, but not enough to repay everything in full.
• Want to protect your home, car, or other assets that could be at risk in a bankruptcy.
• Prefer a structured, predictable plan with a clear end date.
• Want to avoid the impact and stigma of bankruptcy where possible.

Our Debt Relief in Canada hub compares consumer proposals with other solutions so you can see where they fit into the bigger picture.

Limitations and Trade-Offs to Be Aware Of

Understanding the benefits of a consumer proposal also means being aware of its limitations:

• A proposal only works if you can afford the monthly payment—if your income is too low, bankruptcy may be more realistic.
• Some debts (like child or spousal support, certain fines, and some student loans) may not be fully discharged.
• Credit bureaus will show the proposal on your report for several years, and you will temporarily have an R7 rating.
• If you miss too many payments, your proposal can be annulled, and creditors can resume collection.

Balanced perspectives on advantages and disadvantages can be found at:

• Consumer Proposal Advantages and Disadvantages – WeCanHelp.ca
• FCAC – Getting Help with Debt (Consumer Alert)

Steps to Explore a Consumer Proposal

If you’re considering a consumer proposal, here’s a simple step-by-step approach:

1. List your debts and income. Include balances, interest rates, minimum payments, and household income/expenses.
2. Review all your options. Read about debt consolidation, credit counselling, and bankruptcy to see how they compare.
3. Book a free consultation with a LIT. A Licensed Insolvency Trustee is legally required to explain all reasonable options, not just a consumer proposal.
4. Review a sample proposal. Ask what your monthly payment would be, how long it would last, and what debts would be included.
5. Decide and act. Once you understand the benefits of a consumer proposal compared to bankruptcy and other options, choose the path that best fits your goals and move forward.