The Canadian Consumer Proposal: Settle Your Debt & Protect Your Assets
🛡️ Federal Insolvency Protection Notice
A Consumer Proposal is a formal, legally binding debt settlement program governed under Part III, Division II of the federal Bankruptcy and Insolvency Act (BIA). It can only be filed and administered by an Office of the Superintendent of Bankruptcy (OSB) Licensed Insolvency Trustee (LIT). Unlicensed debt consultants cannot file a proposal on your behalf.
A Canadian Consumer Proposal is a government-backed debt relief option that allows you to negotiate with your unsecured creditors to repay only a fraction of what you owe—often 20% to 40% of the total principal—with zero interest, over a period of up to 5 years (60 months).
The moment your LIT files your proposal with the government, an immediate Stay of Proceedings takes effect. This halts all collection calls, stops CRA wage garnishments, and freezes lawsuit proceedings. Unlike personal bankruptcy, a Consumer Proposal allows you to keep all your assets, including your home, vehicle, tax refunds, and RRSPs.
Why Canadians Choose a Proposal Over Bankruptcy
If you are overwhelmed by credit card balances, personal loans, or CRA tax debt, you do not automatically have to declare bankruptcy. For most Canadians with a steady income or home equity, a Consumer Proposal offers a balanced path back to financial health:
Consumer Proposal vs. Personal Bankruptcy
Compare key legal differences under the Canadian Bankruptcy and Insolvency Act
| Core Feature | Consumer Proposal | Personal Bankruptcy |
|---|---|---|
| Debt Principal Reduction |
✓ Yes Pay a fraction of total debt |
✓ Yes Debt eliminated (subject to duties) |
| Asset Retention (Home, Car, RRSP) |
100% Protected You keep all assets |
Liquidated Non-exempt assets liquidated |
| Monthly Payment Stability |
Fixed Does not change if income rises |
Fluctuates Based on Surplus Income rules |
| Tax Refund Protection |
Keep Refunds You keep your tax refunds |
Seized Seized by estate during bankruptcy |
| Credit Rating Impact |
R7 Rating Removed 3 yrs post-completion |
R9 Rating 6–14 yrs on record |
| Maximum Program Duration |
Up to 60 months Can pay off early |
9 to 36 months Tied to surplus rules |
Pay a fraction of total debt
Debt eliminated (subject to duties)
You keep all assets
Non-exempt assets liquidated
Does not change if income rises
Based on Surplus Income rules
You keep your tax refunds
Seized by estate during bankruptcy
Removed 3 yrs post-completion
6–14 yrs on record
Can pay off early
Tied to surplus rules
Who Qualifies for a Consumer Proposal in Canada?
To file a Consumer Proposal under federal law, you must meet four statutory qualifications:
Insolvency Status: You are unable to meet your monthly debt obligations as they come due, or your total unsecured liabilities exceed the total realization value of your assets.
Canadian Connection: You reside in Canada, operate a business in Canada, or own property in Canada.
Debt Threshold Limits: You owe at least $1,000 but no more than $250,000 in total unsecured debt. (Note: This $250,000 threshold excludes the mortgage balance on your primary residence. If debt exceeds $250k, a Division I Proposal applies).
Stable Income Source: You have sufficient, predictable income (employment, pension, self-employment, or family contributions) to afford one fixed monthly payment.
What Debts Can Be Included in a Consumer Proposal?
A proposal consolidates almost all unsecured debts into a single, interest-free payment:
Eligible Unsecured Debts (Fully Settled):
Credit Cards & Store Cards: Visa, Mastercard, American Express, store retail cards.
Unsecured Personal Credit: Lines of credit, bank consolidation loans, overdrafts.
Payday & High-Interest Installment Loans: Easyfinancial, Mogo, LoanCanada, local storefront lenders.
Canada Revenue Agency (CRA) Tax Debt: Personal income tax arrears, GST/HST balances, CERB/EI/CRB overpayments.
Government Student Loans: Eligible ONLY IF you have been out of full-time or part-time studies for more than 7 years.
Debts That CANNOT Be Reduced (Excluded by Law):
Secured Mortgages & Vehicle Loans: You keep these loans active by continuing regular payments directly to the lender.
Child Support & Spousal Support Arrears: Cannot be compromised or discharged under BIA Section 178.
Court Fines, Penalties & Restitution: Fines imposed by criminal or civil courts.
Debts Arising from Fraud or Misrepresentation: Money obtained through proven misstatements.
Discuss options to get out of debt with a trained & licensed debt relief professional.
How the Consumer Proposal Process Works (Step-by-Step)
The Consumer Proposal Process & Timeline
A step-by-step roadmap from initial debt consultation to total debt elimination
Free Consultation
Review your income, assets, and debts with a Licensed Insolvency Trustee.
File & Stay of Proceedings
Immediate legal freeze on all collection calls, lawsuits, and wage garnishments.
Creditor Voting (45 Days)
Creditors review the offer. A simple majority approval makes terms legally binding.
Fixed Monthly Payments
Make single negotiated monthly payments to your trustee (up to 60 months max).
2 Counseling Sessions
Complete mandatory financial skill-building and credit rebuilding sessions.
Certificate of Full Performance
100% Debt Elimination: You receive official discharge releasing you from included debts.
Step 1: Free, Confidential Assessment with an LIT
You meet with a Licensed Insolvency Trustee to review your budget, total debt, and asset protection needs. Your trustee calculates an affordable monthly payment proposal.
Step 2: Formal Filing & Immediate Creditor Protection
Your LIT submits your official proposal documents to the Office of the Superintendent of Bankruptcy (OSB). The legal Stay of Proceedings instantly freezes wage garnishments, stops interest charges, and halts collection agency harassment.
Step 3: Creditor Voting Period (45 Days)
Your creditors are given 45 days to review and vote on your proposal. To pass, the proposal requires approval from a simple majority (50% + $1 dollar value) of voting creditors. Once approved, the terms become legally binding on all unsecured creditors, even those who voted against it.
Step 4: One Fixed Monthly Payment
You make one affordable, fixed payment directly to your trustee each month for up to 60 months. There are no hidden administration fees—trustee fees are regulated by federal tariffs and deducted directly out of your single payment pool.
Step 5: Mandatory Financial Counseling
You attend two 1-on-1 financial counseling sessions governed by OSB Directive 1R6. These sessions equip you with practical budgeting tools, money management skills, and credit-rebuilding strategies.
Step 6: Official Completion & Full Debt Discharge
Once your monthly payments and counseling duties are finished, your LIT issues your official Certificate of Full Performance. All remaining eligible unsecured debt balances are legally wiped clean.
Debunking Common Consumer Proposal Myths
Myth 1: “I will lose my home and car.”
FALSE. In a Consumer Proposal, you do not surrender assets. As long as you maintain your regular mortgage and vehicle loan payments, you keep your home and car.
Myth 2: “My credit will be permanently ruined.”
FALSE. A proposal results in an R7 credit rating. This rating remains on your credit report for 3 years after completion (or 6 years from the date of filing, whichever comes first). In contrast, bankruptcy leaves an R9 rating for up to 14 years. Most proposal clients start rebuilding credit within 12 to 18 months of completion.
Myth 3: “I have to pay trustee fees on top of my settlement.”
FALSE. Under federal law, you never pay out-of-pocket setup fees or extra professional charges for a Consumer Proposal. The trustee’s administration costs are set by federal OSB tariffs and are taken directly out of the monthly payment you negotiate for your creditors.
Select Your Province to View Local Proposal Rules
While the Bankruptcy and Insolvency Act is a federal statute, provincial exemption laws (such as home equity limits, wage garnishment caps, and professional licensing rules) impact how your proposal is structured.
Select your province below to read localized rules and connect with an OSB-registered Licensed Insolvency Trustee:
Find Your Personal Debt Relief Solution
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Legally Cut Your Debt By 80% And Stop Interest Charges
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Unfreeze Bank Accounts
Stop Wage Garnishment
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