Canadian Consumer Proposal Guide: An Alternative to Bankruptcy

What Is a Consumer Proposal in Canada?

A consumer proposal is a formal agreement, filed under Canada’s Bankruptcy and Insolvency Act, where you work with a Licensed Insolvency Trustee to:

• Offer to repay only part of your unsecured debts;
• Make fixed, interest-free payments over up to 5 years;
• Stop collection calls and wage garnishments with a legal stay of proceedings;
• Keep your assets in most cases (home, car, RRSPs, etc.).

It’s one of the main alternatives to personal bankruptcy in Canada, and must be administered by a Licensed Insolvency Trustee acting as your consumer proposal administrator.

How Does a Consumer Proposal Work in Canada?

A consumer proposal is a federally regulated, legally binding agreement between you and your unsecured creditors. It is filed and administered by a Licensed Insolvency Trustee (LIT) and overseen by the Office of the Superintendent of Bankruptcy (OSB).

In a typical Canadian consumer proposal:

• You meet with a LIT to review your finances and explore all options.
• The LIT helps you design an offer your creditors are likely to accept.
• The proposal is filed with the OSB, triggering a legal stay of proceedings.
• Your unsecured creditors vote on the proposal (within about 45 days).
• If accepted, you make one affordable monthly payment (usually up to 60 months).
• After completing all payments, remaining included debts are discharged.

For more detail on the mechanics, see our process page:
Consumer Proposal Process in Canada.

For an external overview, see:
What is a Consumer Proposal? – MNP and
Consumer Proposal – BDO Debt Solutions.

Who Qualifies for a Canadian Consumer Proposal?

You may be eligible for a consumer proposal in Canada if:

• You are an individual who is insolvent (can’t pay debts as they come due);
• You owe at least $1,000 in unsecured debt;
• Your total debts (excluding your primary residence mortgage) are generally less than $250,000 (higher limits can apply for joint proposals);
• You have enough income to make a reasonable monthly payment under the proposal.

Explore the details in our dedicated guide:
Consumer Proposal Eligibility.

Key Benefits of a Consumer Proposal

A Canadian consumer proposal offers several important advantages compared to simply struggling on with minimum payments or filing bankruptcy:

• Debt reduction: Repay only a portion of your unsecured debt, often 20–50%, depending on your situation.
• No interest on included debts: Interest generally stops the day your proposal is filed.
• Protection from creditors: Collection calls and wage garnishments typically stop due to the stay of proceedings.
• Asset protection: You usually keep your home, car, and other assets if you maintain secured payments.
• Predictable payments: One fixed monthly payment, up to 60 months, with a clear end date.
• Avoid bankruptcy: Many Canadians choose a proposal specifically to avoid the greater impact and stigma of bankruptcy.

For a deeper dive into the advantages, see:
Benefits of a Consumer Proposal in Canada.

How Much Does a Consumer Proposal Cost?

The cost of a consumer proposal is not an extra fee you pay on top of your debts. Instead, your cost is the total amount you agree to pay into the proposal, usually in affordable monthly instalments.

• Your LIT’s fees and government fees are built into your proposal payment, not billed separately.
• You do not pay hourly professional fees for the filing.
• Your monthly payment is based on what you can afford and what creditors will accept.

For detailed examples and a full breakdown, see:
How Much Does a Consumer Proposal Cost in Canada?

External references on consumer proposal costs:
Consumer Proposal Cost – Hoyes Michalos.

Step-by-Step Consumer Proposal Process

Here is a simplified step-by-step outline of how a Canadian consumer proposal works from start to finish:

1. Free consultation with a LIT
   You meet with a Licensed Insolvency Trustee to review your debts, income, expenses, and assets. The LIT explains all your options, including debt consolidation, credit counselling, consumer proposal, and bankruptcy.
2. Designing your proposal
   If a proposal is appropriate, your LIT helps you decide how much you can offer creditors and over what time frame (up to 60 months).
3. Filing and stay of proceedings
   Your LIT files the consumer proposal with the OSB. This triggers a legal stay of proceedings that usually stops collection actions and wage garnishments on included unsecured debts.
4. Creditor vote
   Creditors have about 45 days to vote. If creditors holding more than 50% (by dollar value) accept, the proposal is binding on all unsecured creditors included.
5. Make your payments and attend counselling
   You make your agreed payments to the LIT and complete two required financial counselling sessions.
6. Completion and discharge
   Once you’ve made all payments and fulfilled your duties, you receive a Certificate of Full Performance and the included unsecured debts are discharged as per the proposal terms.

For a more detailed walkthrough, see:
How to File a Consumer Proposal in Canada.

Consumer Proposal vs Other Debt Relief Options

A Canadian consumer proposal is just one of several debt relief solutions. It’s important to understand how it compares to your other choices.

Consumer Proposal vs Bankruptcy

• Assets: You usually keep assets in a proposal; in bankruptcy, you may lose non-exempt assets.
• Credit rating: Proposal typically results in an R7; bankruptcy is an R9.
• Duration: Proposals can last up to 5 years; a first-time bankruptcy may last 9–21 months.
• Cost: Proposals may cost more than a low-income bankruptcy, but protect assets and avoid bankruptcy’s stigma.

See our full comparison:
Consumer Proposal vs Bankruptcy in Canada.

Consumer Proposal vs Debt Consolidation Loan

• Debt consolidation combines debts into one new loan but does not reduce what you owe.
• A consumer proposal can reduce the principal and stops interest on included debts.

Learn more: Debt Consolidation in Canada

Consumer Proposal vs Credit Counselling

• Credit counselling often lowers interest but typically repays 100% of principal.
• A consumer proposal legally reduces the amount you must repay (principal and interest).

Learn more: Credit Counselling in Canada

For an official government comparison, see:
Compare Debt Solutions – OSB.

Risks and Limitations to Understand

While a consumer proposal has many benefits, it’s not perfect. Before you decide, consider:

• Your credit report will show a proposal (R7 rating) for several years after completion.
• If you miss three payments, your proposal may be annulled and your creditors can resume collection.
• Certain debts (like child/spousal support, some fines, and some student loans) may not be fully discharged.
• You must have enough income to make the agreed payments for the full term.

If your situation changes and you can’t afford the payments, see:
What If I Can’t Afford My Consumer Proposal Payments?

Is a Consumer Proposal Right for You?

A Canadian consumer proposal may be a good fit if you:

• Have significant unsecured debt you can’t repay in full;
• Can afford a reasonable monthly payment but need relief from interest and high balances;
• Want to avoid bankruptcy and protect your assets;
• Prefer a structured, legally binding plan with a clear end date.

To see how a proposal fits into the wider landscape of options, visit our hub:
Debt Relief in Canada – Options Overview.