If debt feels overwhelming, you’re not alone. High-interest credit cards, payday loans, unpaid taxes, or personal loans can quickly snowball until minimum payments barely cover the interest. Many Canadians in this situation think bankruptcy is their only option—but there’s another path.

A consumer proposal is a legal, government-regulated solution that allows you to reduce debt, stop interest, and protect your assets without bankruptcy. Crowe MacKay and Company's guide explains a consumer proposal, its pros and cons, and whether it's the right option for you.

What Is a Consumer Proposal?

A consumer proposal is a formal agreement between you and your creditors to repay a portion of your unsecured debt. It is filed under the Bankruptcy and Insolvency Act and must be administered by a Licensed Insolvency Trustee (LIT).

Creditors often accept proposals because they recover more than they would in a bankruptcy. For you, it provides affordable, interest-free payments and a clear end date. Once completed, any remaining debt is forgiven.

The Role of a Licensed Insolvency Trustee (LIT)

Only a Licensed Insolvency Trustee can file a consumer proposal. Their role is to:

• Review your income, assets, and debts.
• Explain all your options—not just proposals.
• Prepare and submit the proposal to creditors.
• Handle voting and negotiations.
• Collect and distribute payments.
• Guide until you receive a Certificate of Full Performance.

The trustee is a neutral court officer who ensures the process is fair to you and your creditors.

Who Qualifies for a Consumer Proposal?

You may be eligible if:

• Your unsecured debt is less than $250,000 (excluding a mortgage on your home).
• You are insolvent—unable to pay debts as they come due, or your debts are greater than your assets.
• You have enough steady income to make monthly payments.

If your debts exceed $250,000, a Division I Proposal may be available. This proposal follows a similar process but has different rules.

How a Consumer Proposal Works: Step by Step

1. Initial Consultation

You meet with an LIT to review your finances and discuss all available options.

2. Drafting the Proposal

The trustee prepares a repayment plan, often reducing unsecured debt by 20%–80%.

3. Creditor Voting

Creditors have 45 days to vote. If the majority (by dollar value) say yes, the proposal becomes legally binding on all.

4. Making Payments

You make fixed, interest-free monthly payments to the trustee, who distributes funds to creditors.  You have the right to pre-pay, in part or in full, the proposal at any time. 

5. Completion

Once payments are finished, you receive a Certificate of Full Performance and your unsecured debts are discharged.

Advantages of a Consumer Proposal

• Stops collections immediately – No more phone calls, lawsuits, or wage garnishments.
• Reduces debt – Many people repay only a fraction of what they owe.
• Interest stops – Payments are fixed and interest-free.
• Keep your assets—Unlike bankruptcy, you can keep your home, car, and RRSPs (subject to exemptions).
• Binding on creditors – Once approved, all creditors must follow the agreement.
• Flexibility – You can pay it off early without penalty.
• Less credit impact than bankruptcy – Reported as an R7 rating instead of R9.

Drawbacks and Limitations

• Credit rating – A consumer proposal stays on your credit report for three years after completion or six years from filing (whichever comes first).
• Not all debts dischargeable - child or spousal support, recent student loans (less than 7 years old), court fines, and secured loans survive.
• Risk of annulment – Missing three payments cancels the proposal, and creditors regain collection rights.
• Public record – Proposals are listed in a federal insolvency database (though rarely accessed by the public).

Consumer Proposal vs. Bankruptcy

Other Debt Relief Options

A consumer proposal isn’t the only way to deal with debt. Alternatives include:

• Debt Consolidation Loan – Combine multiple debts into one loan with lower interest (requires good credit).
• Debt Management Plan – Arranged by a credit counsellor; you repay debts in full but with reduced interest.
• Informal Settlement – Negotiate directly with creditors, though without legal protection.

Special Considerations

Tax Debt

A consumer proposal includes the Canada Revenue Agency (CRA). CRA must stop collection actions once the proposal is filed, and your repayment terms apply to them.

Student Loans

Government student loans can be discharged if you’ve been out of school for at least seven years. If it has been less, you may still need to repay them.

Secured vs. Unsecured Debt

Proposals only cover unsecured debt, such as credit cards, lines of credit, and payday loans. To retain the asset, you must keep paying secured loans, like mortgages and car loans.

Life After a Consumer Proposal

Completing your proposal provides a financial reset. The next step is rebuilding:

• Credit repair – Apply for a secured credit card, pay bills on time, and use credit responsibly.
• Financial habits – Build a budget, create an emergency fund, and avoid high-interest debt.
• Credit monitoring – Check your credit report to ensure debts are correctly reported as discharged.

Is a Consumer Proposal Right for You?

A consumer proposal may be worth considering if:

• Your unsecured debt is too large to repay in full.
• You want to avoid bankruptcy and protect your assets.
• You have a steady income to support monthly payments.

Other solutions may work better if your debt is smaller or you qualify for a low-interest consolidation loan. The best way to find the right option is to speak with a LIT.

FAQs

How long does a consumer proposal stay on my credit report?

It’s removed three years after completion or six years from filing, whichever comes first.

Can I pay off my consumer proposal early?

Yes. You can make lump-sum or extra payments without penalty.

What happens if I miss payments?

If you miss three, the proposal is annulled, and creditors can resume collections.

Can tax debt be included?

Yes. CRA debt is treated like other unsecured debt.

Are student loans included?

Yes, but only if you’ve been out of school for at least seven years.

Does it affect my spouse?

No, unless they co-signed or guaranteed your debt.

Is it public record?

Yes, but only in the federal insolvency registry, which is not widely accessed.

What about secured debts like a mortgage?

Secured debts are not included. You must continue payments to keep the asset.

Start Your Consumer Proposal Journey to Debt Relief

A consumer proposal can reduce debt, stop creditor calls, and protect assets. But is it the right fit for your situation? The answer depends on your income, debt level, and financial goals.

The easiest way to find out is to speak with a Licensed Insolvency Trustee. Contact us today for a free, confidential consultation and take the first step toward a fresh financial start.