Debt Options Guide
Consumer Proposal in Canada: How It Works
Updated
A consumer proposal is a legally binding deal, filed through a Licensed Insolvency Trustee under the Bankruptcy and Insolvency Act, in which you offer your unsecured creditors less than the full amount owed, paid over up to five years. Once filed, interest stops and collection actions — including most wage garnishments — are halted.
Who qualifies for a consumer proposal
You must be insolvent — unable to pay your debts as they come due — and your total debts, not counting the mortgage on your home, must not exceed $250,000. Above that limit, the equivalent process is a Division I proposal, which has stricter voting rules.
How the process works, step by step
- Free first meeting with a Licensed Insolvency Trustee, who reviews your income, assets and debts
- The trustee drafts the offer — typically based on what creditors would receive in a bankruptcy, plus a premium
- The proposal is filed with the Office of the Superintendent of Bankruptcy; a stay of proceedings starts immediately
- Creditors have 45 days to respond. If no meeting is requested, the proposal is deemed accepted
- You make the agreed payments and attend two mandatory financial counselling sessions
- When payments are complete you receive a Certificate of Full Performance and the remaining balance is released
What a consumer proposal does and does not cover
It covers unsecured debts: credit cards, lines of credit, payday loans, personal loans, income tax debt owed to the CRA and most collection accounts. Secured debts (a mortgage or car loan you keep paying) are not included. Child and spousal support, court fines and debts arising from fraud are not released. Student loans are only released if it has been at least seven years since you stopped being a student.
What happens if you miss payments
If you fall three months behind on monthly payments, the proposal is automatically annulled, creditors regain the right to collect the full original balance (minus what you paid), and the stay of proceedings ends. Talk to your trustee before you miss a payment — an amendment may be possible.
Cost and credit impact
Trustee fees are set by the Bankruptcy and Insolvency Act and are paid out of your proposal payments, so there is no separate up-front charge.
A consumer proposal is reported on your credit file, generally for three years after it is completed (or six years from filing, whichever comes first). Many people start rebuilding credit with a secured card during the proposal.
Consumer proposal vs. bankruptcy vs. consolidation
A proposal lets you keep assets and avoid bankruptcy, but requires a steady income. Bankruptcy is faster (as little as nine months) but may require giving up non-exempt assets and paying surplus income. A consolidation loan repays 100% of the debt and requires good enough credit to qualify.
Free tools
Related guides
- What Is a Licensed Insolvency Trustee?What a Licensed Insolvency Trustee does in Canada, how fees are regulated, what to bring to the first meeting and how to check a trustee's licence with the OSB.
- Bankruptcy in Canada: How It WorksHow personal bankruptcy works in Canada: the 9 or 21 month discharge, surplus income, exempt assets, which debts survive and how long it stays on your credit report.
- Debt Consolidation Loans in CanadaWhen a debt consolidation loan makes sense in Canada, how it compares with a debt management plan or consumer proposal, and the risks of using home equity.
Sources
- Bankruptcy and Insolvency Act (Justice Laws)
- Office of the Superintendent of Bankruptcy Canada
- Financial Consumer Agency of Canada
DebtDefender is an independent information site, not a Licensed Insolvency Trustee or law firm. This guide is general information, not advice for your situation. See our disclaimer.