Consumer Proposal

A consumer proposal is a legally binding agreement filed through a Licensed Insolvency Trustee (LIT) that lets you repay a portion of your unsecured debt — typically 30% to 70% — over a maximum of 60 months. You keep your assets, stop collection calls, and avoid bankruptcy. It is governed by the Bankruptcy and Insolvency Act (BIA).

Last updated: March 2026

Overview

A consumer proposal is one of the most common alternatives to bankruptcy in Canada. Under Part III, Division II of the Bankruptcy and Insolvency Act (BIA), it allows individuals who owe less than $250,000 in unsecured debt (excluding the mortgage on a principal residence) to negotiate a reduced repayment plan with their creditors through a Licensed Insolvency Trustee.

The proposal must offer creditors more than they would receive if you filed for bankruptcy. Once filed, an automatic stay of proceedings stops wage garnishments, collection calls, and most legal actions. Creditors have 45 days to vote on the proposal — if a majority in dollar value accepts, it becomes binding on all unsecured creditors, even those who voted against it.

Consumer proposals have grown significantly in popularity. According to data published by the Office of the Superintendent of Bankruptcy (OSB), consumer proposals have outnumbered personal bankruptcies in Canada every year since 2015. They provide a structured path to debt relief while preserving your home, vehicle, and other assets.

Eligibility Requirements

You may qualify if:

+You owe between $1,000 and $250,000 in unsecured debt (excluding your principal residence mortgage)
+You are an individual (not a corporation)
+You are insolvent — unable to meet your financial obligations as they come due
+You have a stable source of income or can make a lump-sum payment
+You have not had a consumer proposal annulled in the past
+You are willing to work with a Licensed Insolvency Trustee (LIT)
+You can offer creditors more than they would receive in a bankruptcy
+You are a Canadian resident or have property or debts in Canada
+You are prepared to attend two mandatory financial counselling sessions
+Your debts are primarily unsecured (credit cards, lines of credit, personal loans, tax debt)

This may not be right if:

-Your unsecured debts exceed $250,000 (excluding your mortgage) — you would need a Division I proposal instead
-You have no income and no assets to fund a lump-sum offer
-You have already filed a consumer proposal that was annulled for non-payment and have not resolved it
-Your debts are primarily secured (mortgages, car loans) — a consumer proposal only covers unsecured debts
-You are unwilling to make full financial disclosure to the LIT

How the Process Works

Free consultation with a Licensed Insolvency Trustee

Meet with an LIT for a free, confidential assessment of your financial situation. The LIT will review your income, assets, debts, and expenses to determine whether a consumer proposal is the right option for you.

Financial disclosure and proposal preparation

You provide the LIT with complete details of your finances. The LIT calculates what you can afford to repay and what creditors would receive in a bankruptcy, then drafts a proposal offering creditors more than the bankruptcy alternative.

Filing with the Office of the Superintendent of Bankruptcy

The LIT files the consumer proposal with the OSB. An automatic stay of proceedings takes effect immediately, halting wage garnishments, collection calls, and most lawsuits.

Creditor voting period (45 days)

Creditors have 45 days to review and vote on the proposal. A creditor meeting may be called if creditors holding 25% or more of the proven claims request one. The proposal is accepted if a majority of voting creditors (by dollar value) approve it.

Court approval and payment begins

If creditors accept the proposal (or if no meeting is requested and no creditor objects), it is deemed approved by the court. You begin making the agreed-upon monthly payments to the LIT, who distributes funds to creditors.

Two mandatory financial counselling sessions

You attend two counselling sessions with a qualified counsellor — the first within 45 days of filing and the second within 210 days. These sessions cover budgeting, money management, and strategies to avoid future financial difficulty.

Certificate of full performance

Once all payments are completed and counselling sessions are done, the LIT issues a Certificate of Full Performance. The remaining unpaid portion of your unsecured debt is legally discharged.

Costs and Fees

There are no upfront fees to file a consumer proposal. The LIT's fees are regulated by the BIA and are paid from the funds you contribute to the proposal — creditors receive the remainder. You do not pay the LIT separately.

Item	Estimated Amount
LIT administration fee (initial)	$1,500 (set by BIA tariff)
LIT fee on distributions to creditors	20% of amounts distributed
Counselling sessions (2 required)	Included in the proposal — no separate charge
Filing fee (OSB levy)	5% of distributions (paid from proposal funds)
Typical monthly payment	$200 - $800/month depending on debt and income

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Timeline

A consumer proposal can last up to 60 months (5 years). Many proposals are completed sooner if you can increase payments or make a lump-sum settlement.

Lump-sum consumer proposal

3 - 6 months (time to gather funds and complete filing)

Monthly payments — lower debt ($15,000 - $30,000)

24 - 36 months

Monthly payments — moderate debt ($30,000 - $75,000)

36 - 48 months

Monthly payments — higher debt ($75,000 - $250,000)

48 - 60 months

Credit Impact

Credit Rating

Duration on Report

3 years after completion, or 6 years from filing date — whichever comes first

A consumer proposal is noted on your credit report as an R7 rating (meaning you are making regular payments through a special arrangement). This notation remains for 3 years after you complete the proposal or 6 years from the filing date, whichever comes first. While an R7 will make it difficult to obtain new credit during the proposal, many people begin rebuilding their credit score within 1-2 years of completion using a secured credit card.

Pros and Cons

Advantages

+You keep your assets — your home, vehicle, RRSPs, and other property are protected
+An automatic stay of proceedings immediately stops wage garnishments, collection calls, and most lawsuits
+You repay only a portion of your unsecured debt (typically 30-70%)
+Monthly payments are fixed and interest-free for the duration of the proposal
+If your financial situation improves, you can pay off the proposal early without penalty
+Less severe credit impact than bankruptcy (R7 vs. R9)

Disadvantages

-Stays on your credit report for 3 years after completion (or 6 years from filing)
-Only covers unsecured debts — you must continue paying secured debts like mortgages and car loans
-Some debts are not included: student loans less than 7 years old, child support, spousal support, court fines, and debts arising from fraud
-Creditors can reject the proposal or request amended terms
-If you miss three monthly payments, the proposal is automatically annulled and your debts are reinstated in full
-You must disclose your complete financial situation to the LIT and creditors

Frequently Asked Questions

Will I lose my house or car if I file a consumer proposal?

No. One of the primary advantages of a consumer proposal over bankruptcy is that you keep all of your assets. Your home, vehicle, RRSPs, and other property are not at risk. However, you must continue making payments on any secured debts (such as a mortgage or car loan) separately from the proposal.

Can I include CRA tax debt in a consumer proposal?

Yes. Income tax debt, GST/HST debt, and other amounts owed to the Canada Revenue Agency (CRA) can be included in a consumer proposal. The CRA is treated as an unsecured creditor and participates in the voting process like any other creditor.

What happens if my income increases during the proposal?

Unlike bankruptcy, a consumer proposal has fixed payments that do not change if your income goes up. This is a significant advantage — if you receive a raise or new job, your proposal payments stay the same. You can choose to pay off the proposal early, but you are not required to increase payments.

Can creditors reject my consumer proposal?

Yes, creditors can reject a proposal if they believe the terms are insufficient. If a proposal is rejected, the LIT can work with you to amend the terms and resubmit. In practice, most consumer proposals are accepted because the LIT structures the offer to provide creditors with more than they would receive in a bankruptcy.

How is a consumer proposal different from a Division I proposal?

A consumer proposal is available to individuals with unsecured debts of $250,000 or less (excluding their principal residence mortgage). A Division I proposal is available to individuals and businesses with debts exceeding that threshold. Division I proposals have different voting rules and, if rejected by creditors, result in automatic bankruptcy.

Can I file a consumer proposal more than once?

Yes, there is no legal limit on the number of consumer proposals you can file. However, if a previous proposal was annulled for missed payments, you will need to address the outstanding obligations. A second or subsequent proposal may also face more scrutiny from creditors.

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