Consumer Proposal
Proposition de consommateur in French
Quick definition
A consumer proposal is a legally binding offer, filed through a Licensed Insolvency Trustee, to repay creditors a portion of your unsecured debt over up to five years. Interest stops, collection actions stop, and you keep your assets.
How a consumer proposal works
A consumer proposal is a formal deal with your creditors, made under federal insolvency law and filed through a licensed insolvency trustee. Instead of repaying everything you owe, you offer to repay a portion, often in the range of 30 to 50 cents on the dollar as a typical outcome, spread over a maximum of five years. Once the required share of creditors accepts, the deal binds all of them, including the ones who voted no.
The moment the proposal is filed, a stay of proceedings takes effect. Collection calls stop, lawsuits over the included debts stop, and wage garnishments stop. Interest on the included debts is frozen as of the filing date, so every payment you make goes toward the settled amount rather than chasing a growing balance.
It is Canada's main alternative to bankruptcy, and in recent years Canadians have filed more proposals than bankruptcies, precisely because it delivers most of the relief with far less disruption.
Who qualifies
Consumer proposals are for individuals, not corporations, and there is a size limit: your unsecured debts must total less than $250,000, not counting the mortgage on your principal residence (as of July 2026). You must also be insolvent, meaning you cannot pay your debts as they come due. Above the limit, a similar tool called a Division I proposal exists, with stricter rules.
Consumer proposal vs. bankruptcy
The comparison with bankruptcy is the heart of the decision, and the differences are bigger than most people expect:
| Consumer proposal | Bankruptcy | |
|---|---|---|
| Your assets | You keep everything, including home equity | Non-exempt assets go to creditors |
| Windfalls (raise, inheritance, lottery) | Yours to keep; payments do not change | Can increase what you pay or lose |
| Monthly payments | Fixed for the whole term | Rise with income under surplus income rules |
| Credit record | R7, typically removed 3 years after completion | R9, on file roughly 6 to 7 years (first bankruptcy) |
| Cost | Built into the payments, no separate fee | Trustee fees plus possible surplus income payments |
| Duration | Up to 5 years, can finish early | 9 to 21 months for a first bankruptcy |
The predictability advantage
Two rows of that table deserve emphasis. First, a proposal has no surplus income rules: if your income rises after filing, your payment stays exactly what you agreed to, whereas in bankruptcy a raise increases what you owe. Second, you keep windfalls. An inheritance or bonus received during a proposal is yours; during a bankruptcy it can go to your creditors. A proposal trades a longer timeline for certainty.
The process, step by step
From first meeting to final payment, the path is well defined:
- A licensed insolvency trustee reviews your full financial picture, free of charge, and helps you decide what to offer.
- The trustee files the proposal; the stay of proceedings starts that day.
- Creditors vote. Approval requires creditors holding a majority of the dollar value of the debt to accept, and most reasonable proposals pass, since creditors typically recover more than they would in a bankruptcy.
- You make the agreed payments, monthly or as a lump sum, through the trustee, who distributes them to creditors.
- You attend two mandatory financial counselling sessions.
- When the last payment clears, you receive a certificate of full performance and the settled debts are legally gone.
What a proposal does not cover
Secured debts like your mortgage or car loan are untouched: keep paying and you keep the asset. Child and spousal support arrears survive in full. Government student loans are only dischargeable if you have been out of school for at least seven years. Court fines and debts from fraud also survive.
Proposal or DIY debt consolidation?
A consolidation loan repays 100% of your debt at a lower rate, which protects your credit report and works well when the total is manageable and your credit score still qualifies you for decent terms. If a realistic budget can clear the debt in a few years that way, consolidation is usually the better first move.
A proposal wins when the math no longer works: when even a consolidated payment at a lower rate is unaffordable, when lenders will not approve a consolidation loan, or when collections and garnishments have already started. Only a proposal can legally cut the principal and stop the collection machinery.
In Canada
The consumer proposal is a uniquely Canadian tool: it does not exist in the United States. The closest American cousin is Chapter 13 bankruptcy, a court-supervised repayment plan, but a proposal is not a bankruptcy, is administered by a trustee rather than driven through court, and leaves a lighter mark on your credit file. It is one reason the Canadian insolvency system is often described as more rehabilitation-focused than the American one.
Worked example
Marc owes $60,000 across three credit cards and an unsecured line of credit, and the minimum payments alone now exceed what his budget can carry. His trustee files a proposal offering $21,600 over 60 months, which is $360 a month, or 36 cents on the dollar. Creditors holding a majority of the debt accept. Interest is frozen, the garnishment on his pay ends, and he keeps his car and the equity in his condo. Five years later he receives his certificate of full performance, and the R7 notation comes off his credit file three years after that.
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated July 2026