How Does a Consumer Proposal Work? - Complete Process, Step-By-Step Guide

When faced with unmanageable debt, many Canadians seek solutions that offer financial relief without the long-term consequences of bankruptcy. A consumer proposal is one such option, providing a structured, legally regulated alternative that enables individuals to reduce their debt load while retaining their assets and avoiding bankruptcy.

This guide provides a detailed overview of how a consumer proposal works in Canada. It outlines the eligibility criteria, explains the step-by-step process, and highlights the key benefits and considerations of this debt relief solution. For individuals struggling with unsecured debt, such as credit cards, personal loans, or tax obligations, understanding the consumer proposal process can be a crucial step toward regaining financial stability.

What is a Consumer Proposal?

A consumer proposal is a formal debt settlement process filed under the Bankruptcy and Insolvency Act of Canada. It’s an agreement made between you and your creditors to repay a portion of your debt over a period of up to five years. It’s filed through a Licensed Insolvency Trustee - the only professionals in Canada authorized to administer consumer proposals.

This debt relief option allows you to:

• Reduce the total amount you owe

• Stop interest from accumulating

• Consolidate your debts into one manageable monthly payment

• Keep your assets (like your home or vehicle)

The consumer proposal typically involves repaying only a portion of the total debt owed, often being between 20% and 50% - over a maximum term of five years. During this time, all collection activity, legal action, and interest charges are suspended, offering immediate protection and peace of mind.

Who Qualifies for a Consumer Proposal?

To be eligible to file a consumer proposal in Canada, you must:

• Owe no more than $250,000 in unsecured debt (excluding a mortgage).

• Be insolvent (unable to meet your financial obligations as they become due).

• Have a stable source of income to support consistent monthly payments.

• Reside in Canada or own property in the country.

Individuals with unsecured debts exceeding $250,000 may still qualify for a Division I Proposal, a similar process with different conditions and terms.

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What Debts Can Be Included in a Consumer Proposal?

A consumer proposal addresses most forms of unsecured debt, including:

• Credit card balances

• Unsecured personal loans and lines of credit

• Payday loans

• Overdue utility bills

• Income tax debt owed to the Canada Revenue Agency (CRA)

• Student loans (if more than seven years have passed since you ceased to be a full-time or part-time student)

Mortgages, car loans, and other secured debts are not included in a consumer proposal. However, these obligations can continue to be paid separately if you wish to retain the associated asset.

How Does a Consumer Proposal Work? A Step-by-Step Overview

So, what actually happens when you decide to move forward with a consumer proposal? The process might sound formal, but it’s more straightforward and supportive than you might think. Here’s how it all unfolds:

1. Initial Consultation with a LIT

The process begins with a confidential consultation with a Licensed Insolvency Trustee. During this meeting, your financial circumstances are reviewed in detail, including your income, expenses, assets, and debts. Based on this assessment, the trustee will outline your available options, including debt consolidation, bankruptcy, and the consumer proposal.

2. Drafting the Proposal

If the consumer proposal is determined to be the most appropriate solution, the trustee will work with you to formulate a fair and feasible repayment plan. This plan typically includes monthly payments based on what you can afford and what creditors are likely to accept.

For example, if your total unsecured debt is $50,000, a successful proposal may involve repaying $20,000 over five years, resulting in a fixed monthly payment of approximately $333.

3. Filing the Proposal

Once finalized, the proposal is filed with the Office of the Superintendent of Bankruptcy (OSB). At this point, a stay of proceedings is automatically triggered, halting all collection activity, wage garnishments, and legal actions from creditors.

4. Creditor Review and Vote

Creditors have 45 days to review the proposal and cast their vote. If a majority (based on the total value of debt) votes in favour, the proposal becomes legally binding on all unsecured creditors, and even those who voted against it.

Historically, the vast majority of consumer proposals are accepted by creditors, who recognize that proposals often offer better recovery than a bankruptcy filing.

5. Making Payments

Once approved, you begin making the agreed-upon monthly payments to the trustee, who then distributes the funds to your creditors. Payments are made interest-free and are based on the total settlement amount, not the original balance owed.

6. Certificate of Full Performance

Upon completion of all payments and obligations under the proposal, you will receive a Certificate of Full Performance. This document confirms that your debts included in the proposal are legally discharged, and you are no longer responsible for them.

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Bankruptcy vs Consumer Proposal Process: A Comparative Summary

To have a complete understanding of how a consumer proposal works, it’s equally important to learn how it differs from bankruptcy.

Feature	Consumer Proposal	Bankruptcy
Asset Retention	Retain All Assets	Potential Loss of Non-Exempt Assets
Impact on Credit Rating	R7 Rating	R9 Rating
Duration	Up to 5 Years	9-21 Months (For First Time Filers)
Payment Structure	Negotiated and Fixed	Based on Surplus Income

A consumer proposal is often favoured by individuals who wish to protect their assets and reduce long-term impacts on their credit history.

Learn More here: Consumer Proposal vs Bankruptcy

Credit Impact and Recovery After Filing Consumer Proposal

Filing a consumer proposal results in an R7 rating on your credit report. This rating remains on your report for three years after the completion of the proposal or six years from the filing date, whichever comes first. While your credit score will initially decline, many individuals begin rebuilding their credit within months by obtaining secured credit cards and practicing responsible credit use.

National Statistics and Trends

As per the insolvency statistics in Canada (January 2025), the total number of consumer proposals increased by 22.8% in January’25 compared to the previous month.

Consumer proposals have become the most common debt solution in Canada. In 2023, over 62,000 Canadians filed consumer proposals, representing more than double the number who filed for bankruptcy. This shift reflects growing awareness of the benefits of this approach and a desire to resolve debt without resorting to bankruptcy.

Key Advantages of Filing a Consumer Proposal

A consumer proposal isn’t just about reducing your debt, it’s about gaining control over your financial future without losing everything you’ve worked hard for.

Here are some of the key benefits you can expect when you file a consumer proposal:

• Immediate protection from creditors and wage garnishments

• Interest-free repayment on negotiated debt

• Retention of personal assets and home equity

• One predictable monthly payment

• Legal protection under federal legislation

• No bankruptcy filing and less stigma

Is a Consumer Proposal the Right Choice?

Every financial situation is unique. A consumer proposal may be the right solution if you are experiencing persistent financial strain, struggling to meet monthly obligations, or dealing with aggressive creditors. If you are unsure of your options and other alternatives, contact SCB Debt Solutions today or request a free confidential assessment of your financial situation.

Get a Free Confidential Assesstment

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Common Questions Related to the Consumer Proposal Process

Q1) What happens if I miss a payment on my proposal?

You’re allowed to miss up to two payments. However, if you miss a third, the proposal is considered annulled, and your creditors can resume collection efforts. If you're facing financial hardship, speak with your trustee right away; they can help adjust your payment terms or explore other options before it’s too late.

Q2) Can I pay off my consumer proposal early?

Absolutely. If your financial situation improves, you can pay off your consumer proposal early without penalty. Many people choose to do this to rebuild their credit faster and put their debt behind them for good.

Q3) What happens after you complete a consumer proposal?

You’ll receive a Certificate of Full Performance, and all included debts are legally forgiven. The proposal will be marked as completed on your credit report, and you can begin rebuilding your credit. Creditors can no longer contact you about discharged debts.

Q4) How does a consumer proposal work in Alberta, Canada?

Consumer proposals in Alberta follow federal law. A Licensed Insolvency Trustee helps you offer reduced payments to creditors. Once accepted, interest stops, collection actions end, and you make monthly payments over a maximum of five years.