Ready to File a Consumer Proposal in Canada? Checklist & Timelines

Last updated: October 16, 2026

A consumer proposal lets an insolvent person legally settle unsecured debts by offering creditors a reduced lump sum or an extended payment schedule, filed through a Licensed Insolvency Trustee. It’s available to anyone with unsecured debts under $250,000 (excluding a principal residence mortgage), and it stops collection calls the moment it’s filed. If that sounds like your situation, the next step is a free consultation with a Licensed Insolvency Trustee.

TL;DR:

• A consumer proposal allows individuals with unsecured debts under $250,000 to settle liabilities through court-approved payment offers, stopping collection calls immediately.
• It preserves assets such as homes and cars, with payments fixed for up to five years, and is generally viewed more favorably than bankruptcy by future lenders.
• Co-signed debts remain fully liable for co-signers, and debts like secured loans, student loans under seven years, or fraud are not included.
• The process involves an automatic stay once filed, creditors respond within 45 days, and acceptance by the required majority makes the arrangement binding on all creditors.
• Falling behind three payments can annul the proposal, and it significantly impacts credit reports for up to six years post-completion.

Table of Contents

• What is a consumer proposal in Canada?
• Who qualifies for a consumer proposal and which debts count?
• How does the consumer proposal process actually work?
• What does a consumer proposal cost, and how long does it last?
• Weighing the pros, cons and alternatives
• How does a consumer proposal affect your credit report?
• How do you start the consumer proposal process?
• A pre-meeting checklist that saves you time
• When a consumer proposal is the responsible choice
• Getting your finances organized before and after a proposal
• Sources
• FAQ

What is a consumer proposal in Canada?

A consumer proposal is a legally binding agreement between you and your creditors, governed by Division II of the Bankruptcy and Insolvency Act. You don’t negotiate directly with credit card companies or collection agencies. A Licensed Insolvency Trustee reviews your finances, drafts a formal offer, and presents it to every creditor on your behalf. If creditors representing enough of the debt (by dollar value) accept it, every creditor is bound by the terms, even the ones who voted against it or never responded at all.

That’s the core mechanic worth understanding before anything else: a consumer proposal isn’t a settlement you negotiate yourself, and it isn’t a payment plan a debt settlement company arranges informally. It’s a court-recognized insolvency proceeding, filed only by someone licensed and regulated by the Office of the Superintendent of Bankruptcy.

How does that differ from personal bankruptcy? A few practical distinctions matter more than people expect:

• Assets: In a consumer proposal, you keep your assets, including your home and vehicle, as long as you keep making payments. Bankruptcy typically requires surrendering non-exempt assets.
• Length: A proposal runs on a schedule you and your creditors agree to, up to a maximum of five years. Bankruptcy timelines are usually shorter but come with asset loss and stricter reporting duties.
• Credit outcome: Both appear on your credit file, but a completed proposal is often viewed more favourably by future lenders than a bankruptcy discharge, since it shows you repaid a portion of what you owed rather than having it erased.
• Control: You know your total monthly payment in advance and it doesn’t change even if you get a raise, unlike bankruptcy, where surplus income obligations can increase what you owe.

None of this makes a proposal automatically superior. Bankruptcy still exists for good reasons, and for some people with minimal assets and no stable income, it’s the more realistic path. But for someone with a job, some equity to protect, and unsecured debt they can partially repay, a consumer proposal is usually the more measured tool.

Who qualifies for a consumer proposal and which debts count?

Eligibility hinges on one number: your unsecured debts must total $250,000 or less, and that cap excludes any mortgage on your principal residence, per the Bankruptcy and Insolvency Act. If your unsecured debt sits above that threshold, a Licensed Insolvency Trustee will usually steer you toward a Division I proposal instead, which follows similar principles but has no debt ceiling.

Debts that typically qualify for inclusion:

• Credit card balances and lines of credit
• Personal loans and payday loans
• Some Canada Revenue Agency debts, including income tax arrears
• Overdue utility bills and unsecured personal debts to collection agencies

Debts that usually can’t be folded into a proposal:

• Secured loans, such as a car loan or a mortgage, where the lender holds collateral
• Court-ordered fines, penalties, and most family support or alimony obligations
• Student loans if you’ve been out of school for less than seven years, in most cases
• Debts arising from fraud

One detail that surprises a lot of people: a consumer proposal doesn’t touch co-signed debt. If a family member co-signed your car loan or your line of credit, they remain fully liable for that debt even after your proposal is accepted, unless the creditor separately agrees to release them. The Bankruptcy and Insolvency Act doesn’t erase third-party guarantees just because your own obligation is being restructured.

How does the consumer proposal process actually work?

The process moves faster than most people expect once you commit to it, and the legal protections start almost immediately.

1. Initial meeting with a Licensed Insolvency Trustee. You’ll review your full financial picture together: debts, income, assets, and monthly expenses. The trustee determines whether a proposal makes sense compared to bankruptcy or informal repayment.
2. The trustee drafts and files the proposal. This is a critical point: only an LIT can file a consumer proposal. The moment it’s filed, an automatic stay of proceedings takes effect, halting wage garnishments, collection calls, and most lawsuits tied to the included debts.
3. Creditors get 45 days to respond. Voting isn’t one vote per creditor. It’s weighted by the dollar value of each proven claim. Creditors holding at least 25% of the total proven claims can force a formal meeting within that window. If a creditor doesn’t respond within the 45 days, their silence counts as acceptance.
4. Majority acceptance binds everyone. Once creditors representing the required majority accept, the terms apply to all creditors included in the proposal, whether they voted yes, no, or not at all.
5. Court review, if required. Some proposals go through a brief court review period (roughly 15 days) before becoming fully binding, usually only when a creditor formally objects.
6. You make payments and complete counselling. Two mandatory financial counselling sessions, arranged through your trustee, are required before you receive your final discharge.

Pro Tip: Keep every payment on schedule even if a single month is tight. Missing three payments, or falling three months behind on a less frequent schedule, can annul the entire proposal and leave you facing your original debt load again.

What happens if creditors reject the proposal? You’re not locked out of options. You can negotiate a revised offer with your trustee, or move toward a Division I proposal or bankruptcy, depending on your circumstances. Rejection isn’t common when a trustee has properly assessed affordability before filing, but it does happen, particularly when a single large creditor holds enough weight to block acceptance.

What does a consumer proposal cost, and how long does it last?

Trustee fees in a consumer proposal are regulated and built directly into your monthly payments. In most cases, there’s no large upfront bill separate from what you’re already paying toward your debt. That structure is one of the more overlooked advantages of a proposal versus hiring a private debt settlement company, some of which charge upfront consulting fees before any negotiation even starts.

Key financial and timeline facts:

• Maximum term: Five years (60 months), the statutory ceiling regardless of how much debt you’re repaying.
• Early payoff: You can pay off the remaining balance in a lump sum, or ahead of schedule, without penalty.
• Counselling costs: Two mandatory sessions are required, and the cost is typically factored into your overall arrangement rather than billed separately.
• Missed payments: Falling three payments behind can trigger annulment under the fee and obligation provisions of the Act.

Nearly 138,000 Canadians filed an insolvency proceeding in the twelve months tracked by the Office of the Superintendent of Bankruptcy, and consumer proposals have made up the large majority of that total in recent years, a shift from a decade ago when bankruptcy filings were far more common.

Weighing the pros, cons and alternatives

A consumer proposal solves a specific problem well: unmanageable unsecured debt combined with a stable enough income to make fixed payments. It doesn’t solve every debt problem, and it isn’t the cheapest or fastest option in every case.

Advantages worth taking seriously:

• Collection calls, wage garnishments, and most lawsuits stop the day it’s filed
• You typically repay less than the full balance owed
• You keep your home, vehicle, and other assets as long as payments continue
• Your monthly payment is fixed for the life of the proposal

Downsides that deserve equal weight:

• It appears on your credit file and affects your credit score for years
• It’s a matter of public record through federal insolvency registries
• Missed payments can annul the whole arrangement, reviving your original debt

Before committing, ask yourself three questions: Is my income stable enough to guarantee fixed monthly payments for years, not just months? Do I have assets, like home equity, that I specifically need to protect? Can I realistically avoid falling three payments behind, even during a rough stretch?

If the answer to any of those is genuinely uncertain, alternatives are worth exploring first. An informal debt management plan through a non-profit credit counselling agency can work for smaller debt loads without the credit-file impact of a formal proposal. For people with very little income or few assets, bankruptcy may actually resolve debt faster and at lower long-term cost. And for anyone whose issue is really cash flow rather than debt volume, tightening a budget using resources like these proven debt payoff strategies might avoid formal insolvency altogether.

How does a consumer proposal affect your credit report?

Your credit file will show the consumer proposal for a defined period, and the exact clock depends on the bureau. Retention is typically three years after the proposal is fully completed, or up to six years from the original filing date, whichever framework the reporting bureau applies.

Because a consumer proposal is filed with federal insolvency registries, it’s technically a public record. In practice, this rarely affects day-to-day life, but it can surface in specific situations: some mortgage lenders, landlords running credit checks, and certain employment screenings for finance-related roles may see it, a nuance worth discussing with your trustee when you’re planning the timing of your filing.

After discharge, rebuilding is a matter of consistent habits rather than a quick fix:

• Pull your credit report from both major bureaus and confirm the proposal is marked as satisfied, not still active
• Use a secured credit card or credit builder loan to establish a fresh, positive payment history
• Keep credit utilization low on any new credit you take on
• Set a realistic budget that accounts for taxes and irregular expenses, so you don’t drift back into revolving debt

Pro Tip: Check your credit report roughly 90 days after your final payment. Bureaus don’t always update automatically, and an error here can quietly delay your ability to qualify for a mortgage or car loan.

How do you start the consumer proposal process?

Finding a Licensed Insolvency Trustee is straightforward: the OSB trustee search tool lists every licensed trustee in the country, and most offer a free initial consultation before you commit to anything.

1. Book a consultation. Look for a trustee who explains options clearly, including bankruptcy, rather than pushing you toward a proposal by default.
2. Bring your full financial picture. A complete list of debts and balances, recent pay stubs or income statements, a list of assets (home, vehicle, investments), and your most recent tax filings.
3. Ask direct questions. How exactly are fees built into my payments? What do the counselling sessions involve and when do they happen? What’s your honest assessment of whether creditors will accept this offer?
4. Watch for red flags. Any third party asking for a large upfront fee before filing, anyone guaranteeing creditor acceptance in advance, or paperwork that leaves out debts you disclosed verbally.

A pre-meeting checklist that saves you time

Walking into your trustee meeting organized changes how productive that first session is. Bring a written list of every debt with current balances, three months of bank statements, your last tax return, and a rough monthly budget so the trustee can quickly gauge affordability rather than guessing.

A few practical notes worth raising early:

• Ask how CRA debt specifically gets treated if you owe back taxes, since tax debt has its own quirks within a proposal
• Discuss how the proposal payment fits your existing budget before you agree to a number, not after
• Flag any upcoming life changes, like a job change or new dependent, that could affect affordability over the five-year term

Pro Tip: Do a quick affordability gut check before your meeting: add up your proposed monthly payment plus rent or mortgage, then compare it against your actual take-home pay. If it feels tight on paper, say so at the first meeting, not the third missed payment.

When a consumer proposal is the responsible choice

A consumer proposal earns its reputation when it’s used the way it’s designed to be used: by someone with a real income, real unsecured debt, and a genuine intention to complete the term. It’s not a shortcut, and it’s not a way to erase debt without consequence. It’s a structured, legally enforced compromise that protects both sides of the ledger.

Where I push back on the common framing is the idea that a proposal is a last resort. Treated that way, people often wait until they’re deeper in debt than they needed to be. The counselling sessions built into the process aren’t a formality either. They’re where most people actually start budgeting properly for the first time. Get licensed advice early, finish the counselling seriously, and the proposal does what it’s meant to do.

— Wajahat Ajmal (CPA)

Getting your finances organized before and after a proposal

A Licensed Insolvency Trustee handles the legal filing, the creditor negotiation, and the discharge. What happens on either side of that process, the budgeting, the tax filing, the cash flow planning, is where accounting firms fit in. They do not file consumer proposals. Instead, they handle the accounting work that makes a proposal easier to enter and easier to recover from.

If you’re preparing for a trustee meeting, the personal tax worksheet helps you organize income and deduction details before you sit down to talk affordability. If self-employment income or a small business is part of the picture, T-Ledgers’ business tax filing services keep your CRA filings current, which matters directly to what a trustee can include in your proposal. And once your proposal is underway or complete, flat-rate virtual CFO support gives you a clear monthly budget and cash flow plan built around your fixed payment, with no hourly billing surprises added on top of a debt you’re already working to pay down. Book a consultation to see which service fits where you are right now.

This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.

Sources

• Bankruptcy and Insolvency Act — Division II (consumer proposals)
• You owe money — consumer proposals (Office of the Superintendent of Bankruptcy)
• Submitting a consumer proposal to your creditors (Office of the Superintendent of Bankruptcy)

FAQ

What is the downside of a consumer proposal?

The main downsides are the impact on your credit report for several years, the fact that it becomes a public record through federal insolvency registries, and the risk of annulment if you miss three payments.

Which consumer proposal company is the best in Canada?

Only a Licensed Insolvency Trustee can legally file a consumer proposal, so the better question is which trustee fits your situation. Use the OSB trustee search and book free consultations with a few before deciding.

What qualifies you for a consumer proposal?

You need unsecured debts of $250,000 or less, excluding any mortgage on your principal residence, and enough stable income to support fixed monthly payments over a term of up to five years.

Can I be sued while in a consumer proposal?

No, in most cases. Filing triggers an automatic stay of proceedings that halts lawsuits, wage garnishments, and collection actions tied to debts included in the proposal, though secured creditors retain their rights over collateral.

This article is intended to inform readers in general terms. It is not intended to provide any tax or business advice. Please consult your T-Ledgers advisor if you have any questions about your unique situation. While we have tried to ensure the accuracy of the information in this article, we accept no liability for errors or omissions.