A consumer proposal lets you settle your debts for 20–50% of what you owe, with no interest, over up to 5 years. It’s now the #1 insolvency filing in Canada — more popular than bankruptcy. Here’s exactly how it works.
How a Consumer Proposal Works
- Free consultation with a Licensed Insolvency Trustee (LIT)
- LIT drafts a proposal — offer to repay a percentage of your debt
- Filing — creditors notified, collections stop immediately
- Creditor vote — majority (by dollar value) must accept within 45 days
- Monthly payments — fixed amount for up to 5 years, no interest
- Completion — remaining debt is legally eliminated
- Credit recovery — R7 removed 3 years after completion
Consumer Proposal Examples
The amount you offer in a consumer proposal depends on what your creditors would receive in a bankruptcy — your proposal must offer more than that. In practice, most proposals settle at 20–50 cents on the dollar, paid over up to five years with no interest. The monthly payments are fixed from day one and won’t change.
| Total Debt | Typical Offer (30%) | Monthly Payment (5 years) | You Save |
|---|---|---|---|
| $20,000 | $6,000 | $100 | $14,000 |
| $40,000 | $12,000 | $200 | $28,000 |
| $60,000 | $18,000 | $300 | $42,000 |
| $100,000 | $30,000 | $500 | $70,000 |
| $200,000 | $60,000 | $1,000 | $140,000 |
Eligibility Requirements
Consumer proposals are available to individuals (not businesses) who owe between $1,000 and $250,000 in unsecured debt (excluding their mortgage). You must be insolvent — meaning you can’t pay your debts as they come due — and you must file through a Licensed Insolvency Trustee, who acts as the administrator of your proposal.
| Requirement | Details |
|---|---|
| Minimum debt | $1,000 (practical minimum ~$5,000) |
| Maximum debt | $250,000 (excluding mortgage) |
| Residency | Must be a Canadian resident |
| Insolvency | Must be unable to pay debts as they come due |
| Filed through | Licensed Insolvency Trustee only |
What Happens to Your Assets
You keep everything. Unlike bankruptcy:
- Keep your home
- Keep your car
- Keep your RRSP, TFSA
- Keep your tax refunds
- No surplus income rules
This is the biggest advantage over bankruptcy.
Credit Impact
A consumer proposal places an R7 rating on your credit report, which is less severe than bankruptcy’s R9. The R7 notation remains for three years after you complete the proposal. While your credit will take a hit, the damage is temporary and predictable — and many people begin qualifying for credit products again within a couple of years of completion.
| Milestone | Timeline |
|---|---|
| Filing | R7 notation applied immediately |
| During proposal | R7 on credit report |
| Completion (up to 5 years) | R7 continues |
| R7 removed | 3 years after completion |
| Total credit impact | Up to 8 years maximum |
| Secured credit card | Available during proposal |
| Mortgage qualification | Possible 2–3 years post-completion |
Consumer Proposal vs. Other Options
A consumer proposal sits between a consolidation loan and bankruptcy in terms of severity. It stops collections immediately (unlike a consolidation loan), preserves all your assets (unlike bankruptcy), and eliminates interest on your debt. The trade-off is the credit impact and the requirement to go through a Licensed Insolvency Trustee.
| Factor | Consumer Proposal | Bankruptcy | Consolidation Loan |
|---|---|---|---|
| Repay amount | 20–50% | $0 | 100% + interest |
| Interest | 0% | N/A | 8–15% |
| Keep assets | All | May lose some | All |
| Credit impact | R7 (3 yrs post) | R9 (6+ yrs) | Minimal |
| Collections stop | Immediately | Immediately | No |
| Monthly payment | Lower | Lowest | Higher |
Bottom Line
A consumer proposal is the best middle ground for Canadians with $10,000–$250,000 in debt who can’t repay in full but want to avoid bankruptcy. You keep all assets, pay no interest, and typically settle for 20–50 cents on the dollar. Start with a free consultation from a Licensed Insolvency Trustee.
See our bankruptcy guide or debt consolidation guide for alternative approaches.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy