at night running numbers that never add up. If that sounds familiar, you are not alone, and you are not out of options.A Consumer
Proposal is one of the most powerful debt relief tools available to Canadians. It is government-regulated, legally binding, and
available to anyone who qualifies. It lets you settle your debt for less than you owe, stop all collection activity, and move forward
without going bankrupt.Most people have never heard of it. And most people who are drowning in debt do not know they have this option. We help clients
across Ontario and Canada use Consumer Proposals to get real relief from debt they thought was permanent. This guide explains
everything you need to know.
What Is a Consumer Proposal?
A Consumer Proposal is a formal legal agreement between you and your unsecured creditors. You offer to pay back a portion of what
you owe. Your creditors vote on it. If they accept, the remaining balance is legally forgiven once you complete your payments.
It is not a loan. It is not debt consolidation. It is a settlement, backed by federal law, that permanently reduces the total
amount you owe rather than just lowering the interest rate.
Consumer Proposals are governed by the Bankruptcy and Insolvency Act (BIA), R.S.C. 1985, c. B-3 — the same federal
legislation that governs bankruptcy in Canada. This means the process carries real legal weight. Once your proposal is accepted, every
unsecured creditor is bound by its terms, whether they voted for it or not.
Key facts about Consumer Proposals:
Available to Canadian residents with $10,000 to $250,000 in unsecured debt. You keep your assets. Collections stop immediately upon
filing. Payments are spread over up to 5 years. No interest accrues once filed. The remaining debt is legally erased upon
completion.
Who Qualifies for a Consumer Proposal?
Consumer Proposals are available to individuals, not corporations. To qualify, you need to meet a few basic conditions. The
requirements are not complicated, and most people carrying significant unsecured debt will qualify.
| Qualification Criteria | Details |
|---|---|
| Residency | You must be a Canadian resident |
| Minimum debt | At least $10,000 in unsecured debt |
| Maximum debt | No more than $250,000 in unsecured debt (excluding a mortgage on your primary residence) |
| Insolvency | You are unable to repay your debts in full as they come due |
| Individual or sole proprietor | Available to individuals and sole proprietors; incorporated businesses use a different process |
If your unsecured debt is over $250,000, you may still have a formal restructuring option. A Division 1 Proposal operates under the same legislation but has no upper
debt limit and is available to both individuals and businesses. We can help you figure out which path fits your situation.
What Debts Are Included in a Consumer Proposal?
Not all debts qualify. A Consumer Proposal only covers unsecured debts, which are debts that are not tied to an asset. Secured
debts, like a mortgage or car loan, are not included. You continue paying those as normal.
Here is a breakdown of what is typically included and what is not:
Debts That Can Be Included
- Credit card balances
- Personal lines of credit
- Unsecured personal loans
- Payday loans
- Income tax debt (CRA)
- HST or GST debt
- Student loans (if you have been out of school for 7 or more years)
- Medical or dental bills
- Utility arrears
- Overdrawn bank accounts
- Unsecured business debts (if a sole proprietor)
Debts That Cannot Be Included
- Mortgage or home equity loans
- Car loans (secured)
- Court-ordered fines or penalties
- Alimony or child support arrears
- Student loans (if you left school less than 7 years ago)
- Debts from fraud or intentional wrongdoing
- Debts secured by collateral
Secured debts stay in place and are not affected by the proposal. You continue making payments on your mortgage and car loan as
normal. In many cases, clients are relieved to know their home and vehicle are not at risk.
How Does a Consumer Proposal Work?
The process has clear stages. Here is what happens from the moment you reach out to us through to when your debt is gone.
- Free Confidential Consultation
We review your full financial picture. We look at what you owe, what you
earn, and what assets you have. We tell you honestly whether a Consumer Proposal is the right option, and if it is, we give you a
realistic picture of what your payments could look like. No pressure. No judgment. - We Build Your Proposal
We prepare a formal offer to your creditors. This is a legal document that outlines
how much you will repay and over what timeline. The goal is to propose an amount your creditors will accept while keeping your
payments manageable. We work on your behalf throughout this stage. - Filing with the Government
Once your proposal is ready, it is filed with the Office of the Superintendent of
Bankruptcy (OSB). At this point, a legal protection called a Stay of Proceedings takes effect immediately. All collections stop. All
garnishments stop. All creditor contact stops. This happens the moment the proposal is filed, not weeks later. - Creditor Voting
Your creditors have 45 days to vote on your proposal. A proposal passes if creditors holding
more than 50% of your total proven debt vote in favour. If it passes, all of your unsecured creditors are bound by it, even those who
voted against it. You do not need every creditor to agree. - You Make Your Payments
Once approved, you make fixed monthly payments over the term of your proposal, which
can be up to 60 months (5 years). There is no interest on these payments. The amount is fixed from day one, so there are no surprises.
You can also pay off the proposal early with no penalty. - Your Remaining Debt Is Legally Erased
When your final payment is made, you receive a Certificate of Full
Performance. Any debt covered by the proposal that was not repaid is permanently and legally forgiven. You are debt-free from those
obligations.
How Much Can a Consumer Proposal Reduce Your Debt?
A Consumer Proposal does not just reorganize your debt. It eliminates a portion of it permanently. Under the Bankruptcy and
Insolvency Act, there is no set floor for how much you must repay. The offer you make simply has to be more than what your
creditors would recover if you went bankrupt instead.
In practice, many Canadians who file Consumer Proposals end up repaying a fraction of their original balance. The specific amount
depends on your income, your assets, the total debt you carry, and what your creditors are willing to accept. Every case is
different.
What the program makes possible is significant relief. The unpaid portion of your debt does not follow you. It is not sold to a
collection agency. It is not reported as still owing. Once your proposal is complete, it is gone.
No interest from the day you file. The moment your Consumer Proposal is filed, interest stops accumulating on all
included debts. Every payment you make goes directly toward reducing what you owe, not feeding a growing balance.
We earn a fee based on what we save you. Our fee is 33% of the savings we negotiate on your behalf. That means our incentive is
directly aligned with yours. The more we reduce your debt, the better the outcome for both of us.
Consumer Proposal vs. Bankruptcy: What Is the Difference?
Most people ask about this first. Bankruptcy and Consumer Proposals are both governed by the same federal legislation, but they
work very differently. For most people carrying manageable debt loads, a Consumer Proposal is the stronger option.
| Factor | Consumer Proposal | Bankruptcy |
|---|---|---|
| Your assets | You keep them. A Consumer Proposal does not require you to surrender assets. | Some assets may be seized, including RRSPs contributed in the last 12 months and non-exempt property. |
| Monthly income reporting | Not required. No monthly income reports. | Required. You must report income monthly. If you earn above a threshold, surplus income payments increase your payments. |
| Fixed payments | Yes. Payments are fixed from the start and cannot increase. | Variable. Payments may increase if your income increases. |
| Tax refunds | You keep them. | Surrendered to the trustee during the bankruptcy period. |
| Credit report impact | R7 rating. Stays on file for 3 years after completion of the proposal. | R9 rating. Stays on file for 6 years after discharge (first bankruptcy) or 14 years for a second. |
| Length | Up to 5 years (60 months). Can be paid off early. | 9 months minimum for a first bankruptcy with no surplus income; can be longer. |
| Professional licence impact | Generally no impact on professional licensing. | Some professional designations are affected by a bankruptcy filing. |
| Public record | Filed with the OSB but not published in a newspaper. | May be published publicly for larger bankruptcies. |
We always look for ways to help clients avoid bankruptcy entirely. A Consumer Proposal is a legal path forward that protects your
assets, keeps your payments predictable, and leaves a smaller mark on your credit history. In most cases, it is the better choice.
Consumer Proposal vs. Debt Settlement
Debt settlement and Consumer Proposals both involve negotiating with creditors to pay less than you owe. But they are very
different in how they work and what protection they give you.
| Factor | Consumer Proposal | Debt Settlement |
|---|---|---|
| Legal protection | Yes. Stay of Proceedings stops all collections upon filing. | No. Creditors can continue calling, suing, and garnishing wages during negotiations. |
| Binding on all creditors | Yes. Once approved, every unsecured creditor is bound. | No. Each creditor negotiates separately. One can hold out. |
| Interest stopped | Yes. Interest stops the day you file. | No. Interest continues to accrue during negotiations. |
| Payment timeline | Up to 5 years, fixed monthly payments. | Typically 30 to 120 days; often requires a lump sum. |
| Government regulated | Yes. Governed by the federal BIA. | No. No legislation governs the process. |
Debt settlement works well for some situations, especially when a lump sum is available and the debt is concentrated with one or
two creditors. For people dealing with multiple creditors and ongoing collection pressure, a Consumer Proposal is usually the stronger
option because of the legal protection it provides. You can read more about how debt settlement works and when it makes sense.
Consumer Proposal vs. Credit Counselling
Credit counselling programs, sometimes called debt management plans, involve working with a non-profit agency to repay your debts
in full over time, usually with reduced or eliminated interest. They are not a bad option for people with manageable debt. But they
are very different from a Consumer Proposal.
| Factor | Consumer Proposal | Credit Counselling |
|---|---|---|
| Debt reduction | Yes. You pay back a portion, not the full amount. | No. You repay 100% of the principal. |
| Legal protection | Yes. Immediate Stay of Proceedings. | No formal legal protection. Creditors are not legally required to participate. |
| Creditor participation | All unsecured creditors are bound once the vote passes. | Voluntary. Not all creditors are required to participate. |
| Best suited for | People who cannot repay their full debt and need legal protection. | People who can repay their full debt but need interest relief and structure. |
If your debt is at a level where full repayment is realistic, credit counselling may be a reasonable path. If you are carrying more
debt than you can realistically repay, a Consumer Proposal gives you legal protection and actual debt reduction.
What Happens to Your Assets in a Consumer Proposal?
This is one of the most common concerns we hear. The short answer is that a Consumer Proposal does not put your assets at risk. You
do not have to surrender anything to file.
Can I Keep My House?
Yes, in most cases. A Consumer Proposal does not affect your mortgage or the equity in your home directly. Your mortgage is a
secured debt and is not included in the proposal. You continue making your mortgage payments as normal. As long as you stay current on
your mortgage, your home is not at risk as part of the Consumer Proposal process.
If you are significantly behind on your mortgage, that is a separate issue to address. We can talk through your full situation and
help you understand all of your options.
Can I Keep My Car?
Yes. Like your mortgage, your car loan is a secured debt. It is not included in the Consumer Proposal. You keep your vehicle as
long as you keep making your car payments on time. The Consumer Proposal only affects your unsecured debts.
What About My Tax Refund?
Unlike in bankruptcy, you keep your tax refunds during a Consumer Proposal. Any refund you receive from the CRA while your proposal
is active belongs to you. This is one of the meaningful advantages a Consumer Proposal has over bankruptcy for people who receive
regular refunds.
How Does a Consumer Proposal Affect Your Credit Score?
Filing a Consumer Proposal will affect your credit. That is true. But for people who are already missing payments or dealing with
collections, the damage is likely already underway. A Consumer Proposal gives you a defined path to rebuilding.
| Credit Impact | Consumer Proposal | Bankruptcy (First) |
|---|---|---|
| Credit bureau rating | R7 | R9 |
| Stays on report after completion | 3 years | 6 years |
| Can you get credit during? | Yes, with effort. Secured cards and credit-builder products are available. | Limited. More restrictions apply during bankruptcy. |
| Credit rebuilding timeline | Many clients are approved for basic credit products within 1 to 2 years of completing the proposal. | Typically longer to rebuild from an R9 rating. |
The key is that a Consumer Proposal gives you a clear endpoint. You know when it is done. You know when the notation comes off your
credit file. And you can start rebuilding during the proposal itself, not just after it ends.
Missing payments and having accounts in collections also damages your credit. For many people, filing a Consumer Proposal
stabilizes the situation and puts a floor under the damage, because further collection activity and interest charges stop the day you
file.
Pros and Cons of a Consumer Proposal
A Consumer Proposal is not right for everyone. Here is an honest look at both sides.
Advantages
- You pay back less than the full amount owed
- Collections, calls, and garnishments stop immediately
- Interest stops the day you file
- Payments are fixed and never change
- You keep all of your assets
- You keep your tax refunds
- No monthly income reporting required
- All unsecured creditors are bound once the vote passes
- Shorter credit impact period than bankruptcy
- Federally regulated process with clear rules and protections
Drawbacks
- It does appear on your credit report as an R7 rating
- Not all debts can be included (secured debts, child support, some student loans)
- Requires consistent monthly payments over the term
- Missing three months of payments without catching up can void the proposal
- Not available to incorporated businesses (they need a commercial restructuring process)
For most people carrying significant unsecured debt with no realistic path to full repayment, the advantages outweigh the drawbacks
by a wide margin.
Why Work with a Law Firm Instead of a Trustee?
Most Consumer Proposals in Canada are filed through a Licensed Insolvency Trustee (LIT). And on the surface, that seems like the
obvious path. But there is something important most people do not know about how trustees operate.
A Licensed Insolvency Trustee is required by law to act as a neutral administrator of the insolvency process. That means their
legal duty is not exclusively to you. They administer the process fairly for all parties, including your creditors. They are licensed
by the Office of the Superintendent of Bankruptcy, not by a law society.
Metus Lykos is a law firm. Our lawyers are licensed by the Law Society of Ontario. When you hire us, our legal duty runs entirely
to you. We are not neutral. We are on your side. We negotiate on your behalf, not for the benefit of the process.
That distinction matters when it comes to structuring your proposal. We are motivated to push for the best outcome possible for
you. Not to balance interests. Not to ensure a smooth process for your creditors. To get you the best result.
We also bring legal expertise that goes beyond insolvency administration. If creditors take aggressive action, dispute your
proposal, or if there are legal complications, you have a law firm in your corner. That is different from having an administrator.
You can learn more about our team and how we work on our About page, and see a
full overview of our Consumer Proposal service.
Frequently Asked Questions About Consumer Proposals
What happens if my creditors reject my Consumer Proposal?
If creditors holding more than 50% of your proven debt vote against the proposal, it is rejected. This does not mean you have no
options. A meeting of creditors may be called to negotiate a revised offer. Alternatively, we can explore other paths, including a
Division 1 Proposal or debt settlement, depending on your situation. A rejection is not the end of the road.
What happens if I miss a payment during my Consumer Proposal?
Missing a single payment does not automatically end your proposal. However, if you miss the equivalent of three months of payments
without catching up, your proposal is deemed annulled. This means the legal protection lifts, and your original debt becomes
enforceable again. If you are struggling to make payments, contact us early. There are options, including extending the payment term
or renegotiating, but they need to be addressed before the proposal collapses.
Can I include CRA (Canada Revenue Agency) debt in a Consumer Proposal?
Yes. Income tax debt and HST or GST debt owed to the CRA can be included in a Consumer Proposal. The CRA is treated as an unsecured
creditor and is subject to the same voting rules as any other creditor. This is one of the more valuable aspects of the Consumer
Proposal process for people who have fallen behind on taxes, since the CRA can be an aggressive collection party.
Will my spouse or partner be affected by my Consumer Proposal?
Not directly. A Consumer Proposal only covers your personal debts. Your spouse’s credit and their individual debts are not part of
your proposal. However, if you have any joint debts, those creditors can still pursue your spouse for the full amount. Joint debt does
not get divided. If you both carry debt, you may each need to file separately, or explore a joint proposal. We can walk through this
with you.
Can I pay off my Consumer Proposal early?
Yes, and there is no penalty for doing so. If your financial situation improves, you can accelerate your payments and close the
proposal ahead of schedule. Paying off early also starts the clock sooner on the three-year credit report notation, so there is a real
benefit to closing it out as quickly as you are able to.
How long does it take to get out of a Consumer Proposal?
The maximum term is 60 months (5 years). Most proposals are structured for 3 to 5 years depending on the total amount being repaid.
You can shorten the timeline by making larger payments or by paying a lump sum. The process also involves two financial counselling
sessions, which are a requirement of the proposal, not a cost.
What is a Stay of Proceedings?
A Stay of Proceedings is a legal order that takes effect the moment your Consumer Proposal is filed. It stops all unsecured
creditors from taking collection action against you. That means no phone calls. No letters. No lawsuits. No wage garnishments. No bank
account freezes. It is automatic and immediate. This is one of the most significant benefits of filing a Consumer Proposal,
especially for people who are currently being garnished or hounded by collection agencies.
How does a Consumer Proposal affect my ability to get a mortgage in the future?
Once your Consumer Proposal is completed and the three-year notation period passes, it no longer appears on your credit report.
During that window, mortgage approval is difficult but not impossible. Some lenders specialize in working with people who have
completed a proposal. Many of our clients begin rebuilding their credit steadily during the proposal and are in a much stronger
position by the time it concludes than they were when they started.
Do I need a lawyer to file a Consumer Proposal?
Legally, Consumer Proposals can be filed through a Licensed Insolvency Trustee. You do not need a lawyer. But working with a law
firm means your legal interests are represented throughout the process, not just administered. We work for you. A trustee administers
the process for all parties. That difference can affect the outcome of your proposal and the level of advocacy you receive when things
get complicated.
What if I am self-employed or a sole proprietor?
Sole proprietors can file a Consumer Proposal as long as their total unsecured debt (including business debt) does not exceed
$250,000. The proposal covers both personal and business unsecured debts. If your business debt exceeds that threshold or if your
business is incorporated, a different process applies. We offer business
debt restructuring services for corporations and more complex situations.
Ready to Find Out If You Qualify?
We will review your situation in a free, confidential consultation. No pressure, no judgment. Just honest answers about your
options and a clear picture of what a Consumer Proposal could look like for you.
