A Consumer Proposal is one of the most effective debt relief tools available in Canada. But it is not right for every situation. Before you decide anything, you deserve a complete and honest picture of what a Consumer Proposal offers, what it costs you, and where it falls short.
Quick facts: A Consumer Proposal is a government-regulated legal process under the Bankruptcy and Insolvency Act. It allows you to settle your unsecured debt for less than you owe. You must carry between $10,000 and $250,000 in unsecured debt to qualify. Payments are spread over up to 5 years. Interest stops the day you file. Collections stop the day you file. You keep all your assets.
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 the offer. If creditors holding more than 50% of your total proven debt vote in favour, every creditor is bound by the terms, even those who voted against it.
When your final payment is made, any remaining debt covered by the proposal is permanently and legally forgiven. You receive a Certificate of Full Performance. The debt is gone.
It is not a loan. It is not debt consolidation. It is a legal settlement, backed by federal law, that reduces the total amount you owe rather than reorganizing how you pay it. You can read a full breakdown of the process on our Consumer Proposal service page.
The Advantages of a Consumer Proposal
Here is a detailed look at each benefit and why it matters.
1. You Pay Back Less Than You Owe
This is the core advantage. A Consumer Proposal does not just pause your debt or restructure how you pay it. It reduces the total amount owed. The unpaid balance is legally discharged when the proposal is complete. That means you are not just buying time. You are permanently eliminating a portion of your debt.
The amount you repay depends on your income, your assets, and what your creditors are willing to accept. There is no fixed floor. The offer simply needs to be more than creditors would recover if you went bankrupt instead.
2. Collections Stop the Day You File
The moment a Consumer Proposal is filed, a legal order called a Stay of Proceedings takes effect. This stops all unsecured creditors from contacting you, suing you, garnishing your wages, or freezing your bank accounts. This protection is automatic. It does not require a court appearance or creditor consent. It happens immediately upon filing.
For people currently being garnished or facing aggressive collection action, this is often the single most impactful benefit.
3. Interest Stops Accumulating
Interest on all included debts stops accruing the day your Consumer Proposal is filed. Every payment you make from that point goes toward reducing your actual balance, not servicing a balance that keeps growing. This is a significant financial relief for people carrying high-interest credit card debt or payday loans.
4. Your Payments Are Fixed
Proposal payments are set from day one. They do not change if your income increases. They do not increase if you get a raise or a new job. This predictability allows you to budget with confidence. You know exactly what you owe each month and exactly when the proposal will be paid off.
Compare this to bankruptcy, where payments can increase based on surplus income calculations. With a Consumer Proposal, there are no surprises.
5. You Keep All of Your Assets
A Consumer Proposal does not require you to surrender anything. Your home, your vehicle, your RRSPs, your tax refunds, your savings, your business assets as a sole proprietor — all of it remains yours. The proposal is built around what you can afford to pay, not around what can be taken from you.
This is one of the most important differences between a Consumer Proposal and bankruptcy. In bankruptcy, non-exempt assets are surrendered to the trustee. In a Consumer Proposal, nothing is surrendered.
6. You Keep Your Tax Refunds
During a bankruptcy, any tax refund owed for the years you are bankrupt goes to the trustee. During a Consumer Proposal, all tax refunds belong to you. For people who receive meaningful annual refunds, this is a real financial difference over the course of a multi-year proposal.
7. No Monthly Income Reporting
Bankruptcy requires monthly income reporting. If your income exceeds a threshold set by the government, you are required to make additional surplus income payments. This can significantly increase the cost of bankruptcy as your income improves.
A Consumer Proposal has no income reporting requirement. Your payment is fixed. Your income is your own. You are not penalized for earning more.
8. All Unsecured Creditors Are Bound Once It Passes
Once a Consumer Proposal is accepted by creditors holding more than 50% of your proven debt, every unsecured creditor is legally bound by it. This includes creditors who voted against it. No single creditor can hold out and demand full payment while everyone else accepts reduced terms. The vote binds everyone.
9. CRA and Tax Debt Can Be Included
Income tax arrears and HST or GST debt owed to the Canada Revenue Agency can be included in a Consumer Proposal. The CRA is treated as an unsecured creditor. For many clients, CRA debt is one of the largest and most aggressively pursued balances they carry. Being able to include it and settle it through the proposal is a significant relief.
10. Shorter Credit Impact Than Bankruptcy
A Consumer Proposal results in an R7 credit rating, which stays on your credit file for three years after the proposal is completed (or six years from the filing date, whichever comes first). A first bankruptcy results in an R9 rating that stays on your file for six years after discharge. A second bankruptcy stays for 14 years.
For people focused on rebuilding their financial life after debt, the shorter credit notation is a meaningful advantage. And you can begin rebuilding credit while the proposal is still active, not just after it ends.
The Disadvantages of a Consumer Proposal
Every option has trade-offs. Here is an honest look at where a Consumer Proposal falls short or creates new obligations.
1. It Does Affect Your Credit
A Consumer Proposal will appear on your credit report as an R7 rating. This means most traditional lenders will not extend new credit to you while the proposal is active, and for up to three years after you complete it. Getting a mortgage, car loan, or unsecured credit card during this period will be difficult through conventional lenders.
This is a real drawback. But it is worth comparing it to the alternative: if you are already missing payments and carrying collections, your credit is likely already damaged. The question is not whether the proposal hurts your credit. It is whether it puts you in a better or worse position than you are already in.
2. The Process Takes Longer Than Bankruptcy
A first-time bankruptcy with no surplus income can be completed in as little as nine months. A Consumer Proposal runs for however long the payment term is, which can be up to five years. If speed is the primary goal and you have no assets to protect, bankruptcy may accomplish the same outcome faster.
That said, most people benefit from having more time to spread out payments. A shorter bankruptcy timeline often comes with additional costs and obligations that extend the process anyway.
3. Missing Payments Can Collapse the Proposal
If you miss the equivalent of three months of payments without catching up, your Consumer Proposal is deemed annulled. This means the Stay of Proceedings lifts, your original debt balance becomes enforceable again, and creditors can resume collection action immediately. Interest and penalties can be reinstated as well.
This is the most serious risk of a Consumer Proposal. The process only works if you make your payments consistently. If your financial situation changes during the proposal, contact your representative immediately. There may be options to restructure the timeline before the proposal collapses.
4. Secured Debts Are Not Included
A Consumer Proposal only covers unsecured debts. Your mortgage, your car loan, and any other debt tied to collateral are not included. You must continue making those payments as normal throughout the proposal. If you are behind on your mortgage, a Consumer Proposal will not save your home from foreclosure. Those are two separate issues.
5. Some Debts Cannot Be Eliminated at All
Certain debts cannot be included in a Consumer Proposal or discharged through any insolvency process. These include court-ordered fines, child support or spousal support arrears, debts arising from fraud, and student loans if you left school fewer than seven years ago. If these make up a large portion of what you owe, a Consumer Proposal may not fully solve your situation.
6. Creditors Can Vote Against It
While most proposals are accepted, rejection is possible. If creditors holding more than 50% of your proven debt vote against the proposal, it fails. This is most likely to happen if the offered amount is too low or if creditors believe they could recover more through bankruptcy. A well-structured proposal with realistic terms avoids this outcome in most cases.
Consumer Proposal vs Your Other Options
A Consumer Proposal is one tool among several. Here is how it compares to the most common alternatives.
| Factor | Consumer Proposal | Bankruptcy | Debt Settlement | Credit Counselling |
|---|---|---|---|---|
| Debt reduced? | Yes | Yes | Yes | No (full repayment) |
| Legal protection? | Yes, immediate | Yes, immediate | No | No |
| Keep assets? | Yes, all assets | Some may be seized | Yes | Yes |
| Interest stops? | Yes, on filing | Yes, on filing | No, accrues during | Reduced, not always stopped |
| Credit impact | R7 for 3 years post-completion | R9 for 6 years post-discharge | Varies by creditor | R7 while on plan |
| Creditors all bound? | Yes, once vote passes | Yes | No, each separately | Voluntary participation |
| Government regulated? | Yes, under BIA | Yes, under BIA | No | Non-profits regulated provincially |
Is a Consumer Proposal Right for You?
A Consumer Proposal tends to be the strongest option when:
- You have unsecured debt between $10,000 and $250,000
- You have assets you want to protect (home equity, RRSPs, a paid-off vehicle)
- You have steady income and can commit to a monthly payment
- You want collections to stop immediately
- You want a fixed, predictable payment with no income reporting requirements
- You want to minimize the long-term impact on your credit file
It may not be the right fit if:
- Most of your debt is secured (mortgage, car loan) or non-dischargeable (child support, fraud debts)
- You have no income and cannot realistically make monthly payments
- Your debts exceed $250,000 in unsecured obligations (in which case, a Division 1 Proposal may apply)
What Makes a Consumer Proposal Work or Fail
The most common reason a Consumer Proposal fails is missed payments. Life changes. Income drops. Unexpected expenses arise. If you are struggling to keep up with your proposal payments, the worst thing you can do is nothing. A proposal can often be restructured before it collapses, but you need to act early.
The second most common issue is proposals that are rejected because the offered amount is too low. This is why the structuring of the proposal matters. An offer has to be realistic enough to pass the creditor vote. An experienced representative who knows how creditors think and what they will accept makes a real difference here.
The third issue is entering a proposal without understanding the full picture of your debts. If a significant portion of what you owe is secured or non-dischargeable, the proposal may solve only part of the problem. We review this with every client before recommending any path.
Why a Law Firm Handles This Differently
Consumer Proposals are typically filed through a Licensed Insolvency Trustee (LIT). Trustees are competent administrators, but their legal obligation is to remain neutral. They work within the process. They do not exclusively advocate for you.
We are a law firm. Our lawyers are licensed by the Law Society of Ontario and by the Law Society of Alberta. Our legal duty is entirely to you. We negotiate hard on your behalf. We push for the best terms your creditors will accept. We protect you if creditors take aggressive action during the process.
We also earn our fee based on what we save you. Our fee is 33% of the savings we negotiate. That means the more we reduce your debt, the more we earn. Our incentive is aligned with yours from day one.
Learn more about our team and our approach on our About page.
Frequently Asked Questions About Consumer Proposal Pros and Cons
Is a Consumer Proposal worth it even with the credit impact?
For most people, yes. The credit impact is real, but it is time-limited and predictable. You know exactly when it ends. In contrast, continuing to miss payments and accumulate collection accounts causes ongoing and less predictable damage. Many people who file Consumer Proposals are in a stronger financial position within two to three years of completing the proposal than they were the day before filing. The proposal gives you a defined path. Carrying unresolvable debt does not.
Can I negotiate the terms of a Consumer Proposal?
Yes, but the negotiation happens indirectly through the creditor vote. You make an offer. Creditors vote. If the offer is rejected, a creditors meeting can be called to discuss revised terms. Creditors can request a higher payment amount or a shorter term. Your representative works to find terms that creditors will accept while keeping your payments realistic. This is where working with an advocate rather than a neutral administrator makes a meaningful difference.
Does a Consumer Proposal affect my partner or spouse?
Not directly. A Consumer Proposal covers only your debts. Your partner’s credit and their individual debts are unaffected. However, any joint debts remain the full responsibility of your co-signer. If both of you carry debt together, both of you may need to explore your options. We review joint debt situations as part of every intake consultation.
What happens to my credit cards during a Consumer Proposal?
Any credit cards included as part of your unsecured debt in the proposal will be cancelled. You will not be able to use them during the proposal. You can apply for a secured credit card using a deposit as collateral, and many clients do this early in the proposal to begin rebuilding their credit history while the proposal is still active.
Can a Consumer Proposal affect my employment?
For most jobs, no. A Consumer Proposal does not automatically appear on employment background checks. However, positions that require a security clearance, bonding, or financial trustworthiness review may involve a search of the federal insolvency database. If you work in a regulated financial role or hold a professional licence, we can discuss the specific implications before you file anything.
What happens to student loans in a Consumer Proposal?
Student loans can be included in a Consumer Proposal, but they are only fully dischargeable if you have been out of school for seven or more years at the time of filing. If you have been out of school for fewer than seven years, the student loan debt cannot be fully eliminated through the proposal or even through bankruptcy. You may still include it in the proposal, but the student loan balance may survive the process.
How is the payment amount in a Consumer Proposal determined?
The offer has to be more than what your creditors would receive if you went bankrupt instead. That threshold is calculated based on your assets, income, and what bankruptcy would produce. Your representative works with you to find a number that clears that threshold while staying affordable. There is no fixed formula. Every proposal is different.
Can I file a Consumer Proposal more than once?
Yes. There is no legal limit on the number of Consumer Proposals a person can file over a lifetime, as long as eligibility criteria are met each time. However, a history of previous proposals or previous bankruptcies may affect how creditors view your offer. A second or third filing requires a more carefully structured proposal to gain creditor approval.
Not Sure If a Consumer Proposal Is the Right Move?
We will go through every option with you in a free, confidential consultation. We will tell you what fits your situation and what does not. You will leave with a clear picture and a real path forward.
