What is a Consumer Proposal?

How common is consumer insolvency in Canada right now?

Consumer insolvency in Canada hit its highest level since 2009. In the 12 months ending October 2025, 139,274 Canadians filed for consumer insolvency.

Source: OSB – Insolvency Statistics in Canada, October 2025

A few years ago, most people filed after something major, like a job loss, divorce, or illness. Now, more people are reaching out because their paycheque simply doesn’t cover the bills anymore.

Nothing went wrong. The math just stopped working.

As of Q3 2025, Canadian households owe $1.77 for every $1 of disposable income, with household credit market debt nearing $3.2 trillion.

Source: Statistics Canada – National Balance Sheet and Financial Flow Accounts, Q3 2025

If your paycheque no longer covers your bills and you’ve got debt you can’t pay down, you’re not alone. A consumer proposal might be worth exploring.

What is a consumer proposal?

A consumer proposal is a legal agreement where you and your creditors settle your debt for less than the full amount owed. You make fixed monthly payments for up to five years, and when you’re done, the remaining debt is forgiven.

Once you file a consumer proposal, collection calls stop, interest freezes, and most creditors can’t take legal action against you, including the CRA. If creditors holding more than 50% of your debt accept the proposal, it becomes binding on all of them.

The Bankruptcy and Insolvency Act governs consumer proposals, and they can only be filed through a Licensed Insolvency Trustee.

Why are Canadians choosing consumer proposals?

Consumer proposals are the most common way Canadians deal with unmanageable debt. In the 12 months ending October 2025, 78.6% of Canadians who filed for consumer insolvency chose a consumer proposal over bankruptcy.

Source: OSB – Insolvency Statistics in Canada, October 2025

The biggest reason is predictability. In bankruptcy, surplus income rules increase your payments if your earnings go up.

With a consumer proposal, your monthly payment is fixed from the start. You won’t pay more just because your income increases.

A consumer proposal also lets you keep your assets. Your home, your vehicle, and your RRSPs stay yours.

Who qualifies for a consumer proposal?

You can file a consumer proposal if you’re a Canadian resident with unsecured debts of $1,000 to $250,000, excluding the mortgage on your principal residence. You need to be insolvent, meaning you can’t pay your debts as they come due, or your debts exceed your assets. You also need a regular income to make the monthly payments.

Source: Government of Canada – Bankruptcy and Insolvency Act

If you owe more than $250,000 in unsecured debt, other options exist. A Licensed Insolvency Trustee can walk you through what fits your situation.

Who files a consumer proposal?

The typical person filing for consumer insolvency is 46 years old and lives in a two-person household. These aren’t reckless spenders. They’re people whose circumstances changed.

The real reasons people file

The top reasons people file for insolvency tell the story. Loss of income (45%), medical reasons (20%), relationship breakdown (11%), financial support of others (7%), and business failure (6%).

Source: OSB – Canadian Consumer Debtor Profile 2024

Income and expenses

The typical household filing for insolvency has a monthly income of $3,089 and expenses of $3,264. That’s a $175 shortfall before making any debt payments.

These households owe an average of $54,000 and have assets worth about $15,000. Sadly, no amount of budgeting fixes that.

Source: OSB – Canadian Consumer Debtor Profile 2024

A typical example

A couple in their early 40s earns a combined $3,200 per month. After a job loss reduced their household income, they took on $58,000 in credit card debt while continuing to make mortgage payments.

Their monthly minimum payments alone exceeded $1,400, leaving them unable to cover groceries without further borrowing. A consumer proposal reduced their unsecured debt to $17,400, payable over five years at $290 per month. They kept their home.

What’s pushing more Canadians toward consumer proposals?

Housing costs are one of the biggest factors. People were fine for years, then their mortgage was renewed at a higher rate, and suddenly they couldn’t keep up. That single change put them in debt they couldn’t manage.

60% of mortgage holders renewing in 2025 and 2026 face a payment increase, with those on five-year fixed-rate contracts looking at 15% to 20% hikes. A separate Royal LePage survey found 57% of Canadians renewing a mortgage in 2025 expect their monthly payment to increase.

Source: Bank of Canada – Staff Analytical Note 2025-21 and Royal LePage – 2025 Mortgage Renewal Survey

A consumer proposal lets you clear unsecured debt while keeping up with your mortgage, protecting your home, and keeping your monthly payments predictable.

What debts can be included in a consumer proposal?

A consumer proposal covers most unsecured debts, including credit cards, personal lines of credit, bank overdrafts, personal loans, payday loans, medical bills, and student loans if you’ve been out of school for seven years or more.

CRA debt qualifies, too. Income tax, HST, GST, and other tax debts are all included. If you owe money to the CRA or have debts spread across multiple unsecured creditors, a consumer proposal rolls them into one fixed monthly payment.

We recently assisted a client whose child has a disability. She hired a caretaker for her child but did not submit the required source deductions, resulting in a significant debt to CRA. She filed a consumer proposal and not only received debt relief but also completed the process early.

Debts excluded from a consumer proposal

Secured debts, such as your mortgage, home equity line of credit, or car loan, can’t be included unless you give up the asset. Keep making those payments to your secured creditors, and you keep the asset.

Child support, spousal support, court fines, and debts from fraud can’t be included. Student loans are also excluded if you’ve been out of school for fewer than seven years. These debts survive the insolvency, and you remain responsible for paying them.

Keeping your house and car

You keep all your assets in a consumer proposal. Unlike bankruptcy, where certain assets can be liquidated, a consumer proposal lets you retain your home, vehicle, RRSPs, and other property. Keep making mortgage and car payments while the consumer proposal handles your unsecured debts.

How does a consumer proposal work?

A consumer proposal is a structured legal process under the Bankruptcy and Insolvency Act. Only Licensed Insolvency Trustees can file one for you.

How to file a consumer proposal step by step

The process starts with a free consultation. A Licensed Insolvency Trustee reviews your financial situation and determines whether a consumer proposal is the right option. There’s no cost and no obligation.

If it makes sense, the trustee prepares your proposal documents within one to two weeks. You’ll need to provide documentation about your income, expenses, assets, and debts.

Once your consumer proposal is filed, legal protection called a stay of proceedings takes effect immediately. Collection calls, wage garnishments, and other creditor actions stop.

Creditors then have 45 days to respond. If creditors holding more than 50% of the debt vote to accept your proposal, it becomes binding on all your unsecured creditors.

After acceptance, you make fixed monthly payments to your trustee, who distributes the funds. You also attend two mandatory credit counselling sessions during the proposal.

When you’ve made all payments and completed counselling, the trustee issues a Certificate of Full Performance. Your debts are legally discharged.

How long does a consumer proposal last?

A consumer proposal lasts up to five years. The actual length depends on your payment amount and total debt. If your financial situation improves, you can pay more to finish early with no penalty.

How much does a consumer proposal cost?

There is no upfront cost to file a consumer proposal. The federal government regulates trustee fees, and those fees come out of the payments you make through the proposal itself. You don’t pay the trustee separately.

Your monthly payments are based on what you can afford, what you owe, your assets, and your overall financial situation. A trustee looks at your budget to figure out what’s realistic.

You pay a reduced amount with no further interest for up to five years. When you finish, the rest is forgiven.

Your initial consultation with a Licensed Insolvency Trustee is free. You get a complete assessment of your situation and all available options before deciding anything.

How does a consumer proposal affect your credit rating?

A consumer proposal affects your credit, but less than bankruptcy does. Each included account gets an R7 rating, indicating a debt repayment arrangement. Bankruptcy results in an R9 rating, the lowest score.

Source: Equifax Canada – Consumer Credit Report User Guide

The consumer proposal record stays on your credit report for three years after you complete the proposal or six years from the date you filed, whichever comes first. A first bankruptcy stays on your report for six to seven years after discharge, which usually takes 9 to 21 months.

Once the record drops off, it’s removed from your credit report.

Getting credit during your proposal

Getting new credit while your consumer proposal is active is difficult. Most lenders see you as a higher risk and decline applications during this time.

You can start rebuilding credit almost immediately with a secured credit card, where your deposit sets your credit limit. Use it responsibly, pay in full each month, and you build a positive payment history.

Rebuilding after completion

Most people who work on rebuilding see their scores improve over time, even during the proposal period. Rebuild by paying every bill on time and using credit responsibly from the day you file.

How does a consumer proposal compare to other options?

A consumer proposal is one of several debt relief options available to Canadians. Knowing how it compares to bankruptcy, credit counselling, and debt consolidation helps you decide which option fits best.

For a detailed breakdown of the advantages and disadvantages, see our guide about consumer proposal pros and cons.

Consumer proposal vs bankruptcy

The biggest difference is how your assets are handled. In a consumer proposal, you keep everything. In bankruptcy, some assets can be sold to pay creditors.

If you own a home with equity or have RRSP savings, a consumer proposal protects them.

Feature	Consumer Proposal	Bankruptcy
Asset retention	Keep all assets	Some assets liquidated
Payment structure	Fixed monthly payments	Based on income and assets
Credit rating	R7	R9
Credit report duration	3 years after completion	6 to 7 years after discharge (first time)
Income changes	Payments stay fixed	Payments increase or decrease with income
Duration	Up to 60 months	9 to 21 months (first time)
Early payoff	Yes, no penalty	Not typical

Read more about a consumer proposal vs bankruptcy.

Consumer proposal vs credit counselling (DMP)

With credit counselling and a debt management plan (DMP), a counsellor negotiates lower interest rates with your creditors. You still pay back 100% of what you owe.

A consumer proposal reduces the total amount of debt you owe. Credit counselling works if you can afford your payments once interest stops. A consumer proposal works if the total debt itself needs to come down.

Consumer proposal vs debt consolidation

A debt consolidation loan combines your debts into one new loan, usually at a lower interest rate. You still repay the full amount. You also need to qualify for the loan, which is difficult if your credit is already damaged or your debt-to-income ratio is too high.

A consumer proposal doesn’t require good credit and reduces the total amount you owe. If you can’t qualify for a consolidation loan, a consumer proposal is a realistic alternative.

Read more about a consumer proposal vs debt consolidation.

Is a consumer proposal worth it?

If you want to find out whether a consumer proposal is right for you, talk to a Licensed Insolvency Trustee. The initial consultation is free. They’ll review your situation and explain all your options, not just consumer proposals.

Frequently asked questions

How long does a consumer proposal stay on my credit report?

Three years after you complete all payments, or six years from the filing date, whichever comes first. Pay it off early, and the record clears sooner.

Can CRA tax debt be included in a consumer proposal?

Yes. Income tax, GST/HST, and other CRA debts are fully included. Once you complete the proposal, they’re discharged.

What happens if I miss payments during my proposal?

If you fall behind by three monthly payments, your proposal is automatically annulled. If you see trouble coming, contact your trustee right away. A consumer proposal can be amended to adjust payment terms if your situation changes.

Can creditors reject my consumer proposal?

Creditors vote by the dollar value of their claims, not by headcount. If you owe two creditors $3,000 each and a third $7,000, that third creditor has the majority vote. If more than 50% of your creditors by dollar amount vote in favour, the proposal is accepted and binding on all unsecured creditors.

Can I pay off my consumer proposal early?

Yes, with no penalty. Paying early means the record clears from your credit report sooner. Many people use tax refunds or bonuses to speed things up.

What happens to my credit cards when I file?

Your credit cards are cancelled when you file a consumer proposal.

Do both spouses have to file if we have joint debt?

No. But if you have joint debts, the spouse who doesn’t file remains fully responsible for those debts. Sometimes filing a joint proposal or two separate insolvencies makes sense.

How do I find a Licensed Insolvency Trustee near me?

The Office of the Superintendent of Bankruptcy has an official directory of all Licensed Insolvency Trustees in Canada. Everyone listed is federally licensed and regulated.

Can I file a consumer proposal if I am self-employed?

Yes. The process is the same regardless of your employment type.