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
| 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
| 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
| 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
| 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.
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