Debt can feel overwhelming, but the good news is that there are structured, legal solutions designed to help Canadians get back on track financially. One of the most effective and commonly used options is a consumer proposal. If you’re struggling with unmanageable debt and looking for a way to avoid bankruptcy, this might be the solution you need. In this article, we’ll explore what a consumer proposal is, how it works, who qualifies, and why it can be a smart path to financial recovery.
A consumer proposal is a formal, legally binding agreement between you and your creditors, administered by a Licensed Insolvency Trustee (LIT). Through this agreement, you offer to repay a portion of your total debt over a period of up to five years. In most cases, creditors agree to accept reduced payments because they are more likely to recover money through a consumer proposal than if you declare bankruptcy.
This debt relief method is regulated under the Bankruptcy and Insolvency Act of Canada and provides significant protection from creditors while allowing you to retain your assets.
Once you contact a Licensed Insolvency Trustee, they will assess your financial situation to determine if a consumer proposal is a suitable option. Here’s how the process typically works:
Financial Assessment: The trustee reviews your income, debts, assets, and expenses.
Proposal Creation: They will prepare a proposal outlining how much you can reasonably afford to repay.
Creditor Approval: Your creditors vote on the proposal. If a majority (by dollar value) agree, it becomes binding on all.
Monthly Payments: You make agreed-upon monthly payments to the trustee, who distributes them to your creditors.
Debt Forgiveness: Once completed, your remaining eligible debts are legally forgiven.
Throughout the process, collection calls, wage garnishments, and interest on your debts stop, providing immediate relief.
To be eligible to file a consumer proposal in Canada, you must:
Be an individual (not a corporation)
Owe more than $1,000 but less than $250,000 (excluding mortgage debt)
Be insolvent (unable to pay debts as they become due)
Have a stable income to make regular payments
If your debts exceed $250,000 (excluding your home), a Division I Proposal or bankruptcy may be a better option.
A consumer proposal offers several benefits compared to other debt relief options:
Avoid Bankruptcy: It's a preferred alternative for many who want to avoid the stigma and consequences of bankruptcy.
Keep Your Assets: Unlike bankruptcy, a proposal allows you to keep your home, vehicle, and other assets.
One Monthly Payment: Consolidates your unsecured debt into one manageable payment.
No Additional Interest: Once filed, interest on your debts stops accruing.
Legal Protection: Collection actions and wage garnishments are halted.
Debt Forgiveness: Once complete, all debts included in the proposal are discharged.
Most unsecured debts can be included in a consumer proposal, such as:
Credit card debt
Personal loans
Lines of credit
Payday loans
Student loans (if more than 7 years old)
CRA tax debt
Secured debts, like your mortgage or car loan, are not included, but your ability to keep paying them improves once your unsecured debt burden is reduced.
Once your proposal is filed and approved:
You'll begin making fixed monthly payments.
Your credit rating will show an R7 status (better than bankruptcy's R9).
You’ll work on rebuilding your credit during and after the process.
After final payment, you’ll receive a Certificate of Full Performance.
Most people find peace of mind knowing that they have a clear path forward and the support of a Licensed Insolvency Trustee every step of the way.
A consumer proposal may be right for you if:
You have steady income but can’t keep up with monthly debt payments.
You want to avoid bankruptcy.
You’re willing to make a good-faith effort to repay a portion of your debt.
It’s not ideal if your income is unstable or you owe more than the allowable limit. In such cases, bankruptcy might be the more appropriate option. That’s why a consultation with a Licensed Insolvency Trustee is so important—they will help you understand your options and choose the best path.
Asset Retention
Keep your assets
May lose some assets
Credit Rating Impact
R7
R9
Payment Period
Up to 5 years
9–21 months (first-time bankruptcy)
Public Record
Not as prominent
Yes, in public bankruptcy records
Cost
Based on what you can afford
Based on income & assets
If you’re feeling buried under debt, you don’t have to go through it alone. A consumer proposal offers a structured, respectful, and effective way to take control of your finances without resorting to bankruptcy. It's a solution that balances your needs with what creditors will accept.
💬 Contact us today to book a free consultation with a Licensed Insolvency Trustee.
Let us help you find your solution and take the first step toward a debt-free future.
👉 Visit Our Website or Click Here to get started now.