Consumer Proposal

What is a Consumer Proposal?

What’s a consumer proposal and when is it the right choice? Read more to find out our take.
Bruce Hodges
October 3, 2023
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Table of Contents

What is a Consumer Proposal?

A consumer proposal is a debt management option available to individuals who are struggling with overwhelming debt. It is a legal process that allows debtors to make a formal proposal to their creditors to repay a portion of their debts over a period of time. Understanding the concept of a consumer proposal involves knowing its purpose, how it works, and who can file for it.

The purpose of a consumer proposal is to provide debt relief for individuals by offering an alternative to bankruptcy. It allows debtors to negotiate a manageable repayment plan with their creditors, often resulting in reduced overall debt and more favourable terms. In this article, we’ll go over the steps to file a consumer proposal, the pros and cons, potential consequences, and alternatives.

Key takeaways:

  • Always attempt debt consolidation before considering a consumer proposal.
  • A consumer proposal is a formal agreement made between a debtor and their creditors to settle debts. It is a legally binding process regulated by the Bankruptcy and Insolvency Act in Canada.
  • A consumer proposal is a long-term commitment that comes with risks to your credit score. This type of financial decision should only be considered with the support of a professional, and as a last resort. 

What is a Consumer Proposal?

A consumer proposal is a legal process available to Canadian residents who are unable to pay their debts. It offers a formal agreement between an individual and their creditors, allowing the individual to propose repaying a portion of their debt over a specific period. This proposal is facilitated by a licensed insolvency trustee, who negotiates on behalf of the debtor with the creditors. If the creditors accept the proposal, the debtor commits to making monthly payments until the agreed-upon amount is fully repaid. 

With over 100,000 filed annually, a consumer proposal is a popular debt relief option in Canada. It provides an alternative to declaring bankruptcy and offers individuals the opportunity to become debt-free while safeguarding their valuable assets. By utilizing this process, Canadians can regain control of their financial situation and move towards a more secure future. However, it’s important to evaluate the potential consequences and alternatives to determine whether a consumer proposal is right for you. That’s what we’ll go over throughout this article.

Some Facts About Consumer Proposals:

➡️ It allows individuals to repay a percentage of their debt in exchange for full debt forgiveness. 

➡️ A consumer proposal is a legally binding agreement between the debtor and creditors.

➡️ It is administered by a Licensed Insolvency Trustee.

➡️ Payments can be spread out over a maximum of 5 years and are interest-free

➡️ Your credit score will decrease significantly.

➡️ You will not be able to get credit again until, or even after, it is paid down.

➡️ Consumer proposals are publicly recorded, which can affect your reputation and future financial endeavours.

➡️ It may be challenging to get approved for a mortgage while the proposal is still active or even after.

➡️ The stress and strain of dealing with financial issues may affect your personal and professional relationships.

Understanding Consumer Proposals

The process of making a consumer proposal should follow a few key steps:

  • Educate yourself: Take the time to learn about consumer proposals, their purpose, and the potential benefits they can offer you. By reading this article, you’re already getting started on this step.
  • Assess your financial situation: Evaluate whether a consumer proposal is the right solution for your specific circumstances.
  • Consult a licensed insolvency trustee: Seek professional advice from an expert to gain a comprehensive understanding of the details and implications associated with a consumer proposal.
  • Create a proposal: Collaborate with your trustee to develop a proposal that clearly outlines your plan to repay creditors.
  • Submit the proposal: Your trustee will then present your proposal to your creditors for their consideration and approval.
  • Follow the terms: Once your proposal is accepted, it is crucial to adhere to its terms, which includes making regular payments to your trustee.
  • Completion of the proposal: After successfully fulfilling all the terms outlined in the proposal, you will be discharged from the debts included in the agreement.

Remember, a consumer proposal is not the only option for debt relief. It’s important to get educated before undertaking these steps, and seek professional advice to explore all available options. 

What is the Purpose of a Consumer Proposal?

The purpose of a consumer proposal is to act as a legally binding solution for individuals facing financial difficulties. 

This proposal allows these individuals to propose a repayment plan to their creditors, offering a reduced debt amount. In return, they arrange a structured payment schedule that suits their financial capabilities. The main objective of a consumer proposal is to help individuals avoid bankruptcy by providing a more affordable and structured method to repay their debts. Ultimately, it offers them a fresh start, enabling them to regain control over their finances.

How Does a Consumer Proposal Work?

The process involves several steps, starting with a consultation with a licensed insolvency trustee. This expert will guide individuals through the process, ensuring they understand their rights and obligations. 

Next, individuals must develop a proposal that outlines their financial situation and proposed repayment terms. Once completed, the proposal is submitted to creditors for review and consideration. The negotiation phase follows, where the individual and their trustee work with the creditors to reach agreeable terms. 

If approved, the proposal is implemented, and individuals can begin the process of debt relief. This option provides several advantages, such as stopping collection calls that can be incredibly stressful for individuals dealing with financial difficulties. Additionally, it helps prevent wage garnishment, allowing individuals to regain control of their income. 

However, it's worth noting that there are also some disadvantages to consider. One of the main drawbacks is the impact on an individual's credit score. A consumer proposal will be reflected on their credit report, which may affect their ability to access new credit in the future. It's crucial for individuals seeking debt relief to understand how a consumer proposal works and to carefully consider all the pros and cons before proceeding.

Who Can File for a Consumer Proposal?

To file for a consumer proposal in Canada, individuals must meet the following criteria:

  • Individuals who have unsecured debt, ranging from a minimum of $1,000 to a maximum of $250,000 (excluding mortgage on principal residence)
  • This debt includes credit card debt, personal loans, and tax debt.
  • Individuals must not have debts exceeding $250,000
  • Individuals who have previously filed for bankruptcy are not eligible

Did you know?  In 2019, more than 57,000 Canadians filed for consumer proposals.

The Process of a Consumer Proposal in Canada

The process of a consumer proposal is filled with crucial steps paving the way toward financial recovery. From the initial consultation with a licensed insolvency trustee to the final approval and implementation of the consumer proposal, let’s uncover the essential stages involved. We'll uncover the ins and outs of developing a proposal, navigating the negotiations with creditors, and the significance of submitting the proposal to creditors. 

Step 1: Consultation with a Licensed Insolvency Trustee

The first step in a consumer proposal is to have a consultation with a licensed insolvency trustee. The consultation involves meeting with a licensed insolvency trustee to discuss your financial situation and explore potential solutions. During the consultation, the trustee will review your debts, assets, and income to determine if a consumer proposal is the best option for you. The trustee will explain the process of a consumer proposal, including the eligibility requirements and the steps involved. They will also discuss the benefits and potential drawbacks of a consumer proposal, and provide guidance on how to proceed. This initial consultation is crucial in understanding your options and making an informed decision about your financial future.

What do you need to prepare for a meeting with a Licensed Insolvency Trustee?

When preparing for a meeting with a Licensed Insolvency Trustee (LIT) to discuss a consumer proposal, it's crucial to gather essential financial documentation to provide a comprehensive overview of your financial situation. 

Begin by assembling details about your debts, including outstanding balances, interest rates, and payment schedules. Compile a list of your assets, such as property, vehicles, and investments, as well as income information, including pay stubs or proof of other income sources. You should also bring any correspondence from creditors and a record of any legal actions taken against you.

Be prepared to discuss your monthly living expenses, as this will help determine a realistic proposal amount. This proactive approach ensures that the Licensed Insolvency Trustee can assess your situation thoroughly, offering tailored advice and crafting a consumer proposal that aligns with your financial circumstances and goals.

Step 2: Developing a Proposal

If a consumer proposal is deemed appropriate, the LIT, in collaboration with you, will draft a proposal outlining the terms and conditions. This document typically includes an offer to creditors, suggesting a reduced payment amount or an extended repayment period. Before finalizing the proposal, you will have the opportunity to review and approve the terms. It's crucial to ensure that the proposal aligns with your financial capabilities and goals. The LIT will also conduct a thorough review to confirm that the proposal adheres to legal requirements.

Step 3: Submitting the Proposal to Creditors

Once both you and the LIT are satisfied with the proposal, it is submitted to your creditors. The proposal is then circulated among them for review. Creditors have a specified period to accept or reject the proposal.

Step 4: Negotiating with Creditors

Creditors may respond with counter offers or suggestions for adjustments to the proposal. The LIT can engage in negotiations with creditors to find a mutually agreeable solution. This negotiation process may involve discussions on the proposed repayment amount, the length of the repayment period, or other terms of the proposal.

Did you know? During the negotiation phase,  creditors may agree to reduce the overall amount owed or extend the repayment period, providing a feasible solution for individuals facing financial challenges.

Step 5: Approval and Implementation of the Consumer Proposal

Once the consumer proposal has been submitted to creditors, they will review and vote on its approval. If creditors representing at least 50% of the total debt agree to the proposal, it will be considered accepted. Once accepted, the consumer proposal is legally binding for all creditors, including those who did not vote in favour. Monthly payments outlined in the proposal will need to be made to the Licensed Insolvency Trustee. Upon completion of all payments, the consumer proposal will be considered fulfilled, and the remaining debt will be discharged.

Advantages and Disadvantages

Consumer proposals come with their fair share of advantages and disadvantages. Let's dive into what makes them so intriguing. From the advantageous side, we'll uncover how consumer proposals provide a fresh start and a chance to consolidate debt. But, on the flip side, we'll also explore the potential pitfalls and considerations that come with this financial option. It’s important to remember that all pros and cons of consumer proposals are dependent on your unique financial situation, so getting a professional opinion is key. 

Disadvantages to Filing a Consumer Proposal in Canada

The disadvantages of a consumer proposal can impact your financial situation in various ways. Here is a table outlining some of these drawbacks:

  • Impact on Credit Score: A consumer proposal will negatively affect your credit score, making it harder to obtain credit in the future.
  • Limited Financial Flexibility: During the proposal, you may be required to make regular payments, limiting your ability to spend or save.
  • Public Record: Consumer proposals are publicly recorded, which can affect your reputation and future financial endeavours.
  • Difficulty in Mortgage Approval: It may be challenging to get approved for a mortgage while the proposal is still active
  • Impact on Relationships: The stress and strain of dealing with financial issues may affect your personal and professional relationships.

Considering these disadvantages, it's important to weigh the pros and cons before deciding on a consumer proposal. Seeking professional advice is recommended to explore alternative options and choose the best course of action for your financial circumstances.

Advantages to Filing a Consumer Proposal in Canada

A consumer proposal provides numerous benefits to individuals experiencing financial difficulties.

  •  It enables debt reduction by forgiving a portion of the debt, thereby reducing the overall amount owed. 
  • It offers protection from creditors as they are legally obliged to cease all collection efforts once a consumer proposal is filed.
  • facilitate affordable payments, allowing individuals to make manageable monthly payments over a fixed period of time that are specifically tailored to their financial situation. 
  • Unlike bankruptcy, a consumer proposal provides the opportunity to retain assets such as your home or car. 
  • Although a consumer proposal does impact your credit score, it can be rebuilt faster when compared to bankruptcy.

Implications of a Consumer Proposal on Credit and Finances

A consumer proposal can have significant implications on one's credit and finances. It is important to understand the implications of a consumer proposal on credit and finances before making a decision.

  • Credit Impact: A consumer proposal will have implications on your credit report, affecting your credit score and making it difficult to obtain new credit in the future.
  • Financial Impact: The proposal can require you to make regular payments to your creditors, potentially affecting your budget and financial stability.
  • Rebuilding Credit: After completing your consumer proposal, it is possible to rebuild your credit over time by making timely payments and demonstrating responsible financial behaviour.

Consider seeking professional advice to fully understand the implications of a consumer proposal on credit and finances and explore other options like debt consolidation or bankruptcy. Remember, every financial situation is unique, so consult an expert for tailored guidance.

How Does a Consumer Proposal Affect Credit Score?

A consumer proposal can have a significant impact on an individual's credit score. When a consumer proposal is filed, it is recorded on the individual's credit report, which can lower their credit score. The proposal will remain on the credit report for three years after it has been completed or six years from the date it was filed, whichever comes first. During this time, it may be challenging to obtain new credit. Successfully completing a consumer proposal can demonstrate responsible financial management and may lead to an improved credit score over time. It is important to weigh the potential credit score impact against the benefits and opportunities for debt resolution that a consumer proposal can provide.

Can I Get Credit During a Consumer Proposal?

While in a consumer proposal, it may be challenging to obtain credit, but it is not impossible. Here are some things to consider:

  • Secured loans, such as a car loan, may be easier to obtain as they are backed by collateral.
  • Some lenders specialize in providing credit to individuals in consumer proposals, although interest rates may be higher.
  • Rebuilding credit during a consumer proposal is important to improve your creditworthiness once it is completed.

Can a Consumer Proposal Stop Collection Calls?

Yes, a consumer proposal can stop collection calls from creditors. 

If you're struggling with overwhelming debt and constant collection calls, a consumer proposal may be a viable solution to consider. It can provide you with a fresh start and stop the harassment from creditors. When you file a consumer proposal, an automatic stay of proceedings is put in place, which prohibits creditors from taking any further legal action against you. This includes stopping collection calls, as creditors are legally required to respect the terms of the proposal.

It's important to note that the stay of proceedings only applies to unsecured debts included in the consumer proposal. If you have other debts, such as secured debts or obligations like child support or alimony, collection efforts may continue for those specific debts. To maximize the benefits of a consumer proposal, it's essential to work with a licensed insolvency trustee who can guide you through the process and ensure your rights are protected. They will handle the communication with creditors on your behalf, including stopping collection calls.

Can a Consumer Proposal Prevent Wage Garnishment?

A consumer proposal can indeed prevent wage garnishment. When filing a consumer proposal, it triggers an automatic stay of proceedings which applies to all debts, including any ongoing wage garnishments. This legally mandates creditors to immediately cease garnishing wages once the consumer proposal is submitted. 

Coping with wage garnishment can be a distressing and financially debilitating circumstance, but a consumer proposal grants protection and relief by halting garnishments and allowing an opportunity to renegotiate the debt. Consequently, it empowers individuals to regain financial control and progress towards a manageable debt repayment plan.

Did you know? Wage garnishment laws may vary by jurisdiction, so your licensed insolvency trustee can help you navigate your region’s specific policies.

Alternatives to a Consumer Proposal

Looking for alternatives to a consumer proposal? Want to explore different options? In this section, we'll dive into some potential routes to consider. From debt consolidation to bankruptcy and informal negotiations with creditors, we'll uncover various avenues that can help you navigate your financial situation. With these alternatives at your disposal, you'll be equipped with the knowledge to make informed decisions and find the best path forward.

Debt Consolidation

At Parachute, we recommend debt consolidation as a viable alternative to a consumer proposal. Our goal is to guide you back to financial wellness, and our debt consolidation loan is the only one of its kind that actually gives you cash-back!

Debt consolidation focuses on streamlining repayments through a new credit arrangement, while a consumer proposal is a formalized legal process that negotiates reduced payments with creditors to settle debts.

What happens when you consolidate debt?

Debt consolidation is a financial strategy that involves combining multiple debts into a single, more manageable loan or credit account. The primary goal of debt consolidation is to simplify the repayment process and potentially reduce the overall cost of debt.

When you consolidate debt with Parachute, you experience immediate cash relief, reduce your high-interest debt, and get access to a financial dashboard that helps you rebuild.


Filing for bankruptcy is a legal process that provides individuals or businesses with overwhelming debts the opportunity to obtain a fresh start. It involves declaring inability to repay debts and having assets evaluated to pay back creditors, and is typically considered as a last resort.

What happens when you declare bankruptcy?

When you declare bankruptcy, your Licensed Insolvency Trustee will help stop creditors from collecting your debts. Your assets might be sold to pay off debts, and you may need to contribute part of your income. There's a meeting with creditors, and if things go well, you may be released from most debts, but there can be serious consequences to this decision.

Some key aspects to consider when contemplating bankruptcy include:

  • Eligibility: One must meet certain criteria to be eligible for bankruptcy, such as the amount of debt owed and the ability to make payments.
  • Process: Bankruptcy involves submitting necessary paperwork, attending credit counselling, and potentially negotiating with creditors.
  • Implications: Bankruptcy affects credit scores, ability to get credit, collection calls, and wage garnishment.

Informal Negotiations with Creditors

Informal negotiations with creditors can be an alternative solution for individuals facing financial difficulties. This approach involves direct communication with creditors to renegotiate payment terms or settle debts. 

Here are the steps involved in informal negotiations with creditors:

  • Evaluate your financial situation and determine a realistic repayment plan.
  • Contact creditors and explain your financial hardship, providing supporting documentation if necessary.
  • Negotiate new payment terms, such as lower monthly payments or reduced interest rates.
  • Propose a settlement offer, offering a lump sum payment that is less than the total amount owed.
  • Reach an agreement with creditors and ensure the agreement is properly documented.

Informal negotiations with creditors can provide more flexibility and control compared to formal options like bankruptcy or consumer proposals. It is important to keep in mind that creditors are not obligated to participate in these negotiations, and the success of the process depends on the willingness of both parties to find a mutually beneficial solution.

Frequently Asked Questions

What is a consumer proposal?

A consumer proposal is a debt relief solution in Canada that allows individuals to repay a percentage of their debt in exchange for full debt forgiveness. It is a legally binding agreement between the debtor and creditors and is administered by a Licensed Insolvency Trustee.

How does a consumer proposal work?

A consumer proposal is administered by a Licensed Insolvency Trustee who helps the debtor develop a proposal that suits both the debtor and the creditors. The debtor offers to pay creditors a percentage of what is owed or extend the time to pay off the debts. Payments are made through the Trustee, who then distributes the money to creditors.

What debts can be included in a consumer proposal?

Unsecured debts such as credit card debt, bank loans, payday loans, and tax debts can be included in a consumer proposal. Secured debts like mortgages and car loans are not affected, but a consumer proposal can help balance monthly budgets and make it easier to keep up with secured debt payments. Student loans can be included if the debtor has been out of school for seven years, and the trustee can provide guidance on how to handle other types of debts.

What are the benefits of a consumer proposal?

A consumer proposal provides a way for individuals to manage their debts and avoid bankruptcy. It allows for a reduction of overall debt burden, with settlements of 30 cents on the dollar being common. Payments can be spread out over a maximum of 5 years and are interest-free. It is also the only debt settlement option accepted by the Canada Revenue Agency for reducing or eliminating actual taxes owing.

What are the steps involved in filing a consumer proposal?

When filing a consumer proposal, debtors must provide a complete list of assets and liabilities to the Licensed Insolvency Trustee (LIT), attend the first meeting of creditors if requested, attend two counselling sessions, inform the LIT of any address changes, and assist in administering the proposal. Once the proposal is filed with the Office of the Superintendent of Bankruptcy (OSB), debtors stop making direct payments to unsecured creditors and actions such as wage garnishment and lawsuits are halted. Creditors have 45 days to accept or reject the proposal.

How does a consumer proposal affect government debts?

A consumer proposal can address government debts, including income tax debt and unpaid HST or GST tax payments. It is a recognized debt settlement option by the Canada Revenue Agency for reducing or eliminating taxes owing. Including these debts in a consumer proposal can provide individuals with a way to manage their outstanding tax obligations while reducing their overall debt burden.

Who is authorized to file a consumer proposal in Canada?

In Canada, only a Licensed Insolvency Trustee (LIT) is authorized to file a consumer proposal. LITs are licensed professionals regulated by the Office of the Superintendent of Bankruptcy (OSB). Individuals seeking to file a consumer proposal must work with a LIT, who will assess their financial situation, help create the proposal, and manage the process with creditors.

How do debt payments work in a consumer proposal?

In a consumer proposal, the debtor makes a consolidated offer to creditors to repay a portion of their total debts over an extended period. Debt payments are based on what the debtor can reasonably afford. If the proposal is accepted by the majority of creditors, the debtor makes fixed monthly payments to the LIT, who distributes the funds to creditors according to the terms of the proposal.

How much debt do you need for a consumer proposal?

There is no specific minimum or maximum amount of debt required to file a consumer proposal in Canada. However, consumer proposals are generally suitable for individuals with unsecured debts (such as credit cards, personal loans, or medical bills) that they are unable to repay in full. It's more about the financial situation and the ability to make reasonable payments than a specific threshold of debt amount. Consulting with a LIT helps determine if a consumer proposal is the right solution based on individual circumstances.

Bruce Hodges
Bruce, Founder and CEO of Parachute, worked for several of Canada’s top Banks, published research for the Canadian Bankers Association, and taught E-commerce Strategy in Wilfrid Laurier University’s MBA program. His first start-up built credit solutions for the likes of National Bank, Fair Isaac, and Ford Credit globally. Prior to starting Parachute, Bruce was COO of Foresters Financial, and EVP Transformation at CIBC, one of Canada’s top 5 banks. Bruce founded Parachute to disrupt the financial wellness space taking on payday, and high interest predatory lenders, with the intent to bring at risk Canadians back from the brink to good financial health.
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