Consumer Proposal Explained: How It Works and What to Expect

Being caught in a repeating cycle of debt with no clear escape is one of life’s most stressful experiences. For many people who feel stuck, a consumer proposal can provide a practical alternative to bankruptcy, offering a structured way to reduce debt and regain control of finances without liquidating all assets.

Every person’s tolerance for debt differs, but signs that help is needed are often the same: falling behind on bills, receiving collection calls or notices, and essential services like phone or utilities being cut off. If these warnings are present, it’s time to explore options with a licensed insolvency trustee.

What is a consumer proposal?

A consumer proposal is a formal negotiated settlement arranged by a licensed insolvency trustee between a debtor and their unsecured creditors. It allows you to repay a portion of what you owe over time based on what you can realistically afford. Compared with bankruptcy, a consumer proposal typically preserves more of your assets while still delivering a meaningful recovery for creditors.

Trustees present an offer that must be more attractive to creditors than what they would expect to receive through bankruptcy proceedings. Because each client’s financial picture is unique, proposals are tailored to individual circumstances and creditor mixes rather than following a one-size-fits-all formula.

People who contact trustees vary: some have missed payments for only a few months, while others have been behind for much longer. Many delay seeking help out of fear they will lose everything or that their situation will become public. In practice, the proposal process is generally less intimidating than people expect.

How to qualify for a consumer proposal

_{Véronique Lalonde, partner and licensed insolvency trustee at Raymond Chabot. Photo by The Canadian Press.}

Consumer proposals generally cover unsecured debts such as personal loans, lines of credit, credit card balances and unpaid income taxes. Secured debts—loans tied to specific assets like car loans or mortgages—are usually excluded and handled separately.

A licensed insolvency trustee will review your entire financial situation, including asset values, home equity and regular living expenses. Through a detailed budgeting exercise, the trustee determines what monthly amount is reasonable to offer creditors without leaving you unable to meet basic needs.

On average, creditors often accept settlements in the range of 20 to 30 cents on the dollar, but amounts vary widely. Each proposal is based on the person’s circumstances and the likelihood that creditors will do better under the proposal than in bankruptcy.

What happens during a consumer proposal

After the trustee prepares and files the proposal, creditors have 45 days to review and vote to accept or reject it. Most proposals are accepted, though some require additional negotiation. Once creditors accept the terms, the agreement sets a fixed monthly payment schedule for up to five years.

After a proposal is approved, the terms are final. If your financial situation improves—for example, you inherit money—you are not required to repay creditors beyond the agreed terms. The priority is to make the scheduled payments until the proposal is completed.

Is a consumer proposal the same as bankruptcy?

Bankruptcy is a separate legal process and is handled through the courts. While both options evaluate your assets and finances, they operate differently. In bankruptcy, surplus income calculations can change month to month based on your earnings, and the timeline is typically shorter—usually between nine and 21 months, depending on the circumstances. A second bankruptcy can extend up to 36 months.

Bankruptcy is often the right choice for people without sufficient cash flow or assets to reach a reasonable settlement. A consumer proposal tends to suit individuals who have some capacity to pay and want to avoid a full bankruptcy while negotiating a sustainable repayment plan.

How much does a consumer proposal cost?

There are fees involved in a consumer proposal, including trustee fees, filing fees and administration costs. Because these fees must be paid, a consumer proposal is not an option for someone with absolutely no funds; some money is needed to cover the process and to begin the repayment schedule.

Does a consumer proposal affect credit?

Both consumer proposals and bankruptcies affect your credit rating, so it’s important to choose the option you can afford that also limits long-term harm to your credit profile. A consumer proposal remains on credit reports for either three years after you finish paying the proposal or six years after you sign it—whichever comes first, according to consumer protection guidelines.

By contrast, bankruptcies remain on credit reports for a longer period—typically six to seven years after discharge. Despite the negative impact on credit in the short term, resolving overwhelming debt through a consumer proposal or bankruptcy allows many people to rebuild their financial standing over time.

Clearing debt and establishing a realistic plan to manage money again can be a pivotal step toward financial stability. With the right guidance from a licensed insolvency trustee or credit counsellor, you can choose the solution that best fits your situation and start rebuilding your future.

Newsletter

Get free MoneySense financial tips, news & advice in your inbox.

subscribe now