What is a consumer proposal? This debt relief option is the main alternative to bankruptcy

When debt becomes too much to handle, it can feel like there’s only one option: bankruptcy.

But bankruptcy is not the only government-regulated option available. For many Canadians in this position, a consumer proposal has become the more common path. According to the Office of the Superintendent of Bankruptcy Canada, consumer proposals now account for most insolvency filings each year, outpacing bankruptcies three to one.

So, what is a consumer proposal, and how does it work?

A consumer proposal is a government-regulated debt relief program that lets you repay all or part of your debt based on what you can afford; in monthly payments or over a specified period of time. A consumer proposal also provides a reduction of debt owed to unsecured creditors, or an extension of time for repayment of the debt, or in some cases, both.

It’s administered by Licensed Insolvency Trustees, the only professionals authorized under Canadian law to execute these regulated solutions.

How a consumer proposal works in Canada

A consumer proposal is a legal process governed by Canada’s Bankruptcy and Insolvency Act. It allows you to settle a portion of your unsecured debts through a structured repayment plan, over a period of time. Unsecured debts aren’t tied to a specific asset, like a home or vehicle. They include things like credit card balances, student loans (if you’ve been out of school for more than seven years) personal loans, lines of credit, medical debts, Canada Revenue Agency debt, and payday loans.

To qualify, your unsecured debts must be under $250,000, excluding the mortgage on your primary residence. If your debt exceeds this, there are other debt relief options available.

Your debt relief journey starts with a free conversation with a Licensed Insolvency Trustee. The Trustee reviews your financial situation and helps build a plan based on what you can afford, taking into consideration your income, expenses, and debts. The goal is to build a realistic plan you can manage.

Once the proposal is prepared and you decide to move forward, your Trustee submits the proposal to your creditors for review. Upon filing the consumer proposal for review, there is an immediate stay of proceedings. This means that creditors cannot begin or continue collection activity for unsecured debts, and all collection calls, wage garnishments, and legal actions must stop. A stay of proceedings also prevents further interest or penalties from being added to your debt. It creates immediate breathing room and stability, giving you space to move forward without ongoing pressure.

Your creditors then have 45 days to accept or reject it (the consumer proposal). If the majority approve, the proposal becomes legally binding for all of them. Once the creditors agree to the new payment arrangement, you must then make the agreed payment(s) to your Licensed Insolvency Trustee’s office for the term of the consumer proposal.

When your proposal is accepted by your creditors, your unsecured debts are consolidated into one fixed monthly payment. That payment is interest-free and can last up to five years. From that point forward, your payment amount and timeline don’t change. You make your agreed monthly payments to your Trustee, who distributes the funds to your creditors.

As part of the process, you are required to attend two financial counselling sessions focused on budgeting and money management. After making all payments for your consumer proposal, you will receive a Certificate of Full Performance, officially discharging you from your debts. The Licensed Insolvency Trustee will close your file and creditors can no longer act against you. This is when you can begin rebuilding your credit.

If you stop making payments at any time during your arrangement, your proposal can fall into default.

Under the Bankruptcy and Insolvency Act, missing three monthly payments (or the equivalent) puts your proposal at risk. If the missed payments are not brought up to date, the proposal may be annulled, meaning it is cancelled. At that point, the stay of proceedings is lifted, and creditors can resume collection activity, including interest, pursuing legal action, or garnishing wages. In most cases, your debts are reinstated as if the proposal had not been filed, minus any payments you have already made.

While options may still be available, like reviving the proposal, filing a new one, or considering bankruptcy, they can be more limited once your initial proposal has been annulled.

How to decide if a consumer proposal is right for you

Every financial situation is different, so there’s no single answer to whether a consumer proposal is the right fit. But there are a few common signs to look for.

You may want to consider one if your debt no longer feels manageable. This often shows up as credit cards or loans that keep growing despite regular payments. If you’re making minimum payments, but your balances aren’t going down, interest is outpacing your efforts.

If creditors or collection agencies are contacting you regularly, that’s another sign. For many people, that pressure adds a layer of stress on top of the financial strain itself.

A consumer proposal also makes sense if you want to avoid bankruptcy while protecting things you’ve worked to build, like a home, a vehicle, or savings. It also works well if you’re on a fixed or limited income and need a payment structure that fits your budget.

Consumer proposal vs. bankruptcy: What to consider

A consumer proposal reduces your debt while helping you avoid bankruptcy. It consolidates your unsecured debts into one fixed, interest-free monthly payment. It also lets you keep your assets and puts legal protection in place against collection calls, wage garnishments, and legal action.

There are tradeoffs to consider. A consumer proposal does affect your credit and requires creditor approval. Once completed, it remains on your credit report for three years after completion or six years from the filing date, whichever comes first. Bankruptcy, by comparison, stays on your report for six to seven years.

Not all debts are included in a consumer proposal. Secured debts like mortgages and car loans do not qualify as part of the proposal, as does child support and court fines. Student loan debt can only be included if you have been out of school for at least 7 years..A consumer proposal also requires an active income and proof you can maintain making payments for five years.

Compared to bankruptcy, a consumer proposal allows you to keep your assets and maintain more stability in your day-to-day finances. Bankruptcy is typically the path when a repayment plan isn’t realistic and may involve surrendering assets. It’s often completed more quickly and doesn’t require creditor approval but tends to have a more significant impact on your credit.

The right option depends on what you can afford to repay and what you need to protect.

Life after a consumer proposal

Completing a consumer proposal gives you a chance to rebuild your finances. That process takes time, and it looks different for everyone.

Most people start by building a simple budget based on their current income and expenses. That structure helps maintain stability and reduces the risk of falling back into the same patterns.

Rebuilding your credit is another part of the process. Many people begin with a secured credit card, making consistent, on-time payments, and monitoring their credit report to track progress over time.

If you’re trying to figure out whether a consumer proposal is the right path, speaking with a Licensed Insolvency Trustee at Bromwich+Smith is the next step. There’s no obligation, and no judgment.