Consumer Proposal in Canada: How It's Filed, What Creditors Must Accept, and How Long It Stays on Your Report

A consumer proposal is a legally binding offer, filed through a licensed insolvency trustee with the Office of the Superintendent of Bankruptcy Canada, to settle your unsecured debts for less than the full amount owing. Once it is filed, most collection action against you must stop, and if creditors holding a majority of the dollar value of the voting claims accept it, the proposal binds every unsecured creditor it covers — including the ones who voted no. It stays on your credit report for three years after you complete it, or six years from the date it was filed, whichever comes first.

What a consumer proposal is — and what it is not

It is not a loan. It is not a debt management plan negotiated by a credit counsellor. It is a statutory process under federal bankruptcy and insolvency law, and it sits in a specific place: between informal debt negotiation on one side and bankruptcy on the other.

Only a licensed insolvency trustee can administer a consumer proposal. Trustees are regulated by the Office of the Superintendent of Bankruptcy Canada, which also sets out the duties you take on when you file. If someone offers to "file a proposal" for you and is not a licensed trustee, they are not filing a proposal.

Three things a proposal generally does not do:

• It does not erase secured debts. A car loan or mortgage continues as before. Stop paying and the creditor enforces against the vehicle or the property.
• It does not release anyone who co-signed or holds a debt jointly with you. Your proposal covers your share; the other person remains liable for theirs.
• It does not wipe the history that led to the filing. Missed payments and defaults from before the proposal stay on your file on their own timelines, separate from the proposal itself.

Federal law also sets a ceiling on how much unsecured debt a consumer proposal can cover. If your debts exceed it, a trustee will explain the alternatives available under the same legislation.

How a consumer proposal is filed, step by step

1. You meet a licensed insolvency trustee. This intake stage is where you find out whether a proposal is realistic. Trustees are required to assess your situation, not simply take your instructions.
2. The trustee works out what you can actually pay. The offer is built around your income, your essential living costs, and what creditors would likely receive if you went bankrupt instead. A proposal that ignores that comparison gets voted down.
3. The proposal is drafted and you sign it. It sets out the total amount you will pay, the payment schedule, and how the trustee's fees are handled.
4. The trustee files it with the Office of the Superintendent of Bankruptcy Canada. Filing is the moment legal protection attaches — and the moment you are inside a formal insolvency process with reporting duties attached to it.
5. Creditors are notified and vote. They are given a period fixed by the legislation to respond. A creditor can vote yes, vote no, or ask for a meeting of creditors.
6. The result is decided, then administered. If accepted, you pay the trustee, who distributes the money and monitors your compliance until the proposal is complete. If rejected, the trustee will usually discuss mediation, an amended offer, or bankruptcy.

The stay of proceedings

From the moment the proposal is filed, a stay of proceedings applies to the unsecured debts it covers. In practice that is what stops the collection calls, the lawsuits and the wage garnishments tied to those debts. It is not a shield against everything: secured creditors can still act against their security, and debts left outside the proposal are unaffected.

What creditors must accept — and what they can refuse

This is the part people get wrong. Creditors do not each hold a veto. Acceptance is decided by a vote weighted by how much is owed: if the creditors voting in favour hold a majority of the dollar value of the voting claims, the proposal is accepted and binds all unsecured creditors it covers, including those who voted against it. That cuts both ways — one large creditor can sink a proposal, and a group of small ones cannot block it if the weight of the debt agrees.

What creditors can do:

• Vote against the proposal if they believe they would recover more through a bankruptcy.
• Request a meeting of creditors to question you and the trustee.
• File a proof of claim setting out what they say you owe, which the trustee reviews and can dispute.

Some debts are treated differently under the legislation, including certain student loan debts and debts arising from fraud or court-ordered damages. The trustee identifies which of your debts fall into those categories before filing, because it changes both the offer you can make and the outcome.

How long a consumer proposal stays on your credit report

Canada has two national credit reporting bureaus, Equifax Canada and TransUnion Canada, and each provides a free copy of your credit report. A consumer proposal is reported to both. It stays on your report for three years after completion, or six years from the date of filing, whichever comes first.

That "whichever comes first" matters more than it looks. Take the full term to complete the proposal and the six-year cap from filing will usually arrive before the three-year post-completion period does. Complete early and the three-year clock after completion governs. Either way, the window is measured in years, not months.

For comparison, a first bankruptcy stays on your report for six years after discharge. Because discharge comes at the end of a bankruptcy rather than the beginning, the two timelines do not start from the same point and are not directly comparable.

The costs that do not show up on the first page

• Credit access narrows while the proposal is open. Some lenders will not approve new credit at all. Others will, at pricing that reflects the risk they are taking.
• The proposal is one entry among several. Your file also carries the missed payments that led to it, and those are reported on their own schedule.
• Joint borrowers and co-signers stay liable. A proposal covering your share of a joint debt does not reduce what the other person owes.
• There are ongoing duties. You must keep the trustee informed of changes in income and make payments on time. Failing to meet those obligations can end the proposal and leave you where you started, minus the cost.
• Forgiven debt can have tax consequences. That is a question for an accountant or tax professional, not for a lender or a comparison site.
• Future applications may still ask. Some lenders, employers and licensing bodies ask whether you have ever filed an insolvency, even after it has dropped off your credit report.

Where "loans to get out of debt with bad credit" fit — and where they don't

If you go looking for loans to get out of debt with bad credit, you will mostly find two categories, and they behave very differently.

Consolidation loans from lenders. These replace several payments with one. Whether you qualify, and at what price, depends on income, existing debt load and credit history — and a consumer proposal on your file is a strong signal to a lender. At federally regulated lenders, the room to borrow against a home is also limited: home equity lines of credit are generally capped at 65% of the appraised property value, with total secured lending usually limited to 80%. Secured and mortgage lending at federally regulated lenders generally works to a total debt service ratio ceiling of about 44% and a qualifying stress-test rate above the contract rate.

High-cost short-term credit. Where a province licenses payday lending, federal regulations cap the cost of borrowing at $14 per $100 advanced; some provinces set a lower cap, and in that case the lower figure applies. Quebec does not license payday lending, which effectively prohibits the model there. Read that cap as a ratio rather than an annual rate — $14 per $100 over a term of up to 62 days is a very large cost relative to the short time the money is actually borrowed. Outside the payday regime, the Criminal Code sets the criminal rate of interest at 35% per year (s. 347), calculated using a defined method that aggregates interest and certain charges. That is a legal ceiling, not a rate you should expect, and it says nothing about what any individual lender will offer you.

If you have a problem with a lender, the route depends on who regulates it: complaints about federally regulated financial institutions are handled by the Financial Consumer Agency of Canada, while provinces license and supervise most other lenders and each maintains a consumer protection office.

Questions to ask before you sign anything

1. Which of my debts are inside the proposal, and which stay outside?
2. What are the trustee's fees, how are they calculated, and are they taken from my payments or billed separately?
3. What happens if my income drops or I miss a payment?
4. What is my co-signer or joint borrower still responsible for?
5. How will the proposal and my current payment history be reported to Equifax Canada and TransUnion Canada?

loanwolf.ca is a matching service, not a lender. We do not make loans, set rates or make credit decisions, and nothing here is financial, legal or tax advice — how these rules apply depends on your individual circumstances, and for a decision this significant, advice from a licensed insolvency trustee and, where relevant, a regulated financial or tax professional is appropriate. If you do apply for a consolidation or personal loan, understand that the lowest advertised rates are only available to the most qualified applicants; a consumer proposal on your file moves you into a different pricing tier, and in some situations the honest answer is that no loan is the right tool for the problem.