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

A consumer proposal is a legally binding offer to your unsecured creditors, filed on your behalf by a licensed insolvency trustee, that reduces the total amount you repay and stops collection action while it is in place. Creditors are not required to accept it — they vote — but once the required majority agrees and a court approves the terms, the proposal binds every unsecured creditor, including the ones that voted against it. It then stays on your credit report for three years after completion, or six years from filing, whichever comes first.

What a consumer proposal is — and what it is not

A proposal is not a loan, not a consolidation, and not a private settlement negotiated by a debt-relief company. It is a formal proceeding under the Bankruptcy and Insolvency Act, and only a licensed insolvency trustee can file and administer one. Trustees are regulated by the Office of the Superintendent of Bankruptcy Canada, which publishes the rules, the required forms and the tariff that sets how trustees are paid.

In practice, you offer your unsecured creditors a defined amount — usually a monthly payment over a fixed term, sometimes a lump sum funded by a sale, savings or help from family — that is less than the full balance owing. In exchange, completing the proposal extinguishes the remaining unsecured debt. The maximum length of those payment terms, and which debts can and cannot be included, are set out in the legislation the OSB administers.

Two features matter more than the paperwork. First, filing creates a stay of proceedings: unsecured creditors must stop lawsuits, wage garnishments and collection calls. Second, the filing is recorded, and it will be visible to any lender that checks your file.

How a proposal is filed, step by step

1. Assessment. A licensed insolvency trustee reviews your income, assets, debts, household size and regular expenses, and works out what you could realistically pay. The trustee also has to consider whether the offer is fair compared with what creditors would receive if you went bankrupt instead.
2. Drafting. The trustee prepares the proposal document: how much is being offered, the payment schedule, how your assets are treated, and how creditors will be paid.
3. Filing with the OSB. Once filed, the stay of proceedings takes effect and unsecured collection activity must stop. The trustee notifies your creditors and sends them the documents.
4. The creditors' vote. Creditors have a set window to vote. A proposal is accepted when creditors holding the required majority of the dollar value of proven claims vote in favour, as the Office of the Superintendent of Bankruptcy Canada explains. Any creditor can request a meeting of creditors, which changes both the process and the timing.
5. Court approval. If creditors accept, the trustee asks the court to approve the proposal. Court approval is what makes it binding on all unsecured creditors, including those that voted no.
6. Administration. You make your payments to the trustee, the trustee distributes money to creditors, and you complete the counselling the Act requires.
7. Completion. When the final payment and any other conditions are met, the trustee issues a certificate of completion. That date matters, because it starts the credit-reporting clock.

What creditors must accept — and what they can refuse

The honest answer is that creditors must accept nothing until they have voted. A proposal is a take-it-or-leave-it offer with a statutory process attached, not a right. What usually earns a yes is straightforward: the offer has to pay creditors meaningfully more, or sooner, than they would receive in a bankruptcy. The trustee sets out that comparison explicitly in the documents creditors receive, which is why proposals that offer token payments tend to fail.

If the majority rejects the proposal, you can amend the terms and put it to another vote, or the trustee may advise that bankruptcy is the realistic alternative. Proposals fail most often because the payment offered was never sustainable in the first place — so the assessment stage is not a formality.

Three things a proposal does not do, based on the material published by the OSB:

• It does not automatically erase secured debts. A car loan or mortgage is secured against the asset. You either keep paying it, or you surrender the asset and the shortfall may then be treated as unsecured debt.
• It does not release co-signers or guarantors. Your liability is dealt with in the proposal; theirs is not.
• It does not cover every type of debt. Certain student loan debts, court-ordered fines and family support obligations are among the exceptions the OSB lists.

Here is how a proposal compares with the two paths people most often weigh against it. The mechanics of each are described in FCAC's debt and borrowing guidance and in OSB guidance.

	Consumer proposal	Bankruptcy	Consolidation loan or credit counselling
Who administers it	Licensed insolvency trustee	Licensed insolvency trustee	A lender or counsellor handles it; no trustee involved
Stops collection action	Yes — stay of proceedings once filed	Yes	No legal protection; creditors can still pursue you
Creditors must agree	Yes — by vote, then court approval	No — creditors have no veto	Only the new lender's approval matters
Credit report entry	Three years after completion, or six years from filing, whichever comes first	Six years after discharge	No filing recorded; accounts are reported as they perform
Effect on assets	You usually keep them, as set out in the proposal	Assets can be surrendered to the estate	Unaffected

How long a consumer proposal stays on your credit report

Three years after completion, or six years from the date of filing, whichever comes first — that is the rule the Office of the Superintendent of Bankruptcy Canada publishes. Both clocks matter. If a proposal takes longer to complete, the six-year-from-filing limit arrives first and the entry falls off sooner than the three-year-after-completion rule would suggest. Complete it quickly and the three-year-after-completion clock governs.

Canada has two national credit reporting bureaus: Equifax Canada and TransUnion Canada, and a free copy of your credit report is available from each. Check both, because they can hold slightly different information, including different dates for the same filing, and correcting an inaccurate date is easier than waiting it out.

While the entry is on file, a lender is not seeing a late payment — it is seeing a legal record of insolvency. That is why the practical effect on approvals is larger than the effect of a missed payment of similar age, and why some lenders decline outright rather than reprice.

Why borrowing costs more while the filing is on your file

Credit pricing follows expected loss. A lender that sees a recent proposal is pricing a higher probability of default with no security behind it, so the rate offered rises — or the application is declined. That is risk-based pricing at work, and FCAC sets out the wider debt and borrowing landscape for consumers.

There are legal ceilings on how expensive that credit can get. The Criminal Code criminal rate of interest is 35% per year (s. 347), calculated using a defined method that aggregates interest and certain charges. In provinces that operate a licensed payday lending regime, federal payday lending regulations (SOR/2024-114) cap the cost of borrowing at $14 per $100 advanced; some provinces set a lower cap, and the lower figure applies. Quebec does not license payday lending, which effectively prohibits the model there. Payday loans are generally up to $1,500 for a term of 62 days or less.

That cap structure explains a lot about the market people meet when they go looking for loans to get out of debt with bad credit. The products marketed hardest to borrowers with an impaired file are short-term and high-cost, and because the term is so short, the equivalent annual cost runs far above the 35% criminal rate. Using them to cover a proposal payment usually increases the total you pay, rather than reducing your debt.

If you own property, secured borrowing carries a lower rate — but it converts unsecured debt into debt secured against your home. At federally regulated lenders, home equity lines of credit are generally limited to 65% of appraised property value, with total secured lending usually capped at 80%. Mortgage qualification is affected too: federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44% and apply a qualifying stress-test rate above the contract rate (Guideline B-20).

What the process costs

Trustee fees are set by a tariff under the Act and are generally paid out of your proposal payments before creditors are paid. That is why the amount you offer has to be large enough to cover both the fees and a meaningful return to creditors. The OSB publishes the tariff and the counselling requirements that apply.

Be cautious with anyone who is not a licensed trustee but offers to file a proposal or negotiate your debts down in exchange for an upfront fee. FCAC publishes consumer guidance on debt and borrowing, including how to check who is actually licensed to do the work being offered.

Rebuilding after completion

1. Get the certificate of completion in writing. It is the trigger date for the three-year reporting rule, and you may need to produce it if a bureau has the wrong date.
2. Pull your free reports from both bureaus. Confirm the filing date, the completion date, and that accounts included in the proposal show the correct balances.
3. Dispute errors in writing. Attach the certificate of completion and keep copies of what you send and when.
4. Build a short, clean recent history. A small account that reports to the bureaus and is paid on time tells a lender more about you now than the age of the filing does.
5. Avoid applying for several products in a short window. Multiple applications generate multiple inquiries, which lenders read as pressure on your finances.

Questions worth asking before you file

• What is the total cost of the proposal, including the trustee's fees?
• Which of my debts are excluded, and what happens to those?
• What happens to my vehicle, my home and my tools of trade?
• What happens to a loan someone co-signed for me?
• What happens if my income drops and I miss a payment? A proposal can be annulled, and the protection ends there.
• How will the filing and the completion be reported to Equifax Canada and TransUnion Canada?
• If creditors reject the proposal, what is the alternative plan?

Whether a proposal is the right route depends on your individual circumstances — income stability, the assets you need to keep, the mix of debts involved, and what your household can realistically sustain for the length of the term. For a decision this significant, start with a licensed insolvency trustee, and where appropriate a regulated financial professional.

loanloon.ca is a matching and comparison service, not a lender. It does not make loans, set rates or make credit decisions; it connects your request with participating providers who do. Every lender prices risk individually, and the lowest advertised rates are only available to the most qualified applicants — so what you are offered will depend on your file, including any insolvency filing it shows.

• Payday Loan Cost Cap in Canada: How the $14 Rule Works
• Payday Loan Alternatives in Canada: Cheaper Routes First
• What Is the Criminal Rate of Interest? s. 347 Guide
• Consumer Protection for Borrowers in Canada: Your Rights

• Office of the Superintendent of Bankruptcy Canada — Office of the Superintendent of Bankruptcy Canada
• Financial Consumer Agency of Canada — debt and borrowing — Financial Consumer Agency of Canada