FAQ Answered: What is a Consumer Proposal?
By Garrett Johnson
We receive many questions about consumer proposals, so in this FAQ article we will explore some of the questions people frequently ask, starting with, “What is a consumer proposal?” A consumer proposal is a formal, legally binding debt repayment arrangement available to Canadians under the Bankruptcy and Insolvency Act. It allows you to work directly with a Licensed Insolvency Trustee to offer your creditors a percentage of the amount you owe, paid through monthly payments. Once your consumer proposal is filed, interest stops accruing and unsecured creditors must stop collection action, including phone calls and wage garnishments.
Unlike bankruptcy, you can typically keep your assets as long as you continue making your agreed payments. A consumer proposal can include most unsecured debts such as credit cards, lines of credit, payday loans, and income tax debt. Once creditors holding at least 51% of your debt agree to the terms of the proposal, it provides structured relief while helping you avoid some of the more serious consequences associated with bankruptcy.
Can a Consumer Proposal Affect My Spouse?
A consumer proposal does not necessarily affect your spouse. A consumer proposal is filed by one individual and only includes that person’s unsecured debts. Your spouse is not automatically responsible for your debts unless they have co-signed or jointly borrowed the money. If a debt is joint, you are both fully liable for the debt, the debt is not split between the two of you.
In some cases, both spouses choose to file together if they share most of their debts. This is called a joint consumer proposal and can simplify the process when finances are closely connected. It’s important to review any joint debt carefully so you understand how your spouse may be impacted before filing.
How Long Does a Consumer Proposal Stay on My Credit Report?
A consumer proposal will stay on your credit report for three years after you complete the consumer proposal or six years from the date it was filed, whichever comes first. During this time, lenders can see that you made a formal arrangement to repay your debts, and the consumer proposal is typically reported with a 7 notation. Although this does impact your credit history, many people begin the process of rebuilding their credit before the consumer proposal is fully complete. Taking consistent, positive steps such as making payments as agreed on a secured installment loan such as a car loan or a secured credit card can help you recover more quickly once the consumer proposal is finished.
Does a Consumer Proposal Affect My Credit Score?
Yes, filing a consumer proposal will affect your credit score. Your score reflects your past payment history, and entering a consumer proposal signals to lenders that you were unable to meet your original repayment terms. That said, many people who consider a consumer proposal already have missed payments, collection activity, or maxed-out credit accounts affecting their score. In those cases, a consumer proposal can actually stop the downward spiral. By eliminating ongoing late payments and stopping interest, it creates a clear path to financial recovery and rebuilding.
Does a Consumer Proposal Affect My Mortgage?
If your mortgage is in good standing and you continue making your payments, then your current mortgage should not be affected by a consumer proposal. Mortgages are secured debts, meaning they are tied to your home, while consumer proposals primarily deal with unsecured debts. However, your ability to refinance or renew your mortgage during the consumer proposal may be affected depending on your lender’s policies. Some lenders may renew an existing mortgage without an issue, while others may require additional information before they consider a renewal. Refinancing, on the other hand, is often not possible because it means borrowing additional money on your mortgage. If you are considering a consumer proposal and own a home, it is important to review the details carefully to understand how your specific mortgage could be impacted.
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Can a Consumer Proposal Be Amended?
Yes, a consumer proposal can be amended if your financial circumstances change. If you experience job loss, reduced income, or another hardship that makes your payments unaffordable, reach out to your Licensed Insolvency Trustee. They can propose a modification to your creditors.
Creditors must vote to accept the amended terms, just like they did with the original proposal. Acting early is key. If you fall three months behind on payments, the consumer proposal is automatically annulled and you may need to consider filing for bankruptcy. Communicating quickly with your Licensed Insolvency Trustee can help preserve your agreement and keep you on track toward completing it successfully.
Wrapping Up the FAQs About Consumer Proposals and How to Get Help
If you’re wondering whether a consumer proposal is right for your situation, it can help to speak with an unbiased professional first, someone who can review your full financial picture and give you their honest opinion. An accredited credit counsellor will help you understand every option you have available, as well as how each would work given your current financial situation and your goals. Understanding your options in detail allowed you to make an informed decision and move forward with confidence.
Related: Consumer Proposal versus Bankruptcy: What is the Difference?
Last Updated on February 20, 2026
