Consumer Proposals and Your Credit in Canada

By Salvador Bernardo, Credit Specialist at FixMyCredit.ca · Published June 8, 2026 · Last updated June 23, 2026

A consumer proposal settles your debt for less — and the credit impact is lighter than bankruptcy. It is a formal agreement, filed through a Licensed Insolvency Trustee, to repay part of what you owe over up to five years. FixMyCredit.ca is a free referral service — not a lender, trustee or credit-repair firm — that connects you with trusted Canadian partners to explain the credit impact of a consumer proposal and help you rebuild afterward.

What Is a Consumer Proposal?

A consumer proposal is a legally binding agreement between you and your creditors, administered by a Licensed Insolvency Trustee (LIT), to repay a portion of your unsecured debt over a set period — up to five years. Once the majority of your creditors accept it, the deal binds them all, interest stops, and collection action halts.

Think of it as the middle ground of debt relief: heavier on your credit than a debt consolidation loan or a debt management plan, but far lighter than bankruptcy — and unlike bankruptcy, you keep your assets. It is the route most Canadians reach for when they genuinely cannot repay the full amount they owe but can manage a reduced, fixed payment — a structured, legal alternative to simply falling further behind and watching the interest and collection pressure compound month after month.

A consumer proposal is only available for unsecured debt — credit cards, lines of credit, personal loans, payday loans, and tax debt — up to a legal ceiling (currently $250,000 in unsecured debt, excluding your mortgage). Above that, a different insolvency process applies, which an LIT will explain in a free consultation.

How a Consumer Proposal Affects Your Credit

• Accounts and the proposal are marked R7 (paying through a settlement arrangement).
• It generally stays on your report about three years after you finish paying it, or up to six years from filing — whichever comes first.
• Your score drops, but typically less than with bankruptcy, and you keep assets like your home and car.

The important context: a consumer proposal does mark your credit, but so does the situation that leads to one — missed payments, collections, and maxed-out cards already drag your score down, often for just as long. A proposal stops that ongoing damage, freezes interest, and gives the file a clear end date. The mark is the price of a fresh start, and it fades while your post-proposal behaviour rebuilds the score.

Consumer Proposal vs. Bankruptcy: Credit Impact

A consumer proposal is usually lighter on your credit than bankruptcy (R7 versus R9) and lets you keep assets, but it can cost more overall because you repay a portion of the debt. Which one fits depends on your income, assets and debt load — our full comparison, consumer proposal vs bankruptcy, runs the numbers side by side.

The short version: bankruptcy is faster and usually cheaper but you may have to surrender assets and surplus income, and the R9 mark is the heaviest there is. A consumer proposal costs more in total repayment but protects your home, car and savings, caps your payment regardless of future raises, and leaves a lighter R7 mark. For someone with assets to protect or income high enough to trigger bankruptcy surplus payments, the proposal is often the better deal despite the larger repayment.

Consumer Proposal vs. Debt Consolidation and a DMP

Before a consumer proposal, it is worth knowing where it sits against the lighter options:

• vs. debt consolidation: consolidation keeps you repaying everything you owe and leaves the lightest mark — but you have to qualify to borrow. A proposal is for when you can no longer repay the full amount.
• vs. a debt management plan: a DMP also repays the full principal (with interest relief) and marks your credit more lightly, but creditors can decline it and it does not legally stop collections. A consumer proposal reduces the principal and is legally binding once accepted.
• vs. doing nothing: letting unaffordable debt run means more missed payments, collections, and possible lawsuits — usually worse for your credit than a proposal, with no end date.

The dividing line is affordability. If you can repay the full amount on better terms, a lighter route wins. If you genuinely cannot, a consumer proposal is the honest answer — and our overview of debt relief and your credit maps all the options together.

How Consumer Proposals Work, Step by Step

1. Free consultation with a Licensed Insolvency Trustee. The LIT reviews your debts, income and assets, and models what creditors would accept.
2. Filing. The moment the proposal is filed, a legal stay stops collection calls, lawsuits and wage garnishments for the included debts.
3. Creditor vote. Creditors holding the majority of your debt decide; most consumer proposals are accepted because creditors recover more than in a bankruptcy.
4. Fixed payments, up to five years. The amount never changes with your income, and you can pay it off early — which also starts the credit-recovery clock sooner.

What a Consumer Proposal Costs

You repay only a portion of your unsecured debt in a consumer proposal — the exact share depends on what you owe, your income and assets, and what your creditors will accept, all worked out by the trustee. There is no interest added once the proposal is filed, which is a large part of the saving.

Crucially, the trustee’s fees are set by federal regulation and are paid out of your monthly payment — you do not pay a separate fee on top. That is a key difference from unlicensed “debt consultants,” who may charge a large fee just to refer you to a trustee you could see for free. Always start with a free LIT consultation, and get the full payment schedule and total cost in writing before you sign. Our partners follow Canadian rules and lay this out clearly during a free assessment.

Who Consumer Proposals Fit Best

The classic profile: unsecured debt under the legal ceiling (excluding the mortgage), steady income that can fund a fixed payment, and assets worth protecting — home equity, a paid-down car, savings beyond the exemptions. A consumer proposal also suits people whose income would trigger heavy surplus-income payments in a bankruptcy. They fit poorly when income is too unstable to sustain years of payments; three missed payments annul the deal and the original debts come back.

Pros and Cons of a Consumer Proposal

A consumer proposal is a serious step, so weigh both sides:

• Pro — you repay less than you owe. The proposal settles unsecured debt for a portion of the balance, with interest frozen.
• Pro — you keep your assets. Unlike bankruptcy, your home, car and savings are generally protected.
• Pro — collections stop immediately. Filing triggers a legal stay on calls, lawsuits and garnishments.
• Pro — one fixed payment. It never rises with your income, and paying early shortens the credit-recovery clock.
• Con — the R7 mark. Your credit takes a hit for several years, though lighter than bankruptcy.
• Con — it is on the public insolvency record (rarely looked at in practice).
• Con — discipline required. Missing three payments cancels the proposal and the full debts return.

Common Myths About Consumer Proposals

• “I’ll lose my house and car.” No — protecting assets is the main reason people choose a proposal over bankruptcy.
• “It’s the same as bankruptcy.” It is not. A proposal is a settlement, marked R7, with a lighter and shorter credit impact than bankruptcy’s R9.
• “Everyone will find out.” Filings sit in a federal registry almost no one searches; the practical visibility is your credit report, not public gossip.
• “My credit is ruined forever.” The mark is temporary and you can start rebuilding immediately — many people qualify for new credit within a couple of years of finishing.
• “I should drain my RRSP first.” Often a mistake — registered savings are largely protected, and a proposal may let you keep them while resolving the debt.

What Happens After a Consumer Proposal

Completing a consumer proposal is a milestone, not the finish line for your credit. Here is the typical arc:

• On completion: the trustee issues a certificate of full performance, and the included debts are legally cleared.
• The credit clock: the R7 notation falls off about three years after completion (or six years from filing, whichever comes first), so finishing early literally shortens it.
• Rebuilding in the meantime: you do not have to wait for the mark to clear — on-time payments on a secured card and other accounts build positive history right away.
• Qualifying again: many people access new mainstream credit within a year or two of completion, especially with a clean post-proposal record.

The proposal does the hard part — stopping the bleeding and capping the damage. What rebuilds the score afterward is the same boring, reliable habit that rebuilds any credit file: pay on time, keep balances low, and let consistency compound.

Will It Stop a Wage Garnishment?

Yes — and for many people this is the most urgent reason to act. The moment the filing goes through, a legal stay of proceedings takes effect: existing wage garnishments on the included debts stop, new ones cannot start, collection calls end, and any lawsuits over those debts are halted. That protection is automatic and immediate, not something you have to negotiate creditor by creditor.

There are limits worth knowing. The stay covers the unsecured debts in the filing — it does not erase a court-ordered family-support garnishment, and secured debts like a mortgage or car loan stay on their own terms. But for the everyday case — a credit-card creditor garnishing your pay — the relief is one of the fastest and most concrete in all of debt resolution. If a garnishment is already biting into your paycheque, that alone is reason enough to book the free consultation and see where you stand.

Debt-Relief Options at a Glance

It helps to see where each route lands on credit impact and what it does to the balance you owe:

Read down the “do you repay it all?” column and the picture is clear: the less of the debt you can realistically repay, the further down this list the right answer sits. The settlement routes carry a deeper mark precisely because they forgive part of what you owe — and for someone who truly cannot pay the full balance, that trade is exactly the point.

Before You File: What to Have Ready

Walking into a free trustee consultation prepared makes the whole process faster and the advice sharper. Bring or list:

• Every unsecured debt — balances, lenders, and roughly how far behind each one is.
• Your income — recent pay, and whether it is steady or variable.
• Your assets — home equity, vehicle, savings, and registered accounts.
• Your secured debts — mortgage and car loan details, so you know what stays outside the deal.
• Your goal — protecting an asset, stopping garnishment, or simply a payment you can live with.

With that in hand, the trustee can model what creditors are likely to accept and tell you honestly whether a lighter route would serve you better. The consultation is free and carries no obligation, so there is no downside to getting the real numbers before you decide anything.

How to Rebuild Credit During and After a Consumer Proposal

1. Make every proposal payment on time — this becomes your new payment history.
2. Open a secured credit card and pay it in full each month.
3. Keep utilization low and avoid new unsecured debt.
4. Check your Equifax and TransUnion reports and dispute errors.

How FixMyCredit.ca Can Help

Deciding whether a consumer proposal is right — or whether a lighter route would serve you better — is hard to do alone. Tell us about your situation and we will connect you with a trusted Canadian partner who can explain your options and help you rebuild your credit, at no cost and no obligation. Our partners follow Canadian rules and disclose every cost up front. For free, independent guidance you can also visit the Financial Consumer Agency of Canada.

Before you file, it is worth comparing every route: our guide to the best debt relief options in Canada shows where a consumer proposal fits among the alternatives.

Frequently Asked Questions