Quick answer: The main consumer proposal disadvantages are an R7 credit rating that can stay on your file for up to six years, trustee fees paid out of your own monthly payments (about $1,670 fixed plus 20% of what creditors receive), a deal that is cancelled if you miss three payments, creditors who can vote it down, and debts such as support, secured loans and recent student loans that it cannot touch.
The consumer proposal disadvantages that matter most are not the ones the ads mention. A consumer proposal is a legal deal, filed through a Licensed Insolvency Trustee under the federal Bankruptcy and Insolvency Act, in which you repay part of your unsecured debt over up to five years and the rest is written off. In 2025, 110,168 Canadians chose one, which was 78.4% of all consumer insolvencies. It works, and for many people it is the right call. It also carries real costs that are easy to underweight when collection calls are coming in.
This guide lists the nine drawbacks in order of how much they hurt, puts real numbers on the fees and the credit timeline, and compares the proposal honestly with the two routes people weigh it against: a debt consolidation loan and bankruptcy. Every figure was checked on September 13, 2026 against the Office of the Superintendent of Bankruptcy, the fee tariff in the Bankruptcy and Insolvency General Rules, and Equifax Canada.
Key Takeaways
- A consumer proposal puts an R7 rating on your credit report that Equifax removes three years after your last payment or six years after filing, whichever comes first.
- The trustee’s fees are fixed by federal tariff: $750 on filing, $750 on approval, $85 per counselling session (two are mandatory) and 20% of everything distributed to creditors, all taken from your payments.
- Miss three monthly payments and the proposal is automatically annulled; the full original debt comes back, minus what you paid.
- Creditors holding a majority of the dollar value can reject or renegotiate the offer within 45 days.
- Secured debts, child and spousal support, court fines, fraud debts and student loans less than seven years old are not written off, and co-signers stay fully liable.
- The proposal still beats bankruptcy on assets, surplus income and credit damage, and beats a consolidation loan only when you truly cannot repay the principal.
What a Consumer Proposal Is, in One Paragraph
A consumer proposal is a formal offer to your unsecured creditors, administered by a Licensed Insolvency Trustee (LIT), to repay a portion of what you owe over a maximum of five years, available when your debts excluding a mortgage on your home total no more than $250,000. The moment it is filed, a stay of proceedings stops collection calls, lawsuits and wage garnishments, and interest stops running on the included debts. Creditors then have 45 days to accept or reject it; if they do nothing, it is deemed accepted.
The trustee is paid from the proposal fund, you attend two financial counselling sessions, and when the last payment clears you receive a certificate of full performance that releases the remaining balance. The Office of the Superintendent of Bankruptcy publishes the full process. Everything below is about what that process costs you.
The 9 Consumer Proposal Disadvantages, Ranked
The nine consumer proposal disadvantages, from most to least damaging for a typical filer, are the credit rating, the fees, the annulment rule, the creditor vote, the debts it cannot include, the borrowing freeze, the co-signer trap, the public record and the eligibility ceiling. Each one is explained with the rule behind it so you can judge how heavily it lands on your own situation.
1. An R7 credit rating for up to six years
Every debt included in a consumer proposal is reported to Equifax and TransUnion with an R7 rating, the code for “making regular payments through a special arrangement”, and the proposal itself appears in the public records section of your file. Equifax removes it three years after you have paid off all the debts in the proposal, or six years from the filing date, whichever comes first. TransUnion uses the same three-years-after-completion rule, capped at six years from when the accounts defaulted.
The timeline is the part people misjudge. A proposal you pay off in two years is gone in five; a proposal that runs the full five years is gone in six. During that window most banks will not issue an unsecured credit card, mortgage switches to a new lender are hard, and rent applications that pull a credit report will show the R7. Our guide to how credit reports work in Canada explains the rating codes, and FixMyCredit covers the rebuild side in its consumer proposal vs bankruptcy credit comparison.
2. The fees come out of your own payments
You never write a separate cheque to the trustee, which is why a consumer proposal is often advertised as having “no fees”, but the fees are real and they are set by federal tariff in Rule 129 of the Bankruptcy and Insolvency General Rules: $750 when the proposal is filed, $750 when it is approved, $85 for each of the two mandatory counselling sessions, and 20% of every dollar distributed to creditors, plus sales tax on all of it.
On a proposal that pays $10,800 over five years, roughly $3,200 goes to the trustee before tax and about $7,600 reaches the creditors. That is not a reason to avoid a proposal, since the fees are the same at every trustee and the alternative is usually worse, but it does mean the offer your creditors see is smaller than the total you pay, and it explains why creditors sometimes push back on a low offer.
3. Miss three payments and the whole deal is annulled
Under the Bankruptcy and Insolvency Act a consumer proposal is deemed annulled the moment you are three monthly payments behind, or, if you pay less often, when a payment is more than three months overdue. Annulment means the stay of proceedings ends, the full original balances come back minus whatever you have paid, creditors can resume collection and add interest, and you generally cannot file a second consumer proposal on the same debts without the court’s permission.
Your trustee can sometimes revive a lapsed proposal, but not automatically and not indefinitely, so the practical rule is simple: a proposal is only as safe as your ability to make every payment for the whole term. Filers who lose a job in year three are the ones who discover this disadvantage the hard way.
4. Your creditors can vote it down
Creditors holding a simple majority of the dollar value of your unsecured debt (50% plus one dollar) decide whether the offer is accepted, and creditors owed at least 25% of the total can force a meeting within the 45-day window. A large bank or the Canada Revenue Agency holding most of your debt can therefore reject a low offer, counter with a higher monthly payment, or demand a longer term.
In practice most proposals are accepted because the alternative for creditors is a bankruptcy that pays them less, but the number you discuss at the first meeting is a starting point, not a promise. Trustees know each major creditor’s minimum expectations, which is one reason the same debt can produce different offers at different firms.
5. It does not touch every debt
A consumer proposal only deals with unsecured debt, and even some unsecured debts survive it. The following are not released:
- Secured debts such as a mortgage or a financed vehicle. You keep paying them in full or you surrender the asset.
- Child support and spousal support, arrears included.
- Court fines, penalties and restitution orders, and any debt arising from fraud or misrepresentation.
- Government student loans if you stopped being a student less than seven years before filing (a court can reduce that to five years in hardship cases).
Credit cards, lines of credit, personal loans, payday loans, tax debt and most collection accounts are covered. If your debt is mostly support arrears or a two-year-old student loan, a proposal solves very little.
6. Borrowing during the proposal is hard and expensive
Your existing credit cards are cancelled when the proposal is filed, and for the years the R7 sits on your report new credit is limited to secured cards, credit-builder loans and high-rate lenders. A vehicle loan is possible but will carry a much higher rate than you had before, and a mortgage renewal usually goes through with your current lender only. FixMyCredit’s guide to borrowing during a consumer proposal walks through what is realistic.
That freeze is partly the point, since the counselling sessions exist to reset how you use credit, but it collides with life events. Anyone planning to buy a home, replace a car or start a business inside the next five years should count this consumer proposal disadvantage at full weight.
7. Co-signers and joint borrowers are left holding the debt
A consumer proposal releases you, not the people who signed with you. Creditors can pursue a co-signer, guarantor or joint account holder for the full balance the day your proposal is filed, and that person has no stay of proceedings protecting them. Parents who guaranteed a line of credit and spouses on a joint card are the usual casualties.
The workarounds are limited: pay the co-signed debt outside the proposal if your budget allows, or have the co-signer file their own proposal if they cannot cover it. Neither is free, and both need to be planned with the trustee before you file, not after.
8. It is a public record
Every consumer proposal is recorded in the Office of the Superintendent of Bankruptcy’s insolvency database, which anyone can search for a small fee, and the two credit bureaus report it in the public records section of your file. Nobody publishes your name in a newspaper, but a landlord, a lender or a new employer that checks credit as part of a background check will see it for the reporting period.
For most people this is a minor issue. For anyone whose job involves a bonding requirement, a securities licence or a financial fiduciary role, it is worth a conversation with the employer or regulator first, because some roles require disclosure of any insolvency filing.
9. The $250,000 ceiling and the income test
You can only file a consumer proposal if your debts, not counting a mortgage on your principal residence, are $250,000 or less; above that you need a Division I proposal, which costs more and where a failed vote means automatic bankruptcy. At the other end, the offer has to be funded from real income, so a trustee will not file a proposal you cannot afford, and creditors will not accept one that pays them less than they would recover in a bankruptcy.
The ceiling rarely bites, but the income test does. If your income is irregular, seasonal or about to drop, the trustee may steer you toward bankruptcy instead, and if your income is high relative to the debt, creditors will expect a higher percentage back. Roughly speaking, the range most filers land in is 30 to 70 cents on the dollar.
What a $25,000 Consumer Proposal Really Costs
A $25,000 consumer proposal settled at $10,800 over 60 months costs $180 a month, of which about $3,200 is trustee fees before tax and about $7,600 reaches the creditors, while the same debt on a consolidation loan at 12% would cost about $556 a month and $8,400 in interest. Here is the full comparison at that debt level, using the federal tariff and standard loan math.
| Route | What you pay in total | Monthly | Credit mark | How long it lasts |
|---|---|---|---|---|
| Consumer proposal (offer of $10,800) | $10,800 (fees about $3,200 inside that figure) | $180 for 60 months | R7 on every included debt | Up to 5 years of payments, off the report 3 years after completion or 6 years from filing |
| Debt consolidation loan at 12% APR | About $33,400 ($25,000 principal + $8,400 interest) | About $556 for 60 months | None beyond the new inquiry; helps as balances fall | 5 years, no lingering mark |
| Minimum payments on the cards at 20% APR | Often $40,000 or more | Falling slowly from about $750 | None if paid on time; high utilization drags the score | 15 to 20 years at minimums |
| Bankruptcy (first time, no surplus income) | Trustee fees only, typically $1,800 to $2,500, plus any surplus income payments and non-exempt assets | Varies | R9 on every included debt | 9 months to discharge; off the report 6 years after discharge |
The table shows why a consumer proposal is popular: it costs a third of the consolidation loan and a quarter of the do-nothing route. It also shows the catch. The consolidation borrower keeps clean credit and is done in five years; the proposal filer pays far less but carries an R7 for up to six. Which trade is better depends on whether you can carry $556 a month, which is the next section.
Consumer Proposal vs Debt Consolidation: Which Is Worse for You?
A consumer proposal vs debt consolidation comes down to one question: can your income realistically repay the full principal at a lower interest rate within about five years? If yes, consolidation protects your credit and costs you nothing but interest; if no, the proposal is the tool built for that situation and the credit damage is the price of writing off the balance you could never have repaid.
| Factor | Consumer proposal | Debt consolidation loan |
|---|---|---|
| What you repay | A portion of the principal, commonly 30 to 70 cents on the dollar, with no interest | 100% of the principal plus interest, usually 8% to 35% APR |
| Credit impact | R7 on included debts, on the report up to 6 years | One hard inquiry, then a lower utilization ratio that usually helps |
| Eligibility | Debts of $250,000 or less excluding your mortgage; a trustee must agree it is fundable | Lender approval based on credit score, income and debt ratios; hard to get once accounts are already late |
| Legal protection | Stay of proceedings stops garnishments and lawsuits | None; you simply have a new loan |
| Cost of the service | Tariff fees inside your payments (about 30% of a typical fund) | Interest plus any origination fee |
| Best for | Debt you cannot repay in full from income | Debt you can repay in full if the rate drops |
Two honest caveats. Consolidation loans are approved on the credit file you have today, so people who wait until accounts are 90 days late often find the loan is no longer available and the proposal is the only door left. And a debt management plan through a non-profit credit counsellor sits between the two: you repay all of the principal with interest reduced or frozen, and it is also rated R7 while it runs. Our guides on personal loan interest rates in Canada and how to choose a loan show what a consolidation rate should look like, and FixMyCredit compares credit counselling vs debt consolidation for the middle option.
Difference Between a Consumer Proposal and Bankruptcy
The difference between a consumer proposal and bankruptcy is that a consumer proposal lets you keep your assets and pay a fixed, negotiated amount over up to five years with an R7 rating, while bankruptcy surrenders non-exempt assets, takes half of any surplus income above the government threshold, and discharges a first-time filer in 9 or 21 months with an R9 rating that stays on your report for six years after discharge. Bankruptcy is faster and often cheaper; the proposal is gentler on assets, income and credit.
| Factor | Consumer proposal | Bankruptcy (first time) |
|---|---|---|
| Your assets | You keep them; the offer is funded from income | Non-exempt assets are sold by the trustee; exemptions vary by province |
| Surplus income | No surplus income payments; the amount is fixed at filing | 50% of any surplus over $200 a month above the OSB threshold, and the discharge stretches to 21 months |
| Tax refunds | You keep them | The trustee generally keeps the refund for the year you file |
| How long it takes | Up to 60 months of payments, shorter if you can pay faster | 9 months with no surplus income, 21 months with it; a second bankruptcy takes 24 or 36 months |
| Credit rating | R7, removed 3 years after completion or 6 years from filing | R9, removed 6 years after discharge (7 years if never discharged; 14 years for a second bankruptcy) |
| Cost | The negotiated fund, typically 30 to 70 cents on the dollar, fees inside | Trustee fees usually $1,800 to $2,500, plus surplus income and asset proceeds |
| Duties | Make the payments and attend two counselling sessions | Monthly income reports, two counselling sessions, surrender credit cards, possible creditor meeting or examination |
| Creditor vote | Yes, majority by dollar value can reject | No vote; it is automatic once filed |
The right way to read the table is that bankruptcy is the floor a proposal is measured against. Creditors accept a proposal because it pays them more than your bankruptcy would, which is why a filer with a house, an RRSP-style asset outside the exemptions, or a good income is offered a proposal, and a filer with no assets and a low income is often better off with the shorter, cheaper bankruptcy. The Office of the Superintendent of Bankruptcy explains the bankruptcy process and discharge rules in detail.
Who Should Not File a Consumer Proposal
A consumer proposal is the wrong tool when the debt can be repaid in full within a few years, when the biggest debts are ones it cannot release, when a mortgage or major loan application is less than six years away, or when a co-signer would be left exposed. The following situations usually call for a different rung on the debt ladder:
- Debt under about $10,000 with steady income. The fixed tariff fees make up a large share of a small fund, and a budget plan or a consolidation loan clears it without a six-year mark.
- Mostly support arrears, court fines or a recent student loan. Those survive the proposal, so you would carry the R7 without shedding the debt that hurts.
- A home purchase or refinance planned inside the next five years. Most mortgage lenders want the proposal completed and two years of rebuilt credit behind you.
- Joint or co-signed debt you cannot pay outside the proposal. Your filing shifts the whole balance onto the other signer.
- Unstable income. If a missed quarter is realistic, the annulment rule turns a fresh start into a full relapse.
- No assets, low income, high debt. If there is nothing for a proposal to protect, a bankruptcy discharge in nine months may cost less and end sooner.
If you recognise yourself in the list, start with our guide on how to get out of debt in Canada, which walks through the gentler rungs first, and read how to borrow with bad credit before assuming a loan is off the table.
How to Shrink the Consumer Proposal Disadvantages if You Do File
You can cut the biggest consumer proposal disadvantages by choosing the shortest term you can afford, paying it off early, keeping every secured and co-signed debt current, and starting a secured credit card the month you receive your certificate of full performance. Each move targets a specific drawback from the list above:
- Pay it off early. The credit clock runs from completion, so a 60-month proposal paid off in 30 months leaves your report about two and a half years sooner. There is no penalty for prepaying, and a lump sum from a tax refund or a family gift is allowed.
- Offer the shortest realistic term. Creditors care about the total fund more than the schedule; a 36-month offer at a higher monthly amount can clear the same dollars with a shorter R7 tail.
- Build a missed-payment buffer. Keep one month’s payment in a separate account so a lost shift never becomes the third missed payment.
- Sort out co-signed debts first. Decide with the trustee whether to pay them outside the proposal, refinance them in the co-signer’s name, or include them and warn the co-signer.
- Check both bureaus at completion. The trustee reports the certificate of full performance, but bureaus miss updates. Pull your Equifax and TransUnion reports 60 days after the last payment and dispute any account still showing an open R7 balance. The FCAC explains how long information stays on a credit report and how to dispute errors.
- Rebuild on purpose. A secured card used lightly and paid in full each month, a small credit-builder loan and an on-time rent or phone plan are the three tools that move a post-proposal score; our explainer on how credit scores work in Canada shows why utilization and payment history do most of the work.
Where to Get Honest Advice Before You Decide
The two regulated places to get a personal read on the consumer proposal disadvantages are a Licensed Insolvency Trustee, whose first consultation is normally free, and a non-profit credit counselling agency. Both are obliged to explain every option, including the ones they do not sell, and neither is allowed to charge you an upfront fee to “qualify” you.
Three questions to bring to that meeting: what percentage would my creditors likely accept, and why; what would my surplus income payment be if I went bankrupt instead; and what happens to each of my debts, including the co-signed ones, under each option. A trustee who answers all three with numbers is doing the job properly. Anyone who promises a guaranteed percentage, refuses to discuss bankruptcy, or wants a fee before doing anything is not a trustee at all, and debt-settlement firms that “negotiate” informally cannot stop a garnishment or bind a creditor the way a filed proposal does.
The federal OSB page on Licensed Insolvency Trustees confirms that only an LIT can file a consumer proposal and that their fees for consumer insolvencies are regulated, so the price of the advice is the same wherever you go. What differs is the honesty of the comparison, and that is what this guide is meant to arm you for.
Consumer Proposal Disadvantages FAQ
What is the biggest disadvantage of a consumer proposal?
How long does a consumer proposal stay on your credit report in Canada?
Are there fees for a consumer proposal?
What happens if I miss payments on my consumer proposal?
Is a consumer proposal worse than bankruptcy?
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About the Author
Sources: Office of the Superintendent of Bankruptcy, consumer proposals; OSB insolvency statistics, 2025; Bankruptcy and Insolvency General Rules, Rules 129 and 131; Equifax Canada, how long information stays on your credit report. Photos by Ron Lach, Nataliya Vaitkevich, Nicola Barts and Héctor Berganza on Pexels.
Disclaimer: For informational purposes only; not legal or financial advice. Consumer proposal rules, fees and credit reporting periods can change; confirm the current figures with a Licensed Insolvency Trustee, the Office of the Superintendent of Bankruptcy and the credit bureaus before acting on them.
