In Canada, you must include all unsecured debts in a Consumer Proposal. If your credit card has a balance, it will be cancelled. However, a zero-balance card from a non-creditor bank might survive, though the issuer reserves the right to close it.
When struggling with debt in Canada, whether you live in Toronto, Calgary, or Halifax, a Consumer Proposal is an excellent alternative to bankruptcy. It allows you to negotiate a lower payback amount with your creditors. However, many Canadians wonder what happens to their credit cards during this legal process.
Generally, Canadian insolvency law requires that all unsecured creditors be treated equally. 💳 You cannot pick and choose which debts to include. If you owe money on a credit card, it must be surrendered to your Licensed Insolvency Trustee (LIT). Let us explore the exact rules and how you can manage your finances moving forward as of May 2026.
Step-by-Step Process: Managing Credit Cards in a Consumer Proposal
Filing a Consumer Proposal in Canada is a formal legal process governed by the Bankruptcy and Insolvency Act. Here is how your credit cards are handled from start to finish.
Step 1: Disclosing All Debts to Your LIT
Your first step is meeting with a Licensed Insolvency Trustee. 📝 You must provide a complete list of all your debts, including every credit card, line of credit, and payday loan, as well as any taxes owed to the CRA. Intentionally hiding a debt is a serious indictable offence under Canadian law.
Step 2: Surrendering Cards with a Balance
If there is even a $1 balance on your card, that bank is considered a creditor. You must physically or virtually hand over these cards to your LIT, who will notify the creditors. The credit card accounts will be frozen and eventually closed.
Step 3: Handling Zero-Balance Cards
If you have a credit card with absolutely no balance, and you do not owe that specific bank any other money, you are not strictly required to surrender it. ✅ However, Canadian banks frequently review credit files. Once they see a Consumer Proposal on your Equifax or TransUnion report, they will likely close the zero-balance account as a preventative measure.
Step 4: Obtaining a Secured Credit Card
To rebuild your credit and have a way to book hotels or rent cars, you can apply for a secured credit card. Companies like Capital One or Home Trust offer these to Canadians in proposals. You place a deposit (e.g., $500 CAD), which becomes your credit limit.
How Much Does a Consumer Proposal Cost in Canada?
Understanding the costs involved in a Consumer Proposal is crucial for your financial planning. 💵 Unlike hiring a private law firm, the fees for an LIT are federally regulated by the Office of the Superintendent of Bankruptcy (OSB), with rates fixed and current for May 2026.
- Initial Consultation: Free of charge across Canada.
- Proposal Payments: Based on what you can afford and what creditors will accept (often settling for 30% to 50% of the original debt).
- LIT Fees: Built directly into your monthly proposal payments. You do not pay extra upfront fees.
- Secured Card Deposit: Usually requires a one-time deposit between $300 CAD and $500 CAD.
| Credit Tool | Status During Proposal | Impact on Credit Score |
|---|---|---|
| Card with Balance | Closed immediately | R7 Rating (Proposal) |
| Zero-Balance Card | Likely closed by bank | Neutral, but account age resets if closed |
| Secured Credit Card | Can be opened safely | Helps rebuild credit during the process |
How Long Does the Process Take?
The timeline for a Consumer Proposal in Canada is strictly regulated. A proposal can last anywhere from 1 to 60 months (5 years). Most Canadians opt for a 5-year plan to keep monthly payments as low as possible. The record of the proposal remains on your credit report for 3 years after completion.
Frequently Asked Questions (FAQ)
Can I keep my spouse’s credit card if I am an authorized user?
Yes, if you are simply an authorized user and not a joint account holder, your spouse’s credit card is not your debt. However, you should inform your spouse, as their bank might have specific policies regarding authorized users with insolvency records.
What happens to joint credit cards?
If you have a joint credit card, the co-signer or joint holder becomes 100% responsible for the entire balance when you file a Consumer Proposal. The bank will expect them to continue making full payments.
Will my bank freeze my chequing account?
If your chequing account is at the same bank where you owe a credit card debt, they may exercise the right of offset and take funds from your account to pay the credit card. Your LIT will usually advise you to open a new bank account at an entirely different institution before filing.
Can I pay off one card right before filing to keep it?
Paying off a specific creditor immediately before filing an insolvency is called a preference payment and is illegal under the Bankruptcy and Insolvency Act. Your LIT would be required to reverse that payment.
Do I need a lawyer to file a Consumer Proposal?
No, you do not need a lawyer to file. Only a Licensed Insolvency Trustee (LIT) is legally authorized by the Canadian government to administer a Consumer Proposal.
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