Consumer Proposals for the Self-Employed and Small Business Owners

Written and built by a Licensed Insolvency Trustee with a legal and finance background. No fees for advice. No referrals for sale. The light is on.

If you run your own business, debt can feel more complicated.

Maybe you invoice customers under your own name. Maybe you operate a small storefront. Maybe you have a corporation, but the bank still made you sign personally. Maybe the Canada Revenue Agency is involved. Maybe suppliers, equipment loans, taxes, and personal credit cards have all become mixed together.

The question is usually simple:

Can a consumer proposal help me if I am self-employed or own a small business?

The short answer is yes, it often can.

But the details depend on one important thing: how your business is legally set up.

If you operate as a sole proprietor, the business and you are the same legal person. Most business debts are also your personal debts.

If your business is incorporated, the corporation is legally separate from you. A consumer proposal can deal with your personal debts, but it does not deal with the corporation’s own debts unless you are personally responsible for them.

That distinction decides most of the article.

Sole Proprietor or Incorporated Business

A consumer proposal is filed by an individual. In plain language, that means a human being. It is a Division II proposal under the Bankruptcy and Insolvency Act, and the Licensed Insolvency Trustee who runs it is called the administrator.

A corporation cannot file a consumer proposal. A corporation that needs to restructure uses a different process, usually a Division I proposal or bankruptcy.

So the first question is not really whether the debt is “business debt.” The first question is whether the debt is legally yours.

If You Are a Sole Proprietor

A consumer proposal for small business owners who have not incorporated is usually the simplest case, because there is no legal separation between you and the business.

You may think of the debts as business debts because they came from the business. But legally, they are usually your debts.

That can include:

• Unpaid supplier accounts.
• Business credit cards.
• Business overdrafts.
• Equipment loans.
• Unpaid taxes.
• Customer deposits or other business obligations.

Not all of those debts are treated the same way. A secured equipment lender has different rights than an unsecured supplier. Certain tax debts have special rules. But the starting point is that the sole proprietorship is not a separate person from you.

That is the hard part of being a sole proprietor.

It is also why a consumer proposal can often include business debts from a sole proprietorship. The proposal is yours, and the debts are usually yours too.

If Your Business Is Incorporated

An incorporated business is different.

A corporation is a separate legal person. Its debts belong to the corporation, not automatically to you.

That means your personal consumer proposal does not deal with the corporation’s own debts just because you own the company.

But many small business owners are personally exposed anyway.

That usually happens in two ways.

First, you may have personally guaranteed a business loan, lease, credit card, supplier account, or line of credit. If the company does not pay, the guarantee may make you personally responsible.

Second, directors can become personally liable for certain tax amounts, especially unremitted payroll deductions and sales tax.

Those personal liabilities may be dealt with in your consumer proposal, if they are properly disclosed and included.

But your proposal does not release the corporation. It does not settle the company’s debts. It does not stop the company from needing its own restructuring if the company itself is insolvent.

The key point is this:

A consumer proposal can deal with your personal exposure. It does not restructure the corporation.

Business Debts in a Personal Proposal

For a sole proprietor, most business debts can usually be included in a consumer proposal because the business debts are also personal debts.

That may include unpaid trade accounts, unsecured loans, business credit cards, overdrafts, and tax debt.

There are important limits.

A consumer proposal only binds unsecured creditors. If a lender has security over a work vehicle, equipment, inventory, or other property, that secured creditor keeps its security rights unless it agrees otherwise.

Unpaid payroll deductions are the important exception. That money was never legally yours to keep. It was withheld from someone’s pay and held for the government. A consumer proposal is normally built to pay those amounts in full rather than to compromise them.

Sales tax can work the same way. Both can involve trust or deemed trust rules.

The broader rules on secured debts and debts that do not disappear in the usual way are set out in the Consumer Proposal Resource Centre.

There is also a debt ceiling.

A consumer proposal has a maximum debt limit. Business debts count toward that limit, along with personal debts. Debt secured by your principal residence is treated separately for this purpose.

Self-employed people hit that limit more often than most. A sole proprietor carrying a heavy equipment loan and unpaid trade accounts can cross it quickly.

The full eligibility rule is set out in the Consumer Proposal Resource Centre.

If your debts are above the consumer proposal limit, that does not mean there is no option. It means a consumer proposal may not be the right tool. The usual proposal alternative is a Division I proposal, explained here: Division 1 Proposals in Plain Terms.

Personally Guaranteed Business Debt

Many incorporated business owners assume the company debt is not their problem because the company signed the loan.

That is not always true.

If you signed a personal guarantee, the lender may have a personal claim against you if the company does not pay.

That claim can usually be included in your consumer proposal, even though the original borrowing was for the company. It can go into your proposal even if the lender has not called on the guarantee yet.

The exact terms of the guarantee matter. Some guarantees are broad. Some are limited. Some are triggered only after certain events. A Licensed Insolvency Trustee will need to see the documents.

If your consumer proposal is completed, it can release your personal liability. It never releases the corporation. The company’s own debt is dealt with only through the company’s own process. What happens to the company’s own debts is the corporate lane’s ground, covered on Canadian Business Debt Solutions.

Director Liability for Tax Debt

This is one of the places where incorporated business owners get caught.

A corporation may owe payroll deductions or sales tax. In some circumstances, the directors can become personally liable for those amounts.

That personal liability does not wait until the Canada Revenue Agency collects from you personally. The liability can arise when the corporation fails to remit. The Canada Revenue Agency’s later collection steps affect when it can collect from you, not whether the liability exists.

There are defences. The main one is a due-diligence defence. There is also a two-year limit, and it starts running only once you have stopped being a director.

Those details are covered in Stopping CRA Garnishments and Bank Freezes: A Practical Guide for Canadian Business Owners, in its sole proprietor versus incorporated business questions.

For this page, the practical point is enough:

If director liability exists, it is your personal tax debt. In the ordinary case, if it is properly disclosed and included, it can be compromised in your consumer proposal like other unsecured Canada Revenue Agency debt, and released when you complete the proposal. It is not a special class of debt that survives the proposal.

There is careful legal analysis behind that conclusion, because the issue has not been fully tested by a decided case inside a consumer proposal. The full reasoning is in the Papers analysis for this page.

Your proposal still does not release the corporation. It only deals with your personal liability.

Can You Keep the Business Running?

This is usually the fear behind the phone call.

If I file a consumer proposal, do I lose the business that supports me?

In many cases, no.

A consumer proposal does not transfer your property to a trustee. You keep ownership and control of your assets while the proposal is running.

That is one reason sole proprietors can often continue operating during a proposal.

But that does not mean nothing changes.

Your landlord may have a say. Your bank may have a say. Your equipment lender may have a say. Your suppliers may decide whether to keep extending credit. Your licence or regulator may have its own rules.

So the better answer is this:

A consumer proposal does not automatically shut down your business. But keeping a business operating depends on the practical relationships that allow the business to function.

The CRA garnishment guide deals with many of those operating questions, including whether you can keep operating during a proposal, what happens to business equipment, tools, work vehicles, and whether you can keep drawing income from the business. See the section on keeping the business running.

Business Equipment, Tools, Inventory, and Receivables

If you are a sole proprietor, your business assets are also your assets.

That may include tools, equipment, inventory, accounts receivable, and goodwill.

Those assets matter because your proposal has to look reasonable and fair next to what your creditors would have received if you had gone bankrupt instead.

That does not mean every business asset is valued at full replacement cost or book value.

In practice, business assets are usually looked at realistically. Used equipment may be worth less than expected. Inventory may have liquidation value, not retail value. Accounts receivable may be discounted if collection is uncertain. The goodwill of a one-person service business may have little value without the owner doing the work.

Certain tools of the trade are also protected by provincial exemption rules. Within that protected limit, they add nothing to the comparison at all.

The point is not that business assets are ignored. They are not. The point is that they should be valued based on what would realistically be available to creditors.

The calculation behind consumer proposal payments is covered at How a consumer proposal payment is calculated. To see how your own business income and assets land in that comparison, the Years to Pay Off Debt and the Monthly Payment Amount calculators run the figures.

Canada Revenue Agency, Receivables, and Trust Fund Debt

Self-employed people and small business owners often worry about Canada Revenue Agency collection.

That concern is real.

The Canada Revenue Agency can sometimes serve a Requirement to Pay on a third party, including a customer or client. That can redirect money owed to you directly to the Canada Revenue Agency.

Some tax debts are also different from ordinary unsecured debts. Payroll deductions and sales tax can involve trust or deemed trust rules.

Here is the part business owners most need to know. Filing a consumer proposal stops many collection steps, but it does not stop all of them. One version of the Requirement to Pay keeps working after you file. If your receivables are already being redirected, do not assume that filing alone will turn that off.

The CRA garnishment guide was written for these questions. It explains what a Requirement to Pay is, what filing does and does not stop, and how trust fund tax debts are treated.

Will Suppliers, Customers, or the Bank Find Out?

A consumer proposal is part of the federal insolvency system. It is not invisible.

Whether a particular supplier, customer, or bank actually learns about it depends on the facts, including whether they are creditors, whether they receive notice, whether they search the public record, and what collection activity is already happening.

This page does not try to answer every notice question for every business relationship.

The CRA garnishment guide answers the business contact and bank question directly.

The broader public record question, including the difference between the insolvency registry and a credit report, is covered in Disadvantages of consumer proposal filings: the real consequences, fear by fear.

Does Being Self-Employed Change How the Proposal Payment Is Calculated?

The basic idea is the same.

A consumer proposal payment is based on what creditors are being asked to accept compared with the alternatives, including what they might receive in a bankruptcy. Income and non-exempt assets matter.

What changes for a self-employed person is usually the paperwork.

An employee may be able to show income with pay stubs.

A self-employed person may need to show business records, tax returns, notices of assessment, bank records, bookkeeping, and a reasonable picture of net business income.

The key number is your net business income, not the amount you draw from the business.

If income is irregular, it is averaged over a trailing period rather than treated one month at a time. A single weak month is absorbed by the average instead of distorting the number.

Once the proposal is accepted, the payment is normally a fixed payment that you agreed to make. A stronger month does not automatically raise it. A weaker month does not automatically lower it.

Your income is genuinely weighed once, at the start, when the payment is being sized. That sizing comes out of an assessment you and your trustee work through together. It is not a number handed to you.

If there is a lasting drop in income, the proposal may need to be reviewed or amended.

The calculation itself is set out at How a consumer proposal payment is calculated.

What happens month by month once you file is walked through on the timeline page.

What if Business Debts Push Me Over the Consumer Proposal Limit?

If your debts are over the consumer proposal limit, you cannot file a consumer proposal.

Business debts count toward that limit. Debt secured by your principal residence is treated separately.

The limit in force as of mid-2026 is $250,000, excluding debt secured by a principal residence. That figure has not moved since it was raised in 2009, and a proposed change to it is not yet law.

If your debts are over the limit, the usual proposal alternative is a Division I proposal.

A Division I proposal is also a settlement offer to creditors, but it is different from a consumer proposal. One major difference is what happens if creditors reject it. If a Division I proposal is rejected, the law treats the person as having made an assignment into bankruptcy. A rejected consumer proposal does not have that automatic result.

The full consumer proposal eligibility rule is in the Consumer Proposal Resource Centre. The Division I process is explained here: Division 1 Proposals in Plain Terms.

I Am Incorporated. Can I Put the Company’s Debts Into My Personal Proposal?

No, not simply because you own the company.

The corporation is separate from you. Its debts belong to the corporation.

Your consumer proposal can deal with debts you personally owe. That may include personal guarantees and director liability for certain tax debts.

It does not deal with the corporation’s own debts.

If the corporation itself needs protection or restructuring, the company may need its own insolvency process, such as a Division I proposal or bankruptcy.

The distinction matters because many small business owners have two problems at the same time:

• Their own personal exposure.
• The corporation’s separate debt.

A personal consumer proposal may solve the first problem. It may not solve the second.

Professional Corporations

If you are a regulated professional operating through a professional corporation, the same basic distinction applies.

Your consumer proposal is yours. It is not the corporation’s proposal.

Your shares in the professional corporation are your property, so their value may be considered when the proposal is being assessed.

But the value of those shares may not be simple. In some professions, only another licensed member of the profession can own voting shares. That can affect what the shares are realistically worth.

Your professional regulator may also have reporting rules. That is separate from the insolvency treatment itself.

The licensing detail is carried in Disadvantages of consumer proposal filings: the real consequences, fear by fear.

Common Questions

If This Is Your Situation

You do not have to sort out the business and personal pieces on your own.

The first step is to identify how the business is legally set up.

Then a Licensed Insolvency Trustee can review:

• Your personal debts.
• The business debts.
• Any personal guarantees.
• Any tax exposure.
• Any secured equipment or vehicle loans.
• Any business assets.
• Any receivables.
• Whether a consumer proposal fits, or whether another option is needed.

For a sole proprietor, a consumer proposal may deal with both personal and business debt in one process.

For an incorporated business owner, a consumer proposal may deal with your personal exposure, while the corporation may need to be considered separately.