Consumer Proposal vs Bankruptcy in Canada

In 2024, consumer proposals accounted for 79% of all Canadian consumer insolvencies, with 137,295 consumer filings. This reflects a strong preference among Canadians with regular income for consumer proposals over bankruptcy.

Source: Government of Canada – Canadian Consumer Debtor Profile 2024

Both options are legally binding debt relief programs under the Bankruptcy and Insolvency Act. Only a Licensed Insolvency Trustee (LIT) can administer these programs.

What is the difference between bankruptcy and a consumer proposal?

A consumer proposal lets you keep your assets and make fixed monthly payments. Bankruptcy may require surrendering non-exempt assets, but it eliminates debt faster.

In a consumer proposal, you negotiate a settlement with your unsecured creditors to repay a portion of what you owe over up to five years. Your payments never change, even if your income increases.

In personal bankruptcy, your cost depends on your monthly income and assets. If you earn above government surplus income thresholds, you pay more, and your bankruptcy lasts longer. You may need to surrender certain assets, though many are protected through provincial exemptions.

Both a consumer proposal and bankruptcy provide a stay of proceedings. This legal protection immediately stops collection calls, freezes interest charges, and halts wage garnishments. Your Licensed Insolvency Trustee deals with creditors on your behalf from the day you file.

The Office of the Superintendent of Bankruptcy regulates both programs under the Bankruptcy and Insolvency Act.

Consumer proposal vs bankruptcy: comparison table

Feature	Bankruptcy	Consumer Proposal
Eligibility	Minimum $1,000 in unsecured debt	$1,000 to $250,000 in unsecured debt (excluding mortgage)
Cost	Based on income and assets. Surplus income payments are required if income exceeds thresholds	Negotiated settlement; fixed monthly payments that never increase
Duration	9 or 21 months (first-time); 24 or 36 months (second bankruptcy)	Up to 5 years, but can pay off early
Assets	Non-exempt assets may be surrendered	Keep all your assets
Credit rating	R9 (lowest rating)	R7
Credit report	6 to 7 years after discharge (14 years for second bankruptcy)	3 years after completion or 6 years from filing (whichever is sooner)
Tax refunds	Surrendered to the trustee	You keep them
Monthly reporting duties	Yes, must report income monthly	No monthly reporting required
Creditor approval	Not required	Creditors must accept the proposal

Source: Government of Canada – Bankruptcy and Insolvency Act

What debts can be included?

Credit card debt, personal loans, payday loans, lines of credit, and tax debt owed to the CRA can all be eliminated through either a consumer proposal or bankruptcy.

Secured debts cannot be included. Your mortgage and car loan remain separate from your consumer proposal or bankruptcy agreement. If you continue making payments on secured debts, you keep the assets securing them.

Student loan debt can only be included if you have been out of school for at least seven years. If it has been less than seven years since you were a full-time or part-time student, you remain responsible for your student loan payments even after filing.

If you have a co-signer on any debt, your co-signer remains responsible for that debt after you file a consumer proposal or bankruptcy. The co-signed debt is not eliminated for them unless you file a joint consumer proposal together.

When is a consumer proposal better than bankruptcy?

A consumer proposal is the better choice if you have income, assets to protect, or want predictable payments.

Consider a consumer proposal if you:

• Have a stable income and can afford fixed monthly payments
• Own a home, vehicle, or other assets you want to keep
• Want to avoid surplus income payments that increase with earnings
• Have unsecured debt (excluding mortgage) under $250,000
• Prefer a less severe impact on your credit rating (R7 vs R9)

Consumer proposals offer financial relief without the risk of losing your home equity or other non-exempt assets. Your payments remain the same throughout the process, making budgeting easier.

When is bankruptcy better than a consumer proposal?

Bankruptcy is the better choice if you have no income, no assets, and need the fastest debt relief possible.

Consider bankruptcy if you:

• Are unemployed or have an irregular income
• Have few or no assets to protect
• Cannot afford even reduced monthly payments
• Need to eliminate overwhelming unsecured debt quickly
• Want to be debt free in as little as 9 months

A first-time bankruptcy without surplus income takes just 9 months to complete. If you have surplus income, it extends to 21 months.

You will not lose everything in bankruptcy. Each province has exemptions that protect essential assets from seizure. These typically include household furniture and appliances, clothing, food and fuel, medical aids, a vehicle up to a certain equity value, and tools you need for work.

In some provinces, a portion of your home equity may also be protected. Your Licensed Insolvency Trustee will explain which exemptions apply where you live.

Source: Government of Canada – Office of the Superintendent of Bankruptcy, Compare Debt Solutions

How much does each option cost?

Consumer proposal payments are fixed and predictable. Bankruptcy costs vary based on your income.

In a consumer proposal, you and your creditors agree on a total settlement amount, which is divided into fixed monthly payments over up to five years. Even if your income rises significantly, your payments stay the same.

In bankruptcy, your cost depends on two factors:

• Surplus income payments: If your monthly income exceeds government thresholds by more than $200, you must pay 50% of the excess into your bankruptcy estate. For 2025, the single-person threshold is $2,914 per month.
• Non-exempt assets: If you own assets that are not protected by provincial exemptions, their value goes toward repaying creditors.

If you have a high income, a consumer proposal typically costs less per month because payments are spread over up to five years with no surplus income requirement.

Source: Government of Canada – Office of the Superintendent of Bankruptcy, Directive No. 11R2-2025 (Surplus Income)

How long does each option take?

Bankruptcy takes 9 to 36 months. A consumer proposal takes up to 5 years to complete, but is often completed sooner.

Bankruptcy duration:

Situation	Duration
First bankruptcy, no surplus income	9 months
First bankruptcy, with surplus income	21 months
Second bankruptcy, no surplus income	24 months
Second bankruptcy, with surplus income	36 months

Consumer proposal duration:

A consumer proposal typically takes three to five years, but you can make lump-sum payments to complete it early. Many people finish in 3 to 4 years.

What happens to your assets?

In a consumer proposal, you keep everything. In bankruptcy, non-exempt assets may be surrendered.

Consumer proposals are designed to protect your assets. By agreeing to repay a portion of your debt, you retain ownership of your home, vehicle, RRSPs, and other property.

In bankruptcy, certain assets are protected through provincial exemptions. These include household furniture, tools of the trade, and a vehicle up to a set equity value.

However, if you own non-exempt assets, such as significant home equity, investments, or a second vehicle, their value may be applied to repaying creditors.

If you receive a windfall during bankruptcy, such as an inheritance, lottery winnings, or tax refund, it becomes part of your bankruptcy estate. In a consumer proposal, you keep any windfalls.

How does each option affect your credit score?

A consumer proposal has less severe and shorter-lasting effects on your credit than bankruptcy.

Bankruptcy credit impact:

• Credit accounts are assigned an R9 rating (the lowest possible)
• First bankruptcy remains on your credit report for 6 to 7 years after discharge
• Second bankruptcy remains for 14 years after discharge

Consumer proposal credit impact:

• Credit accounts are assigned an R7 rating
• Removed from your credit report 3 years after completion or 6 years from filing (whichever is sooner)

Both consumer proposals and bankruptcies are reported to credit reporting agencies in Canada and appear in the public records section of your credit report.

Source: Financial Consumer Agency of Canada – How Long Information Stays on Your Credit Report

Do not let credit concerns drive your decision. If you are struggling with debt you cannot repay, your credit is likely already suffering from missed payments and high balances.

Both options offer a faster path to rebuilding your credit than continuing to struggle with unmanageable debt.

Will you lose your tax refund?

In bankruptcy, yes. In a consumer proposal, no.

If you file a consumer proposal, you keep all tax refunds. This extra cash can help you pay off your proposal faster or cover living expenses.

If you declare bankruptcy, any tax refunds owed become part of your bankruptcy estate and go toward repaying creditors. You must also file all outstanding tax returns for previous years.

The good news: both options can eliminate tax debt owed to the Canada Revenue Agency.

What duties are required?

Bankruptcy requires monthly income reporting. A consumer proposal does not.

In bankruptcy, you must:

• Report your household income monthly to your trustee
• Surrender non-exempt assets and credit cards
• Attend two credit counselling sessions
• Provide tax returns and other financial documents

In a consumer proposal, you must:

• Make your agreed monthly payments
• Attend two credit counselling sessions

Both options require two credit counselling sessions. These sessions help you build budgeting skills and develop healthy financial habits to avoid future debt problems.

There are no monthly reporting duties in a consumer proposal, making it easier to manage.

Consumer proposal vs bankruptcy: making the right choice

Your income, assets, and financial goals determine which debt solution is right for you.

Your situation	Best option
Stable income, assets to protect	Consumer proposal
No income or irregular income	Bankruptcy
Want predictable payments	Consumer proposal
Need fastest debt relief	Bankruptcy
Home equity to preserve	Consumer proposal
No assets, high debt	Bankruptcy

Other debt relief options include debt consolidation loans and debt management plans through non-profit credit counselling agencies. However, only a consumer proposal or bankruptcy provides legal protection from creditors under the Bankruptcy and Insolvency Act.

Get free debt relief advice

To find out whether a consumer proposal or bankruptcy is right for you, speak with a Licensed Insolvency Trustee.

At Moses Advisory Group, our Licensed Insolvency Trustees have helped thousands of Canadians eliminate debt through consumer proposals, bankruptcy, and other debt solutions. We provide free, confidential consultations to review your financial situation and explain all your options.

Your first consultation is free and comes with no obligation.