Consumer Proposal vs Bankruptcy: Which Is Right for You in Canada?

Short Answer: Consumer Proposal vs Bankruptcy in Canada

Both a consumer proposal and personal bankruptcy are legal processes that help you deal with overwhelming unsecured debt. In simple terms:

• Consumer proposal: You keep most or all of your assets and repay a portion of your unsecured debt in fixed, interest-free payments over up to 5 years.
• Bankruptcy: You may lose non-exempt assets, but you can often be discharged from most unsecured debt faster, especially if you have low income and few assets.

Which is better? It depends on your income, assets, and goals. The rest of this guide will help you compare them side by side.

For official information and comparisons, see the Government of Canada’s overview: Compare Debt Solutions – Office of the Superintendent of Bankruptcy.

What Is a Consumer Proposal? What Is Bankruptcy?

What Is a Consumer Proposal?

A consumer proposal is a legally binding settlement where you offer to repay only a portion of what you owe to your unsecured creditors, over a period of up to 5 years. Key features:

• Filed and administered only by a Licensed Insolvency Trustee (LIT).
• Covers most unsecured debts (credit cards, lines of credit, tax debt, etc.).
• You keep your assets in most cases, as long as you maintain secured payments like your mortgage or car loan.
• Interest on included debts generally stops from the filing date.
• You make one manageable monthly payment to your LIT.

Learn more in our main guide: Consumer Proposal in Canada and our detailed page on the Benefits of a Consumer Proposal.

What Is Personal Bankruptcy?

Personal bankruptcy is a legal process that can eliminate most unsecured debts, often faster than a proposal, but it may involve giving up some non-exempt assets and has a stronger impact on your credit.

• Also filed and administered by a Licensed Insolvency Trustee.
• Can deal with large amounts of unsecured debt; no upper debt limit.
• Some assets may need to be surrendered or “bought back” if they exceed provincial exemptions.
• Bankruptcy usually lasts 9–21 months for a first-time bankrupt, depending on income and other factors.
• Your credit report will show an R9 rating, the most serious rating, for a period after discharge.

For more details, see: Personal Bankruptcy in Canada, Advantages of Bankruptcy, and Effects of Claiming Bankruptcy.

Key Differences: Consumer Proposal vs Bankruptcy

Here is a side-by-side comparison of consumer proposal vs bankruptcy in Canada.

For more comparisons, see:

• Consumer Proposal vs Bankruptcy – Hoyes Michalos
• Consumer Proposal vs Bankruptcy – BDO Debt Solutions
• A Consumer Proposal or Bankruptcy? – RBC

When Is a Consumer Proposal Usually Better?

A consumer proposal is often the better choice if you:

• Have significant unsecured debts (credit cards, lines of credit, tax debts, etc.) but can still afford some payment each month.
• Want to keep your home, car, and other assets that might be at risk in a bankruptcy.
• Prefer a structured, predictable payment with no interest on included debts.
• Want to avoid bankruptcy because of personal, professional, or emotional reasons.
• Are comfortable with a longer repayment period (up to 5 years) in exchange for more asset protection.

To see the detailed advantages, review our page on the Benefits of a Consumer Proposal in Canada.

When Is Bankruptcy Usually Better?

Bankruptcy may be the better option if you:

• Have very low or unstable income and cannot afford meaningful monthly proposal payments.
• Have little or no non-exempt assets that could be lost in bankruptcy.
• Need the fastest possible legal release from your debts.
• Have already had a proposal annulled and need a different solution.

In some cases, bankruptcy can actually cost less overall than a proposal, especially when income is low. To understand the financial side, see our guide: Bankruptcy Cost in Canada.

Cost Comparison: Consumer Proposal vs Bankruptcy

When comparing consumer proposal vs bankruptcy, cost is a major factor.

Cost of a Consumer Proposal

With a consumer proposal:

• You repay a portion of your unsecured debt through fixed, interest-free payments.
• Your monthly payment is based on what you can afford and what creditors will accept.
• Trustee and government fees are built into your proposal payment; you do not pay them separately.

Learn more: How Much Does a Consumer Proposal Cost in Canada?

Cost of Bankruptcy

With bankruptcy, your total cost depends on:

• Your income level (including surplus income calculations).
• The value of non-exempt assets you may surrender or “buy back”.
• Whether this is a first or subsequent bankruptcy.

For some people, bankruptcy is financially cheaper than a proposal—but it comes with greater impacts on credit and potentially on assets. See Bankruptcy Cost in Canada for details.

How to Choose Between Consumer Proposal and Bankruptcy

Here is a simple framework to help you decide:

1. List your debts, income, and assets. Gather full details for all unsecured and secured debts, your income sources, and what you own.
2. Ask what you want to protect. If keeping your home, car, or savings is a major priority, a consumer proposal may be more attractive.
3. Consider your income stability. If your income is steady enough to support a proposal payment, a consumer proposal often makes sense. If income is very low or unpredictable, bankruptcy may be more realistic.
4. Compare timelines and credit impact. Decide whether shorter-term relief (bankruptcy) or asset protection and predictability (proposal) matters more for you.
5. Talk to a Licensed Insolvency Trustee. A LIT is legally required to explain all your options—budgeting, consolidation, proposal, and bankruptcy—and help you compare them.

For an overview of all options, see our Debt Relief in Canada hub.