Consumer Proposal vs Bankruptcy

What’s The Difference Between a Consumer Proposal and Bankruptcy?

Many people struggle with debt repayment, and if things are starting to get out of control, it’s important to look at the available options and make sure you choose a solution that works for you.

While bankruptcy can feel like your only option, there is another legalised solution that exists to help you deal with your debt – a consumer proposal.

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What is a consumer proposal?

A consumer proposal is a suitable alternative to filing for bankruptcy.

It’s a form of debt consolidation that more and more people are starting to file for as a way of dealing with serious, unaffordable debt.

Consumer proposals involve set repayment plans that are designed to be more affordable for the individual, while also reducing the total amount of debt owed.

In some cases, as much as 80% of the debt can be written off.

Consumer proposals are flexible, and creditors can choose to accept various terms that will help an individual avoid bankruptcy.

By declaring bankruptcy, an individual can write off high volumes of debt, but with some long-term consequences.

It’s important to discuss all of your available options with a Licensed Insolvency Trustee to help you establish the right solution for you.

Consumer proposal vs bankruptcy

Understanding the differences between a consumer proposal and bankruptcy can help you find the most appropriate solution for your situation.

Debt repayment

A consumer proposal will help to free up around 70-80% of all debts owed.

By law, all of the interest for these debts is frozen.

Levels of income as well as family circumstances will be taken into account here.

With bankruptcy, in the majority of cases, no repayments are made to creditors.

The interest is frozen on these debts.

Some repayments may not be exempt, although typically these are mainly administration fees.

Administration costs

Administration costs are included in a consumer proposal, with no extra fees incurred.

There is a tariff regulated by the federal government to set these amounts.

With bankruptcy, administration costs typically amount to $200 a month, for a total of nine months.

This is also set according to a tariff regulated by the federal government.


A consumer proposal must be finalised within 60 months, although terms of 24-48 months are the most common.

Outstanding amounts can be repaid early without a penalty.

Bankruptcy repayments can last for 9 or 21 months.

This will depend on whether or not it’s a first-time bankruptcy or if there have been others in the past.

Affect on credit score

R7 ratings are applied to consumer proposals and are removed three years after completion, or six years from the date of filing – whichever is soonest.

With bankruptcy, an R9 rating will be given and will be noted for six years.

During this time, it can be possible to apply for credit through effective credit rebuilding methods.

Agreements and collections

Creditors must accept the terms and agree to share repayments if at least 50% of them accept the consumer proposal.

It is the only accepted method for reducing debts with the Canada Revenue Agency (CRA).

Once the proposal has been filed, no further contact from creditors is allowed.

Meanwhile, if you’re filing for bankruptcy, creditors can’t stop you from doing so.

Debts to the CRA can be cancelled.

A Licensed Insolvency Trustee can prevent collection actions such as wage garnishment and asset seizure.

Once the proposal has been filed, no further contact from creditors is allowed.

Advisor’s qualifications

A consumer proposal must be filed by a Licensed Insolvency Trustee, who is licensed by the federal government.

The Licensed Insolvency Trustee must adhere to a Code of Ethics, as well as maintain professional conduct.

A bankruptcy notice must be overseen by the Office of the Superintendent of Bankruptcy.

The Licensed Insolvency Trustee is licensed by the federal government, and must adhere to a Code of Ethics, as well as maintain professional conduct.

There are clear differences between a consumer proposal and bankruptcy, and seeking the right advice can help you choose the right solution based on your personal circumstances.

If you’re struggling with debt and are looking for the most appropriate solution to extinguish it, then a Licensed Insolvency Trustee can help.

We can provide you with no-obligation advice to help you assess your options and help you make the best decision based on your situation.

To arrange a free consultation with one of our team, get in touch today.

Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

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