How to Choose Between a Consumer Proposal and Bankruptcy

Deciding Between a Consumer Proposal and Bankruptcy: A Comprehensive Guide

When you find yourself drowning in credit card or other forms of debt, it can seem like there’s no way out. But don’t lose hope! There are legal solutions available to help you regain your financial footing. The Bankruptcy and Insolvency Act provides two primary ways to manage overwhelming debt—a Consumer Proposal and bankruptcy. But how do you decide which is the right choice for you?

This article will walk you through each option to help you make an informed decision. Let’s dive in!

Understanding a Consumer Proposal

A Consumer Proposal is essentially an offer you, the debtor, put forth to your creditors to pay back a portion of what you owe. With the assistance of a licensed insolvency trustee, you can negotiate new repayment terms for your debts. These could include a reduced balance, waived fees and interest, or a combination.

If your creditors accept your proposal, you are obligated to make regular payments, typically monthly or quarterly. You have a maximum of five years to complete these payments. In addition to this, you are required to attend two counselling sessions with your trustee. Once the proposal is accepted, your creditors must cease all collection efforts and can’t initiate any legal actions against you.

Choosing a Consumer Proposal could be the right choice if you:


  • Desire to halt aggressive debt collection;
  • Have a stable income and can commit to regular payments;
  • Are facing potential legal action from creditors;
  • One advantage of a Consumer Proposal over bankruptcy is that it has a less negative impact on your credit report.


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The Bankruptcy Option

Bankruptcy is the other option you may be considering. Despite its negative reputation, bankruptcy can provide relief from insurmountable debt. The Bankruptcy and Insolvency Act (BIA) allows for most of your unsecured debt to be discharged or forgiven. In exchange, you surrender your assets to a licensed insolvency trustee for sale. The proceeds from this sale are used to repay your creditors.

Each province has specific bankruptcy exemptions that can protect some of your assets. Your trustee is the best person to discuss which assets you’ll be able to keep.

You may want to consider bankruptcy if you:


  • Have recently lost your job or faced a significant financial crisis like a health issue or divorce;
  • Can no longer afford your monthly debt payments;
  • Are being threatened with legal action by your creditors.


In addition to surrendering some of your assets, you’ll need to attend two counselling sessions with your licensed insolvency trustee. If your income exceeds a certain threshold, you may also need to make surplus income payments.

Choosing between a Consumer Proposal and bankruptcy can be challenging. It’s advisable to consult with a licensed insolvency trustee for personalized advice.

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