What is the primary difference between a consumer proposal and personal bankruptcy?

The main difference is asset retention and payment structure. In a consumer proposal, you keep all your assets and make fixed monthly payments to repay a negotiated portion of your debt over up to 5 years. In bankruptcy, non-exempt assets may be surrendered to pay creditors, but the timeline is shorter (typically 9 to 21 months).

How do credit ratings differ between a consumer proposal and personal bankruptcy?

A consumer proposal results in an R7 credit rating, which remains on your credit file for 3 years after full completion (or 6 years from date of filing). Personal bankruptcy results in an R9 rating—the lowest credit rating—and remains on your report for 6 to 7 years after discharge for a first-time bankruptcy.

Are there debt eligibility limits for filing a consumer proposal vs bankruptcy?

Yes. A consumer proposal is limited to individuals owing $250,000 or less in unsecured debt (excluding a mortgage on a primary residence). Personal bankruptcy has no maximum debt limit, requiring only a minimum of $1,000 in provable debt.

How do monthly payments differ between a proposal and bankruptcy?

In a consumer proposal, monthly payments are fixed at the start and do not increase if your income rises or if you receive a bonus or windfall. In bankruptcy, your monthly payments can fluctuate based on Office of the Superintendent of Bankruptcy (OSB) surplus income calculations if your net earnings increase.

Bankruptcy vs Consumer Proposal Canada

🛡️ Canadian Insolvency & Statutory Notice: Both personal bankruptcy and consumer proposals are federal debt relief proceedings governed under the Bankruptcy and Insolvency Act (BIA) and regulated by the Office of the Superintendent of Bankruptcy (OSB). Under Canadian law, only a registered Licensed Insolvency Trustee (LIT) can file and administer either option. Both options trigger an immediate statutory Stay of Proceedings, halting collection calls, lawsuits, freezing interest, and stopping wage garnishments.

When facing unmanageable debt in Canada, the two official legal options are **Personal Bankruptcy** and a **Consumer Proposal**. Both erase eligible unsecured debt and stop creditor actions instantly, but they function very differently.

A Consumer Proposal allows you to negotiate a binding settlement to pay back a reduced percentage of your debt over up to 5 years while keeping 100% of your assets (home, car, TFSA). Personal Bankruptcy is a quicker process (typically 9 to 21 months) where non-exempt asset equity is surrendered in exchange for a full debt discharge. Choosing between them depends primarily on your **household income**, **asset equity**, and **credit recovery goals**.

Head-to-Head Comparison: Proposal vs. Bankruptcy

Key Factor / Feature	Consumer Proposal	Personal Bankruptcy
Asset Protection	100% Protected — Keep home equity, vehicles, TFSAs, investments, and tax refunds.	Non-Exempt Equity Surrendered — Assets above provincial execution limits must be surrendered or bought back.
Monthly Payment Structure	100% Fixed Upfront — Payments never increase even if your salary or bonuses double.	Fluctuates with Earnings — Higher monthly earnings trigger 50% surplus income payments.
Filing Duration	Up to 5 Years (60 Months) — Can be paid off early at any time without penalties.	9 to 21 Months for a first bankruptcy (24 to 36 months for a second).
Credit Bureau Impact	R7 Rating — Removed 3 years post-completion (or max 6 years from filing date).	R9 Rating — Removed 6 to 7 years after official discharge date.
Monthly Income Reporting	Not Required — No ongoing income or budget statements submitted to trustee.	Mandatory Monthly Duty — Must submit pay stubs and expense receipts every month.
Eligible Debt Limits	Maximum of $250,000 unsecured debt (excluding primary home mortgage).	No Upper Debt Limit (Minimum $1,000 unsecured debt).

How to Decide Which Debt Solution Is Right for You

Choose a Consumer Proposal If:

You Own Home Equity or Valued Assets: You want to protect home equity, investments, or secondary vehicles from liquidating.
You Earn a Stable or High Income: A higher income would trigger heavy monthly surplus payments in bankruptcy.
You Want Fixed, Predictable Payments: Your monthly budget remains identical for up to 5 years regardless of career growth.
You Value Faster Credit Recovery: You want an R7 rating cleared from Equifax and TransUnion years earlier than a bankruptcy R9.

Choose Personal Bankruptcy If:

You Have Very Low or Fixed Income: You cannot afford a monthly proposal settlement and need immediate 100% debt relief.
You Own Minimal Assets or Equity: You do not own property or assets exceeding provincial exemption limits.
You Want the Fastest Possible Clean Slate: You want a complete legal discharge in as little as 9 months.
Unsecured Debt Exceeds $250,000: Your non-mortgage debts exceed the statutory consumer proposal threshold.

Frequently Asked Questions: Proposal vs. Bankruptcy

Can I switch from bankruptcy to a Consumer Proposal after filing?

Yes! If you file for personal bankruptcy and later realize your surplus income payments are too high or you want to save an asset, your Licensed Insolvency Trustee can file a Consumer Proposal to annul your bankruptcy upon creditor approval.

What happens if my creditors reject my Consumer Proposal?

If creditors holding a majority of your debt vote against your initial proposal terms, your trustee can negotiate amended terms. If an agreement still cannot be reached, you are not automatically forced into bankruptcy; you can explore alternative arrangements or choose bankruptcy on your own terms.

Do both options stop wage garnishments and CRA collection calls?

Yes. Both a Consumer Proposal and Personal Bankruptcy trigger an immediate, legally binding Stay of Proceedings under Section 69 of the BIA. This halts active bank lawsuits, CRA Requirement to Pay notices, wage garnishments, and collection calls instantly.

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Bankruptcy vs. Consumer Proposal in Canada: Which Is Better?