Debt
Consumer Proposal vs Bankruptcy in Canada
Both are legal ways out of debt you can’t repay, arranged through a Licensed Insolvency Trustee. How they differ in what you pay, how long they last, what happens to your assets and your credit.
What is the difference between a consumer proposal and bankruptcy?
In a consumer proposal, you offer creditors a deal to repay part of what you owe, usually in monthly payments. In bankruptcy, your non-exempt assets are used to pay your debts, and most remaining debts are released at discharge.
Both are filed through a Licensed Insolvency Trustee (LIT), the only professionals licensed to offer them. Filing either one generally stops most collection actions, such as wage garnishments.
Put it into practiceCredit counselling and debt management plansHow do they compare?
The main differences, from the Office of the Superintendent of Bankruptcy:
| Consumer proposal | Bankruptcy (first time) | |
|---|---|---|
| How long it lasts | Up to 5 years | 9 months, or 21 months with surplus income payments |
| What you pay | An amount agreed with creditors, based partly on your assets and income | Non-exempt assets, plus surplus income payments if you earn above a set level |
| Your assets | You keep them | Used to pay debts, with exemptions that vary by province |
| Credit report (Equifax) | Removed 3 years after you finish | 6 or 7 years after discharge, depending on province and bureau |
| Fees | Set by the Bankruptcy and Insolvency Act | Set by the Bankruptcy and Insolvency Act |
Who is a consumer proposal best for?
People with steady income who can repay part of their debts, and who have assets, like home equity, they want to keep. Your creditors have to accept the proposal for it to go ahead.
When is bankruptcy the better option?
When you have little income left after essentials and few assets to protect. Bankruptcy is faster for a first-time filer with no surplus income, but a second bankruptcy lasts longer and stays on your report for 14 years.
What should I try first?
If your debts are still manageable, a non-profit credit counsellor can review a budget or a debt management plan. If not, book a free first consultation with a Licensed Insolvency Trustee; talking to one does not commit you to anything.
Keep reading
DebtCredit Counselling and Debt Management Plans in CanadaA credit counsellor can help with a budget or set up a debt management plan: one monthly payment, often with interest reduced or removed. How it works, what it costs, and how to choose a reputable agency.
LoansDebt Consolidation Loans in CanadaHow combining debts into one loan works, when it saves money, and the traps that can leave you deeper in debt.- DebtHow to Pay Off Credit Card Debt in CanadaFive ways to pay off credit card debt in Canada, with the math: paying $400 a month on $7,500 across three cards clears it in 1 yr 11 mo; the minimum only would take 24 yrs 10 mo.
Credit scoresHow Long Does It Take to Build Credit in Canada?You need at least one account reported to a credit bureau before you have a score, and a strong score takes longer. Typical timelines, and what speeds things up or sets you back.
Official sources and further reading
- Office of the Superintendent of Bankruptcy: compare debt solutions ↗
- FCAC: how long information stays on your credit report ↗
- FCAC: getting help with debt ↗
Terms vary by product. Confirm the provider’s current terms before acting. This guide does not predict approval, realized value or credit-score changes. How WalletReturn calculates value