Debt Options Guide
Consumer Proposal vs Bankruptcy
Updated
Both are federal insolvency processes filed through a Licensed Insolvency Trustee and both stop collections. A consumer proposal lets you keep your assets and repay a negotiated portion of your debt over up to five years. Bankruptcy is usually shorter and cheaper for people with low income and few assets, but non-exempt assets go to creditors and surplus income payments may apply.
The key differences
- Assets — proposal: you keep them; bankruptcy: non-exempt assets (for example home equity above provincial exemptions) are sold
- Payments — proposal: a fixed amount negotiated with creditors; bankruptcy: set by federal surplus income rules based on your household income
- Creditor approval — proposal: creditors vote; bankruptcy: no vote needed
- Length — proposal: up to 60 months; bankruptcy: 9 to 21 months for a first bankruptcy
- Credit record — proposal: generally removed 3 years after completion; bankruptcy: generally 6 to 7 years after discharge for a first bankruptcy
When a consumer proposal usually makes sense
You own a home with equity, your income is above the surplus income threshold, you want to protect a co-signer, or you want a smaller credit impact. A proposal can also be the cheaper option when bankruptcy surplus income payments would exceed the proposal payment.
When bankruptcy usually makes sense
Your income is low, you have few assets, and you can't afford a monthly payment creditors would accept. For many people in this situation a first bankruptcy is the fastest route to a fresh start.
How to decide
Licensed Insolvency Trustees must explain every option, including alternatives to insolvency, at the free first meeting. Bring a list of debts, your pay stubs and your monthly budget so the trustee can compare both on your real numbers.
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Related guides
- Consumer Proposal in Canada: How It WorksHow a consumer proposal works in Canada: who qualifies, the $250,000 limit, the 5-year maximum, the creditor vote, credit impact and what it costs.
- Bankruptcy in Canada: How It WorksHow personal bankruptcy works in Canada: the 9 or 21 month discharge, surplus income, exempt assets, which debts survive and how long it stays on your credit report.
- What Is a Licensed Insolvency Trustee?What a Licensed Insolvency Trustee does in Canada, how fees are regulated, what to bring to the first meeting and how to check a trustee's licence with the OSB.
Sources
DebtDefender is an independent information site, not a Licensed Insolvency Trustee or law firm. This guide is general information, not advice for your situation. See our disclaimer.