When debt starts to feel unmanageable, Canadians can find themselves asking the same question: Should I file for bankruptcy or a consumer proposal?
Both are legal debt relief options in Canada designed to give you a financial fresh start under the Bankruptcy and Insolvency Act (BIA).
The key difference lies in how each works. Bankruptcy eliminates most unsecured debts but may require surrendering certain assets, while a consumer proposal allows you to repay a portion of what you owe through an affordable, fixed plan.
Because both processes must be filed by a Licensed Insolvency Trustee (LIT), getting expert advice early ensures you choose the path that protects your assets, your credit, and your peace of mind.
Jump to:
- What is a consumer proposal?
- What is bankruptcy?
- What’s the difference between bankruptcy and a consumer proposal?
- Who qualifies for bankruptcy and consumer proposals?
- How to decide between bankruptcy and a consumer proposal
- What are the pros and cons of a consumer proposal?
- What are the pros and cons of bankruptcy?
- Common misconceptions about bankruptcy
- Why might a consumer proposal be rejected?
- What happens after a consumer proposal or bankruptcy?
- FAQs about bankruptcy or consumer proposal
What is a consumer proposal?
A consumer proposal is a legally binding agreement between you and your creditors, arranged through a Licensed Insolvency Trustee.
It allows individuals with up to $250,000 in unsecured debt (excluding a mortgage) to repay a portion of what they owe, often between 20% and 40%, over three to five years.
Once filed, a stay of proceedings immediately stops collection calls, wage garnishments, and interest charges.
You keep your home, car, and other assets while making one consolidated payment that fits your budget.
Other benefits include the ability to include CRA tax debt, stop lawsuits, and avoid the longer-term consequences of bankruptcy.
After completion, your LIT issues a Certificate of Full Performance, confirming that your unsecured debts have been discharged.
What is bankruptcy?
Personal bankruptcy is a legal process that eliminates most unsecured debts and offers immediate protection from creditors.
It’s generally viewed as a last resort, but it can be the fastest route to debt forgiveness when other repayment plans aren’t possible.
When you file for bankruptcy, your LIT looks at your income, assets, and liabilities (what you own and what you owe).
Some things you own are protected by law—everyday personal items, tools you need for work, and your RRSPs (aside from very recent contributions).
Anything that isn’t protected may need to be sold, and the money goes toward your debts.
For most first-time filers, the process lasts between nine and twenty-one months. Your exact timeline depends on your income and whether you need to make surplus income payments.
When it’s done, you’re officially discharged. That clears most unsecured debts and gives you the chance to rebuild your credit on a clean slate.
What are the key differences between bankruptcy and a consumer proposal?
Although both are federally regulated under the Bankruptcy and Insolvency Act, there are important differences between bankruptcies and consumer proposals.
| Category | Consumer Proposal | Bankruptcy |
| How do you qualify? | Between $1,000 and $250,000 in unsecured debt (excluding mortgage) | No maximum debt limit |
| Do you keep your assets? |
Yes, you keep most or all assets | Some assets may need to be surrendered (eg., home equity, car, etc.) |
| How long to pay back? | 3–5 years, fixed monthly payments | Up to 21 months (or longer if it’s your second+) May involve surplus income payments |
| How does it affect your credit? | R7 rating for 3 years after completion or 6 after filing (whichever comes first) |
R9 rating for 6–7 years after discharge |
| What is the cost structure? | Based on income | Based on assets and income |
| Does it appear on your public record? | Yes | Yes |
In simple terms, a consumer proposal works best if you have a steady income and want to keep your assets while paying back a portion of what you owe.
Bankruptcy can be the better option if your income is very limited or your debt is so high that paying any of it back just isn’t realistic.
Who qualifies for bankruptcy and consumer proposals?
Both consumer proposals and bankruptcy have clear eligibility rules.
The right option depends on how much you owe, your income, and whether keeping your assets is a priority.
Below is a quick breakdown of who typically qualifies for each.
Consumer proposal eligibility
You may qualify for a consumer proposal if you:
- Owe more than $1,000 but less than $250,000 in unsecured debts.
- Are insolvent (can’t pay debts as they come due).
- Have a steady income that would allow you to make regular payments.
- Want to avoid bankruptcy and keep assets such as a car or home.
Bankruptcy eligibility
You may qualify for bankruptcy if you:
- Owe more than $1,000 and cannot repay debts in a reasonable timeframe.
- Have little or no disposable income for a proposal.
- Are facing active wage garnishment or legal action from creditors.
- Have less than $15,000 of unencumbered assets
Both solutions are only available through a Licensed Insolvency Trustee, who will assess your full financial picture and recommend the best course of action.
How to decide between bankruptcy or a consumer proposal
Choosing between bankruptcy and a consumer proposal depends on your personal financial situation. This includes your total debt, income stability, assets, and long-term goals.
Both options offer legal protection under the Bankruptcy and Insolvency Act, but they differ in cost, duration, and impact on credit.
Here’s how to decide:
- Choose a consumer proposal if you have a steady income and want to protect your credit status as much as possible. With a consumer proposal, you repay part of your debt while keeping your home, car, and savings. It’s the best option for people who can afford monthly payments and want to avoid bankruptcy.
- Choose bankruptcy if your debt is too high and repayment, even partially, isn’t realistic. It provides a quicker discharge and a complete reset, but has a bigger impact on your credit and assets.
Important: Only a Licensed Insolvency Trustee can legally file a bankruptcy or consumer proposal in Canada.
What are the pros and cons of a consumer proposal?
A consumer proposal offers structure and protection without the severe consequences of bankruptcy, making it one of the most popular debt relief options in Canada today.
Here’s a closer look at some of the main pros and cons:
The pros of a consumer proposal
- Keep your assets: Your home, car, and RRSPs remain protected.
- Stop collection calls and garnishments: Creditors must immediately stop all collection activity.
- Fixed, affordable payments: You pay what you can afford, typically over three to five years.
- Reduce total debt: Most people repay only 20–40% of what they owe.
- Include CRA tax debt: Tax balances can be added to your proposal.
- Avoid bankruptcy: Protect your credit and keep more control over your finances and future.
The cons of a consumer proposal
- R7 credit rating: Stays on your record for three years after completion, or six years after filing—whichever comes first.
- Longer repayment period: Takes more time than bankruptcy to complete.
- Possible cancellation: Missing three monthly payments may annul the proposal. If this happens, your creditors can resume all action on the original debts.
What are the pros and cons of bankruptcy?
Bankruptcy provides complete debt forgiveness but comes with greater restrictions and a longer recovery period for credit rebuilding.
It’s typically suited if you don’t have significant assets or disposable income.
The pros of bankruptcy
- Eliminates most debts: Wipes out credit card debt, payday loans, and personal loans.
- Immediate protection: Stops wage garnishments, lawsuits, and collection activity.
- Faster completion: First bankruptcy typically lasts 9–21 months.
- Fresh start: Allows you to rebuild credit sooner if managed properly.
The cons of bankruptcy
- Loss of some assets: Non-exempt property may be sold to repay creditors.
- R9 credit rating: Remains for 6–7 years after discharge (longer than a proposal).
- Surplus income payments: If your income exceeds the federal limit, you must make additional payments.
- Public record: Your bankruptcy is listed in the Office of the Superintendent of Bankruptcy (OSB) database.
What are some common misconceptions about bankruptcy and consumer proposals?
There are a lot of myths around bankruptcy and consumer proposals, and they can make an already stressful situation even more confusing.
Here are some of the most common misconceptions—and the truth behind them—so you know what actually happens and what doesn’t.
- “Bankruptcy erases all debts.”
Not true. Certain debts, like student loans less than seven years old, child support, and court fines, cannot be discharged. - “Consumer proposals always get approved.”
Creditors vote on your offer, and they may reject it if the payments are too low or are unrealistic. - “You’ll lose everything in bankruptcy.”
Each province protects specific assets such as vehicles, household items, and RRSPs. By the end of a bankruptcy, the goal will be to leave you with what you need to successfully rebuild your finances.
Why might a consumer proposal be rejected?
A consumer proposal isn’t guaranteed to go through. Creditors will only accept it if they believe the offer is fair and realistic.
Here are the main reasons a proposal might be turned down.
- Offering too small a repayment percentage to creditors.
- Providing incomplete financial disclosure.
- Unstable or insufficient income to support payments.
What happens after a consumer proposal or bankruptcy?
Finishing a bankruptcy or consumer proposal is the starting point for getting your finances back on track.
Once your bankruptcy is cleared or your proposal is paid off, you can begin rebuilding your credit and your confidence.
What are the steps you can take to recover your credit?
- Check your credit report to make sure everything has been updated correctly.
- Apply for a secured credit card to start building a positive payment history.
- Make all payments on time and avoid carrying long-term high balances.
- Attend financial counselling. Both bankruptcy and proposals include mandatory sessions designed to help with budgeting and avoiding future debt.
- Keep emergency savings so you’re not forced to rely on credit when unexpected costs pop up.
A consumer proposal remains on your credit file for three years after completion (R7) or 6 years after filing, while bankruptcy remains for six to seven years (R9) after completion.
That said, with consistent good habits, many people qualify for regular credit products much sooner.
Regain financial control with Harris & Partners
If you’re feeling trapped by debt, you don’t have to face it alone. The Licensed Insolvency Trustees at Harris & Partners have helped Canadians find relief for more than 60 years.
Whether you need guidance on bankruptcy or a consumer proposal, our team will explain your rights, assess your options, and help you build a plan that fits your life.
Book a free, confidential consultation and explore your options for debt relief in Canada.
