Consumer Proposal vs. Bankruptcy in Canada: What You Need to Know

Updated on October 23, 2025

If you’re stuck in debt and can’t see a way forward, you’re not alone, and you still have options.

When a debt consolidation loan or a Debt Consolidation Program (DCP), sometimes referred to as a Debt Management Program, aren’t the right fit, two other regulated options may come into play: a consumer proposal or bankruptcy. Both are legal processes under the Bankruptcy and Insolvency Act, and both are designed to help you get out of debt when things feel unmanageable.

In this article, we’ll help you understand consumer proposals and bankruptcy in Canada so you can make an informed decision for your financial situation.

Understanding the Basics

Consumer proposals and bankruptcy are often the last resort options for dealing with large amounts of debt. Both solutions are legally binding and require working with a Licensed Insolvency Trustee (LIT), but how they work, what they cost, and how they affect your life are quite different.

A consumer proposal in Canada is a legally binding agreement for partial debt forgiveness. A LIT negotiates with your creditors to pay back a portion of what you owe and to waive additional interest payments. It’s often a good option for those who:

• Have a steady income
• Can afford some repayment, just not the full amount
• Want to avoid bankruptcy and protect your assets.

Bankruptcy is also a legal process, but it aims to eliminate your debts by surrendering some assets, depending on your province. You will then make monthly payments based on your income to pay the remaining balance.  

This option may be necessary if:

• You don’t have a steady income.
• Your debts are large and growing.
• You’ve exhausted all other solutions.

Similarities and Differences Between Consumer Proposals and Bankruptcy

Here’s a comparison of the key features of each debt resolution option:

Process and Duration

Both consumer proposals and bankruptcies are filed through a Licensed Insolvency Trustee (LIT) like Remolino & Associates. 

Through a consumer proposal, you’ll have a maximum of five years to pay your creditors a fixed, interest-free payment. Once your final payment is made, your remaining debt is discharged, meaning you’re officially debt-free under the proposal.

Bankruptcy typically lasts nine months for a first-time filer. However, it may extend to 21 months if you earn more than the government’s income threshold, called surplus income. Surplus income is determined based on your household income, net asset value, and family size. If your surplus income is more than $200 per month, you will be required to contribute 50% of that amount. 

How Much Debt Can Be Included in a Consumer Proposal vs. Bankruptcy?

To qualify for a consumer proposal in Canada, you must owe between $1,000 and $250,000 in unsecured debt, such as credit cards, personal loans, or payday loans, and have a stable income (since you’ll be required to make regular repayments). 

Bankruptcy filings require a minimum of $1,000 (no maximum) in debts, and you must be unable to pay the debt through your income. This option is usually considered when your income is too low or unstable to support a repayment plan, and you have no other way to manage your debts.

How Much Debt Can Be Included in a Consumer Proposal vs. Bankruptcy?

In your consumer proposal, the LIT will negotiate a fixed, monthly repayment with your creditors, giving you predictable payments for up to five years. It will cost $1,500 plus 20% of future payments. LIT fees are included in your consumer proposal monthly payments and don’t need to be paid separately.

The cost of bankruptcy payments will vary depending on your income, assets, and surplus income, ranging from $1,800 to $2,300.

Which One Affects My Credit Score More and for How Long?

Your credit score will be negatively impacted with both options. 

Under a consumer proposal, you’ll receive an R7 rating for three years from debt repayment completion.

Bankruptcy earns you an R9 rating, which is the most severe rating you can receive. It remains on your credit report for six to seven years or longer for repeat bankruptcy filings. 

Employment and Professional Licensing Impact

In most cases, filing a consumer proposal or bankruptcy won’t affect your current job or ability to stay employed. However, if you work in a regulated profession, especially in finance, accounting, law, or securities, a bankruptcy may carry more weight. Some professional associations have rules around licensing, and bankruptcy could limit your ability to hold certain roles or credentials.

If you're unsure how your profession may be affected, it’s best to check with your licensing body or a financial professional before filing.

Public Record and Privacy

Both consumer proposals and bankruptcies become part of the public record, meaning they’re listed in a government insolvency database that anyone can search. But most people never have their names searched unless there's a specific reason.

In rare cases, usually with high-value bankruptcies or business-related filings, a bankruptcy may be published in a newspaper, though this is uncommon for personal situations.

A consumer proposal is far less likely to draw public attention and generally stays under the radar unless someone actively searches the insolvency records.

What Debts Are Excluded From Consumer Proposals and Bankruptcies?

You cannot include the following types of debts in consumer proposals or bankruptcies:

• Family Responsibility Office (FRO) debts or child support payments.
• Alimony.
• Student loans (unless seven years have passed from your official end-of-study date or the final day you attended classes if you did not complete your program).
• Criminal restitution.
• Court-imposed fines, such as parking tickets.
• Mortgages and home equity lines of credit (HELOC).
• Secured debts like car loans.

Pros and Cons of Consumer Proposals and Bankruptcy

What Happens if I Miss Payments in a Consumer Proposal or During Bankruptcy?

Life happens - job loss, illness, relationship changes, or unexpected bills can make it hard to keep up with debt payments, even after finding a solution like a consumer proposal or bankruptcy.

If you miss three payments on a consumer proposal, your consumer proposal is considered cancelled (or "annulled"). When this happens:

• You’re no longer protected from your creditors.
• The original debt, including any interest and fees, comes back in full.
• You won’t be able to file another proposal for the same debts.

Once cancelled, collection calls, legal action, and wage garnishments can resume. 

If you miss required payments, fail to submit monthly income reports, or skip credit counselling sessions during bankruptcy, you won’t be discharged. This means:

• Your debts won’t be legally cleared.
• Creditors may be able to start collection action again.
• Your bankruptcy stays “open” until resolved.

While there’s no automatic cancellation, as with a consumer proposal, failure to comply with the requirements can keep you stuck in bankruptcy and have long-term financial consequences.

That’s why it’s so important to speak with your Licensed Insolvency Trustee (LIT) as soon as you think you may fall behind. They may be able to help you adjust your payment schedule before cancellation happens.

How to Choose the Right Option for You

If you’re deciding between a consumer proposal and bankruptcy, the best place to start is by looking at your ability to repay your debts.

Ask yourself:

• Do I have a reliable, steady income?
  Can I afford to repay at least part of what I owe each month?
• Is keeping my home or car important to me?
• Am I in a profession where bankruptcy could impact my licence or employment?

Mike Bergeron, Counselling Manager at Credit Canada, suggests that bankruptcy is often not a good option for those who:

• Hold a financial license or certification, as it could jeopardize their employment.
• Are expecting a potential windfall (such as an inheritance or settlement) during their bankruptcy period.
• Have the ability to repay some or all of their debt within a reasonable timeframe (typically within 5 years).

He also reminds us that bankruptcy doesn’t mean you automatically lose your house. “You do not have to forfeit your assets in a bankruptcy,” he says. “In many cases, you can repay the surplus value of the asset over time to retain ownership.”

Read more to learn when bankruptcy is the right choice. 

Insolvency Is a Big Decision. Get the Right Support

Deciding between a consumer proposal and bankruptcy is never easy, but you don’t have to make that choice alone.

Both options come with long-term financial impacts and, for many people, carry emotional weight or uncertainty. That’s why it’s important to speak to someone who can guide you through your full range of options clearly, calmly, and without judgment.

Before meeting with a Licensed Insolvency Trustee (LIT), start with a free conversation with a certified Credit Counsellor at Credit Canada. A Credit Counsellor can complete a full financial assessment for you, discuss all of your available options, and explain the impact each option can have on your financial goals. 

Contact us or call 1 (800) 267-2272 to speak with one of our compassionate, certified Credit Counsellors. Or, chat with Mariposa, our AI-powered debt management agent, to get personalized advice when it’s most convenient for you.

FAQs: Consumer Proposal vs. Bankruptcy

Can I Include Canada Revenue Agency (CRA) Debt in Both Options?

Yes, CRA debt can be included in consumer proposals and bankruptcies. However, it may require extra negotiation, as they’re a powerful creditor. 

Will I Lose My House or Car in a Bankruptcy or a Consumer Proposal?

In a consumer proposal, you can keep your assets, including your home or car, as long as you stay up to date on those payments.

In bankruptcy, you may need to surrender certain assets (like equity in a home or investments), depending on your province’s exemption rules. However, in many cases, people can keep key assets by repaying their value over time.

Can I Keep My Credit Cards in a Consumer Proposal or Bankruptcy?

In a consumer proposal, any credit cards with balances will be cancelled, but you may keep credit cards that have no balance owing at the time of filing. 

In bankruptcy, all credit cards are automatically cancelled.

In both cases, you can get a secured credit card that requires a security deposit and has a small limit.

Does Filing Affect My Spouse or Joint Debt in either Case?

Only if they’ve co-signed your debts. Your partner’s personal debts aren’t affected, but if you share joint accounts, they’ll still be responsible for those.

Can I Get a Mortgage After a Consumer Proposal or Bankruptcy?

Yes, but it may take time.

After a consumer proposal, most lenders will consider mortgage applications one to three years after completion. After bankruptcy, you may need to wait two to four years after discharge.

Your credit score will need time to recover, and your borrowing options may be limited at first.

Can I Switch From a Consumer Proposal to Bankruptcy if I Can’t Keep Up?

Yes, you may need to switch from a consumer proposal to bankruptcy, especially if you miss or can’t keep up with your creditor-approved repayments. If this is an option you’re considering, consult with your Credit Counsellor to see if other debt repayment options may exist for you.