How a consumer proposal and bankruptcy work
A consumer proposal is a formal debt relief solution legislated under the Bankruptcy and Insolvency Act. You offer your unsecured creditors a portion of what you owe, paid in fixed monthly instalments over up to five years, and they forgive the rest.
If your income goes up during the proposal, your payments stay the same.
Bankruptcy works differently. You assign your assets and future income above a set threshold to a Licensed Insolvency Trustee, who distributes them to your creditors.
How much you pay depends on what you earn and what you own. If your income rises, your payments rise with it.
What they have in common
Both a consumer proposal and bankruptcy trigger a stay of proceedings the moment you file. That stay is a legal order that stops creditors from calling you, garnishing your wages, or taking you to court.
Your Licensed Insolvency Trustee handles all creditor contact from that point forward.
The Office of the Superintendent of Bankruptcy (OSB) regulates both programs under the Bankruptcy and Insolvency Act.
Source: Government of Canada – Bankruptcy and Insolvency Act
Consumer proposal vs bankruptcy at a glance
All figures are current as of 2026.
| Feature | Consumer proposal | Bankruptcy |
|---|---|---|
| Eligibility | $1,000 to $250,000 in unsecured debt (excluding mortgage) | Minimum $1,000 in unsecured debt |
| Cost | Fixed monthly payments agreed with creditors | Based on income (surplus income) and non-exempt assets |
| Duration | Up to 5 years (can pay off early) | 9 to 36 months depending on income and whether it is a first or second filing |
| Assets | You keep everything | Non-exempt assets may be surrendered |
| Credit rating | R7 | R9 (lowest) |
| Credit report | 3 years after completion or 6 years from filing, whichever is sooner | 6 to 7 years after discharge (14 years for a second bankruptcy) |
| Tax refunds | You keep them | Surrendered to the trustee |
| Monthly reporting | None | Monthly income reporting required |
| Creditor approval | Creditors vote. Deemed accepted if a majority in dollar value approves or no meeting is requested within 45 days | Not required |
Source: Government of Canada – Bankruptcy and Insolvency Act and Financial Consumer Agency of Canada – How Long Information Stays on Your Credit Report
Which debts can you include?
Unsecured debts
Credit card balances, personal loans, payday loans, lines of credit, and tax debt owed to the Canada Revenue Agency can all be included in either a consumer proposal or bankruptcy.
These are the debts that cause the most damage, and both options eliminate them.
Secured debts
Your mortgage and car loan are separate. Neither a consumer proposal nor bankruptcy touches secured debts as long as you keep making the payments.
If you stop paying a secured debt, the lender can still repossess the asset regardless of your filing.
Student loans
Student loan debt has a condition. You can only include it in a consumer proposal or bankruptcy if you have been out of school for at least seven years.
If it has been less than seven years since your last day as a full-time or part-time student, the student loan survives your filing.
Source: Bankruptcy and Insolvency Act, s. 178(1)(g)
Co-signed debts
If someone co-signed a debt with you, your filing does not release them. The stay of proceedings under the Bankruptcy and Insolvency Act protects you, not your co-signer.
Your co-signer remains on the hook for the full amount unless you file a joint consumer proposal together.
Source: Bankruptcy and Insolvency Act, s. 69.1
When a consumer proposal is the better choice
A consumer proposal makes sense if you have income, assets to protect, or both. Your payments are set when the proposal is filed and never change, even if you get a raise or a new job. You keep your home, your vehicle, your RRSPs, and everything else you own.
A consumer proposal also avoids the surplus income rules that apply in bankruptcy. If you earn a good income, a consumer proposal almost always costs less per month because the payments are spread over up to five years with no income-based adjustments.
The impact on credit is less severe, too. A consumer proposal is recorded as R7 on your credit report, compared to R9 for bankruptcy. The record is removed three years after you complete your payments or six years after you file (whichever comes first).
Source: Financial Consumer Agency of Canada – How Long Information Stays on Your Credit Report
Here’s the thing. If you have a house with equity, a car you need for work, or an income above the government threshold, a consumer proposal protects all of that. Bankruptcy does not.
When bankruptcy is the better choice
Bankruptcy is the faster option if you have little or no income, few assets, and need to get out of debt as quickly as possible. A first-time bankruptcy with no surplus income takes nine months from start to finish. That is hard to beat.
You will not lose everything. Each province sets its own exemptions that protect essential assets from seizure.
In Ontario, for example, you keep one vehicle with up to $7,117 in equity, household furnishings up to $14,180, tools of your trade up to $14,405, and all your clothing.
In Alberta, vehicle equity is protected up to $5,000, and home equity is protected up to $40,000.
Source: Ontario Execution Act, R.S.O. 1990, c. E.24 and Alberta Civil Enforcement Act, RSA 2000, c. C-15
RRSPs are protected in bankruptcy across Canada, except for contributions made in the 12 months before you filed. Your pension is also protected.
Source: Bankruptcy and Insolvency Act, s. 67(1)(b.3)
If your income is low or unstable and you cannot commit to fixed monthly payments, bankruptcy gives you a clean slate in the shortest time possible. No shame in that.
How much does each option cost?
Consumer proposal costs
In a consumer proposal, you and your creditors agree on a total settlement amount. That amount is divided into equal monthly payments over up to five years. The trustee’s fees are included in those payments, so there are no extra costs.
The amount you offer depends on what your creditors would receive if you filed for bankruptcy instead. Your offer has to be better than what they would get in a bankruptcy, or they will not accept it.
Bankruptcy costs
Bankruptcy costs depend on two things: your income and your assets.
If your income exceeds the government’s surplus income threshold by more than $200 per month, you pay 50% of the excess into your bankruptcy estate. As of 2025, the single-person threshold is $2,666 per month.
For a family of two, the threshold is $3,318. For a family of three, it is $4,080.
Source: Office of the Superintendent of Bankruptcy Canada – Directive No. 11R2-2025, Surplus Income
If you own non-exempt assets, their value also goes toward repaying creditors. The combination of surplus income and the value of your assets determines the cost of bankruptcy.
For anyone with a decent income, a consumer proposal typically costs less per month. You pay less overall while keeping everything you own.
How long does each option take?
The length of bankruptcy depends on whether you have surplus income and whether you have filed before.
| Situation | Duration |
|---|---|
| First bankruptcy, no surplus income | 9 months |
| First bankruptcy, with surplus income | 21 months |
| Second bankruptcy, no surplus income | 24 months |
| Second bankruptcy, with surplus income | 36 months |
Source: Moses Advisory Group – How Long Does Bankruptcy Last in Canada?
A consumer proposal can last for up to five years, but there is no penalty for paying it off early. You can make lump-sum payments or increase your monthly amount at any time.
Once you have breathing room from the debt payments you were making before, paying down the proposal faster becomes an option.
How does each option affect your credit?
A consumer proposal appears as R7 on your credit report. It’s removed three years after completion or six years from the filing date, whichever comes first.
Bankruptcy shows as R9, the lowest possible credit rating. For a first bankruptcy, the record stays on your report for six to seven years after your discharge date, depending on the credit bureau and your province. A second bankruptcy lasts for 14 years.
Don’t panic, but don’t ignore it either. If you are already behind on payments, your credit is already taking a hit.
Both a consumer proposal and bankruptcy give you a fixed timeframe for when the record comes off. Carrying debt you cannot repay does not.
What duties do you have during each option?
In bankruptcy, you report your household income to your trustee every month. You attend two financial counselling sessions and surrender non-exempt assets and your credit cards. You must also file all outstanding tax returns.
In a consumer proposal, you make your agreed monthly payments and attend two financial counselling sessions. There is no monthly income reporting, and there is no requirement to surrender assets or credit cards.
The counselling sessions are identical for both options and cover budgeting and money management.
How to choose between a consumer proposal and bankruptcy
Your income and assets determine which option fits best.
| Your situation | Better option |
|---|---|
| Steady income, assets to protect | Consumer proposal |
| No income or unstable income | Bankruptcy |
| Home equity to preserve | Consumer proposal |
| Want predictable fixed payments | Consumer proposal |
| Need fastest possible debt relief | Bankruptcy |
| Few or no assets, high unsecured debt | Bankruptcy |
In 2025, 140,457 Canadians filed for consumer insolvency, the highest annual volume since 2009. Consumer proposals accounted for nearly 79% of those filings.
That ratio tells you something about what works for people with income.
Source: Office of the Superintendent of Bankruptcy Canada – Insolvency Statistics in Canada, 2025
Other debt relief options exist, including debt consolidation loans and debt management plans through non-profit credit counselling agencies. But only a consumer proposal or bankruptcy gives you legal protection from creditors under the Bankruptcy and Insolvency Act.
If your debt has reached the point where creditors are calling, garnishing your wages, or threatening legal action, a consumer proposal or bankruptcy is worth looking at.
Have questions about debt?
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Frequently asked questions
Can you switch from bankruptcy to a consumer proposal?
Yes. If your financial situation improves after filing for bankruptcy, you can file a consumer proposal to replace it. Your Licensed Insolvency Trustee handles the conversion. This happens when someone starts with bankruptcy, then finds steady employment and wants to protect assets or reduce their total payments.
Can you file a consumer proposal twice?
There is no legal limit on how many consumer proposals you can file. However, creditors who accepted a previous proposal and saw it fail are less likely to accept a second one. You need to demonstrate that your financial situation has changed enough to support the new payments.
What happens if you miss payments on a consumer proposal?
If you miss three payments, your consumer proposal is automatically annulled under the Bankruptcy and Insolvency Act. Your trustee can file an amendment to restructure the terms before that happens, but you need to act quickly. Once annulled, you lose the legal protection of the stay of proceedings, and your creditors can resume collection.
Does your spouse have to file if you do?
No. Your consumer proposal or bankruptcy is yours alone. Your spouse’s income is considered when calculating surplus income in bankruptcy, but your spouse does not have to file anything. Their credit report is not affected by your filing unless they co-signed or jointly hold a debt with you.
Can a consumer proposal include CRA tax debt?
Yes. Income tax debt, GST/HST debt, and other amounts owed to the Canada Revenue Agency are unsecured debts. They can be included in a consumer proposal or eliminated through bankruptcy. This is one of the few legal ways to reduce what you owe the CRA.
Will your employer find out?
In most cases, no. A consumer proposal is a matter of public record, but employers do not receive notification. The exception is if your wages are currently being garnished. In that case, your employer is notified that the garnishment has stopped because of your filing.
How soon can you rebuild your credit?
You can start rebuilding during a consumer proposal by using a secured credit card. In bankruptcy, you cannot hold a credit card, but you can apply for a secured card after your discharge.
Most people see meaningful improvement within 12 to 24 months of completing their consumer proposal or receiving their bankruptcy discharge, provided they use credit responsibly.
Do you need a lawyer to file?
No. A Licensed Insolvency Trustee is the only professional authorized to administer a consumer proposal or bankruptcy in Canada.
You do not need a lawyer, an accountant, or a debt consultant. The initial consultation with a Licensed Insolvency Trustee is free.