TLDR
A consumer proposal lets you repay a reduced portion of what you owe, over up to 5 years, while keeping your assets
Bankruptcy can eliminate most debts faster — typically in 9 to 21 months — but may require surrendering some assets
Your income level, the assets you want to protect and your total debt load are the three key factors in choosing between them
A Licensed Insolvency Trustee (LIT) must administer both options and can help you decide which is right for you.
According to data released by the Office of the Superintendent of Bankruptcy (OSB) and analysed by the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), 37,121 Canadians filed a consumer insolvency in Q1 2026, up 8.5% on the same period in 2025 and 6.5% on Q4 2025.
When debt feels unmanageable, knowing your options is the first step to finding a way forward. A consumer proposal and bankruptcy are both legal debt solutions regulated under Canada’s Bankruptcy and Insolvency Act — and both can give you real relief. But they work differently, particularly when it comes to repayment obligations, asset protection and long-term credit impact.
A consumer proposal lets you repay part of what you owe over time while keeping your assets, while bankruptcy eliminates most eligible debts but may require some assets to be surrendered.
In general, a consumer proposal may be better for people with steady income who want to keep their assets, while bankruptcy may be more appropriate when debts are overwhelming and repayment is neither realistic nor possible. Both options are designed to help Canadians resolve overwhelming debt through a structured legal process.
This guide is designed to help you compare the two side by side, understand how bankruptcy works, and figure out which path makes the most sense for your situation. For a quick refresher on how consumer proposals work in this country, read What’s a Consumer Proposal in Canada? .
Comparison Table: Consumer Proposal vs Bankruptcy
| Consumer Proposal | Bankruptcy | |
|---|---|---|
| What it is | A formal agreement to repay a reduced portion of your unsecured debt over time | A legal process that eliminates most eligible debts through court action |
| Who qualifies | Unsecured debts of $1,000–$250,000 (excluding mortgage); Canadian resident or property owner | Minimum $1,000 in unsecured debt; Canadian resident or property owner |
| Debt limit | Up to $250,000 in unsecured debt (excluding mortgage) | No upper debt limit |
| How debts are resolved | You repay a negotiated, reduced amount — creditors forgive the remainder | Eligible debts are legally discharged (eliminated) |
| Assets | You can usually keep your assets, including home equity, car, RRSPs and savings, as long as secured payments are maintained | You may need to surrender non-exempt assets (e.g. home equity above provincial exemptions, tax refunds, some investments) |
| Exempt assets in bankruptcy | N/A | RRSPs (contributions made more than 12 months prior), RESPs, basic household items, tools of the trade (up to provincial limits), one motor vehicle (up to provincial limit) |
| Mortgage Renewal Impact | May limit lender options but renewal is often still possible | May significantly affect mortgage approval and renewal |
| Monthly payments | Fixed, negotiated, and based on what you can afford | Vary based on income; if income exceeds a threshold, surplus income payments are required. Surplus income refers to income earned above the government threshold during bankruptcy. |
| Timeline | Up to 60 months (5 years) | Typically 9 months (first-time filer with no surplus income) up to 21 months or longer |
| Collection calls and legal action | Stop immediately upon filing (stay of proceedings) | Stop immediately upon filing (stay of proceedings) |
| Wage garnishment | Stops immediately upon filing | Stops immediately upon filing |
| Creditor approval required? | Yes — the majority of creditors (by dollar value) must vote in favour | No — creditor approval is not required |
| Cost | Regulated fees built into your monthly payments with no large upfront costs | Regulated fees; surplus income payments may apply depending on your earnings |
| Credit impact | R7 rating on included debts; less severe than bankruptcy | R9 rating; more severe and longer-lasting |
| Credit report duration | Up to 3 years after completion or 6 years from filing date, whichever comes first | Up to 6 years after discharge (first bankruptcy); up to 14 years for a second bankruptcy |
| Public record | Yes — part of the federal insolvency registry | Yes — part of the federal insolvency registry |
| Second filing possible? | Yes — once the first proposal is completed or annulled | Yes — a second bankruptcy is possible but carries longer timelines and stricter conditions |
| Who administers it | Licensed Insolvency Trustee (LIT) | Licensed Insolvency Trustee (LIT) |
The Key Differences to Understand
A consumer proposal is an agreement between you and your creditors to repay some of what you owe — usually in fixed payments spread over up to five years. Bankruptcy is a process to eliminate eligible unsecured debt. It’s quicker (nine to 21 months) to resolve but may require that you give up some of your assets. Both options are administered by an LIT who can help you decide which is right for you. For a more detailed comparison of bankruptcy and consumer proposals, read How Personal Bankruptcy Works in Canada: A Step-by-Step Guide.
A consumer proposal may be better if you:
- Have steady income
- Want to keep your assets
- Can afford structured monthly payments.
Bankruptcy may be better if you:
- Have little or no ability to pay back debt
- Have overwhelming unsecured debt
- Need faster debt relief
How to decide which option may fit your situation
There’s no universal answer. Here are four common scenarios to help you think it through.
Scenario 1: You have a steady income and want to keep your assets
You’re working, you have equity in your home or contributions in your RRSPs, and you want to protect what you’ve built. Your unsecured debt is significant but within the $250,000 limit.
A consumer proposal is likely the better fit. Your income allows you to meet fixed monthly payments, and because a consumer proposal applies only to unsecured debts, secured assets like your home or car are generally protected if repayments remain current. Talk to an LIT to work out what a realistic monthly offer to your creditors looks like.
Scenario 2: Your income is very low or unpredictable
You’re not earning enough to sustain meaningful monthly payments for up to five years. Or your income varies significantly, making a fixed long-term commitment difficult to manage.
Bankruptcy may be the more practical option. If your income is below the surplus income threshold, your bankruptcy could be resolved in as little as nine months. While you may need to surrender some non-exempt assets, the faster timeline and lower ongoing payment burden could give you the fresh start you need. An LIT can help you calculate whether surplus income would apply given your current earnings.
Scenario 3: Your debt exceeds $250,000 (excluding your mortgage)
Consumer proposals are only available for up to $250,000 in unsecured personal debt. If your unsecured debts exceed that threshold, you‘re not eligible to file a consumer proposal.
Bankruptcy is the path forward. There is no upper debt limit for bankruptcy in Canada. Your LIT will guide you through the process and the stay of proceedings will protect you from creditor action immediately upon filing.
Scenario 4: You’ve been through this before
This isn’t your first time dealing with serious debt. You may have previously completed a consumer proposal or a prior bankruptcy.
The answer depends on your history and current situation. A second consumer proposal is possible if your first has been completed or annulled. A second bankruptcy carries a longer mandatory timeline and stricter conditions. Your LIT will review your full history and help you understand which option is available and makes the most sense going forward. Each filing appears separately on your credit record and your LIT can walk you through the long-term implications for both options.
Alternatives to a consumer proposal or bankruptcy
A consumer proposal and bankruptcy aren’t your only choices. Depending on how much you owe and your financial situation, these alternatives may be worth exploring with an advisor or debt counsellor before committing to either formal process.
Debt consolidation loan: A single loan that combines multiple debts into one monthly payment, ideally at a lower interest rate. This keeps your credit intact and doesn’t require creditor approval, but you need to qualify for the loan — which can be difficult if your credit is already under stress.
Informal debt settlement: Negotiating directly with creditors to reduce or restructure what you owe, without involving an LIT or a formal legal process. Creditors are not legally required to participate, but it may work for smaller or simpler debt situations.
Credit counselling and debt management plans: A non-profit credit counsellor can help you set up a structured repayment plan with creditors and provide financial coaching. This does not reduce the principal you owe, but it can reduce or eliminate interest charges and has a less severe impact on your credit than either a consumer proposal or bankruptcy.
Borrowing from family or refinancing: In some cases, borrowing from family or refinancing existing debt may help you avoid a formal insolvency process altogether. For homeowners with sufficient equity, refinancing or consolidating debt through a secured loan may lower monthly payments and simplify repayment. However, taking on new debt or involving family members can carry financial and emotional risks. So, it’s important to carefully consider whether the solution is sustainable long term.
When to talk to an LIT
No article can replace a one-on-one conversation with a professional who can see your full financial picture. An LIT is federally regulated and an initial consultation is usually free.
An LIT can help you:
- Confirm which options you’re eligible for based on your specific debt level, income, and assets
- Run the numbers on what a consumer proposal payment would realistically look like
- Calculate whether surplus income would apply in a bankruptcy scenario
- Explain the exact asset exemptions in your province
- Walk you through the long-term credit implications of both paths
You can find an LIT through the Office of the Superintendent of Bankruptcy Canada’s official trustee registry.
The right solution depends on your income, assets, debt level and long-term financial goals.
Frequently Asked Questions
The key difference is how your debts are resolved and what happens to your assets. A consumer proposal lets you repay a negotiated, reduced portion of your unsecured debt over up to five years — and secured assets are generally protected if payments remain current. Bankruptcy eliminates most eligible debts but may require you to surrender assets above your provincial exemption limits. Both are administered by an LIT and stop collection calls immediately upon filing.
Bankruptcy is generally faster than a consumer proposal. A first-time bankruptcy with no surplus income is typically discharged in nine months. A consumer proposal can run up to five years. However, if your income is above the federal surplus income threshold, your bankruptcy timeline extends to 21 months — and the mandatory income-based payments may make it more demanding in practice.
Yes, but an LIT can help determine which options you qualify for. Your LIT will review your financial situation and explain which options you qualify for, what each would require from you, and what the long-term implications are. The final decision is yours.
Bankruptcy generally has a more severe and longer-lasting effect on your credit than a consumer proposal. Bankruptcies are rated R9 on your credit report, while consumer proposals are rated R7. For a more detailed understanding of how each option might affect your credit, read How Does a Consumer Proposal Impact Your Credit Score?
Yes, eligible CRA tax debt can usually be included in both processes. Income tax debt, GST/HST balances and some government benefit overpayments may qualify. An LIT can review which tax debts are eligible in your situation.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
