Bankruptcy or a consumer proposal: what is the difference?
In short
Both are federal insolvency proceedings filed by a Licensed Insolvency Trustee. A consumer proposal repays a portion of what you owe over up to five years and lets you keep your assets. Bankruptcy discharges eligible debts sooner but involves surrendering assets above provincial exemption limits.
Updated
What do the two proceedings have in common?
Both are governed by the same federal statute, the Bankruptcy and Insolvency Act, and both are filed by the same kind of professional: a Licensed Insolvency Trustee, licensed by the Office of the Superintendent of Bankruptcy. Neither can be filed by a debt-settlement company, a credit counsellor, or a referral service.
Filing either one puts a stay of proceedings in place, which stops most unsecured collection activity as a direct legal consequence of the filing — not something arranged separately on your behalf.
Are you eligible for either one?
Eligibility is not a form you fill out — it is an assessment the trustee makes from your actual income, debts and assets. The table below shows what tends to separate a proposal candidate from a bankruptcy candidate before that conversation happens.
What tends to point which way
- Regular income
- Needed to fund a proposal; not a requirement to file bankruptcy
- Assets you want to keep
- A proposal generally lets you keep them; a bankruptcy does not, above your province’s exemption limits
- Who decides
- You, together with a Licensed Insolvency Trustee, after a free assessment of your file
What do you actually repay?
In a proposal, you and the trustee agree on a portion of what you owe and you make monthly payments toward that fixed amount for up to five years. In a bankruptcy, you make payments calculated from your income and household size for as long as the process runs, and eligible unsecured debts are discharged at the end rather than repaid to a fixed figure.
What happens, step by step, once you file?
The early steps are identical whichever route you and the trustee land on. Where they part ways is what comes after the filing itself.
From first call to resolution
- 01
Free consultation
A Licensed Insolvency Trustee reviews your income, debts and assets and lays out every option, not just these two.
- 02
Assets and exemptions are assessed
The trustee checks your assets against your province’s exemption limits, which is a large part of what points a file toward one route over the other.
- 03
You choose a route with the trustee
Given your numbers and what you can sustain, you and the trustee agree on a proposal or a bankruptcy filing.
- 04
It is filed with the OSB
Filing with the Office of the Superintendent of Bankruptcy triggers the stay of proceedings that stops most unsecured collection activity.
- 05
You complete it
A proposal ends when the agreed payments are made in full; a bankruptcy ends with a discharge once its own requirements are met.
How do the two compare, side by side?
This is the full comparison. Every figure in the credit-report row comes from the Financial Consumer Agency of Canada; every other row describes the mechanism itself rather than an outcome, because what you would actually repay depends on a trustee reading your own numbers.
Bankruptcy vs consumer proposal
| Consumer proposal | Bankruptcy | |
|---|---|---|
| Filed by | A Licensed Insolvency Trustee | A Licensed Insolvency Trustee |
| What you repay | A fixed portion of your debt, agreed with the trustee | Payments based on income and household size; remaining eligible debt is discharged |
| Your assets | Generally kept | Above your province's exemption limits, surrendered to the trustee |
| Income needed to qualify | Yes — enough to fund the payments offered | Not a requirement to file |
| Duration | A maximum of five years | Ends with a discharge; duration depends on your circumstances |
| Creditors get a vote | Yes — the proposal must be accepted | No — bankruptcy does not require creditor approval to proceed |
| Credit-report retention | Removed 3 years after included debts are paid off, or 6 years after signing, whichever comes first | First: 6 years after discharge (7 at TransUnion in NL, ON, PE, QC); more than one: 14 years |
Filed by
- Consumer proposal
- A Licensed Insolvency Trustee
- Bankruptcy
- A Licensed Insolvency Trustee
What you repay
- Consumer proposal
- A fixed portion of your debt, agreed with the trustee
- Bankruptcy
- Payments based on income and household size; remaining eligible debt is discharged
Your assets
- Consumer proposal
- Generally kept
- Bankruptcy
- Above your province's exemption limits, surrendered to the trustee
Income needed to qualify
- Consumer proposal
- Yes — enough to fund the payments offered
- Bankruptcy
- Not a requirement to file
Duration
- Consumer proposal
- A maximum of five years
- Bankruptcy
- Ends with a discharge; duration depends on your circumstances
Creditors get a vote
- Consumer proposal
- Yes — the proposal must be accepted
- Bankruptcy
- No — bankruptcy does not require creditor approval to proceed
Credit-report retention
- Consumer proposal
- Removed 3 years after included debts are paid off, or 6 years after signing, whichever comes first
- Bankruptcy
- First: 6 years after discharge (7 at TransUnion in NL, ON, PE, QC); more than one: 14 years
Is one of them cheaper?
Costs in both are set by federal regulation rather than quoted freely by the trustee, and in both cases they depend on your income, assets and, for a proposal, the amount offered. Neither has a headline sticker price — the first consultation is where a trustee prices your own file for each route, and it costs nothing.
What if you change your mind partway through?
A consumer proposal that becomes unaffordable can sometimes be amended with the trustee, or in some circumstances converted toward a bankruptcy filing instead — the trustee handling your file is the one who can walk through what applies to you. Bankruptcy has its own set of duties and requirements to meet before it concludes, which the trustee also explains up front rather than partway through.
Why does the same trustee handle both routes?
A Licensed Insolvency Trustee is the only professional the Bankruptcy and Insolvency Act allows to file either proceeding, which is why the two are usually presented together rather than by two different kinds of specialist. That single point of contact is also why the free first consultation is useful even before you have decided anything: the same person who explains a proposal can explain bankruptcy against the identical set of numbers, on the same afternoon, without a second intake process.
Frequently asked questions
- Can I choose which one to file?
- You decide with the trustee, but eligibility depends on your circumstances. A consumer proposal requires enough regular income to fund the payments you offer, so it is not open to everyone.
- Is one of them cheaper?
- Costs in both are set by federal regulation rather than quoted by the trustee, and they depend on your income, assets and the amount offered. The first consultation is free, so ask for both figures before deciding.
- Do either stop collection calls?
- Filing either one triggers a stay of proceedings that stops most unsecured collection activity. That is a consequence of the filing itself, handled by the trustee, and not something any referral service can arrange.
- Which one keeps my house?
- A proposal generally lets you keep it, which is often the deciding factor for a homeowner. In a bankruptcy, equity above your province’s exemption limits can be reached by the trustee, and a mortgage itself remains a secured obligation either way — a trustee can read your equity and your province’s limits together.
- Can a trustee refuse to take my file?
- A trustee assesses whether your income and circumstances fit a proposal or a bankruptcy before proceeding, since both routes have to be filed accurately. If your file does not fit either one as it stands, the trustee will say so and explain what would need to change.
- Does a second bankruptcy work the same way as a first?
- The underlying process is filed the same way, but a second bankruptcy is reported to the credit bureaus for longer than a first — 14 years, compared with 6 (or 7 at TransUnion in some provinces) for a first. A trustee can explain what else differs for a repeat filing.
- Can I switch from a proposal to bankruptcy later if my income drops?
- Talk to your trustee as soon as your circumstances change rather than waiting or missing payments. Depending on your file, the trustee may discuss amending the proposal or moving toward a bankruptcy filing instead — the options differ case by case.