Consumer Proposal vs Bankruptcy in Canada: Which Path Fits the File?

The right answer is not “consumer proposal always wins” or “bankruptcy is the last resort.” They are different formal insolvency processes. The useful comparison is what each option costs, protects, requires, and risks in your actual file.

The OSB explains that a consumer proposal is an offer to pay creditors a percentage, extend the time to pay, or both. Its term cannot exceed five years. For an eligible individual, the OSB describes a general debt limit of $250,000 excluding debts such as a mortgage secured by a principal residence. A Licensed Insolvency Trustee administers the formal process.

The Core Comparison

This table is a decision framework, not a quote. Read the consumer proposal cost guide and ask for the bankruptcy comparison in dollars and obligations.

When a Consumer Proposal May Fit

A proposal may be worth examining when you have enough stable cash flow to complete an accepted offer and need to compare asset or payment consequences carefully. It may also be relevant when you want a legally binding arrangement with unsecured creditors and the file fits the proposal rules.

Do not turn that into a “save 60–80%” promise. The proposal amount is negotiated through the formal process and depends on the file.

When Bankruptcy May Fit Better

Bankruptcy may be the more realistic process when a proposal payment cannot be funded, the debt level is outside the consumer-proposal limit, or the asset and income tradeoffs are acceptable. It can also be the option a LIT recommends after comparing the full cost rather than the headline payment.

The comparison should include tax debts, student loans, support obligations, secured debts, vehicles, home equity, investments, income changes, and any active legal or collection action.

The House and Asset Question

There is no universal “keep your house” or “lose your house” answer. In either discussion, identify market value, mortgage balance, other secured claims, provincial exemptions, payment status, and the amount required to preserve the asset. Ask the LIT to show the assumptions in writing.

A Practical Decision Path

1. List every debt and mark it secured, unsecured, tax, student, support, or disputed.
2. List income, essential expenses, assets, equity, and payments that cannot stop.
3. Run the consumer proposal calculator for arithmetic only.
4. Ask the LIT for a written proposal estimate and a bankruptcy comparison.
5. Compare total cash outlay, asset consequences, legal protection, credit reporting, completion risk, and what happens if circumstances change.

If a lawsuit, garnishment, or collection notice is active, use notice triage and bring the document to the consultation. Read the consumer proposal timeline and acceptance process before relying on a deadline or approval claim.

Bottom Line

Choose the process that is legally available and realistically completable after the full file is compared. A proposal is not automatically cheaper, bankruptcy is not automatically worse, and neither page should promise a fixed reduction, approval result, credit score, or mortgage date. Start with the consumer-proposal hub and find a Licensed Insolvency Trustee.

This article is general information, not legal or financial advice.