Consumer Proposal vs Bankruptcy in Canada 2025

Updated March 2025 · 10 min read · bremo.io

When you're struggling with debt in Canada, consumer proposals and personal bankruptcy are the two most powerful formal debt relief tools available under the Bankruptcy and Insolvency Act (BIA). Both are administered by Licensed Insolvency Trustees and both trigger an immediate stay of proceedings. But they work very differently — and the right choice depends on your income, assets, and goals.

Side-by-Side Comparison

Factor	Consumer Proposal	Bankruptcy
Debt limit	Up to $250,000 unsecured	No limit
Asset protection	Keep all assets	Non-exempt assets may be sold
Duration	Up to 60 months (5 years)	9–36 months depending on situation
Credit rating	R7 on included accounts	R9 on included accounts
Credit report stay	3 yrs post-completion or 6 yrs from filing	6 yrs post-discharge (14 yrs if 2nd)
Surplus income	Not applicable	50% of income over threshold paid to trustee
Amount repaid	Portion of debt (typically 20–70%)	Non-exempt assets only; most unsecured debt wiped
Public record	Yes (insolvency registry)	Yes (insolvency registry)
Professional licences	Less impact	Some professions restrict bankrupts
Creditor approval needed	Yes — majority by dollar value must accept	No

When a Consumer Proposal Makes More Sense

• You have assets you want to protect (home equity above exemptions, TFSA, investments)
• You have a steady income that makes monthly payments feasible
• Your debt is under $250,000 unsecured
• Bankruptcy's surplus income rules would make it as expensive as a proposal
• You want a less severe credit impact (R7 vs R9)
• Your profession restricts or disqualifies bankrupts

When Bankruptcy Makes More Sense

• Your income is too low to make any meaningful proposal payments
• You have few or no non-exempt assets to lose
• Your debt exceeds $250,000 in unsecured amounts
• You need the fastest possible legal resolution (9 months vs up to 5 years)
• Creditors are unlikely to accept a proposal at an amount you can afford

The Surplus Income Equation

One of the most important — and often misunderstood — comparisons is surplus income. In bankruptcy, if your net income exceeds approximately $2,700/month (for a single person in 2025), you pay 50% of the excess to your trustee every month, and your bankruptcy is extended to 21 months. This can make bankruptcy surprisingly costly for middle-income earners.

Example: If you earn $4,000/month net and your threshold is $2,700, you pay 50% of $1,300 = $650/month for 21 months = $13,650 total. A consumer proposal for a similar amount might offer more predictability and slightly better credit outcomes.

Asset Protection: The Biggest Differentiator

In a consumer proposal, you keep all your assets — no exceptions. In bankruptcy, the trustee may take non-exempt assets. If you own a home with significant equity above the provincial exemption, have a car worth more than the exemption, or have non-RRSP investments, bankruptcy could cost you more than you expect.

Credit Impact in Detail

Both options damage your credit in the short term, but they differ in how long and how severely:

• Consumer proposal (R7): On your credit report 3 years after completing the proposal, or 6 years from filing — whichever comes first. If you complete in 3 years, the notation disappears 6 years from filing. If you complete in 5 years, it's gone 3 years later (8 years total from filing, but only 3 post-completion).
• Bankruptcy (R9): 6 years after your discharge date on a first bankruptcy. This means if you're discharged after 9 months, the notation stays for about 6.75 years from filing.

In practice, the credit recovery timelines are not dramatically different, especially if you actively rebuild during the process. Many people are back to good credit within 2–3 years post-discharge from either process.

Professional Licence Considerations

Certain licensed professions in Canada have rules around bankruptcy — lawyers, accountants, some financial advisors, and trustee applicants may face restrictions or disclosure requirements. A consumer proposal generally has fewer professional implications. Check with your regulatory body before filing.

The Bottom Line

For most Canadians with steady income and some assets to protect, a consumer proposal is the better option — it costs more in absolute dollars but preserves assets, has a slightly better credit impact, and carries less social stigma. For those with very low income, no assets, and crushing debt, bankruptcy offers the fastest and most complete relief.

The best way to decide is a free consultation with a Licensed Insolvency Trustee, who will run the numbers for both options and give you an honest recommendation based on your specific situation.