Consumer Proposal vs Personal Bankruptcy: Which One Really Saves You More in Canada?

When debt collectors call daily and credit card balances spiral, Canadians often face a tough decision: consumer proposal vs personal bankruptcy. These two options under Canada’s Bankruptcy and Insolvency Act both stop creditor harassment instantly, but one might save you thousands while the other protects your home. With living costs soaring and interest rates biting, more people search consumer proposal vs bankruptcy Canada to find relief that fits their life. This article breaks it down simply with numbers, examples, and real scenarios to show which choice puts more money back in your pocket.

Quick Comparison – Consumer Proposal vs Bankruptcy Canada

Canadians search consumer proposal vs bankruptcy Canada because both solve overwhelming debt but in different ways – one preserves assets, the other minimizes payments. Here’s the quick side-by-side:

Feature	Consumer Proposal	Personal Bankruptcy (1st Time)
Debt Limit	≤ $250,000 unsecured	Any amount ≥ $1,000
Typical Cost	20–50% of debt over 5 yrs	Surplus income + assets (9–21 mos)
Length	Up to 60 months	9–21 months
Assets	Keep if payments current	Lose non-exempt
Credit Hit	R7: 3–6 years	R9: 6–7 years post-discharge
Duties	Monthly payments	Income reports + counselling

How Personal Bankruptcy Works

Personal bankruptcy starts when a bankruptcy trustee in toronto files your case, triggering an automatic stay on collections, wage garnishments, and lawsuits. You surrender non-exempt assets (handled by the trustee) and make payments based on income surplus for 9 months (low income) or 21 months (higher earners). Duties include two credit counselling sessions and monthly income proof. At discharge, most unsecured debts vanish – no more payments.

Who Qualifies for Personal Bankruptcy?

Anyone owing $1,000+ who can’t pay bills when due qualifies. No upper debt limit exists, unlike proposals. Single filer earning $4,000/month with rent/mortgage might pay $200–$400 monthly based on family size and province.

The Step-by-Step Bankruptcy Timeline

1. Day 1: Trustee files, creditors stop calling instantly
2. Month 1 – 9/21: Make payments, attend counselling
3. Discharge: Debts gone (except student loans <7 years, support payments)
4. Credit recovery: Secured cards available 6–12 months post-discharge

Pros and Cons of Personal Bankruptcy

Pros:

• Eliminates debts completely (except student loans <7 yrs, support payments)
• Shortest timeline for low-income filers (9 months)
• Saves most money if few assets/no surplus ($10k debt might cost $1–2k total)
• Immediate relief from all creditors including CRA (most taxes dischargeable)

Cons:

• Lose non-exempt assets (could be equity, luxury items)
• Longer credit damage (6–7 yrs post-discharge)
• Higher scrutiny if surplus income or repeat filer
• Public record (though rarely noticed by non-creditors)

Key Features of a Consumer Proposal

Consumer proposal vs personal bankruptcy Canada highlights proposals as negotiated deals where a licensed insolvency trustee offers creditors partial repayment (often 20–40%) over five years max. Creditors vote – majority by dollar value approves it. No asset surrender needed if you stay current on secured debts like mortgages. Caps unsecured debt at $250,000 (mortgage separate), with fixed payments stopping interest accrual. Your consumer proposal binds all creditors once approved, even non-voters.

What Makes Proposals Different

Eligibility caps unsecured debt at $250,000 (mortgage separate), perfect for middle-income households. Fixed payments ignore income fluctuations – $500/month stays $500 regardless of raises or job changes. Interest stops immediately, unlike consolidation loans compounding at 20%+.

The 45-Day Creditor Vote Process

1. Trustee proposes realistic repayment (often 30% average)
2. Creditors get 45 days to vote (silence = approval)
3. Majority dollar-value approves = legally binding
4. Non-voters bound anyway – full legal protection

Impact on Your Assets –  What You Keep and What You Risk

Consumer proposal vs personal bankruptcy asset rules differ sharply. Proposals let you keep homes, cars, RRSPs, and tools if secured payments continue – no trustee seizure. Bankruptcy exemptions protect Ontario basics: $14,180 household goods, $11,300 tools, $7,117 car equity, $10,783 home equity (principal residence). Higher values risk sale, proceeds to creditors.

Business owners see proposals preserve income tools better, avoiding bankruptcy’s disruption to sole proprietorships. Homeowners with equity often pick proposals to dodge forced sales, saving far more than any payment difference.

Choosing Between a Consumer Proposal or Personal Bankruptcy

Decision factors blend costs, assets, income. Low assets/high debt? Bankruptcy saves dollars. Equity/stable pay? Proposal protects wealth. Here’s how to choose via trustee questions:

1. “My personal bankruptcy vs consumer proposal payment estimates?”
2. “House, car, RRSPs safe under each?”
3. “Debt-free and credit‑rebuilding timeline?”
4. “CRA taxes/student loans handling?”
5. “Duties and lifestyle impact?”
6. “Future borrowing outlook?”
7. “Best for my business/job?”

Scenario 1: Renter, $80k cards, low income – Bankruptcy: $7k total vs proposal $32k. Bankruptcy wins.
Scenario 2: Homeowner $70k debt, $250k equity – Proposal $28k keeps home vs bankruptcy $50k+ equity loss. Proposal saves.
Scenario 3: Freelancer $100k ($40k taxes) – Proposal negotiates CRA, protects tools vs bankruptcy gear sale. Proposal edges.

Explore debt solutions in toronto matching your scenario.

Final thoughts

Consumer proposal vs bankruptcy Canada boils to your numbers: dollars repaid, assets kept, stress endured, recovery speed. No universal winner—get personalized math from experts.