Consumer Proposal vs Bankruptcy in Canada: Key Differences
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A consumer proposal and a bankruptcy are the two legal ways to deal with debts you can no longer repay in Canada. Both are filed through a licensed insolvency trustee, both stop most collection actions, and both appear on your credit report. The difference is in what you keep, what you pay and how long it lasts. This guide compares a consumer proposal vs bankruptcy using the rules of the Office of the Superintendent of Bankruptcy (OSB), as of October 18, 2026. For other borrowing and debt guides, see our loans hub.
In short, a consumer proposal lets you keep your assets and repay part of your debt over up to 5 years. A bankruptcy usually ends sooner, but the trustee sells your non-exempt assets. Before choosing either, it is worth checking whether a debt consolidation option or a payment plan could still work.
What is a consumer proposal?
A consumer proposal is a legal offer to your creditors to pay part of what you owe, to take longer to pay, or both. According to the OSB, it is available to individuals whose total debts do not exceed $250,000, not counting a mortgage on their principal residence.
The term cannot exceed 5 years. A licensed insolvency trustee (LIT) prepares and administers the proposal. If your creditors accept it and you respect its terms, you keep your assets, such as your savings, your car and your house, provided you keep paying your secured creditors.
The deal has firm rules. If you pay monthly and miss three payments, the proposal is deemed annulled. You must also attend two counselling sessions.
What is a bankruptcy?
Bankruptcy is a legal process, also handled by a licensed insolvency trustee, that releases you from most of your debts. The OSB describes it as a last resort, for when you cannot solve your debt problems any other way.
When you file, the trustee takes possession of your assets, except those exempt under provincial or territorial law, such as household goods, clothing and tools of your trade. The trustee sells them and distributes the money to your creditors.
You may also have to make surplus income payments. Surplus income is the part of your earnings above what a family needs for a reasonable standard of living. Like a proposal, bankruptcy requires two counselling sessions.
How long each one lasts
A proposal lasts as long as its payment schedule, up to 5 years. A bankruptcy's length depends on whether it is your first and on your income. According to the OSB, as of October 18, 2026:
- First bankruptcy, surplus income under $200 a month: eligible for discharge after 9 months
- First bankruptcy, surplus income over $200 a month: 21 months
- Second bankruptcy, surplus income under $200 a month: 24 months
- Second bankruptcy, surplus income over $200 a month: 36 months
Consumer proposal vs bankruptcy at a glance
The table below compares the main differences.
| Feature | Consumer proposal | Bankruptcy |
|---|---|---|
| Who can file | Individuals with total debts of $250,000 or less, excluding a mortgage on the principal residence | Individuals who cannot meet their obligations; described by the OSB as a last resort |
| Administered by | Licensed insolvency trustee | Licensed insolvency trustee |
| Your assets | You keep them, if you keep paying secured creditors | The trustee sells non-exempt assets |
| How much you repay | A negotiated portion of your debts, or your debts over a longer period | Non-exempt assets plus any surplus income payments |
| Duration | Up to 5 years | 9 or 21 months for a first bankruptcy; 24 or 36 months for a second |
| Counselling sessions | 2 | 2 |
| Main risk | Annulled after three missed monthly payments | Loss of non-exempt assets |
| Credit report | Removed 3 years after paid off or 6 years after signing, whichever comes first | Usually 6 years after discharge (7 years at TransUnion in NL, ON, PE and QC); 14 years for repeat bankruptcies |
Debts a bankruptcy does not erase
Some debts survive a bankruptcy discharge. The OSB lists alimony and child support payments, student loans if you stopped being a student less than seven years ago, court-ordered fines or penalties, and debts arising from fraud.
Secured debts are also a separate matter. In a proposal, you keep your home and car as long as you keep paying the mortgage and car loan. A licensed insolvency trustee will explain how your secured debts are treated in your case.
Impact on your credit report
Both options leave a mark, but a proposal usually leaves a shorter one. According to the Financial Consumer Agency of Canada, as of October 18, 2026:
- Consumer proposal: removed 3 years after you pay off all the debts in the proposal, or 6 years after you sign it, whichever comes first
- First bankruptcy: usually removed 6 years after discharge; TransUnion keeps it 7 years in Newfoundland and Labrador, Ontario, Prince Edward Island and Quebec
- More than one bankruptcy: kept for 14 years
After either one, you can rebuild. A secured credit card is the usual first step: compare options on our best secured credit cards page. Our guide to building your credit score in Canada explains the next steps.
Which one fits your situation?
A licensed insolvency trustee is the right person to answer this, and the first meeting is typically free. Still, a few patterns are clear.
- A consumer proposal often fits if: you have a steady income, assets you want to keep such as a home, and total debts of $250,000 or less excluding your mortgage.
- A consumer proposal also fits if: you can commit to regular payments for up to 5 years without missing three of them.
- A bankruptcy often fits if: you have few non-exempt assets and little income left after basic living costs.
- A bankruptcy also fits if: no realistic monthly payment would satisfy your creditors in a proposal.
- Neither may be needed if: a lower-rate loan, a balance transfer or a non-profit debt management plan can bring your payments under control.
How to get started
Find a licensed insolvency trustee through the OSB's online directory. Bring a list of your debts, your income, your expenses and your assets to the first meeting. The trustee will review all your options, including informal ones, before recommending a proposal or a bankruptcy.
Be wary of companies that promise to settle your debts for a fraction of what you owe. Only a licensed insolvency trustee can administer a consumer proposal or a bankruptcy. To see whether repayment is still realistic, test your numbers in our debt payoff calculator.
Conclusion
A consumer proposal suits people with steady income who want to keep their assets and can afford a monthly payment for up to 5 years. A bankruptcy suits people with few assets and little income, for whom a proposal would not be realistic. Both stop wage garnishments and lawsuits by your creditors, and both affect your credit for years. Talk to a licensed insolvency trustee before deciding, and compare the total cost of each option in writing.
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Frequently asked questions about consumer proposals and bankruptcy
Is a consumer proposal better than bankruptcy?
It depends on your income and assets. A consumer proposal lets you keep your assets and usually leaves your credit report sooner, but you must make payments for up to 5 years. A bankruptcy can end in as little as 9 months for a first-time filer with low surplus income, but the trustee sells your non-exempt assets. A licensed insolvency trustee can compare both for your situation. Our loans hub covers less drastic options to consider first.
What is the maximum debt for a consumer proposal?
The OSB sets the limit at $250,000 of total debts, not counting a mortgage on your principal residence, as of October 18, 2026. In November 2025, the federal government pre-published draft regulations that would raise the limit to $325,000 and index it to inflation. We found no confirmation that this change is in force. Above the limit, a different type of proposal applies, and a licensed insolvency trustee can explain it. Review your total balances with our debt payoff calculator.
How long does a consumer proposal stay on my credit report?
According to the FCAC, Equifax and TransUnion remove a consumer proposal 3 years after you pay off all the debts it includes, or 6 years after you sign it, whichever comes first. Paying the proposal early can therefore shorten the time it appears. In the meantime, you can start rebuilding with on-time payments. Our guide to building your credit score in Canada explains how.
Will I lose my house if I declare bankruptcy?
You may. In a bankruptcy, the trustee takes possession of your assets except those exempt under provincial or territorial law, and the rules differ by province. In a consumer proposal, you keep your assets, including your house, as long as you keep paying your mortgage. If keeping your home matters, raise it at your first meeting with a licensed insolvency trustee. Our loans hub explains other ways to restructure debt.
Does bankruptcy clear student loans?
Not always. The OSB says student loans are not released by a bankruptcy discharge if you stopped being a student less than seven years ago. Alimony, child support, court-ordered fines and debts arising from fraud also survive. Other unsecured debts, such as credit cards, are usually released. To understand how your credit recovers afterwards, see our guide to credit scores in Canada.
How much does a licensed insolvency trustee cost?
The first consultation is typically free, according to the OSB. The fees a trustee can charge for consumer proposals and bankruptcies are regulated by the federal government. Ask the trustee to explain every cost in writing before you sign. Compare that cost with other options listed in our loans hub.
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