Consumer proposal versus bankruptcy, worked line by line
A word on how trustees are paid, stated first, because you should know it before you weigh any comparison a trustee writes. I am a Licensed Insolvency Trustee with a legal and finance background, and I file both of the proceedings compared below. In both, the trustee is paid a tariff fixed by federal regulation, not a fee I negotiate. So read this page knowing where I stand: in my own practice lately I have filed about an equal number of proposals and bankruptcies. More than once someone has sat down expecting to sign a proposal and left filing a bankruptcy instead, because on a first read of their income and assets a bankruptcy was plainly the better outcome for them, and I said so even though they had come in for a proposal. The comparison below is the one that produces decisions like that.
You are probably here with one plain question: which of these two choices is better for me, and what does each one cost? That is the right question, and this page answers it. To answer it you need one underlying idea, because it quietly drives everything else. A consumer proposal only works if your creditors accept it, and creditors accept an offer when it pays them more than your bankruptcy would have; your trustee builds the offer around that fact and must certify it as fair to both sides before filing it. So the amount a proposal costs you is not a percentage someone picks. It is set, almost mechanically, by what your bankruptcy alternative would have paid your creditors. Understand that one idea and every row of the table below makes sense.
Here is the calm version, side by side.
Scroll sideways to see both columns
| Consumer proposal | Bankruptcy | |
|---|---|---|
| What it is | A legal offer to your unsecured creditors to repay part of what you owe, over time, filed through a Licensed Insolvency Trustee acting as administrator. | A legal process that hands the property the law does not protect to a Licensed Insolvency Trustee to be sold for your creditors, in exchange for a release from most debts. |
| What happens to your property | Nothing transfers. You keep your assets and keep paying any secured loans (mortgage, car) as normal. | Your property passes to the trustee to be sold for creditors, but the law lets you keep basic things (household goods, work tools, a vehicle up to a limit, most retirement savings); only the unprotected part is sold. |
| Who has to agree | Your creditors, by a majority in dollar value of those who vote, or by silence (explained below). The court then approves. | No creditor vote. The process begins on filing. |
| How long it lasts | Payments run up to five years. Many are shorter. | A first bankruptcy is often discharged in nine to twenty-one months, depending on income. |
| What it costs you | Fixed monthly payments you can afford, set by comparison to the bankruptcy alternative. No interest. Fees are regulated and paid from your payments, not billed on top. | Payments driven by your income (surplus income, below), plus the value of any assets the law does not let you keep. Fees are regulated and paid out of the money collected for creditors. |
| What happens if your income rises during the process | Nothing to your payment. A proposal payment is fixed at the amount you agreed; a raise does not increase it. | A raise can create a surplus-income obligation where there was none, which extends a first bankruptcy from nine months to twenty-one; if you are already paying surplus income, a further raise increases the payment. |
| What happens to a tax refund | You keep it, with one qualifier: the Canada Revenue Agency may hold a refund for a pre-filing tax year against pre-filing tax debt (see the tax page). Otherwise nothing vests in a proposal, so refunds stay yours. | The refund for the period from January 1 to your date of bankruptcy goes to the estate for creditors (BIA section 67(1)(c)), as do refunds for earlier years (or they go to the Canada Revenue Agency by set-off). A refund earned after your date of bankruptcy stays yours. |
| What shows on your credit | Generally reported as an R7 rating. Usually removed three years after the proposal is completed. Each credit bureau also applies a separate six-year limit. See our credit article for the bureau-by-bureau rules. | Generally reported as an R9 rating, with minor variations between the credit bureaus. A first bankruptcy remains for six years after your discharge; a second remains for fourteen years after discharge. |
| What your creditors receive | Usually more than a bankruptcy would return, which is why creditors accept. The offer is built to clear that bar. | Whatever the sale of the assets you cannot keep, plus your required income payments, produces after the regulated fees are taken out. Sometimes that is very little. |
One line in that table does the most work, so read it twice. In a consumer proposal, nothing transfers. People say “you keep your assets,” as if the trustee is doing you a favour by letting you. That is not how it works. In a proposal, the law never takes your property in the first place. Your house, your car, your savings stay yours throughout, and any secured lender you keep paying is simply left alone. The design is in the statute, not in anyone’s goodwill.
Bankruptcy is the mirror image. There, your property does pass to the trustee to be sold for your creditors, but only the part the law does not protect. Every province shields a floor of basic property, your household goods, tools you earn a living with, a vehicle up to a limit, some home equity; and federal law separately protects most registered retirement savings. What is protected, and by whom, varies, and the exact current figures are the kind of detail your Licensed Insolvency Trustee will confirm for where you live. The point for now is simpler: bankruptcy takes only the unprotected part, and for many people that unprotected part is small.
So when does each one fit. Speaking generally, not about your own file: a consumer proposal tends to suit someone with steady enough income and something to protect, who can afford a modest monthly payment and wants certainty and to keep their assets untouched. Bankruptcy tends to suit someone with little or no realistic ability to repay and little the law would take, for whom a faster, cleaner reset is the honest answer. Plenty of people sit between those two, and the choice turns on numbers particular to them. That is what the Consumer Proposal Calculator is for, and what a conversation with a Licensed Insolvency Trustee settles.
If you want to see the actual figures for your own situation, run them. The Consumer Proposal Calculator on this site takes your household size and take-home pay and the value of what you own that a bankruptcy could sell, and shows you the estimated benchmark your monthly payment has to clear. It is an estimate, and it says so; the trustee who would file it confirms the number. When you are ready, bring this page to a conversation with any Licensed Insolvency Trustee.
That is the whole answer for most readers.
See the number your proposal has to clear.
Put your own figures in and watch the benchmark appear, before any meeting.
Open Consumer Proposal Calculator - Level 2: Monthly Payment Amount slides open
Frequently asked questions
These are questions about the creditor-return and comparison math specifically, the ground this article owns. Questions about the cost to you, timelines, credit-report duration, mortgages after a proposal, missed payments, switching to bankruptcy, whether the Canada Revenue Agency votes, and second proposals live on their own pages on this site and are linked at the foot of this section, so they are not repeated here.
In dollars, what do my creditors actually receive in a proposal versus a bankruptcy?
It depends on your income and assets, but in almost every case creditors receive more from a proposal than a bankruptcy would return. That is the whole reason a proposal is accepted: it is built to beat what a bankruptcy would have paid them, and after the regulated fees a bankruptcy sometimes pays very little. The exact figures turn on your income, assets, and province; your Licensed Insolvency Trustee confirms them, and the calculator on this site estimates them.
Why would my creditors accept a proposal instead of pushing me into bankruptcy?
Because a proposal usually offers them a better financial result than a bankruptcy would. Creditors are not doing you a kindness; faced with two numbers, they take the larger one. Suppose a bankruptcy would return them about $4,000 and your proposal offers about $9,000 over time: accepting is simply their better outcome. That is negotiation reality, not a legal rule. What the law requires is narrower: your Licensed Insolvency Trustee must be of the opinion that the proposal is reasonable and fair to you and your creditors before filing it (BIA section 66.14(a)(ii)).
Is my proposal payment really thirty percent, or how is it actually set?
Thirty percent is a myth, not a rule. There is no percentage in the statute. The payment is set by comparison to bankruptcy: the total of your required surplus-income payments (OSB Directive No. 11R2-2026) plus the value of the non-exempt assets a bankruptcy would have realized, which together form the floor your offer must beat. Two people with the same debt can land at very different payments because their income and assets differ. The percentage is an output, not an input.
What is the difference between a consumer proposal and debt consolidation?
Different in kind, not in degree. A debt consolidation loan is new borrowing: a lender advances money to pay out your existing debts, and you repay the full amount, with interest, under one loan. You still owe every dollar, you still pay interest, and you have to qualify for the loan in the first place. A consumer proposal is not a loan and not new credit. It is a legal offer, filed under the BIA, to repay part of what you owe; filing stops collection, and the balance the proposal does not cover is released when you complete it. Interest is the sharp contrast. On a proposal, interest effectively stops: your debt is fixed at what you owe on the day you file, your payments retire that fixed number, and whatever they do not cover is erased when you finish. A consolidation loan is the reverse: the full principal keeps compounding, and nothing is ever released. Consolidation moves the debt into one payment; a proposal reduces the debt itself. Consolidation is the right tool when you can still qualify for the loan and carry the full amount at a lower rate; a proposal is the tool for when you cannot. Which side of that line you are on turns on your income and what you could realistically repay, and a Licensed Insolvency Trustee will tell you plainly which it is.
I own a home with equity. How does that change the proposal-versus-bankruptcy math?
It raises the bar your proposal has to clear, and it may be the reason a proposal makes sense. In a bankruptcy, non-exempt home equity above the provincial exemption is realized for creditors; that value is part of what a bankruptcy would return, and it is part of what your offer is measured against under the fairness standard. In a proposal, nothing vests, so you keep the home and offer its non-exempt equity value in payments over time instead of surrendering it; the statutory basis sits on the cost page. The more non-exempt equity you hold, the larger the proposal offer, and the larger the reason to choose the path that lets you keep the asset. The exempt portion of home equity varies by province; your Licensed Insolvency Trustee confirms the figure for where you live.
Do the trustee’s fees come out of what my creditors receive, in both options?
Yes, in both, and in both the fee is a regulated tariff, not a negotiated bill. It is paid out of the money collected for your creditors, before they are paid, so you are never billed on top. A proposal carries two fixed $750 charges, and the rest comes out of the funds as they are distributed. Because the tariff is set by regulation, it is the same at every Licensed Insolvency Trustee; there is no cheaper trustee to shop for.
If a bankruptcy would return my creditors almost nothing, why would I propose anything at all?
Because a proposal buys you something a do-nothing position does not: a closed file. If your income is at or below the standard and your assets are all exempt, a bankruptcy returns creditors very little, and a small proposal will clear that low bar. You might reasonably ask why bother. The answer is that even judgment-proof debts keep accruing interest and keep damaging your credit, and a completed proposal ends that, on terms priced from the little the creditors could ever have reached. It is a voluntary way to convert a position that is protected from collection but still deteriorating into a resolved one. Whether it is worth doing in your case is a judgment call for a conversation with a Licensed Insolvency Trustee.
Which option gives creditors more, and why does that make a proposal easier to approve?
A proposal is designed to give creditors a better return than a bankruptcy would, so a well-built proposal is one they have a financial reason to accept. It also does not need their enthusiasm: a consumer proposal can pass without a single creditor actively voting yes, which is why a sound offer tends to go through.
Each of those answers separates what is factually protected from what depends on your circumstances, and routes the judgment calls to a Licensed Insolvency Trustee. The questions this page does not answer each have exactly one home on this site, and this is not it: for how long a filing shows on your credit and the rebuild path, see the credit spoke; for getting or renewing a mortgage after a proposal, see the mortgages spoke; for what happens if you miss payments, and for switching a proposal to a bankruptcy midway, see the consequences hub; for whether the Canada Revenue Agency votes on a proposal, see the foundation page’s brief treatment and live on Canada Revenue Agency collections; and for filing a second proposal, see the consequences hub’s summary. For the cost to you and the full fee waterfall, see the cost page.
So which is better? Neither, as a rule. Bankruptcy is sometimes the better answer, and a consumer proposal is sometimes the better answer. Which one is right for you depends on your income, your assets, your family size, and your goals. That is why a sound comparison never starts with a percentage or with what worked for someone else; it starts with your own numbers. When you are ready to see those numbers, the Consumer Proposal Calculator on this site is the place to begin, and any Licensed Insolvency Trustee can confirm what it shows.
No fees for advice. No referrals for sale. The light is on.
Paul Franchi, JD, MBA, CIRP, LIT—Founder
