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. It is also the practical answer to a broader search: among bankruptcy alternatives in Canada, a consumer proposal is the main formal one for individuals, a proceeding under the same federal Act rather than a product or a plan. 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 usually accept an offer that pays them more than your bankruptcy would have. Your trustee builds the offer against that comparison, and must be of the opinion that it is reasonable and fair to you and to your creditors, and that you can actually perform it, and must put that opinion and the reasons for it on the record with the official receiver (BIA section 66.14(a)(ii)). So the amount a proposal costs you is not a percentage someone picks: it is built against the estimate of what your bankruptcy alternative would have paid your creditors. That comparison is the dominant measure of fairness to your creditors, not a legal formula, and creditors compare the two numbers because it is in their interest to, not because any law makes them. 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, built against the 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, in the ordinary case. A proposal payment is fixed by the terms you agreed, so a raise does not increase it, unless the proposal itself was written with payments that move. | 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 year you go bankrupt goes to the estate for your creditors (BIA section 67(1)(c)), as do refunds for earlier years (or they go to the Canada Revenue Agency by set-off). Refunds for years after the year you filed stay yours. |
| What shows on your credit | Accounts included in the proposal are commonly reported by lenders with an R7 payment rating, and the proposal itself appears separately as a public-record entry. It usually comes off three years after you complete the proposal; each bureau also runs its own outside clock, and they measure it differently (from the filing date at Equifax, from the account’s default date at TransUnion). See our credit article for the bureau-by-bureau rules. | Affected accounts are commonly reported by lenders with an R9 payment rating, and the bankruptcy itself appears separately as a public-record entry. How long it stays depends on the bureau’s published policy: Equifax removes a first bankruptcy six years after your discharge; TransUnion does the same in most provinces but keeps it seven years after discharge in Ontario, Quebec, Prince Edward Island, and Newfoundland and Labrador. A second bankruptcy remains fourteen years. These are bureau policies, not legal time limits. See our credit article for the full bureau-by-bureau rules. |
| What your creditors receive | Usually more than a bankruptcy would return, which is the main reason creditors accept. The offer is measured against that benchmark, not against a fixed 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. |
Surplus income, the number that does the work
The income input has a formal name, surplus income. In a bankruptcy, the Office of the Superintendent of Bankruptcy publishes a monthly income standard for each household size, and income above that standard is shared with creditors on a set formula. The amount you would have shared over the life of a bankruptcy is one of the two things your proposal is measured against. The 2026 standards are these.
| Household size | 1 | 2 | 3 | 4 | 5 | 6 | 7+ |
|---|---|---|---|---|---|---|---|
| Monthly standard | $2,716 | $3,381 | $4,157 | $5,047 | $5,724 | $6,456 | $7,188 |
(OSB Directive No. 11R2-2026, Appendix A, confirmed current at source 2026-08-11.)
Two points matter for the comparison. First, the payment is calculated on your share of the household’s income, not the household total, which lowers the number for many two-income homes. Second, surplus income affects time as well as money, because enough of it moves a first bankruptcy’s automatic discharge from nine months to twenty-one. Both effects raise the benchmark a proposal is measured against, and both are worked in full on the cost page, where the payment itself is calculated.
A proposal works differently, and the difference favours anyone whose income is likely to climb. Surplus income is a bankruptcy mechanic, recalculated as your income moves. A consumer proposal payment is fixed at filing in the ordinary case, so a raise during the proposal years does not increase it. The same raise that would increase a bankruptcy payment, and could lengthen the bankruptcy, does nothing to a proposal. For a debtor expecting better years ahead, that is a real and measurable difference between the two paths.
You do not have to work any of this out from a table. The calculator on this site works the detailed math for your individual case, and Level 2 shows the exact surplus income that applies in your situation, from your own household size and take-home pay.
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, in some provinces only up to a strict threshold; 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. If your unsecured debts are over the consumer proposal limit, the same settle-without-bankruptcy idea continues under a different name: Division 1 Proposals in Plain Terms explains it.
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. Those numbers are what the calculator below works, 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 is measured against. 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 benchmark your proposal is measured against.
Put your own figures in and watch the benchmark appear, before any meeting.
Open the Monthly Payment Amount calculator 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 creditors usually receive more from a proposal than a bankruptcy would return. That comparison is the main reason proposals are accepted: the offer is built to compare well against what a bankruptcy would have paid them, and after the regulated fees a bankruptcy sometimes pays very little. Nothing in the law obliges a creditor to take the larger number, and creditor acceptance does not by itself guarantee the court’s approval. 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 leave them about $4,000 after the regulated fees, and your proposal would leave them about $9,000 after its own: 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 to your creditors, and that you can actually perform it, and must put that opinion and the reasons for it on the record with the official receiver (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: no statute sets any percentage, and your payment is an output of your own income and assets, not an input someone picks. How the number is actually built, step by step, is the whole subject of the cost page.
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, home equity the provincial exemption does not protect is realized for creditors, and in some provinces, Ontario among them, the exemption is a threshold rather than a deduction: go over the line and the whole equity is exposed, not just the part above it. 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. How much home equity is protected, and whether the protection works as a threshold or a deduction, varies by province; your Licensed Insolvency Trustee confirms how it works 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 set by federal regulation, not negotiated. In a proposal it comes out of your payments before creditors are paid, so you are never billed on top. In a bankruptcy it comes out of what the estate collects, but where a bankruptcy collects little or nothing, the law lets the trustee agree with you to pay the fee yourself, up to a capped amount, after your discharge. Ask which one your file is before you compare. 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, so a small proposal can honestly exceed it. 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. For how long a filing shows on your credit and how the rebuild works, read Your credit after a consumer proposal or bankruptcy. For getting or renewing a mortgage after a proposal, read Mortgages and a Consumer Proposal: Renewing, Refinancing, and Buying a Home. For what happens if you miss payments, for switching a proposal to a bankruptcy midway, and for a second proposal, read Disadvantages of a consumer proposal: the real consequences. For whether the Canada Revenue Agency votes on a proposal and how its collection powers work, read How Canadian business owners can stop CRA garnishments and bank freezes. And for the cost to you and the full fee waterfall, read How a consumer proposal payment is calculated.
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 them, the Consumer Proposal Calculator above 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
