insolvencyreport.ca
Consumer proposal versus bankruptcy
The one-page comparison. The full guide, worked line by line, lives at insolvencyreport.ca/consumer-proposals/vs-bankruptcy/
| 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. It remains on your credit report for three years after you complete the proposal, or six years after you file it, whichever occurs first. | 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. |
Written and built by a Licensed Insolvency Trustee with a legal and finance background.
No fees for advice. No referrals for sale. The light is on.
Paul Franchi, JD, MBA, CIRP, LIT—Founder
No fees for advice. No referrals for sale. The light is on.
Paul Franchi, JD, MBA, CIRP, LIT—Founder
Dollar amounts, rates, thresholds, and statistics on this page are stated as of the dates shown beside them, and as of mid-2026 where no date appears. Each is re-verified before this page publishes and re-checked when the page is updated. Where a figure moves with regulation or the market, a Licensed Insolvency Trustee confirms the current number for your situation.
