If you are asking this, you are probably worried about what you could lose. Both are formal processes under the same federal law. Both stop wage garnishments and collection calls the day they are filed. Both are filed by a Licensed Insolvency Trustee. The difference is what you give up and what you keep.
Consumer proposal vs bankruptcy: the short version
In a consumer proposal, you keep your assets. You repay an agreed portion of what you owe over a fixed term. Bankruptcy is an assignment. Certain assets are surrendered, the process is usually shorter, and you repay according to rules, not by agreement.
Consumer proposal vs bankruptcy, side by side
| Consumer proposal | Bankruptcy | |
|---|---|---|
| What it is | An offer to your creditors to repay part of what you owe over a fixed term | An assignment of your assets, and a release from most debts on discharge |
| Who can use it | An individual with under $250,000 of debt, not counting the mortgage on your home | An individual or a business, with no upper limit |
| Who decides | Your creditors, by a vote on dollar value | Nobody votes. The rules apply |
| Your payment | Fixed at the start. It does not rise with your income | Set each month from your income against a government standard, so a raise increases it |
| How long | Up to five years. Early payout allowed, no penalty | Nine months for a first bankruptcy with no surplus income; 21 months with it. Longer for a second |
| Your house, car and savings | You keep them, if you keep up the secured payments | Anything above the Ontario exemptions goes to the estate |
| Credit report | R7. Off three years after your final payment, or six years from filing, whichever is first | R9. Off six years after discharge for a first bankruptcy, seven in Ontario with one bureau. Fourteen years for a second |
| Public record | Yes, in the federal insolvency database | Yes, the same database |
| Cost | Set by federal tariff, paid from inside your payments | Set by federal tariff, plus surplus income payments if they apply |
| Tax debt | Included | Included, with a court hearing if income tax is $200,000 or more and most of your debt |
The comparison the government itself publishes is on the Office of the Superintendent of Bankruptcy’s page. It says the same things with fewer words.
What usually points to a proposal
- You have equity in a house or a vehicle, and you want to keep it.
- You have steady income. The problem is the size of the balance, not a lack of earnings.
- Your surplus income is high enough that a bankruptcy would require payments for 21 months anyway.
- You hold a licence or a job where a bankruptcy creates a professional problem.
- You want a fixed, predictable monthly number that cannot rise if your income rises.
What usually points to bankruptcy
- There is little or no income to repay from.
- There are few assets to protect.
- The debt is so large relative to income that no realistic offer would be accepted.
- You need the shortest route to a clean start, and you have no equity at stake.
What you would give up in a bankruptcy, in Ontario
This is the part people guess at, and the guess is usually worse than the law. Ontario sets what a bankrupt keeps, and the figures are in Ontario Regulation 657/05:
- One vehicle, up to $8,578 of value.
- Household furnishings and appliances, up to $17,091.
- Tools and property you use to earn a living, up to $17,362.
- Your home, only if your equity in it is under $12,997. Above that line, the equity is not protected at all. It is a threshold, not a deductible.
- Your RRSP, except what you put in during the twelve months before the bankruptcy.
Here is an example. Say your house is worth $700,000 with a $600,000 mortgage. That is $100,000 of equity, far above the line. In a bankruptcy that equity belongs to the estate. In a proposal you keep the house, and your offer has to give your creditors something in the range of what that equity would have paid them. Same house, two very different outcomes. Which one fits depends on whether you can carry the payment.
The difference between a consumer proposal and bankruptcy that catches people
In a bankruptcy, your payment is not fixed. It is calculated from your income each month against a government standard, so a raise, a bonus or a second job increases what you pay. In a proposal, the number is agreed at the start and does not move.
An example: say you pick up a weekend job a few months in. In a bankruptcy, your payment goes up. In a proposal, it stays where it was agreed.
If your income is rising or variable, that one difference often decides it.
What both do to your credit
A first bankruptcy is recorded for six to seven years after discharge, depending on the province and the bureau. A consumer proposal is recorded for three years after the final payment, or six years from filing, whichever comes first. A proposal is generally the lighter mark. Neither one is invisible. The full rules, bureau by bureau, are on our page about what a consumer proposal does to your credit.
Consumer proposal vs debt consolidation
People ask about this one too, so here it is. A consolidation loan is new borrowing. A lender has to approve you, you repay every dollar plus interest, and nothing is written off. It works when the problem is the interest rate, not the size of the balance, and when your credit is still good enough to be approved. A consumer proposal is the opposite: no new borrowing, a portion written off, and a mark on your credit report. If a lender has already turned you down for a consolidation loan, that answer has been given.
A debt management plan through a non-profit credit counsellor sits between the two. You repay the full principal, usually with the interest reduced, and it stays on your report for two years after you finish. Your creditors do not have to take part, and it does not stop a lawsuit.
How the decision is actually made
Not from a list. We put your real numbers against both routes: what you would repay, what you would keep, and how long each takes. The same person with the same debt can end up on either route. It depends on whether there is equity in a house and how the income is shaped.
Every file is different. Your buddy’s file is not your file. And how you answer the questions matters. Take one: do you expect an inheritance? Some people write “yes” on a guess, without knowing what is in the will. Answer truthfully, with what you actually know, not with a guess. If you are not sure what a question is asking, ask us first.
Questions people ask
Which is faster?
Bankruptcy. A first bankruptcy with no surplus income can be over in nine months. A proposal runs for as long as the payments do, up to five years, though you can pay it out early. Faster is not the same as better if there is a house in the picture.
Does my spouse have to file too?
No, in either case. Debts in both your names, or that your spouse co-signed, stay collectable from your spouse. Everything else is yours alone.
Can I include CRA debt in either one?
Yes. Income tax, HST for a sole proprietor, penalties and interest all go in. The CRA votes on a proposal like any other creditor. We cover it on our CRA and a consumer proposal page.
Can I file a second one later?
A second consumer proposal is possible once the first is finished. A second bankruptcy runs longer and stays on your report for fourteen years. Both are reasons to get the first one right.
Where we fit
Get Total Debt Relief is a debt consulting and representation firm, not a Licensed Insolvency Trustee. Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy. What we do is the work before the filing: we go through your whole situation with you, we answer your questions for as long as it takes, and the path you choose comes from that.
That comparison decides which route you end up on. You can read more about proposals and bankruptcy.
DISCLOSURE:
Get Total Debt Relief is a debt consulting and representation firm. We are not a Licensed Insolvency Trustee, and we are not connected to the Canada Revenue Agency or any government body.
Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy.
OUR SERVICE:
However, any Trustee you choose can’t legally represent you over your Creditors nor can he give you any advice that will benefit you over your Creditors. The Trustee’s job is to maximize how much he can get from you and your estate for the benefit of your Creditors and the more he collects in a Proposal, the more he makes.
What we do is the work before the filing and the path you choose will come from the advice and information that goes with it. More importantly, we use tools that are not available to the Trustee because of who’s interests he represents. We go through your whole situation with you. We answer your questions, for as long as it takes and as many times as you need to ask them. Every consultation is free and if or when you decide to move forward, you’ll know which option best suits you, your family and or your business. And, unlike the Trustee, we will NEVER use the information you’ve given us against you in Court. The bottom line is that we don’t look to liquidate your assets and equities, we look to protect them.
Every consultation is free, and you can call as many times as you need. Call 647-276-8844 or talk to us.