Consumer proposal vs bankruptcy in Canada: how to choose in 2026
How a consumer proposal and personal bankruptcy compare in Canada in 2026 on eligibility, cost, assets, income, duration and credit impact, with the alternatives.
A consumer proposal is usually the better choice if you have a steady income, assets you want to keep (such as home equity or a car worth more than your province protects) and total debts of $250,000 or less, not counting your mortgage. Bankruptcy is usually the better fit if your income is low, you have few non-exempt assets and you could not realistically repay even part of your debt over five years. Both are filed only through a Licensed Insolvency Trustee (LIT) under the federal Bankruptcy and Insolvency Act (BIA), both stop most collection action and wage garnishment, and both are reported to the credit bureaus. If your debts can be repaid in full with reduced interest, a non-profit credit counselling debt management plan may avoid an insolvency filing altogether.
This guide is the overview for the options, costs and 2026 rules section. It is general information, not legal advice.
The two formal options side by side
| Feature | Consumer proposal (BIA Part III, Division II) | First personal bankruptcy |
|---|---|---|
| Who handles it | LIT as "administrator" | LIT as "trustee" |
| Debt limit | $250,000 excluding debts secured by your principal residence (s. 66.11) | No limit |
| What you pay | An agreed amount, monthly or lump sum, often less than the debt | Non-exempt assets, plus surplus income payments if income exceeds the standard |
| Maximum length | 5 years (s. 66.12(5)) | Automatic discharge after 9 months, or 21 months with surplus income (s. 168.1) |
| Assets | You normally keep them | Non-exempt assets go to the estate |
| Creditor approval | Deemed accepted unless creditors holding 25% of claims request a meeting and vote it down | Not needed, but creditors can oppose the discharge |
| Counselling | Two sessions | Two sessions, required for automatic discharge |
| Credit report | Removed 3 years after completion or 6 years after signing, whichever is first (FCAC) | Usually 6 years after discharge; 7 with TransUnion in NL, ON, PEI and QC |
The numbers in this table are taken from the BIA, current to 30 September 2026, and the Financial Consumer Agency of Canada (FCAC). Details are in the guides on consumer proposal rules, bankruptcy discharge and credit reports.
Five questions that decide it
1. What would your creditors get in a bankruptcy?
A proposal has to offer creditors more than they would receive if you went bankrupt; otherwise they have little reason to accept. The trustee estimates the bankruptcy outcome from your non-exempt assets and your expected surplus income. If that figure is close to zero, a bankruptcy costs you little beyond the fees and the credit record, and a proposal may require you to pay more than you need to.
2. Do you have assets you would lose?
Equity in a home above any provincial exemption, a valuable vehicle, cash, non-registered investments and RRSP contributions made in the 12 months before bankruptcy are typically exposed in a bankruptcy. In a proposal you keep them, which is often the deciding factor. See exempt property by province and your home and car.
3. How high is your household income?
In a bankruptcy, monthly income above the Superintendent's standard triggers surplus income payments of 50% of the excess and stretches a first bankruptcy from 9 to 21 months. For 2026 the standard is $2,716 a month for one person and $3,381 for two (OSB Directive No. 11R2-2026). See the 2026 surplus income standards.
4. Which debts are you carrying?
Both processes deal with unsecured debts such as credit cards, lines of credit, personal loans, payday loans and most tax debts. Neither releases child or spousal support, most court fines, debts from fraud, or government student loans if you are within seven years of leaving school. If those make up most of what you owe, neither option solves the problem; see debts that survive.
5. Is your debt over $250,000?
If your debts, excluding the mortgage on your home, exceed $250,000, you cannot make a consumer proposal. You can still make a proposal under Division I of Part III, which has stricter voting rules (creditors must vote, and a rejected Division I proposal leads to automatic bankruptcy). A November 2025 Canada Gazette proposal would raise the consumer proposal limit to $325,000, but it was not in force on 27 October 2026.
Illustrative comparison
Assume a single renter in Ontario with $48,000 of unsecured debt, a net income of $3,400 a month, no home and a car worth less than the provincial vehicle exemption. These figures are illustrative.
| Bankruptcy | Consumer proposal | |
|---|---|---|
| Surplus income | $3,400 − $2,716 = $684 a month | Not applicable |
| Monthly payment | 50% × $684 = $342 | Offer, say, $320 |
| Duration | 21 months (surplus income) | 60 months |
| Total paid | $342 × 21 = $7,182 | $320 × 60 = $19,200 |
| Assets | No non-exempt assets lost | None lost |
Here bankruptcy is much cheaper in dollars, and creditors would reject a proposal that offered much less than a bankruptcy would yield. If the same person owned a home with $60,000 of equity, the picture flips: the equity would be at risk in bankruptcy, and a proposal funded from income would preserve it. The debt relief worked examples run several scenarios like this.
Alternatives that do not involve the BIA
- Talk to creditors directly: hardship programs, deferrals or reduced interest.
- Debt management plan through a non-profit credit counselling agency: full principal, reduced interest, about five years. See DMP vs consumer proposal.
- Orderly Payment of Debts in Alberta, Nova Scotia, Saskatchewan and Prince Edward Island; see OPD.
- Voluntary deposit in Quebec; see Quebec specifics.
- A consolidation loan, only if it genuinely lowers the total cost.
What the process costs
Trustee fees for consumer proposals and for small ("summary administration") bankruptcies are set by the Bankruptcy and Insolvency General Rules, and a levy of 5% of distributions goes to the OSB. For a consumer proposal the administrator receives $750 on filing, $750 on approval and 20% of what is distributed to creditors, all paid from your proposal payments. Use the proposal cost split estimator and read trustee fees and the OSB levy.
When to get help
See a Licensed Insolvency Trustee if you are missing payments, borrowing to make minimum payments, facing a lawsuit or wage garnishment, or owe the Canada Revenue Agency more than you can pay. The first meeting is usually free; prepare with the trustee meeting checklist. Avoid paying a "debt consultant" first: only an LIT can file. See unlicensed debt consultants. If you have a family law dispute, significant business debts or assets in another country, also speak to a lawyer.
Frequently asked questions
Is a consumer proposal "better for credit" than bankruptcy?
Usually it comes off your report sooner, because removal is tied to completion or to six years after signing. But a failed proposal followed by bankruptcy is worse than either alone, so choose an offer you can sustain.
Can my spouse file with me?
Yes. Two people with intertwined finances can file a joint consumer proposal or bankruptcy if the trustee considers it appropriate under the OSB's directives. A non-filing spouse remains liable for any joint debts.
Will my employer find out?
Not necessarily. A stay of proceedings stops a wage garnishment, which may mean the employer is told the garnishment has ended. Employers are not routinely notified otherwise, but bankruptcy records are searchable through the OSB.
Can I make a proposal after a bankruptcy?
Yes, a consumer proposal is possible after a previous bankruptcy has ended. A second bankruptcy has longer timelines, so a proposal is often considered first.
Sources
- Office of the Superintendent of Bankruptcy — consumer proposals, bankruptcy, Directive 11R2-2026 and the trustee search
- Justice Laws Website — Bankruptcy and Insolvency Act (R.S.C. 1985, c. B-3) and General Rules (C.R.C., c. 368)
- Financial Consumer Agency of Canada — how long information stays on your credit report
- Canada Gazette — proposed amendments to the BIA General Rules (Part I, 29 November 2025)
- Credit Counselling Canada — non-profit credit counselling agencies
