Consumer Proposal vs Bankruptcy in Canada: Which Is Right for You?

Home › Debt Relief in Canada › Consumer Proposal vs Bankruptcy in Canada

✍️ Written & fact-checked by the LoanWave Editorial Team · Last reviewed October 8, 2026 · Sources: Bank of Canada, FCAC, OSB, Equifax Canada

When debt becomes unmanageable, Canada offers two legal solutions under the Bankruptcy and Insolvency Act: a consumer proposal and bankruptcy. Both are filed through a Licensed Insolvency Trustee (LIT), both stop most collection action — but they work very differently.

📘 This article is part of our complete guide to debt relief in canada.

What is a consumer proposal?

A consumer proposal is a legally binding deal with your unsecured creditors. You offer to repay a portion of what you owe, over up to 5 years. If enough creditors (by dollar value) accept, the rest of the debt is forgiven once you finish.

What is bankruptcy?

Bankruptcy eliminates most unsecured debts. You may have to give up certain non-exempt assets, make monthly payments based on your income, and complete credit counselling sessions. First-time bankruptcies often end (discharge) within 9 to 21 months.

Which do Canadians choose?

According to Office of the Superintendent of Bankruptcy data, Canadians filed 110,252 consumer proposals and 30,417 bankruptcies in the 12 months to January 31, 2026. Proposals made up 78.4% of all consumer insolvencies — a sign that most people with steady income prefer to repay part of their debt and keep their assets.

Side-by-side comparison

Which should you choose?

A consumer proposal may suit you if:
• You have steady income and can afford a monthly payment
• You own a home or other assets you want to protect
• You want to avoid the term “bankruptcy”

Bankruptcy may suit you if:
• You have very low income and few assets
• You can’t afford any meaningful payment to creditors

A Licensed Insolvency Trustee can explain your options in a confidential consultation, which is typically free.

Debts these won’t eliminate

Some debts usually survive both, such as child and spousal support, court fines, and student loans if you’ve been out of school less than 7 years.

Try less drastic options first

If your debt is manageable with a lower interest rate, a debt consolidation loan or credit counselling may solve the problem without a formal insolvency.

LoanWave is not a trustee, lender or debt relief company. We’re a free referral service that connects Canadians with third-party debt relief providers.

Sources & methodology

This guide was researched and fact-checked by the LoanWave editorial team against Canadian government sources, federal law and national credit bureau data. Figures are the latest published at the time of review; lender rates and terms change often, so always confirm the final cost in your loan agreement. Example calculations use standard amortization formulas and are for illustration only. LoanWave earns referral commissions, but partners do not review or approve our editorial content.

1. Office of the Superintendent of Bankruptcy Canada
2. Wealth Professional — Consumer insolvencies top 140,000 (OSB data, 12 months to Jan 31, 2026)
3. Wealth Professional — Canada's consumer debt hits $2.68 trillion in Q2 2026 (Equifax data)
4. Financial Consumer Agency of Canada — Credit reports and scores
5. Cassels — Changes to Canada's criminal rate of interest (35% APR, Jan 1, 2025)

Keep reading

Frequently asked questions