Consumer Proposal vs. Bankruptcy in Canada: How to Choose

Start with the Numbers
List net income, essential expenses, and every debt (balance, APR, minimum). Calculate your debt-to-income ratio and evaluate whether you can realistically repay within 3–5 years.

Consumer Proposal Basics
A Consumer Proposal is a legally binding settlement negotiated by a Licensed Insolvency Trustee (LIT). You repay a portion of your unsecured debt over up to five years, interest stops, and collection calls cease. You keep your assets unless otherwise specified.

Bankruptcy Basics
Personal bankruptcy is also administered by an LIT. It offers a faster reset but may require surplus-income payments and can affect certain assets depending on provincial exemptions. It typically has a more severe credit impact than a proposal.

Debt Management Plans (DMPs)
Through a nonprofit credit counselling agency, a DMP consolidates multiple unsecured debts into one monthly payment with reduced interest—without legal proceedings. You usually close participating cards and repay in 3–5 years.

How to Decide
If you can afford full repayment with reduced interest, a DMP can work. If you need principal reduction and creditor protection, a Consumer Proposal may fit. If your income cannot support either, explore bankruptcy. Always consult a qualified professional before proceeding.

Rebuild Afterward
Create a lean budget, build a small emergency fund, and use a secured card responsibly to re-establish credit within months of completion or discharge.