Consumer Proposal vs. Bankruptcy in Canada: The Legal Differences

A consumer proposal and personal bankruptcy are both filed under the federal Bankruptcy and Insolvency Act through a Licensed Insolvency Trustee, but a consumer proposal is a negotiated compromise capped at $250,000 in debts (not counting debts secured by your principal residence) that creditors can reject, while bankruptcy has no upper debt limit and follows a set discharge timeline once your non-exempt property is surrendered.

Information last verified on 2026-09-24. This article has not yet been reviewed by a licensed lawyer.

This article covers the federal law governing both processes under the Bankruptcy and Insolvency Act (BIA), which applies the same way across every province and territory, including Quebec. It compares the two processes side by side; it does not repeat the full detail of either one. For the complete rules on each, see Consumer Proposal in Canada and Bankruptcy in Canada. For which specific assets a province lets you keep, see Bankruptcy Exemptions in Canada by Province. This article states the legal differences between the two processes; it does not tell you which one is right for your situation.

What Each Process Is

A consumer proposal, under Part III, Division II of the BIA, is a formal offer to your unsecured creditors to pay a portion of what you owe, on terms you and your Licensed Insolvency Trustee put together and your creditors vote on or are deemed to accept. Section 66.11 limits it to a consumer debtor whose aggregate debts, excluding debts secured by the principal residence, are $250,000 or less.

Personal bankruptcy is a different legal event: an assignment of your property to a Licensed Insolvency Trustee, who administers it for the benefit of your creditors, in exchange for an eventual discharge that releases you from most debts. Bankruptcy has no equivalent upper limit in the BIA, although an insolvent person under BIA s.2 must owe at least $1,000 in provable claims.

Eligibility and What Happens if Creditors Say No

This is where the two processes diverge sharply, and it is a common source of confusion.

A related but different mechanism sits above the consumer proposal's ceiling: an ordinary Division I proposal, available when your debt exceeds $250,000. The Office of the Superintendent of Bankruptcy is explicit that the consequence of rejection is not the same for the two proposal types: a Division I proposal that is not accepted by creditors results in automatic bankruptcy, while a rejected consumer proposal does not. Do not assume the two proposal types behave the same way on rejection.

Cost Structure

A consumer proposal's administrator fees are fixed by the Bankruptcy and Insolvency General Rules: $750 payable on filing, $750 payable on approval, and 20 percent of the money actually distributed to creditors, under section 129(1), plus counselling fees of $85 per individual session or $25 per person in a group session under section 131(1). These figures were current as of this article's verification date; a pending Canada Gazette Part I proposal would raise them, but it is not yet in force. See Consumer Proposal in Canada for the full cost table and the pending change.

Bankruptcy's costs work differently. In a summary administration, the trustee's fees follow a receipts based tariff under General Rules s.128(1): 100 percent of the first $975 of receipts, 35 percent of receipts between $975 and $2,000, and 50 percent of receipts above $2,000. A bankrupt with surplus income also makes monthly payments to the estate, discussed below, and the trustee's compensation is paid out of the estate's receipts, including any surplus income collected, rather than set as fixed dollar amounts the way a proposal's tariff is. See Bankruptcy in Canada for that process in full.

Effect on Your Assets

A consumer proposal is built around keeping what you have. Section 66.28(2) binds unsecured claims and only binds a secured claim if that secured creditor has filed a proof of claim; a mortgage or car loan lender who has not done so, the common pattern when you intend to stay current, simply continues to be paid directly, outside the proposal. The Office of the Superintendent of Bankruptcy's own consumer guidance confirms this in plain language: you keep your assets so long as you keep making your payments to your secured creditors.

Bankruptcy works differently. Your property becomes divisible among creditors, subject to whatever your province's exemption statute protects, such as a limited equity in a home, a vehicle up to a set value, and household goods and tools of the trade. Section 67(1)(b.3) of the BIA does specifically protect RRSP, RRIF, and RDSP property from your divisible estate, with one exception: contributions made in the 12 months immediately before your bankruptcy date remain divisible, as an anti abuse rule against sheltering cash on the eve of bankruptcy. See Bankruptcy Exemptions in Canada by Province for the province by province figures, since exemptions are set provincially, not federally.

Surplus Income: A Bankruptcy Concept With No Proposal Equivalent

Bankruptcy carries an ongoing income test that a consumer proposal does not have in the same form. Section 68 of the BIA requires the Superintendent of Bankruptcy to set standards for surplus income, the portion of a bankrupt's income above what is needed for a reasonable standard of living. Under the current OSB Directive No. 11R2-2026, a bankrupt whose monthly surplus income is $200 or more pays 50 percent of it to the estate each month, subject to a family situation adjustment; below $200, no payment is required. Whether a bankrupt owes a surplus income payment also determines their discharge timeline, discussed next.

A consumer proposal does not use this mechanism. Instead, your payment amount and term are negotiated up front as part of the proposal itself, capped at 5 years, rather than recalculated month to month against a surplus income standard.

Duration and Discharge

A consumer proposal's length is whatever you and your creditors agree to, up to the 5 year statutory maximum in section 66.12(5). Bankruptcy instead has an automatic discharge timeline set by section 168.1(1):

A third or later bankruptcy has no automatic discharge timeline at all under section 168.1(1); it instead proceeds as an ordinary application for discharge requiring a court hearing under section 169; the trustee must apply for a hearing appointment between 3 months and 1 year after the bankruptcy.

What Happens If the Process Fails

This is one of the most important differences between the two, and it runs in different directions for each.

If you fall behind on a consumer proposal by the equivalent of three payments, or three months on a less frequent schedule, section 66.31(1) deems the proposal annulled. Under section 66.32, that revives every creditor's full claim minus dividends already paid, bars you from filing another consumer proposal, and bars you from regaining the stay of proceedings until those revived claims are paid or otherwise resolved. It does not automatically convert you into a bankrupt, unless you were already bankrupt before filing the proposal.

Bankruptcy does not have an equivalent failure mode in the same sense, since it is not something you can simply fall behind on the way you can a proposal's payment schedule; a bankrupt with a surplus income obligation who fails to pay can instead have their discharge opposed or conditioned by the court under section 173, and a prior bankruptcy or proposal is itself one of the facts a court can weigh at a contested discharge hearing.

Debts That Survive Either Process

Bankruptcy's discharge does not release a defined list of debts at all, regardless of the discharge. Section 178(1) lists them, including: fines, penalties, and restitution orders imposed by a court for an offence; damages for bodily harm intentionally inflicted or sexual assault, or wrongful death from either; alimony and support obligations; debts from fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity; debts from false pretences or fraudulent misrepresentation; and federal or provincial student loan debt where the bankruptcy occurred before, or within 7 years after, you stopped being a full or part time student.

A consumer proposal carries the same list. Section 66.28(2.1) provides:

"A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court does not release the consumer debtor from any particular debt or liability referred to in subsection 178(1) unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability voted for the acceptance of the consumer proposal." (BIA, s.66.28(2.1))

So a support debt, a court fine, a fraud debt or a student loan inside the 7 year window survives a consumer proposal just as it survives a bankruptcy discharge, unless the proposal expressly compromises it and that creditor votes to accept the proposal.

Effect on Your Credit Report

Neither process has a single national figure in law. Most provincial consumer reporting statutes have a specific clause for a first bankruptcy, measured from the discharge, and none of the statutes reviewed for this article names a consumer proposal, so a proposal falls under each province's general adverse information rule. The general pattern found across the provinces checked for this article:

A commonly repeated flat 3 year figure specifically for a completed consumer proposal has no located statutory basis in any of the provinces checked for this article. See Consumer Proposal in Canada for the section by section statutory citations behind this table.

Secured Creditors: The Same Limit Applies to Both

Neither process protects you against a secured creditor who is not otherwise being kept current. In a consumer proposal, section 66.28(2) only binds a secured creditor who has filed a proof of claim. In bankruptcy, secured creditors similarly retain their rights against their own security, subject to the trustee's and court's ordinary procedures. A mortgage lender or car loan lender can generally continue enforcement on its own contract in either process, which is why neither a consumer proposal nor a bankruptcy filing should be assumed to stop a foreclosure or repossession on its own.

This article states the legal differences between a consumer proposal and personal bankruptcy under federal law. It is not legal advice and does not tell you which process fits your own finances; a Licensed Insolvency Trustee can assess your specific situation (the OSB notes that trustees typically do not charge for a first meeting), or speak with a lawyer licensed in your province.

Disclaimer: This article provides general information comparing consumer proposals and personal bankruptcy under the federal Bankruptcy and Insolvency Act, RSC 1985, c B-3, current as of September 2026. It is not legal advice. Consult a Licensed Insolvency Trustee or a lawyer licensed in your province for advice on your specific situation.

Frequently Asked Questions

What is the main legal difference between a consumer proposal and bankruptcy?

A consumer proposal is a negotiated compromise: you propose to pay creditors a portion of what you owe over a term of up to five years under BIA section 66.12(5), and creditors can accept or reject it. Bankruptcy is a formal legal process where your non-exempt property becomes divisible among your creditors and you receive a discharge from most debts on a set timeline. A proposal that is rejected generally leaves you where you started; bankruptcy does not work that way.

Is there a debt limit for a consumer proposal or for bankruptcy?

A consumer proposal under BIA section 66.11 is only available if your total debts, not counting debts secured by your principal residence, are $250,000 or less. Bankruptcy has no upper limit, although you must owe at least $1,000 to be an insolvent person under BIA section 2.

What happens if my consumer proposal is rejected by creditors?

For an ordinary consumer proposal, rejection is not the same as bankruptcy. You are simply not bound by the proposal and creditors' collection rights resume. This is different from a larger Division I proposal, available above the consumer proposal's $250,000 ceiling, where a rejection results in automatic bankruptcy. Keep the two proposal types separate.

Do I keep my house or car in a consumer proposal versus bankruptcy?

In a consumer proposal, you generally keep your assets, including a home or vehicle, as long as you keep making the agreed proposal payments and keep paying any secured lender directly, since a secured creditor who has not filed a proof of claim is not bound by the proposal. In bankruptcy, whether you keep an asset depends on your province's exemption law; property above the exempt amount can become divisible among your creditors. See Bankruptcy Exemptions in Canada by Province for the province by province figures.

How long does each process take?

A consumer proposal's term is negotiated and capped at 5 years under BIA section 66.12(5). Bankruptcy has an automatic discharge timeline instead: 9 months for a first time bankrupt with no surplus income obligation and no opposition, 21 months if surplus income payments are required, and 24 or 36 months for a second time bankrupt, under section 168.1(1). If an opposition is filed, there is no automatic discharge and a court decides.

Which option affects my credit report longer?

Neither has a single national figure. Most provinces have a specific clause for a first bankruptcy, and none of the statutes reviewed names a consumer proposal, which falls to the province's general adverse information rule: 7 years in Ontario and Quebec, 6 years in British Columbia, Alberta, Manitoba, Saskatchewan, Nova Scotia and New Brunswick. Newfoundland and Labrador has no general catch all clause, but bars unfavourable personal information older than 7 years. See the flagship articles for the province by province statutory citations.

Are the same debts excluded from both a consumer proposal and bankruptcy?

Largely yes. Bankruptcy's discharge does not release certain debts under BIA section 178(1), including court ordered fines, family support obligations, debts arising from fraud, and student loans where you stopped being a student less than 7 years before filing. Under section 66.28(2.1), a consumer proposal does not release those same debts either, unless the proposal expressly compromises the debt and that creditor voted to accept the proposal.