Bankruptcy or Consumer Proposal: Which Should You Choose?
A consumer proposal and a bankruptcy both deal with unmanageable debt — but they affect your credit and your borrowing differently. Here is how to weigh them.
Two routes, one trustee
Both a consumer proposal and a bankruptcy are administered by a Licensed Insolvency Trustee under the Bankruptcy and Insolvency Act. The trustee's first job is to assess your situation and tell you which options genuinely fit — consultations are typically free.
In a consumer proposal, you offer creditors a repayment plan — a reduced total, an extended timeline, or both — over a maximum of five years. If enough creditors accept and the court approves it, everyone is bound by it.
In a bankruptcy, your non-exempt assets are liquidated for the benefit of creditors and you make required payments based on income. In exchange, most unsecured debts are wiped out by a discharge.
How each one affects your credit file
A consumer proposal is reported as an R7 rating and generally stays on your file for three years after you complete it. A bankruptcy is reported as an R9 and typically remains about six years from discharge for a first filing.
That difference matters when you next apply for credit. Lenders and automated systems treat an R7 more gently than an R9, and a completed proposal often reads as evidence that you handled debt responsibly.
Bankruptcy has its own trade-offs: it is often faster and clears more debt, but it generally means surrendering non-exempt assets, and the filing reports on your credit file for longer than a proposal would.
Rebuilding after a proposal or a discharge? Compare installment options that fit a post-insolvency budget.
Apply Now — FreeCost, duration, and what you keep
A consumer proposal takes longer — up to five years of payments, though three to five is typical — but you usually keep your assets, including a home or vehicle, provided you keep up the plan and the secured payments.
A bankruptcy is shorter for many people (about nine months for a first filing) but generally means surrendering non-exempt assets. Secured debts still have to be paid if you want to keep the asset.
Both carry trustee fees. In a proposal, the fee is often paid out of the monthly payments you are already making; in a bankruptcy, it is set by tariff and comes out of the estate.
Which one leaves you borrowing sooner
Neither route blocks you from credit forever. During a proposal you can generally obtain credit — including through lenders who specialise in post-insolvency borrowing — though you should tell your trustee before taking on new obligations.
After either process, the same rules apply: income and banking behaviour drive approval, and time on file improves both your odds and your pricing. Completing the process properly, and keeping your certificate or certificate of full performance safe, is what lets you answer “yes” when a lender asks.
If your goal is the shortest path back to normal borrowing, compare the reporting periods honestly and factor in what a proposal's longer duration means for your monthly budget.
Getting a second opinion
A trustee will walk you through both routes with your real numbers in front of you — this is exactly what a free consultation is for. Non-profit credit counselling agencies can also help you compare.
If you have already completed one of these processes and need a loan, FiveSix can introduce you to licensed Canadian lenders who consider insolvency histories. We never lend the money ourselves and never charge you to look.
Frequently asked questions
Charles Smith
Charles Smith is FiveSix's credit and insolvency writer, covering bankruptcy, consumer proposals, and rebuilding credit for Canadians. His guides are written to be plain, honest, and grounded in Canadian law.
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Read the guide →Ready to compare options? See this loan type across Canada, or browse by province.
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