Quick Comparison
At a Glance
| Feature |
Bankruptcy |
Consumer Proposal |
| Debt eliminated |
Most |
Portion paid, rest forgiven |
| Keep assets |
May lose some |
Yes |
| Time on credit report |
6-7 years |
3 years after completion |
| Duration |
9-21+ months |
Up to 5 years |
| Monthly payment |
Based on income |
Fixed, negotiated |
| Cost |
Usually lower |
Usually higher total |
What is Bankruptcy?
How It Works
| Step |
Details |
| File with LIT |
Licensed Insolvency Trustee |
| Surrender assets |
Non-exempt property |
| Make payments |
Based on surplus income |
| Duties |
Counselling, reporting |
| Discharge |
Debts eliminated |
What Debts Are Eliminated
| Included |
Not Included |
| Credit cards |
Student loans (under 7 years) |
| Lines of credit |
Child/spousal support |
| Personal loans |
Court fines |
| CRA taxes (most) |
Fraud-related debts |
| Medical bills |
Some secured debts |
Assets in Bankruptcy
| Exempt (Keep) |
Non-Exempt (May Lose) |
| Necessary clothing |
Investment properties |
| Basic household items |
Non-essential vehicles |
| Tools of trade (limits) |
Cash over exemption |
| Primary vehicle (limits) |
Investments |
| RRSP (limits) |
Tax refunds |
Exemptions vary by province.
Duration
| Type |
First Bankruptcy |
Second |
| No surplus income |
9 months |
24+ months |
| With surplus income |
21 months |
36+ months |
What is a Consumer Proposal?
How It Works
| Step |
Details |
| Assess with LIT |
Determine what you can pay |
| Make proposal |
Offer to pay portion of debt |
| Creditors vote |
Must accept (majority) |
| Make payments |
Fixed monthly for up to 5 years |
| Completion |
Remaining debt forgiven |
Typical Terms
| Factor |
Range |
| Repayment |
30-50% of debt typical |
| Term |
1-5 years |
| Interest |
Often frozen at 0% |
| Assets |
Keep everything |
Example
| Original Debt |
$50,000 |
| Proposal amount |
$20,000 (40%) |
| Monthly payment |
~$335 for 60 months |
| Forgiven |
$30,000 |
Credit Impact Comparison
Credit Report Duration
| Event |
Report Duration |
| Bankruptcy (first) |
6 years from discharge |
| Bankruptcy (second) |
14 years |
| Consumer proposal |
3 years after completion |
Credit Score Impact
| Timeline |
Bankruptcy |
Consumer Proposal |
| During |
R9 (worst) |
R7 |
| After removal |
Must rebuild |
Must rebuild |
| Recovery time |
2-4 years |
1-3 years |
Cost Comparison
Example: $50,000 Debt
| Method |
Total Cost |
| Continue minimum |
$50K+ interest |
| Bankruptcy |
$5-15K (surplus income) |
| Consumer proposal |
$20-25K |
| Consolidation loan |
$50K+ some interest |
What You Pay
| Bankruptcy |
Consumer Proposal |
| Surplus income |
Negotiated amount |
| Some assets |
Fixed payments |
| Filing fees |
Portion via payments |
Who Qualifies
Bankruptcy Requirements
| Requirement |
Details |
| Debt threshold |
Must owe at least $1,000 |
| Insolvent |
Can’t pay debts as due |
| Must work with LIT |
Licensed Insolvency Trustee |
Consumer Proposal Requirements
| Requirement |
Details |
| Debt limit |
$250,000 (excluding mortgage) |
| Income |
Must have stable income |
| Insolvent |
Can’t pay debts in full |
| Creditor acceptance |
Need majority approval |
Pros and Cons
Bankruptcy
| Pros |
Cons |
| Usually faster |
May lose assets |
| Lower total cost |
Longer credit impact |
| Fresh start |
Public record |
| Duties (counselling) |
Surplus income payments increase |
Consumer Proposal
| Pros |
Cons |
| Keep all assets |
Pay more overall |
| Shorter credit impact |
Up to 5 years of payments |
| Fixed payments |
Creditors must accept |
| No surplus income rules |
Higher initial impact |
Process Comparison
Bankruptcy Process
| Step |
Timeline |
| Consult LIT |
Week 1 |
| File |
Week 2-3 |
| Counselling sessions |
2 required |
| Surplus income payments |
Monthly |
| Discharge |
9-21+ months |
Consumer Proposal Process
| Step |
Timeline |
| Consult LIT |
Week 1 |
| Draft proposal |
Week 2-3 |
| File |
Week 3-4 |
| Creditors vote |
45 days |
| Make payments |
Up to 60 months |
| Completion |
After final payment |
When to Choose Each
Choose Bankruptcy If
| Situation |
Why |
| No/low income |
Lower payments |
| Few assets |
Nothing to protect |
| Need quick fresh start |
Faster process |
| Debt is overwhelming |
Complete elimination |
Choose Consumer Proposal If
| Situation |
Why |
| Have assets to protect |
Keep everything |
| Steady income |
Can make payments |
| Want shorter credit impact |
3 years after completion |
| Owe under $250K |
Within limits |
Alternatives to Consider
Before Bankruptcy/Proposal
| Option |
When It Works |
| Debt consolidation loan |
Good credit, manageable debt |
| Credit counselling |
Need budgeting help |
| Informal arrangements |
Creditors willing to negotiate |
| Doing nothing |
If debt is old, near limitation |
Bankruptcy vs Alternatives
| Debt Amount |
Consider |
| Under $10K |
Aggressive payoff, consolidation |
| $10-30K |
Consolidation, proposal |
| $30-50K |
Proposal |
| Over $50K |
Proposal or bankruptcy |
Finding Help
Licensed Insolvency Trustee (LIT)
| Requirement |
Details |
| Must use LIT |
For both bankruptcy and proposal |
| Free consultation |
Most offer this |
| Regulated |
By federal government |
| No other options |
Only LITs can file |
Finding an LIT
| Source |
How |
| OSB website |
Licensed trustee search |
| Referral |
Credit counsellor |
| Research |
Reviews, experience |
Life After
Rebuilding Credit
| Step |
Timeline |
| Get secured credit card |
Immediately after |
| Use and pay in full |
Monthly |
| After 1-2 years |
Apply for regular card |
| After 2-4 years |
Credit normalizing |
Preventing Future Issues
| Action |
Why |
| Emergency fund |
Avoid debt for emergencies |
| Budget |
Track spending |
| Save first |
Pay yourself first |
| Credit counselling |
If needed |