Drowning in debt and don’t know which way to turn?
You’re definitely not alone. With consumer insolvencies hitting record levels and 372 Canadians filing daily for debt relief in early 2024, more people than ever are facing the same impossible choice.
Consumer proposal or bankruptcy?
Both will eliminate debt. Both will impact credit. But they work completely differently and the choice you make could save you thousands of dollars.
Here’s the problem:
Most people have no idea which option is better for their situation. They panic, make the wrong choice, and end up worse off than they started.
What you’ll discover:
- Your Real Debt Relief Options Explained
- Consumer Proposals: Keep Your Assets, Keep Your Dignity
- Bankruptcy: When Nuclear Is Your Only Option
- How To Pick The Right Path Forward
Your Real Debt Relief Options Explained
When you can’t pay your bills, panic sets in fast.
Your first instinct might be to just pick the quickest solution and get it over with. But that’s exactly how people make expensive mistakes that follow them for years.
Take a step back.
In Canada, you have two main legal options to eliminate overwhelming debt: consumer proposals and bankruptcy. Both are administered by Licensed Insolvency Trustees. Both can wipe out most unsecured debts.
But that’s where the similarities end.
Consumer proposals let you keep your stuff while making affordable payments. Bankruptcy liquidates your assets but eliminates debt faster. The benefits of a consumer proposal versus bankruptcy are significant when you understand how each process actually works.
Most people don’t realize the massive differences between these options until it’s too late.
The choice you make affects everything. Your credit rating. Your assets. Your family. Your ability to rebuild financially.
Get this decision right and you’ll be back on your feet in a few years. Get it wrong and you could be struggling for a decade.
Consumer Proposals: Keep Your Assets, Keep Your Dignity
Think of consumer proposals as negotiating your way out of debt.
Instead of paying back everything you owe, you make a deal with creditors to pay back a portion over time. Usually anywhere from 20 to 50 cents on the dollar.
Here’s how it works:
A Licensed Insolvency Trustee analyzes your finances and helps you craft an offer. Maybe you propose to pay $300 per month for four years instead of the $800 you currently owe monthly.
Your creditors vote on the proposal. If the majority (by dollar value) accepts, everyone has to go along with it. No exceptions.
Once approved, you make fixed payments for up to five years. That’s it.
The best part?
You keep everything. Your house, car, RRSPs, furniture… all of it stays with you as long as you keep making any secured loan payments.
Consumer proposals also stop collection calls immediately, prevent wage garnishments, eliminate interest charges, and give you legal protection from creditors.
The numbers don’t lie. Recent data shows 78.8% of insolvent consumers chose consumer proposals over bankruptcy in 2024.
Why? Because they work better for most people.
But there are limits.
You can only file a consumer proposal if your unsecured debts are under $250,000 (not including your mortgage). And you need a steady income to make the proposed payments.
If you qualify though, consumer proposals are usually the smarter choice.
Bankruptcy: When Nuclear Is Your Only Option
Bankruptcy is the financial nuclear option.
It eliminates almost all your debts, but the cost is brutal. You’ll lose assets, face severe credit consequences, and potentially make surplus income payments for months.
Here’s what happens:
A Licensed Insolvency Trustee takes control of your non-exempt assets and liquidates them to pay creditors. Depending on your province, you might lose your house, car, investments, and other valuable possessions.
If you earn above certain income thresholds, you’ll make “surplus income” payments. These can extend your bankruptcy from 9 months to 21 months for first-time bankrupts.
The credit damage is massive. Bankruptcy stays on your credit report for 6-7 years after discharge. Getting approved for credit, mortgages, or even some jobs becomes extremely difficult.
But bankruptcy does offer advantages:
Complete debt elimination for most debts. Immediate protection from creditors. A genuine fresh start if you have no other realistic options.
The reality is harsh. With Canada having the highest household debt to-disposable-income ratio in the G7 at over 180%, some people have no choice but bankruptcy.
The problem?
Too many people choose bankruptcy when they could have done a consumer proposal instead. They rush the decision and pay the price for years afterward.
Bankruptcy should be your absolute last resort.
How To Pick The Right Path Forward
This isn’t just about eliminating debt.
It’s about your future. Your family’s security. Your ability to rebuild and move forward with your life.
The wrong choice can cost you tens of thousands of dollars and years of unnecessary hardship.
Consumer proposals make sense when:
Your unsecured debts are under $250,000. You have a steady income. You want to keep your assets. You can afford some level of payment to creditors.
Bankruptcy might be necessary when:
Your debts are so massive that you could never realistically pay them back. You have a few assets worth protecting. Your income is very low or unstable. Any consumer proposal payment would be unaffordable.
The numbers support consumer proposals for most situations. Consumer proposal filings increasing by 26.3% in early 2024 show more Canadians are choosing this less destructive option.
But here’s what most people miss…
The choice isn’t always obvious. Multiple factors determine which option works better for your specific situation.
Your current and future income matter enormously. If you’re likely to earn more during bankruptcy, surplus income payments could make it more expensive than a consumer proposal.
Your assets are crucial. Own a house with equity? Bankruptcy might force its sale while a consumer proposal lets you keep it.
Family size affects both options. Larger families get higher surplus income thresholds in bankruptcy but might struggle with consumer proposal payments.
Age and career stage matter too. Younger people recover from bankruptcy’s credit damage faster. Older people might prefer consumer proposals to protect retirement savings.
The type of debts you have also influences the decision.
Some debts like recent student loans and child support can’t be eliminated in either process.
Wrapping It All Up
Consumer proposals versus bankruptcy isn’t a decision you should make alone.
Consumer proposals offer the middle ground most people need. You eliminate debt while keeping assets and dignity intact. The credit consequences are less severe and payments are predictable.
Bankruptcy provides complete debt elimination but at a steep price. You’ll lose assets, face years of credit damage, and potentially make surplus income payments.
The statistics are clear. Most Canadians who qualify choose consumer proposals over bankruptcy.
Here’s the bottom line:
Both options can end your debt nightmare. But consumer proposals usually do it with less collateral damage to your life and future.
Don’t guess which option is right for you. Licensed Insolvency Trustees provide free consultations and are legally required to present all options objectively.
Get professional advice. Understand the real costs and benefits of each choice. Then make the decision that sets you up for long-term financial success.
Your debt problems can be solved. The path you choose determines how quickly you can rebuild your life afterward.
