Bankruptcy vs. consumer proposal: which is the best choice?

When you're struggling with debt, it can be hard to know your choices. Should you file for bankruptcy? Or try a consumer proposal? This article will break down the key differences between both options. You should have a better idea of which is the best for you by the end. So, keep reading to find out!


Bankruptcy or consumer proposal: find the best option for you

woman calculating debt
Bankruptcy or consumer proposal? Source: Adobe Stock.

There are two main options available to individuals in Canada when it comes to debt relief: bankruptcy or consumer proposal. While both methods can help you get out of debt, they each have their own distinct advantages and disadvantages. 

Bankruptcy is a legal process that offers debtors a fresh start by wiping out most of their debts. On the other hand, a consumer proposal is an alternative to bankruptcy that allows you to repay your debts over time. 

So, which one is right for you? In this article, we’ll go over a quick rundown of the key differences between the two alternatives to help you make the best decision for your financial future.

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Bankruptcy and Consumer proposal: what is the difference?

bankruptcy filings
What’s the difference between bankruptcy or consumer proposal? Source: Adobe Stock.

If you’re struggling with debt, you may be considering bankruptcy or consumer proposal as options to get relief. But what’s the difference between the two? Below, we’ll outline the main features of both alternatives so you can understand them a little better. 


Bankruptcy is a legal process that helps people who can’t pay their debts get a fresh start. It’s available to individuals, married couples, and business owners. There are different types of bankruptcy, and each one has its own rules and requirements. 

It can help you get rid of your debts, stop foreclosure on your home, and keep your car. It’s a tough decision to make, but it can be financially beneficial for you. Filing for bankruptcy can also stop creditors from harassing you and gives you some breathing room to get your finances back on track.

However, there are many disadvantages to filing for bankruptcy, including the negative impact it can have on your credit score and your ability to obtain future loans.

Additionally, bankruptcy can be a lengthy and expensive process, during which you may have to give up certain assets. Although it can be difficult to rebuild after declaring bankruptcy, getting back on your feet and making a fresh start is possible.

Consumer proposal

A consumer proposal is a legal process where someone who cannot pay their debts can negotiate a payment plan with their creditors. It can be a bankruptcy alternative and often results in lower payments and a more extended repayment period.

It’s is an excellent way to deal with your debt if you’re struggling to make ends meet. It can help you keep your assets, such as your home and car. Consumer proposals also have several other benefits, including stopping interest charges on your debts and reducing the total amount of debt you owe. 

With it, you can also protect your wages from garnishment and ultimately find peace of mind for a fresh start. Unlike bankruptcy, a consumer proposal will not negatively affect your ability to borrow in the future.

The main disadvantage of a consumer proposal is that it can negatively affect your credit score. And that adversity will stay on your record for up to six years after you file for it. Another drawback of a consumer proposal is that you may have to pay back more money in the long run than if you had filed for bankruptcy.

Additionally, any assets you have may be seized by your creditors in order to pay off your debts. If you fail to make payments under the agreement or miss any deadlines, your creditors may reject the proposal and pursue legal action against you.

Finally, a consumer proposal may not be an option for everyone; certain types of debt cannot be resolved through this process.

Which one is the best option between the two options?

empty wallet
Which option is the best? Source: Adobe Stock.

Now that you know the main features of bankruptcy or consumer proposal and their advantages and disadvantages, which option is the best? Both options are for dealing with debt, but choosing the right one for you depends on your individual circumstances.

Considering bankruptcy can be a difficult and emotional decision. You may feel like you have failed or that you are giving up. However, it is essential to remember that bankruptcy is a legal process that gives people the opportunity to get a fresh start.

If you are struggling with unmanageable debt, filing for bankruptcy may be the best option for you.

Choosing a consumer proposal can offer debt relief without giving up all your assets. It also may be a better option if you have a steady income. Or if you want to repay some, but not all, of your debts.

Unlike bankruptcy, a consumer proposal does not require you to undergo credit counseling. Besides, it can be less expensive than bankruptcy in a short-term payment plan.

In either case, it’s essential to speak with a professional to understand which option is the least damaging to your financial health. Every case needs close examination to determine the best solution. 

A well-equipped lawyer can help you understand your options and figure out if you qualify for a bankruptcy or consumer proposal. Not everyone does, and a lawyer will be able to tell you if you do or not.

They can also help ensure that the process goes smoothly and that all the paperwork is filed correctly. This is important because filing for bankruptcy or consumer proposal are complex processes with lots of forms and requirements. 

And if you want to learn more about finances, check out our post below, where we’ll explain to you how to calculate your credit score.

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Learn how to calculate your credit scores!

Understanding how your credit score works is the first step toward improving it! Learn how to calculate it here!

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