Is a Consumer Proposal Better Than Bankruptcy?

What Is a Consumer Proposal?

A Consumer Proposal is a formal, legally binding offer made through a Licensed Insolvency Trustee. It allows you to settle your unsecured debt (usually paying only a portion of it) over a period of up to five years. If the majority of your creditors vote to accept it, the proposal becomes binding on all of them.

Some of the best features of a Consumer Proposal are:

• Interest stops accumulating.
• Collection calls and wage garnishments stop.
• You make one monthly payment, and the amount is based on your ability to pay.
• You keep control over your assets.

What Is Bankruptcy?

Bankruptcy is another legal option to eliminate most unsecured debts filed through a Licensed Insolvency Trustee and offers immediate relief from creditor action.

Unlike a proposal:

• You may need to surrender certain assets to the Trustee.
• You have ongoing reporting requirements throughout the process.
• You may be required to make monthly surplus income payments. How much you pay depends on what happens with your income during the bankruptcy, so it isn't possible to predict with certainty.
• The process typically lasts 9 to 21 months for a first-time filer, though it can last longer in some cases.

Key Differences at a Glance:

When Might a Consumer Proposal Be the Better Option?

• You want to avoid the stigma or reputational aspects of bankruptcy.
• Filing a proposal feels like a more proactive, win-win way to deal with your debt.
• You have steady income that you feel confident you can sustain over the period of the proposal.
• You want to maintain control over your assets. Either you don’t want to lose them, or you want control over when and how you sell them.
• You want the certainty of predictable payments and a known timeline that you can budget and plan your life around.

When Might Bankruptcy Be the Better Option?

Bankruptcy may be a better fit if:

• You don’t have enough income to afford a proposal.
• Your income is too unpredictable to be able to commit to a steady payment.
• Your debt is so high that any amount you could afford to pay would be insignificant.
• Your creditors have already shown they are unwilling to accept a viable compromise.
• You don’t have any non-exempt assets to protect, or you can’t afford to keep your assets anyway.
• You need to resolve your situation in a quicker timeline.

Which Is Better?

There’s no one-size-fits-all answer. The right option depends on your unique situation. At Charla Smith & Company, we take the time to understand your full financial picture—your income, debt, assets, and goals—so we can help you decide on the option that works best for you.

If you're asking whether a Consumer Proposal is better than bankruptcy, you’ve already done some of the leg-work to understand your options. Take the next step by contacting a Licensed Insolvency Trustee – it’s the best way to get true answers.

Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the Alberta region. We regularly help individuals consider their options for dealing with overwhelming debt. If you'd like to explore these options, please reach out to us.

Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.