Consumer Proposal vs Bankruptcy in Canada
Try a repayment you can finish before you file either one. That comparison, while the interest is still the problem and a trustee is not, is debt payoff versus investing. The budget that shows whether a repayment exists is the cash management guide and the cash-flow system. This page is what the OSB says happens after those tools are not enough. It is not a filing checklist, and it is not a substitute for a trustee.
- A consumer proposal is an offer, through a trustee, to pay creditors a percentage, or to take longer, or both. Creditors vote. You generally keep your assets if you keep paying secured creditors.
- A bankruptcy puts non-exempt assets in the trustee’s hands to sell. You stop paying unsecured creditors directly. Surplus income can require monthly payments and a longer file.
- The OSB’s 2026 standards for surplus income start at $2,716 a month for one person and rise with family size. If monthly surplus income is $200 or more, the bankrupt pays 50 percent of it to the estate.
- Miss three monthly proposal payments, or fall more than three months behind on a less frequent schedule, and the OSB says the proposal is deemed annulled unless a court or an amendment says otherwise.
- Some debts survive both processes. The OSB names support, court fines, debts from fraud, and student loans if you stopped being a student less than seven years before a bankruptcy.
Choose a consumer proposal if… you can offer creditors a fixed amount they are likely to accept, your unsecured debts fit under the $250,000 line, and you need to keep an asset a bankruptcy would sell. Choose bankruptcy if… you cannot fund a proposal creditors will take, you can live with the surplus-income payment and the shorter or longer clock, and a trustee agrees it is the file. Choose neither yet if… a written repayment, a lower interest rate, or a sale of something you do not need would clear the debt. A trustee’s first meeting is allowed to reach that conclusion.
What does the OSB say each process is?
| Consumer proposal | Bankruptcy | |
|---|---|---|
| Who can use it | An individual whose debts do not exceed $250,000, excluding debts such as a mortgage secured by a principal residence | The OSB page reviewed does not set a dollar minimum in the section quoted here. A trustee decides whether to take the file. |
| What you pay | The amount in the proposal, as a lump sum or periodic payments, for a term that cannot exceed five years | The trustee’s fees, plus surplus-income payments if your income is over the standard. The OSB does not publish a single national trustee fee on the page reviewed. |
| How long | Up to five years. You can be done sooner if the proposal says so and you pay it. | First bankruptcy: 9 months if surplus income is under $200 a month, 21 months if it is higher. Second bankruptcy: 24 or 36 months on the same split. |
| Assets | You retain your assets, provided you keep paying secured creditors | The trustee sells assets, except those provincial and federal law exempts |
| Creditors | They have 45 days. A meeting is held if creditors owed at least 25% of proven claims ask for one. Acceptance is a simple majority of the dollar value of proven claims. | Creditors are notified. A meeting is sometimes required. They do not have to accept an offer, because the process is not an offer. |
| If payments stop | Three missed monthly payments, or a last payment more than three months late on another schedule, and the proposal is deemed annulled | The trustee opposes discharge if required surplus-income payments are not made |
| Credit file, in the OSB’s words | The proposal stays on the report for the term, plus a few years, and the period depends on the province. The OSB does not print an R-rating on this page. | Generally removed after six or seven years for a first bankruptcy, and after 14 years for a later one. The OSB says the lowest possible credit rating is assigned. |
Table as of September 2026. Both processes require two financial counselling sessions. Both stop wage garnishments and lawsuits by unsecured creditors once the file is in. A secured creditor, the OSB says, generally keeps its rights. A car loan or a mortgage is a conversation with the trustee, not a line that disappears because you filed.
What is surplus income in 2026?
Surplus income is the part of what the household has, after the deductions the directive allows, that sits above the Superintendent’s standard for the size of the family. Directive No. 11R2-2026, issued 27 March 2026, sets the standards. The OSB notes that the HTML copy is not the official version if it disagrees with the PDF. The figures below are the HTML table reviewed for this article.
| People in the family unit | Monthly standard |
|---|---|
| 1 | $2,716 |
| 2 | $3,381 |
| 3 | $4,157 |
| 4 | $5,047 |
| 5 | $5,724 |
| 6 | $6,456 |
| 7 or more | $7,188 |
If the monthly surplus is under $200, the directive says the bankrupt pays nothing under that rule. If it is $200 or more, the bankrupt pays 50 percent of the surplus to the estate, then adjusted for the bankrupt’s share of the household’s income. The OSB’s own example is the cleanest arithmetic: one person with $3,500 of available monthly income, standard $2,716, surplus $784, payment $392. That example is in the directive. It is not a prediction of your income, and “available” income is after the non-discretionary items the directive lists, including child support, spousal support, child care, and certain medical and employment expenses. A trustee does that subtraction. A blog should not.
In a bankruptcy, income is reported to the trustee, and a raise can create surplus income and extend a first-time automatic discharge from 9 months to 21. In a consumer proposal, the payment is the payment in the contract. The OSB does not describe a monthly income report for proposal debtors. Creditors, voting on dollar value, will compare your offer with what a bankruptcy would have paid them, including surplus income. An offer that ignores that comparison is an offer they can refuse. If they do, you can amend and resubmit, look at other options, or file bankruptcy.
Which debts and which people stay on the hook?
- Support, fines, and fraud. The OSB says a bankruptcy discharge does not wipe alimony and child support, court-ordered fines or penalties, or debts from fraud. Do not plan a filing around a debt the statute keeps.
- Student loans. A bankruptcy discharge releases federal student loans if you filed at least seven years after you stopped being a full-time or part-time student. The court can shorten that to five years in undue hardship if you have tried to repay. The OSB also points at the Repayment Assistance Plan for federal loans as the program to ask about before insolvency. This cluster does not have a separate student-loan article yet. The payoff-versus-investing post is the general debt test.
- A co-signer or a spouse. Your bankruptcy does not release the person who co-signed. A joint debt can still be collected from the spouse who did not file. Joint assets can be pulled in for your share. Tell the trustee about both.
- A house. Secured creditors keep their rights. Keeping the house means keeping the mortgage payments, in a proposal or in a bankruptcy, and it means knowing whether your equity is exempt where you live. That exemption is provincial. It is not a number on the federal pages reviewed here, so this article does not print one.
Other sites publish R7 and R9 and exact bureau clocks. The OSB’s consumer-proposal page says a proposal or a bankruptcy is generally assigned the lowest possible credit score, and that a proposal remains on the report for the term plus a few years, depending on the province. The bankruptcy page says the first bankruptcy is generally gone after six or seven years, and a later one after 14. Those are the sentences this article will stand on. Ask the trustee and the bureau what your province does. Do not treat a forum’s “R7 for three years” as the statute.
Who do you call, and who you should not pay first?
Only a Licensed Insolvency Trustee can file either process. The OSB’s Bankruptcy Assistance Program can help you find one if you have already asked at least two trustees, you are not and have not recently been in commercial activity, you would not owe surplus-income payments, and you are not in jail. A credit counsellor who is not a trustee can talk to collectors. They cannot administer a proposal or a bankruptcy.
Collectors are not allowed to harass you. The rules depend on the province. A trustee or a qualified counsellor can stand between you and the calls while you decide. Paying a new “debt relief” company that is not a trustee, before you have had the free OSB-side conversation, is how people add a fee to a file they still have to open. The counselling sessions inside a real filing exist so the next budget is not the same budget. The mechanics of that budget, after the file, are the cash-flow system and a budgeting app only if you will use it.
Frequently asked questions
Is a consumer proposal better than bankruptcy?
It is better when you can pay a fixed offer creditors will accept and you need to keep assets a bankruptcy would sell. It is worse when the offer would cost more than the surplus-income payments of a short bankruptcy, or when creditors will vote it down. The OSB tells you to sit with a Licensed Insolvency Trustee and compare both against your income, your assets, and your debts. A website cannot see that file.
What is the debt limit for a consumer proposal?
The OSB says your debts must not exceed $250,000, not including debts such as a mortgage secured by your principal residence. A mortgage on the house you live in is outside that cap. Other debts count. If you are over the line, a consumer proposal is the wrong form. Ask the trustee what process replaces it. Do not leave a debt off the list to fit under the cap. You have to give the trustee a complete list of assets and liabilities.
How long will it stay on my credit report?
The OSB says a first bankruptcy is generally removed after six or seven years, and a later bankruptcy after 14. It says a consumer proposal stays for the length of the proposal plus a few years, and that the exact period depends on the province. It does not publish a single national R-code on the pages reviewed. When the proposal is fully performed you get a certificate of full performance. The OSB says to send that certificate to the credit-reporting agencies yourself.
Do I lose my house or my car?
Not automatically in a proposal. The OSB says you retain your assets if you keep paying secured creditors. In a bankruptcy the trustee sells what the law does not exempt, and exemptions are provincial. A financed car is the lender’s security either way. If you can afford the payment, the OSB says arrangements with the secured creditor are possible. If you cannot, the car is part of the trustee meeting, not a footnote.
What if my income goes up during the file?
In a bankruptcy, the trustee recalculates surplus income. The directive’s examples show a raise that creates a payment, and a drop that removes one. A first-time bankrupt who starts owing surplus income also moves from a 9-month automatic discharge toward 21 months. In a consumer proposal the contracted payment does not rise just because you earned more. Creditors priced the offer at the start. Windfalls and new debts are questions for the trustee, not for this paragraph.
Can I include my student loan?
In a bankruptcy, the OSB says the loan is released only if you filed at least seven years after you stopped being a student, or five years if a court finds undue hardship and you have tried to repay. Ask the trustee before you assume a proposal treats the same loan the same way. Before either filing, the OSB points federal borrowers to the Repayment Assistance Plan. Use that program if it fits. Insolvency is the later tool.
Sources
- Office of the Superintendent of Bankruptcy: consumer proposals
- Office of the Superintendent of Bankruptcy: considering bankruptcy
- Directive No. 11R2-2026: surplus income. The OSB says the PDF prevails if the HTML differs.
A filing is a legal process. The budget after it is still a tax file.
Interest, support, and what a trustee reports are not a substitute for the return. The 2026 tax guide is the filing companion, not insolvency advice.
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