Bankruptcy & Debt Wizard

Bankruptcy vs Consumer Proposal: Which Debt Solution Fits You?

Compare bankruptcy against a consumer proposal (Canada) or Chapter 7 versus Chapter 13 (US) based on your debt, income, and assets — and see which path protects what matters most.

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The Core Trade-Off: Liquidation vs Repayment

Every insolvency decision comes down to one question: do you want the fastest possible discharge of your debt, or do you want to keep specific assets and repay a portion over time? In Canada, that maps to bankruptcy versus a consumer proposal. In the US, it maps to Chapter 7 versus Chapter 13. Bankruptcy and Chapter 7 wipe out most unsecured debt quickly but can require you to surrender non-exempt assets. A consumer proposal and Chapter 13 preserve your assets in exchange for structured monthly payments, usually over three to five years.

A consumer proposal in Canada is administered by a Licensed Insolvency Trustee and is available when your unsecured debt is under $250,000, excluding your mortgage. You propose to repay a percentage of what you owe; if creditors holding a majority of the debt accept, all unsecured creditors are bound. There is no surplus-income calculation and no risk of losing exempt assets, which makes proposals popular with homeowners and higher earners.

How Income Changes the Math

In a Canadian bankruptcy, your monthly cost is not fixed — it depends on 'surplus income.' If your household income exceeds government thresholds, you pay a portion of the excess for up to 21 months (longer for a second bankruptcy). For someone with a good income, this can make bankruptcy more expensive and less predictable than a consumer proposal, where you negotiate a fixed monthly payment upfront.

In the US, income drives the means test. If your income is below your state's median, Chapter 7 is generally available. If it is above, you may be pushed into Chapter 13, where you repay disposable income to creditors over three to five years. Either way, income determines both eligibility and cost, which is why an honest budget is the starting point for any insolvency decision.

Assets and Exemptions Decide What You Keep

Both countries protect a baseline of assets through exemptions — but the limits vary widely by province and state. Home equity, vehicles, tools of the trade, and registered retirement savings (RRSPs are largely protected in Canada; 401(k)s and IRAs have federal protection in the US) are treated differently everywhere. If your equity exceeds the exemption, a liquidation path may force a sale, while a repayment path lets you keep the asset by paying its value over time.

Because exemptions, surplus-income thresholds, and proposal limits all change and differ by jurisdiction, this tool gives direction rather than a final answer. The right next step is a free consultation with a Licensed Insolvency Trustee in Canada or a bankruptcy attorney in the US, who can run your exact numbers and confirm which option leaves you better off.

Related: Bankruptcy & Debt Wizards · Find Your Best Debt Relief Option · Are You Ready for a Consumer Proposal? · Check Your Chapter 7 Eligibility · All Legal Wizards · AI Solutions for Law Firms

Frequently Asked Questions

Is a consumer proposal better than bankruptcy?
It depends on your situation. A consumer proposal lets you keep your assets, has a fixed monthly payment, and avoids surplus-income costs, which suits homeowners and higher earners. Bankruptcy discharges debt faster but can require surrendering non-exempt assets. A Licensed Insolvency Trustee can compare both for your numbers.
What is the US equivalent of a consumer proposal?
The closest equivalent is Chapter 13 bankruptcy, a court-supervised repayment plan over three to five years that lets you keep assets and catch up on secured arrears. Chapter 7 is closer to a Canadian straight bankruptcy — a fast liquidation and discharge for those who pass the means test.
How much unsecured debt is too much for a consumer proposal?
A standard Canadian consumer proposal is available when unsecured debt (excluding your mortgage) is under $250,000. Above that, a Division I proposal may still be an option, but the rules and creditor voting differ. A Licensed Insolvency Trustee can confirm which applies.
Will bankruptcy or a proposal stop wage garnishment?
Yes. Filing a consumer proposal or bankruptcy in Canada, or a Chapter 7 or Chapter 13 case in the US, triggers a stay that halts most garnishments, collection calls, and lawsuits from unsecured creditors almost immediately.
Which option hurts my credit less?
Both affect your credit, but generally a consumer proposal is recorded for a shorter period than a bankruptcy in Canada, and Chapter 13 stays on US reports for seven years versus ten for Chapter 7. Rebuilding starts once payments begin and the file is completed.
Do I need a lawyer to choose between these options?
In Canada, consumer proposals and bankruptcies must be administered by a Licensed Insolvency Trustee, who provides free initial consultations. In the US, a bankruptcy attorney is strongly recommended, especially for Chapter 13. This tool is educational and not a substitute for that advice.

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This tool provides general educational information about debt relief options only — not legal, financial, or insolvency advice. Eligibility rules, exemptions, and thresholds differ by province and state and change over time. Consult a Licensed Insolvency Trustee in Canada or a bankruptcy attorney in the US before acting.

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