Bankruptcy vs Consumer Proposal in Ontario: Which is Right for You?

When debt becomes overwhelming, Ontario residents have two main formal debt relief options: bankruptcy and consumer proposals. Both are governed by the Bankruptcy and Insolvency Act (BIA) and can only be administered by a Licensed Insolvency Trustee (LIT).

Consumer Proposal

A consumer proposal is an agreement between you and your creditors to pay back a portion of what you owe — typically 20-50 cents on the dollar — over up to 5 years. Key features:

• You keep your assets (car, home, investments)
• Interest stops immediately when the proposal is filed
• A majority of creditors (by dollar value) must accept
• Appears on your credit report for 3 years after completion
• You must complete two credit counselling sessions

Personal Bankruptcy

Bankruptcy is a legal process that eliminates most unsecured debts. Key features:

• First-time bankruptcies last 9 months (or 21 months if you have surplus income)
• Some assets may be seized (though Ontario exemptions protect significant assets)
• Appears on credit report for 6-7 years after discharge
• All non-exempt assets are surrendered to the trustee
• Certain debts cannot be discharged (student loans less than 7 years old, support obligations, fraud-related debts)

Ontario Asset Exemptions in Bankruptcy

• Tools of the trade: up to $11,300
• Vehicle: up to $7,117
• Home equity (varies by jurisdiction)
• Most RRSPs (contributions more than 12 months old)

Which Should You Choose?

A consumer proposal is generally preferable if you have assets to protect, a stable income to make monthly payments, and want a shorter impact on your credit. Bankruptcy may be the right choice if your debts far exceed your ability to pay any portion back.