If you’re comparing a consumer proposal vs bankruptcy in BC, the right choice depends on more than how much debt you have. Your income, assets, home equity, monthly budget and ability to repay all play a role. This guide breaks down the key differences so you can understand how each option works and what it could mean for your situation. 

Consumer Proposal vs Bankruptcy in BC: At a Glance

A consumer proposal and bankruptcy are both formal insolvency options administered by a Licensed Insolvency Trustee, but they work in very different ways.

With a consumer proposal, you make an offer to repay a portion of your unsecured debt through fixed payments over an agreed period of time. With bankruptcy, eligible debts are discharged through a legal process, but your payments and the treatment of certain assets can depend on your income and financial situation.

For BC residents, assets can be an especially important part of the comparison because provincial exemption rules help determine what may be protected in a bankruptcy. A Licensed Insolvency Trustee can review your full situation and explain what each option could look like before you make a decision. 

Here is a simple comparison:

	Consumer Proposal	Bankruptcy
How debt is resolved	You repay an agreed portion of your unsecured debt	Most eligible unsecured debts are discharged
Payments	Fixed once the proposal is accepted	Can vary depending on income and surplus income requirements
Length	Up to 5 years, with the option to pay it off early	9 or 21 months for a first bankruptcy, depending on income
Assets	You generally keep your assets	Some non-exempt assets may need to be surrendered or repurchased
Creditor approval	Creditors may vote on whether to accept the proposal	Creditor approval is not required to file
Credit rating	Included debts are generally reported with an R7 rating	Included debts are generally reported with an R9 rating
Collection action	Collection calls, lawsuits and wage garnishments stop once filed	Collection calls, lawsuits and wage garnishments stop once filed
Who administers it	Licensed Insolvency Trustee	Licensed Insolvency Trustee

 

What Is the Difference Between a Consumer Proposal and Bankruptcy?

The biggest difference between a consumer proposal and bankruptcy is how your debt is resolved.

With a consumer proposal, you make a formal offer to your unsecured creditors to repay a portion of what you owe over time. If the proposal is accepted, you make fixed payments based on the agreed terms, and the remaining eligible debt is forgiven once the proposal is completed.

Bankruptcy works differently. Instead of negotiating a repayment amount with creditors, you enter a legal process where most eligible unsecured debts are discharged. Your income, assets and financial situation are reviewed, and you may be required to make payments or address certain non-exempt assets as part of the bankruptcy.

Both options are administered by a Licensed Insolvency Trustee and both can provide legal protection from most collection actions. The better fit depends on your financial situation, including how much you owe, what you earn, what assets you have and what you can realistically afford to pay.

How a Consumer Proposal Works

A consumer proposal is filed through a Licensed Insolvency Trustee. The Trustee reviews your finances and prepares an offer to your unsecured creditors based on what you can afford and what creditors could expect to receive under other insolvency options.

Once filed:

• Interest stops on the unsecured debts included in the proposal
• Most collection calls, lawsuits and wage garnishments stop
• Creditors have an opportunity to vote on the proposal
• Your payments are fixed if the proposal is accepted
• The proposal can last up to five years
• You can pay it off early without a penalty

A consumer proposal can be a good fit for someone who can afford a structured monthly payment and wants more predictability around what they will pay.

How Bankruptcy Works

Bankruptcy is also filed through a Licensed Insolvency Trustee, but there is no negotiated repayment offer in the same way.

During bankruptcy, your income and assets are reviewed to determine what you may need to contribute to the bankruptcy estate. If your income is above the applicable government threshold, surplus income payments may apply. Certain non-exempt assets may also need to be surrendered or repurchased.

For many first-time bankruptcies, the process may last 9 months if there is no surplus income, or 21 months if surplus income applies. The actual timeline can vary depending on the individual situation.

Bankruptcy may be considered when someone cannot realistically repay a meaningful portion of their unsecured debt and needs a legal process to address it.

What Happens to Your Assets in a Consumer Proposal vs Bankruptcy in BC?

What happens to your assets is one of the biggest differences between a consumer proposal and bankruptcy, particularly if you own a home, vehicle, investments or other valuable property.

With a consumer proposal, you generally keep your assets. Their value can still matter because your creditors will consider what they could receive if you filed for bankruptcy when deciding whether to accept your proposal.

In a bankruptcy, some assets are protected, while others may need to be surrendered or their value paid into the bankruptcy estate. Although bankruptcy is governed by federal legislation, British Columbia has its own rules that determine which assets are exempt from seizure.

Keeping Your Home or Home Equity

Filing a consumer proposal does not automatically mean giving up your home. You can generally keep it as long as you continue making your mortgage payments. However, the amount of equity you have in your home can affect how much you need to offer your creditors through the proposal.

In a bankruptcy, part of the equity in your principal residence may be protected under BC exemption rules. Up to $12,000 of equity is protected in the Greater Vancouver Regional District and Greater Victoria, while up to $9,000 is protected elsewhere in British Columbia. If your share of the equity is higher than the applicable exemption, the amount above that limit may need to be paid into the bankruptcy estate if you want to keep the property. 

This is why two homeowners with the same amount of debt could have very different options depending on how much equity they have in their homes.

Cars, RRSPs, Savings and Other Assets

In a BC bankruptcy, some personal assets are protected up to certain limits. One vehicle is protected up to $5,000 in value, or $2,000 if you owe family maintenance. If there is a loan against the vehicle, only the equity you actually own is considered.

RRSPs and RDSPs are generally protected as well, although contributions made within the 12 months before filing for bankruptcy are not included in that protection. Household items are protected up to $4,000, tools you use for work up to $10,000, and clothing and medical aids are protected without a set dollar limit.

Other assets, such as savings, investments or valuable property, may need to be reviewed to determine whether they are protected or whether some value must be paid into the bankruptcy estate. With a consumer proposal, you generally keep these assets, although their value can still affect the amount offered to creditors.

Consumer Proposal vs Bankruptcy: How Long Does Each Take?

A consumer proposal can last up to five years, although you can pay it off earlier without a penalty. Your payment schedule is established as part of the proposal, so you know how long it will take based on the terms you agree to.

Bankruptcy can be shorter, but the timeline depends on your circumstances. A first bankruptcy typically lasts 9 months if you do not have surplus income and 21 months if you do. A second bankruptcy typically lasts 24 months without surplus income or 36 months with it.

While bankruptcy may take less time, the length of the process is only one factor to consider when comparing a consumer proposal vs bankruptcy.

How Does Each Option Affect Your Credit?

Both a consumer proposal and bankruptcy will affect your credit, but they are reported differently.

Debts included in a consumer proposal are generally reported with an R7 rating. The proposal typically remains on your credit report for three years after it is completed or six years from the date it was filed, whichever comes first.

Bankruptcy is generally reported with an R9 rating. For a first bankruptcy, it typically remains on your credit report for six to seven years after you are discharged, depending on the credit bureau and province.

Your credit is an important part of the comparison, but it should not be the only factor in deciding between a consumer proposal and bankruptcy. Your income, assets, debt and ability to make payments also need to be considered.

Which Debts Can Be Included?

Both a consumer proposal and bankruptcy can address most unsecured debts, including credit cards, personal loans, lines of credit, payday loans and overdue bills. Most debts owed to the Canada Revenue Agency (CRA) can also be included.

Student loans may be discharged if you have been out of school for at least seven years. If it has been less than seven years, they may still be included for payment purposes, but generally will not be discharged when the consumer proposal or bankruptcy is completed.

Secured debts, such as a mortgage or car loan, are treated differently because they are tied to an asset. If you want to keep the asset, you generally need to continue making the required payments on that secured debt.

What Happens to CRA Debt?

CRA debt, including personal income tax debt, can generally be included in both a consumer proposal and bankruptcy. However, some tax-related debts may be treated differently depending on the circumstances. A Licensed Insolvency Trustee can review what you owe and confirm how your specific CRA debt would be handled under each option.

Consumer Proposal vs Bankruptcy Examples for BC Residents

The right option can look very different depending on your income, assets and how much you can realistically afford to repay. Here are a few simple examples of how that decision might look for BC residents.

Example 1: A Homeowner With Steady Income

Priya has a steady job, significant credit card and line of credit debt, and equity in her home. She can afford a monthly payment but cannot realistically repay everything she owes.

A consumer proposal may be worth considering because it could allow Priya to make a fixed monthly payment while keeping her home. Her home equity would still be considered when determining what needs to be offered to her creditors.

Example 2: A Renter With Limited Income and Assets

Daniel rents his home, has few assets and is struggling with unsecured debt after his income decreased. He does not have enough available income to make a meaningful monthly payment toward what he owes.

Bankruptcy may be an option to explore because Daniel has limited assets and limited ability to repay his debts. A Licensed Insolvency Trustee would still need to review his income and financial situation to determine what his bankruptcy would involve.

Example 3: Someone Expecting Their Income to Increase

Amelia currently has a manageable income but expects to earn significantly more after starting a new position.

If Amelia files for bankruptcy, an increase in income could result in surplus income payments and potentially extend the length of her bankruptcy. With an accepted consumer proposal, her agreed payments would generally remain fixed even if her income increases.

These examples are simplified because no two financial situations are exactly the same. A Licensed Insolvency Trustee can calculate what both options would actually look like based on your income, assets and debts.

Speak With a Licensed Insolvency Trustee in BC

Choosing between a consumer proposal and bankruptcy is not always straightforward. Your income, debts, assets and household situation can all affect which option makes the most sense and what each process would look like for you.

At Campbell Saunders Ltd., our Licensed Insolvency Trustees help people across British Columbia understand their options before making a decision. We’ll review your financial situation, explain the differences clearly and help you understand what the next steps could look like.

Book a free consultation to get started.

Frequently Asked Questions About Consumer Proposals vs Bankruptcy

Is a consumer proposal better than bankruptcy in BC?

Not necessarily. A consumer proposal may make more sense if you have steady income, can afford a structured payment and want to keep your assets. Bankruptcy may be more appropriate if you have limited income or cannot realistically repay a portion of your debt. The right option depends on your individual financial situation.

Which is faster, a consumer proposal or bankruptcy?

A consumer proposal can last up to five years, although you can pay it off early. A first bankruptcy typically lasts 9 months without surplus income or 21 months with surplus income. However, the shortest option is not always the best option for your situation.

Can I choose between a consumer proposal and bankruptcy?

Not always. A Licensed Insolvency Trustee will review your income, assets, debts and ability to make payments to determine which options are realistically available to you.

If a viable consumer proposal could have been made but bankruptcy is chosen instead, that may need to be reported to the Superintendent of Bankruptcy and could affect the bankruptcy discharge. Your LIT can explain how each option applies to your specific situation before you decide how to proceed.

Does bankruptcy or a consumer proposal affect your credit more?

Both affect your credit. Debts included in a consumer proposal are generally reported with an R7 rating, while bankruptcy is generally reported with an R9 rating. How long each remains on your credit report also differs.

Can CRA debt be included in a consumer proposal or bankruptcy?

Personal income tax debt owed to the CRA can be included in both a consumer proposal and bankruptcy. Some tax-related debts may be treated differently, so your specific CRA debt should be reviewed by a Licensed Insolvency Trustee.

Can I keep my house if I file a consumer proposal in BC?

Generally, yes, as long as you continue making your mortgage payments. However, the equity in your home can affect how much you need to offer your creditors through the proposal.

What happens if my income increases after I file?

With an accepted consumer proposal, your payments generally remain fixed even if your income increases. In bankruptcy, an increase in income could affect your surplus income obligation and may also affect how long you remain bankrupt.