When faced with overwhelming debt, it’s easy to feel like you’re out of options. But for Canadians struggling to regain control of their finances, two powerful tools exist: consumer proposals and bankruptcy. Both are legal processes designed to provide relief — but they function in different ways, come with different consequences, and are suited to different financial situations. At PADS Financial, we guide clients through every step of evaluating these choices to find the solution that best protects their future.
A consumer proposal is an agreement negotiated between you and your creditors — typically with the help of a Licensed Insolvency Trustee (LIT). Instead of paying your debt in full, you propose a repayment plan that covers only a portion of what you owe, often over a period of five years or less. If your creditors agree, the amount you owe is legally reduced, and interest stops accumulating. This makes it easier to manage payments and rebuild your credit over time.
One of the main advantages of a consumer proposal is that it allows you to keep your assets. Your home, car, and personal property remain untouched, and you can continue living your life while working toward financial recovery. In addition, compared to bankruptcy, a consumer proposal has less impact on your credit report and offers a clearer path to rebuilding your credit score once the agreement is complete.
Bankruptcy, on the other hand, is often considered the option of last resort — but for some, it’s the most realistic path to financial freedom. When you file for bankruptcy, most of your unsecured debts (like credit cards, payday loans, or utility arrears) are forgiven. However, you may have to surrender some assets depending on your province’s exemption limits. Bankruptcy also carries a more significant credit impact and remains on your credit report for six to seven years after discharge, depending on whether it’s your first filing.
So how do you choose between the two?
If you have a steady income and want to avoid losing valuable assets, a consumer proposal may be the better fit. It allows for structured repayment based on what you can realistically afford, often reducing your overall debt by up to 70%. However, if your income is minimal, your debt is exceptionally high, or your financial obligations far exceed your ability to repay — bankruptcy may provide the clean break you need.
It’s essential to understand that both processes are legally binding and protected under Canada’s Bankruptcy and Insolvency Act. That means once either is filed, creditors must stop collection efforts, wage garnishments, and legal actions against you. This immediate relief gives individuals breathing room to focus on rebuilding without constant pressure from lenders.
Choosing between a consumer proposal and bankruptcy isn’t just about numbers — it’s about your long-term financial health. Your income, assets, debt load, and goals all play a part in the best solution. Before making a decision, it’s important to consult with financial professionals who understand the full picture and can explain each option in clear, practical terms.
At PADS Financial, we believe everyone deserves a second chance at financial security. Our team is here to offer compassionate, judgment-free guidance tailored to your unique circumstances, so you can move forward with confidence and clarity.