If you live in Ontario and the debt has reached the point where minimum payments no longer move the balance, you have probably heard two phrases thrown around: consumer proposal and bankruptcy. Both are legal, federally regulated ways to deal with debt you cannot repay. Both stop collection calls and wage garnishments. But the differences between a consumer proposal vs bankruptcy in Ontario matter a great deal for what you keep, what you pay, and how long the whole thing follows you.
This guide explains how each option works in Ontario in 2026, including the provincial asset exemptions that only apply here, a realistic side-by-side example with numbers, and a plain answer to the question most people are really asking: which one is right for me?
What Is a Consumer Proposal vs Bankruptcy?
Both options fall under the federal Bankruptcy and Insolvency Act and both can only be filed through a Licensed Insolvency Trustee (LIT), a professional licensed and supervised by the Office of the Superintendent of Bankruptcy Canada. The moment either is filed, a legal “stay of proceedings” takes effect: creditors must stop calling, lawsuits freeze, and wage garnishments end.
A consumer proposal is a formal offer to your unsecured creditors to repay part of what you owe, usually as a fixed monthly payment over up to 60 months. If creditors holding a majority of your debt by dollar value accept (or simply do not object within 45 days), the deal binds all of them. You keep your house, car, RRSPs and everything else, and the unpaid balance is legally forgiven once you finish. To qualify, your unsecured debt must be under $250,000, not counting the mortgage on your principal residence. If you are unsure whether you meet the threshold, our guide on who can file a consumer proposal in Canada walks through the eligibility rules.
Bankruptcy is the more complete legal reset. You assign your non-exempt assets to the trustee, who sells them for your creditors’ benefit, and you make monthly payments based on your income and household size. A first-time bankrupt with no surplus income is automatically discharged after nine months; with surplus income it stretches to 21 months. A second bankruptcy takes 24 or 36 months. When you are discharged, most of your unsecured debts are wiped out. For a deeper look at timelines, see how long bankruptcy lasts in Canada.
Ontario-Specific Rules That Change the Answer
The federal law is the same across Canada, but two Ontario-specific pieces change the maths for people in this province.
Ontario asset exemptions. When you file bankruptcy in Ontario, the assets you are allowed to keep are set by the provincial Execution Act and its exemption regulation. The current exemption amounts are roughly: one motor vehicle worth up to $8,578; household furnishings and appliances up to $17,091; tools of your trade up to $17,362; and clothing with no dollar limit. These figures were last indexed in December 2025. Home equity is exempt only if it is $12,997 or less, which means that in a province with Ontario’s housing prices, most homeowners who file bankruptcy would have to buy back their equity from the trustee or lose the house. RRSPs are protected under federal law except for contributions made in the 12 months before filing. Life insurance policies with a family member named as beneficiary are also generally protected.
Surplus income. In bankruptcy, the federal surplus income standard (Directive 11R2) requires you to pay 50% of any net household income above a set threshold, which is updated annually and is based on family size, not on where in Ontario you live. For 2026 the standard is $2,716 net per month for a single person, $3,381 for two people and $5,047 for a family of four. Earn meaningfully more than that and bankruptcy becomes both longer (21 months) and more expensive. A consumer proposal has no surplus income rule: your payment is fixed on day one and does not rise if you get a raise.
Also worth knowing: Ontario is one of the provinces where a wage garnishment can take up to 20% of your net wages for ordinary debts and up to 50% for family support. Both a proposal and a bankruptcy stop garnishments for unsecured debt immediately; our article on wage garnishment in Ontario explains the limits and how the stay works.
Advantages of a Consumer Proposal
Advantages of Bankruptcy
Who Should Consider a Consumer Proposal
A consumer proposal usually makes more sense in Ontario if:
- You own a home with equity above the $12,997 exemption, or a vehicle worth more than $8,578.
- You have a stable income that would trigger surplus income payments in bankruptcy.
- Your unsecured debt is under $250,000 and you can afford a fixed monthly payment for a few years.
- Your job involves bonding, a professional licence, or a security clearance that treats bankruptcy more harshly than a proposal.
- You want the shortest possible credit-report impact and plan to rebuild quickly.
Who Should Consider Bankruptcy
Bankruptcy may be the better fit if:
- You rent, own no vehicle of value, and everything you own fits within the Ontario exemptions.
- Your income is at or below the surplus income threshold, so the process will likely be nine months and low-cost.
- You cannot realistically commit to any fixed monthly payment for several years.
- Your unsecured debt is over $250,000.
- Your income is unstable and you fear a proposal would fail partway through.
A Side-by-Side Ontario Example
Consider a single Ontario resident with $42,000 in credit card and line-of-credit debt, a car worth $12,000 that is paid off, no home, and take-home pay of $3,600 a month. Here is how the two options roughly compare. Figures are illustrative; your trustee will run exact numbers.
On raw cost, bankruptcy comes out a few thousand dollars cheaper and ends two years sooner. But the person pays roughly $440 a month for 21 months instead of $350 for 48, must report income to the trustee every month, must come up with about $3,400 to keep the car, and carries the bankruptcy mark for six years after discharge. Many people in this position choose the proposal for the certainty and the car. Someone with the same debt but a $4,000 car and $2,600 monthly income would face nine months of bankruptcy at roughly $200 a month, and the calculation tips the other way.
How to Decide: Step by Step
- List your debts and assets. Write down every unsecured debt (cards, lines of credit, payday loans, CRA balances) and the current value of your car, home equity and savings. Check the total against the $250,000 proposal limit.
- Estimate your surplus income. Take your household’s net monthly income and compare it to the federal threshold for your family size. If you are well above it, bankruptcy will be 21 months and cost more than you expect.
- Apply the Ontario exemptions. Is your vehicle under $8,578? Home equity under $12,997? If not, calculate what you would need to pay the trustee to keep those assets in bankruptcy.
- Book a free consultation with a Licensed Insolvency Trustee. By law the first assessment is free, and the trustee must explain every option, including debt consolidation and credit counselling, not just insolvency.
- Compare the two written quotes. Ask the trustee for a side-by-side: total cost, monthly payment, duration, what you keep, and how long each stays on your credit report.
- File and attend counselling. Both options require two financial counselling sessions. Once filed, the stay of proceedings protects you immediately.
Ready to see if you qualify?
Frequently Asked Questions
Is a consumer proposal really better than bankruptcy for my credit in Ontario?
Usually, yes. A consumer proposal is reported as an R7 and is removed three years after your final payment or six years from the filing date, whichever comes first. A first bankruptcy is reported as an R9 and stays for six years after discharge (seven years in some cases, and 14 years for a second bankruptcy). In practice, someone who finishes a three-year proposal can have a clean report in six years, while a nine-month bankruptcy still lingers close to seven years. That said, lenders look at your rebuilding behaviour after either one, and people who use a secured credit card and pay on time can qualify for a car loan or even a mortgage before the mark disappears.
Will I lose my house if I file bankruptcy in Ontario?
Not automatically, but you will have to deal with the equity. Ontario’s exemption protects only $12,997 of home equity. If your equity is higher, the trustee is entitled to the excess for your creditors, and you would need to pay that amount into the bankruptcy (often through monthly payments over the term) to keep the home. For most Ontario homeowners the equity is far larger than that, which is exactly why a consumer proposal is the more common choice: you keep the house, continue paying the mortgage as normal, and the equity is simply used to justify a proposal amount creditors will accept.
What happens to my tax refund and CRA debt?
Income tax debt is an unsecured debt and is included in both a consumer proposal and a bankruptcy, provided it is not tied to fraud. In bankruptcy, any tax refund for the year you file and prior years goes to the trustee for your creditors. In a consumer proposal you keep your refunds. CRA does vote on proposals and tends to push for a reasonable recovery, but it accepts the large majority of well-prepared proposals. If tax debt is a big part of your problem, read our guide to consumer proposals for tax debt before your consultation.
Can I switch from one to the other later?
Yes, in one direction more easily than the other. If a consumer proposal fails (you miss three payments and it is annulled), or if creditors reject it, you can still file bankruptcy. Going the other way is also possible: a person in bankruptcy can file a consumer proposal to creditors before discharge, and if it is accepted the bankruptcy is annulled. Trustees sometimes suggest this when someone’s income rises sharply during bankruptcy and the surplus income payments become larger than a proposal would have been.
How much does each option cost in Ontario?
Consumer proposal fees are set by federal regulation and are built into your monthly payment rather than charged on top, so the amount you agree to pay creditors is the full cost. Bankruptcy costs depend on three things: the trustee’s base fee (commonly around $200 a month for nine months if you have no surplus income), any surplus income payments, and the value of non-exempt assets you choose to buy back. A simple nine-month bankruptcy in Ontario might total $1,800 to $2,200, while a 21-month bankruptcy with surplus income and a vehicle to protect can easily exceed what a proposal would have cost. Always ask your trustee for both numbers in writing.
After 20 years of structuring multi-million dollar corporate debt facilities and corporate turnarounds in investment banking, Marcus now leads Canadian Debt Relief to apply those exact same balance-sheet optimization frameworks to Canadian household debt.
