Both a consumer proposal and bankruptcy are formal debt relief options under the Bankruptcy and Insolvency Act and start your protection from your creditors immediately they are filed. However, they differ significantly in process, impact, and outcome.
A consumer proposal allows you to repay a portion of your debt through an affordable monthly payment, without losing your assets like your home or car (as long as payments are maintained). It requires your creditors to accept the offer. When you declare bankruptcy, on the other hand, everything you own (outside certain exemptions under the law) must be surrendered to help repay your creditors. Creditors do not get to vote on you accessing your protection under bankruptcy. If your household income exceeds certain government set thresholds, you will be required to pay a share of the excess (again there is a government set formula) for a period of at least 21 months. These are referred to as surplus income contribution requirements. Bankruptcy can be over in as little as 9 months but it stays on your credit record for approximately a minimum of 6 years.
While both solutions provide legal protection from creditor actions, a consumer proposal is often preferred by those who can afford partial repayment and want to avoid the more severe consequences of bankruptcy. Most folk want to the best they can in their circumstances and pay what is fair to their creditors. They also never want to answer the question “have you been bankrupt” with a yes.