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Consumer Proposal vs Bankruptcy Calculator (Canada)

Prosperics' Canadian Debt Relief Calculator is a free tool that compares a consumer proposal, bankruptcy with surplus income, consolidation, avalanche and snowball on your own debts, showing total cost, monthly payment, timeline and credit impact for every province.

⚖️ Consumer Proposal vs Bankruptcy

A consumer proposal lets you negotiate to repay a portion of your debt (often 30-50%) over up to 5 years while keeping your assets. Bankruptcy is faster but may require surrendering assets and paying surplus income. A Licensed Insolvency Trustee can advise which is best.

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Canada Debt Guide: Consumer Proposal & Consolidation

Debt Repayment Strategies Compared · Debt Consolidation Loans: Pros and Cons

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A consumer proposal is a formal, legally binding process administered by a Licensed Insolvency Trustee (LIT). You offer to pay creditors a portion of your total debt over up to 5 years. Once accepted by creditors holding a majority of your debt, all creditors are bound by the terms, interest stops, and collection actions cease.

Key Takeaways

  • ✓Typically settle for 20-50% of total debt
  • ✓Maximum duration is 60 months
  • ✓LIT fees are included in the proposal payments
  • ✓Stays on credit report for 3 years after completion (R7 rating)

Bankruptcy is a legal process that discharges most unsecured debts. A first-time bankruptcy without surplus income lasts 9 months. With surplus income, it extends to 21 months. You must surrender non-exempt assets and make payments based on your income level. Bankruptcy stays on your credit report for 6-7 years.

Key Takeaways

  • ✓Surplus income threshold is based on household size
  • ✓Certain assets are exempt (varies by province)
  • ✓Student loans less than 7 years old are not dischargeable
  • ✓Second bankruptcy lasts 24-36 months

Facts last reviewed:

The avalanche method pays off debts with the highest interest rate first, saving you the most in total interest. The snowball method pays off the smallest balances first, giving you quick wins for motivation. Mathematically, avalanche is cheaper, but snowball has higher completion rates due to psychological momentum.

A consumer proposal is a legally binding agreement filed through a Licensed Insolvency Trustee (LIT) where you offer to pay creditors a portion of what you owe (typically 20-50%) over up to 5 years. It stops collection calls and interest, protects your assets, and stays on your credit report for 3 years after completion.

A consumer proposal is generally preferable if you can afford to repay a meaningful portion of your debt. Bankruptcy may be appropriate when your debt is overwhelming relative to your income and a proposal payment would be unmanageable. Bankruptcy stays on your credit report for 6-7 years (first time) versus 3 years for a completed proposal.

If your income exceeds the government-set threshold for your household size, you must pay 50% of the surplus to your bankruptcy estate. This can significantly increase the cost and duration of bankruptcy — extending a first-time bankruptcy from 9 to 21 months.

A consolidation loan itself does not negatively impact your credit — it replaces multiple debts with one. Your credit utilization may improve, and on-time payments build history. However, if you continue accumulating new debt alongside the consolidation loan, it can worsen your situation.

Consider your total debt, interest rates, income stability, and psychological factors. High interest debt above 20% makes avalanche most impactful. If you need motivation from quick wins, try snowball. If total debt exceeds 3 years of net income, consult a Licensed Insolvency Trustee about a consumer proposal.

Facts last reviewed:

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