Tilting the Playing Field Away from the Discharge of Debts: The Case of Consumer Proposals in Canada.

This article examines the rising use of consumer proposals as a debt relief option in Canada, analyzing the shift in insolvency regulation toward creditor interests and its effects on debtors. Canada’s two federally regulated debt relief mechanisms are bankruptcy—which typically discharges debts after nine months but requires selling major assets—and consumer proposals, which protect assets but require monthly payments over 60 months before debt forgiveness. The share of consumer insolvencies filed as consumer proposals increased from 23% in 2009 to nearly 79% in 2024, a change not explained by observable debtor characteristics but likely influenced by the behavior of licensed insolvency trustees (LITs) and large creditors. The study finds minimal evidence of racial steering in Canada’s insolvency choices and notes that the main factor associated with consumer proposal failure is holding a high-cost loan; however, failure cannot be reliably predicted at the time of filing. The authors suggest policy reforms to rebalance incentives toward bankruptcy where appropriate, including adjusting LIT fee structures, regulating online advertising, and directing LITs to prioritize debtors’ financial interests.