Can I Switch from a Consumer Proposal to Bankruptcy?

Sometimes life doesn’t go the way you planned. You may have filed a consumer proposal to deal with your debt, only to find that the payments are still too much, or your financial situation has changed. When that happens, you might be wondering: can I switch my consumer proposal to bankruptcy?

The short answer is yes, you can. But switching comes with big consequences, so it’s important to understand what happens when you cancel a proposal, how bankruptcy works afterward, and when it might make sense to make the change.

Consumer proposal or move into bankruptcy, knowing your options is the first step toward feeling less stressed and more in control.

Why Someone Might Want to Switch a Consumer Proposal to Bankruptcy

Not everyone finishes their consumer proposal. Life happens. Sometimes what felt manageable at the beginning becomes overwhelming later on.

Common Reasons to Cancel a Consumer Proposal

The number one reason people cancel a consumer proposal is because life happens. You lose a job, your hours get cut, or you get hit with something you didn’t budget for (like car repairs, medical bills, a health issue, the birth or adoption of a child, or even higher rent). Suddenly those payments that felt manageable at first just don’t fit anymore.

Other times, the proposal was just set too high right from the start. Even if you wanted to make it work, it might just be too ambitious.

And sometimes, people change their mind after learning more about the pros and cons of a consumer proposal or after getting advice from a different perspective.

When Bankruptcy Becomes the Better Option

Sometimes bankruptcy just makes more sense. It wipes out most unsecured debt and puts an end to collection calls, though it does stay on your credit longer. But if you’re already in a consumer proposal, you’re likely experiencing those same benefits: no more collection calls, reduced debt, and a clear path forward.

For a lot of people, making the switch feels like a weight off their shoulders. Instead of stressing about payments they can’t manage, they finally get a fresh start. And when you look at bankruptcy vs. consumer proposal, it’s easier to see which option might fit your situation better.

Can You Legally Switch a Consumer Proposal to Bankruptcy?

Yes. You can legally switch, but it’s not automatic. If you’re sure bankruptcy is the better path, filing for bankruptcy with a Licensed Insolvency Trustee (LIT) will automatically annul your consumer proposal. You don’t need to cancel it separately, but it’s important to talk through the implications with your LIT before making the move.

This process has rules and steps you’ll need to follow, which is why getting professional help is key.

What Happens When You Cancel a Consumer Proposal

Cancelling a proposal doesn’t erase your debt, it actually resets it.

Consequences and Credit Impact

When a proposal is cancelled, you go back to owing the balance that was outstanding at the start of the proposal—minus any payments that were already made through it. In other words, the debt doesn’t disappear; it simply reverts to what you originally owed, adjusted for what’s been paid so far.

Your credit report will also show the proposal as annulled, which makes it harder to rebuild credit compared to finishing it.

Are You Still Protected from Creditors?

No. As soon as the proposal is cancelled, creditor protection ends. Collection calls, wage garnishments, or even lawsuits can start up again.

That’s why a lot of people end up filing for bankruptcy right away to put those protections back in place.

How to File for Bankruptcy After an Annulled Consumer Proposal

Filing for bankruptcy after a consumer proposal is straightforward, but it must be done through an LIT. Here’s what usually happens:

1. Your Licensed Insolvency Trustee formally cancels the consumer proposal.
2. You review your financial situation together.
3. Your LIT explains your duties like reporting income, making payments, and attending two counselling sessions.
4. Bankruptcy is filed, which stops creditor actions immediately.

For many people, it feels like finally hitting reset. Yes, the credit impact lasts longer, but the trade-off is freedom from the constant stress of juggling payments you can no longer afford.

If you’re not ready to cancel your consumer proposal, it may be possible to adjust it instead. Amending a consumer proposal can sometimes lower payments or extend the term of your consumer proposal, making it easier to stick with.

When to Talk to a Licensed Insolvency Trustee Like Farber

If you’re wondering whether to switch from a consumer proposal to bankruptcy, don’t try to figure it out alone. Both options can seriously impact your finances, and the “right” choice depends on your unique situation.

The good news? A Licensed Insolvency Trustee is the only person in Canada who can walk you through both consumer proposals and bankruptcies. At Farber, we’ll explain your options, answer every question, and help you see what actually works best for your life.

Switching isn’t always the right move. But, when it is, it can lift the weight off your shoulders and give you the fresh start you’ve been hoping for.

Ready to find out if it’s the right step for you? Book a free consultation with Farber today.