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

We examine the increasing prevalence of consumer proposals as a debt relief option in Canada, highlighting the shift in insolvency regulation toward creditor interests and the implications of this for debtors. Canada has two federally regulated debt relief options. One is bankruptcy, which generally offers the discharge of most debts after nine months but requires that large assets, such as homes and cars, be sold for the benefit of creditors. The other is the consumer proposal, which protects large assets (e.g., homes and vehicles) but requires monthly payments for 60 months before any debt is forgiven. Consumer proposals have become significantly more common over time, rising from 23 percent of consumer insolvencies in 2009 to 79 percent in 2024. Using the Oaxaca–Blinder decomposition and data on the universe of insolvencies in 2011 and 2019, we show that changes in the average characteristics of the debtors—debts, assets, and income—do not account for this increase. Instead, unobservable factors are at the root of the increase. We hypothesize that it is the behaviour of those who benefit financially from the increase—the licensed insolvency trustees who administer the procedures and the large creditors—that is the most likely unobserved influence.