Is a consumer proposal cheaper than bankruptcy in Canada?

In many cases, yes. A consumer proposal lets you negotiate to repay a percentage of your total debt (often 20-30%) over up to 5 years with no interest. Bankruptcy costs depend on surplus income and assets — if you have above-median income, mandatory surplus income payments can make bankruptcy more expensive than a consumer proposal.

How much does a Licensed Insolvency Trustee charge?

LIT fees are regulated by the federal government under the Bankruptcy and Insolvency Act. In a consumer proposal, the LIT's fee is included in your monthly payments — there is no additional charge. In bankruptcy, the base cost for a first-time filing with no surplus income is approximately $1,800 paid over 9 months. Initial consultations are always free.

What is surplus income in bankruptcy?

Surplus income is the amount your income exceeds the government threshold set by the Office of the Superintendent of Bankruptcy. If your income exceeds this threshold, you must pay 50% of the surplus to your bankruptcy estate. For a single person in 2026, the threshold is approximately $2,543/month. High surplus income also extends a first bankruptcy from 9 to 21 months.

How do bankruptcy and consumer proposals affect my credit score differently?

A consumer proposal results in an R7 rating on your credit report and remains for 3 years after completion (or 6 years from filing, whichever is sooner). Bankruptcy results in an R9 rating — the lowest possible — and stays on your report for 6-7 years after discharge for a first bankruptcy (14 years for a second). Consumer proposals have a significantly milder long-term credit impact.

Bankruptcy vs Consumer Proposal: Complete Cost Comparison (2026)

TL;DR

A consumer proposal typically costs 20-30% of your total unsecured debt, spread over up to 5 years with zero interest. Bankruptcy costs depend on your income, assets, and filing history — a first-time bankruptcy with no surplus income costs approximately $1,800 over 9 months, but surplus income payments can significantly increase the total. Both processes are administered by Licensed Insolvency Trustees whose fees are regulated by the federal government.

Understanding the True Cost of Each Option

When Canadians face overwhelming debt, two of the most common formal relief options are bankruptcy and a consumer proposal. Both are governed by the Bankruptcy and Insolvency Act (BIA) and must be administered by a Licensed Insolvency Trustee (LIT). But the costs of each can differ dramatically depending on your income, assets, and total debt load.

Understanding the full financial picture — not just the sticker price — is essential to making an informed decision. Use our debt relief quiz to get a personalized starting point, then consult a licensed professional for advice tailored to your situation.

Consumer Proposal Costs Explained

A consumer proposal is a legally binding agreement between you and your creditors to repay a portion of your debt. Here is how the costs break down:

What You Pay

Percentage of debt: You typically offer creditors 20-30% of what you owe, though some proposals go higher depending on your income and assets
Monthly payments: Spread over up to 60 months (5 years), with no interest
LIT fees: Included in your payments — regulated by the BIA. The LIT receives a set percentage; you do not pay extra
No upfront fees: Any company asking for money before filing is a red flag

Example: Consumer Proposal

| Detail | Amount | |---|---| | Total unsecured debt | $50,000 | | Proposed repayment | 25% ($12,500) | | Monthly payment | $208/month for 60 months | | LIT fee | Included in the $12,500 | | Total cost to you | $12,500 |

What You Keep

In a consumer proposal, you keep all your assets — your home, your vehicle, your RRSP, your tools of trade. There is no asset seizure. This is one of the most significant advantages over bankruptcy.

Bankruptcy Costs Explained

Bankruptcy is a legal process that eliminates most unsecured debts, but it comes with more complex cost implications.

Base Cost (First-Time, No Surplus Income)

A first-time bankruptcy with no surplus income typically costs approximately $1,800, paid in monthly installments over 9 months. This covers the LIT's administration fee, government filing fees, and two mandatory credit counselling sessions.

Surplus Income: The Hidden Cost

The Office of the Superintendent of Bankruptcy (OSB) sets income thresholds each year. If your net income exceeds the threshold for your family size, you must pay 50% of the surplus to your bankruptcy estate.

| Family Size | 2026 Monthly Threshold (approx.) | |---|---| | 1 person | $2,543 | | 2 people | $3,163 | | 3 people | $3,889 | | 4 people | $4,725 |

If you have surplus income:

First bankruptcy duration extends from 9 months to 21 months
You pay 50% of all income above the threshold each month
Total cost can reach $10,000-$20,000+ depending on income

Asset Implications

In bankruptcy, non-exempt assets must be surrendered to the LIT for the benefit of creditors. Each province sets its own exemptions. Use our calculator to estimate your specific costs based on your province.

Example: Bankruptcy with Surplus Income

| Detail | Amount | |---|---| | Total unsecured debt | $50,000 | | Base cost | $1,800 | | Net monthly income | $3,543 | | Surplus over threshold (single) | $1,000/month | | Surplus payment (50%) | $500/month × 21 months = $10,500 | | Total cost to you | ~$12,300 | | Duration | 21 months | | Assets at risk | Non-exempt assets surrendered |

Side-by-Side Comparison

| Factor | Consumer Proposal | Bankruptcy | |---|---|---| | Typical cost | 20-30% of debt | $1,800 base + surplus income | | Duration | Up to 60 months | 9-21 months (first) | | Assets | Keep everything | Non-exempt assets surrendered | | Credit impact | R7 for 3 years post-completion | R9 for 6-7 years post-discharge | | Income impact | Fixed payments regardless of raises | Surplus income payments increase with income | | Professional fees | Included in payments | Included in base cost | | Creditor protection | Yes (stay of proceedings) | Yes (stay of proceedings) |

Which Option Costs Less?

There is no universal answer. Consider these scenarios:

Consumer proposal may cost less when:

You have moderate to high income (surplus income would drive up bankruptcy costs)
You have significant assets you want to protect (home equity, investments)
You can negotiate a low percentage with creditors

Bankruptcy may cost less when:

Your income is below the surplus income threshold
You have few non-exempt assets
Your total debt is very high relative to your income

Important Cost Considerations

Second Bankruptcy Costs More

A second bankruptcy lasts a minimum of 24 months (36 months with surplus income) and remains on your credit report for 14 years. The financial and credit consequences are substantially higher.

Credit Rebuilding Costs

Both options affect your ability to access credit, which can indirectly increase costs (higher interest rates on future borrowing). A consumer proposal's R7 rating clears sooner than bankruptcy's R9, potentially saving thousands in interest over time.

Tax Implications

Debts forgiven through either process may have tax implications. In a consumer proposal, creditors receive a portion of what is owed. In bankruptcy, most unsecured debts are fully discharged. Consult a tax professional about your specific situation.

What to Do Next

Take our debt relief quiz to see which option may suit your situation
Use our cost calculator to estimate costs for your specific circumstances
Book a free consultation with a Licensed Insolvency Trustee — find one near you
Read more about consumer proposals and how they work
Watch for scams — legitimate LITs never charge upfront fees

Frequently Asked Questions

Can I switch from bankruptcy to a consumer proposal?

Yes. If you have already filed for bankruptcy but have not yet been discharged, your LIT can help you convert to a consumer proposal. This is called an "annulment" of the bankruptcy. It is a common strategy when circumstances change.

Do I need a lawyer for either option?

No. Both consumer proposals and bankruptcies are filed through a Licensed Insolvency Trustee, not a lawyer. LITs are federally regulated professionals specifically licensed for insolvency matters. You do not need separate legal representation.

Can creditors reject a consumer proposal?

Yes. Creditors vote on your proposal. It must be accepted by a simple majority in dollar value of proven claims. If rejected, your LIT can help you amend and refile. Approximately 90% of consumer proposals in Canada are accepted by creditors.

Are LIT consultation fees regulated?

Initial consultations with Licensed Insolvency Trustees are free — this is an industry standard across Canada. All fees for both consumer proposals and bankruptcies are regulated under the BIA and approved by the court.

Last updated: April 2026

Sources:

Office of the Superintendent of Bankruptcy Canada — Surplus income thresholds, filing statistics
Bankruptcy and Insolvency Act (BIA) — Fee regulations, proposal requirements
Canadian Association of Insolvency and Restructuring Professionals (CAIRP) — Industry guidelines
Financial Consumer Agency of Canada (FCAC) — Consumer protection resources