Consumer Proposal vs Bankruptcy Calculator: Which Costs Less in Canada?

Debt Solutions

Consumer Proposal vs Bankruptcy Calculator: Which Costs Less in Canada?

Mar 20, 202615 min read

Understanding the True Cost: Consumer Proposal vs. Bankruptcy

When Canadians face overwhelming debt, the two formal insolvency options under the Bankruptcy and Insolvency Act (BIA) are a consumer proposal and personal bankruptcy. Both provide legal protection from creditors and a path to becoming debt-free, but their costs, timelines, and consequences differ significantly.

This guide provides a comprehensive cost comparison between consumer proposals and personal bankruptcy in Canada, including detailed scenarios, surplus income calculations, asset considerations, and a decision framework to help you determine which option costs less in your specific situation.

How Consumer Proposal Costs Work

In a consumer proposal, you negotiate to repay a portion of your unsecured debts through a Licensed Insolvency Trustee (LIT). The total cost is determined by the proposal terms you and your creditors agree upon.

Cost Components

What Determines Your Consumer Proposal Payment

Your LIT calculates a proposal payment that offers creditors more than they would receive in your bankruptcy. The key factors are:

• Your income: Higher income generally means higher monthly payments.
• Your assets: Non-exempt assets (home equity, non-registered investments, etc.) increase the minimum creditors will accept.
• Your total debt: The absolute amount you owe affects the percentage creditors expect.
• Creditor expectations: Different creditors have different minimum thresholds for acceptance.

How Bankruptcy Costs Work

Bankruptcy costs are more complex and less predictable than consumer proposal costs. The total cost depends on your income, whether you have surplus income, what assets you own, and whether it is your first or subsequent bankruptcy.

Cost Components

Understanding Surplus Income

Surplus income is a critical concept in Canadian bankruptcy. The Office of the Superintendent of Bankruptcy sets income thresholds based on family size. If your net income exceeds the threshold by more than $200 per month, you must pay 50% of the excess to the bankruptcy estate.

2025–2026 OSB Surplus Income Thresholds

How Surplus Income Affects Bankruptcy Duration and Cost

Asset Retention: The Hidden Cost of Bankruptcy

One of the most significant cost differences between a consumer proposal and bankruptcy is asset retention. In a consumer proposal, you keep all your assets. In bankruptcy, non-exempt assets must be surrendered.

Provincial Exemptions

Each province has its own exemption rules that determine which assets you can keep in bankruptcy. Here are the most common categories:

Real-World Cost Comparison Scenarios

Let us compare the total costs of consumer proposals and bankruptcy across five realistic scenarios that represent common situations for Canadians.

Scenario 1: Low Income, Low Debt, No Assets

Analysis: In this scenario, bankruptcy costs significantly less ($1,800 vs. $8,400). However, the consumer proposal keeps the R7 credit notation instead of R9, and the credit report clears sooner. For someone with no assets and low income, bankruptcy may be the more practical option—but the consumer proposal provides a less severe credit impact.

Scenario 2: Moderate Income, Moderate Debt, No Significant Assets

Analysis: The costs are remarkably similar. The consumer proposal costs slightly more ($16,500 vs. $15,200), but the payments are much lower ($275 vs. $629/month), the duration is longer but more affordable, and you keep full control of your vehicle and other assets. In bankruptcy, your surplus income payments fluctuate with your income, creating uncertainty.

Scenario 3: Higher Income, Significant Debt, Home Equity

Analysis: This is where the consumer proposal advantage becomes dramatic. In bankruptcy, the $60,000 in home equity and $5,500 in non-exempt vehicle value would need to be paid to the estate—on top of 21 months of surplus income payments. The total bankruptcy cost could exceed $70,000, compared to $27,000 for the consumer proposal. Additionally, the family could be forced to sell or refinance their home.

Scenario 4: Self-Employed, Variable Income

Analysis: For self-employed Canadians, the consumer proposal is almost always preferable because it provides payment certainty. In bankruptcy, surplus income is calculated monthly based on actual income, meaning your payments change every month. A good month at work results in a higher surplus income payment. A consumer proposal locks in a fixed monthly amount regardless of income fluctuations.

Scenario 5: Second-Time Insolvency

Analysis: For anyone facing a second insolvency, the consumer proposal is dramatically cheaper ($18,000 vs. $32,000+) and has a vastly shorter credit report impact (3 years after completion vs. 14 years after discharge). A second bankruptcy is one of the most severe financial events possible, and a consumer proposal avoids it entirely.

The Credit Impact Cost: Beyond Dollars

The financial cost of insolvency is only part of the equation. The credit impact has real-world costs that affect your ability to borrow, rent, and even find employment.

Credit Report Comparison

Real-World Credit Impact Costs

The difference in credit ratings translates to real dollars:

• Mortgage rates: A post-bankruptcy borrower may pay 1–3% higher mortgage interest than a post-proposal borrower who has rebuilt credit. On a $300,000 mortgage over 25 years, a 2% rate premium costs approximately $90,000 in additional interest.
• Auto loan rates: Post-bankruptcy auto loan rates can be 5–10% higher than standard rates, adding thousands in interest over the loan term.
• Insurance premiums: Some insurers use credit-based scoring, meaning lower credit scores can result in higher premiums.
• Rental applications: Many landlords check credit reports. An R9 bankruptcy notation can make it harder to secure rental housing.
• Employment: Certain employers, particularly in financial services, check credit reports as part of their hiring process.

Decision Framework: Which Option Is Right for You?

Use this framework to determine whether a consumer proposal or bankruptcy is likely to cost less in your situation:

1. Calculate your surplus income. If your net monthly income exceeds the OSB threshold for your family size by more than $200, you will have surplus income in bankruptcy. The higher your surplus income, the more bankruptcy costs—and the more attractive a consumer proposal becomes.



2. Assess your assets. If you have significant non-exempt assets (home equity, non-registered investments, non-exempt vehicle equity), bankruptcy will require surrendering or paying for them. A consumer proposal protects all assets.



3. Consider income stability. If your income is variable (self-employed, commission-based), a consumer proposal’s fixed payments provide certainty. Bankruptcy’s surplus income fluctuates monthly with your actual earnings.



4. Factor in credit recovery. If you plan to apply for a mortgage, car loan, or other credit within 5–10 years, the shorter credit recovery timeline of a consumer proposal may save you significant money in interest premiums.



5. Check for previous insolvency. If this would be a second bankruptcy, the credit report impact (14 years) and extended duration (24–36 months) make a consumer proposal overwhelmingly preferable in almost every case.

Quick Decision Matrix

Common Misconceptions About Costs

Misconception 1: “Bankruptcy is always cheaper because you pay nothing”

This is false. While some simple bankruptcies have low direct costs, surplus income payments and asset surrender can make bankruptcy very expensive. A single person earning $4,500/month net could pay over $20,000 in surplus income alone during a 21-month bankruptcy.

Misconception 2: “Consumer proposals cost 100% of what you owe”

False. Consumer proposals typically involve repaying only 25–35% of your total unsecured debt. The remaining 65–75% is legally forgiven upon completion.

Misconception 3: “LIT fees are charged separately in consumer proposals”

False. LIT fees are built into your monthly payments. The amount you are told to pay each month is all-inclusive. There are no additional fees, charges, or hidden costs.

Misconception 4: “You can hide assets in a consumer proposal”

False. You must fully disclose all assets in both a consumer proposal and bankruptcy. However, in a consumer proposal, you do not surrender any assets—they are simply part of the calculation that determines how much creditors will accept.

Misconception 5: “Bankruptcy discharges all debts”

Not entirely true. Certain debts survive bankruptcy, including court-ordered fines, child/spousal support, debts arising from fraud, and student loans less than seven years old. These same debts generally cannot be included in a consumer proposal either.

How to Calculate Your Own Costs

While an exact calculation requires a professional assessment by a Licensed Insolvency Trustee, you can estimate your costs using the following steps:

Estimating Consumer Proposal Cost

1. Add up all your unsecured debts (credit cards, personal loans, lines of credit, CRA debt, etc.).
2. Multiply by 0.25 to 0.35 (typical repayment percentage). This gives you the approximate total proposal amount.
3. Divide by 60 (maximum months) to estimate the minimum monthly payment.
4. Adjust upward if you have significant assets or high income (creditors will expect a higher recovery).

Example: $60,000 in debt × 30% = $18,000 total ÷ 60 months = $300/month

Estimating Bankruptcy Cost

1. Determine your net monthly income and family size.
2. Check the surplus income threshold for your family size.
3. If your income exceeds the threshold by more than $200, calculate 50% of the excess.
4. Multiply the monthly surplus by 21 months (first bankruptcy with surplus) or 36 months (second bankruptcy with surplus).
5. Add the value of any non-exempt assets.
6. Add the base contribution (approximately $1,800–$2,500).

Example: $4,000/month income (single) – $2,543 threshold = $1,457 excess. Surplus income = $1,457 × 50% = $729/month × 21 months = $15,309 + $2,000 base = $17,309 minimum (before asset surrender).

Frequently Asked Questions

Making Your Decision

The cost comparison between consumer proposals and bankruptcy is not just about dollars—it is about your total financial well-being over the next decade. Consider the direct costs, the indirect credit impact costs, the asset retention benefits, and the predictability of payments.

In most cases, a consumer proposal offers the better overall value, which is why it has become the dominant insolvency option in Canada. But every situation is unique, and the only way to know for certain which option costs less for you is to consult with a Licensed Insolvency Trustee who can analyze your specific numbers.

Do not guess—get the numbers. A free consultation with a Licensed Insolvency Trustee will give you a clear, personalized comparison of what each option will cost in your specific situation. Make your decision based on facts, not fear.