Trustee Fees in Consumer Proposals and Bankruptcy in Canada

Debt Solutions

Trustee Fees in Consumer Proposals and Bankruptcy in Canada

Mar 20, 202623 min read

How Much Does It Really Cost to File Bankruptcy or a Consumer Proposal in Canada?

One of the most common questions Canadians have when facing financial difficulty is: how much does it cost to go bankrupt or file a consumer proposal? It may seem counterintuitive that you need money to deal with not having enough money, but understanding how trustee fees work in consumer proposals and bankruptcy is essential for making informed decisions about your debt relief options. The good news is that the fee structure is regulated by the federal government, and in many cases, the cost of filing does not come directly out of your pocket in the way you might expect.

In Canada, only a Licensed Insolvency Trustee (LIT) can administer a consumer proposal or bankruptcy. These professionals are licensed and regulated by the Office of the Superintendent of Bankruptcy (OSB), and their fees are governed by the Bankruptcy and Insolvency Act (BIA) and its associated regulations. This means that fees are not arbitrary — they follow specific formulas and must be approved through established processes.

The Role of the Licensed Insolvency Trustee

Before diving into fees, it is important to understand what a Licensed Insolvency Trustee does and why their services are necessary. An LIT is a federally licensed professional who is the only person authorized by law to administer consumer proposals and bankruptcies in Canada. Their responsibilities include:

• Assessing your financial situation and advising on available options
• Preparing and filing all required legal documents
• Administering the bankruptcy estate or consumer proposal
• Communicating with creditors on your behalf
• Collecting and distributing funds to creditors
• Providing mandatory financial counselling (or arranging for it)
• Filing reports with the OSB and the court
• Representing the estate at meetings of creditors and discharge hearings

The trustee acts as an officer of the court and has duties to both the debtor and the creditors. They are not advocates for either side — their role is to administer the process fairly and in accordance with the law.

How Trustee Fees Work in Bankruptcy

Trustee fees in bankruptcy are governed by the BIA and its regulations. The key principle to understand is that in most personal bankruptcies, the trustee’s fees are paid from the bankruptcy estate — meaning from the funds generated through the bankruptcy process itself, not from additional payments by the bankrupt.

Sources of Funds in a Bankruptcy Estate

The bankruptcy estate generates funds from several sources, and the trustee’s fees are paid from these funds:

When a bankrupt has no surplus income and no non-exempt assets (known as a “no-asset” bankruptcy), the estate would generate no funds at all. In these cases, the trustee typically requires a base contribution to cover the administrative costs of the bankruptcy. This base contribution varies by trustee but typically ranges from $1,800 to $2,500 for a first bankruptcy, paid in monthly instalments over the 9-month bankruptcy period. This is often the only direct cost to the bankrupt in a no-asset, no-surplus-income bankruptcy.

The Tariff of Fees for Bankruptcy

The BIA sets out a tariff for trustee fees in bankruptcy. Under this tariff, the trustee is entitled to fees calculated as a percentage of the funds they collect and distribute:

Example: Cost Breakdown for a Typical First Bankruptcy

To illustrate how trustee fees work in practice, consider the following example:

Scenario: Sarah, a single person earning $3,200 net per month, files for her first bankruptcy with no non-exempt assets. The surplus income threshold for a single person is $2,543.

In this example, Sarah’s total out-of-pocket cost is her monthly surplus income payment of $328.50 for 21 months. The trustee’s fees, counselling costs, and OSB levy are all paid from these same funds. She does not pay a separate fee on top of her surplus income payments.

How Trustee Fees Work in Consumer Proposals

The fee structure for consumer proposals is different from bankruptcy and is specifically addressed in the BIA regulations. In a consumer proposal, trustee fees are built into the proposal payments — meaning the debtor does not pay separate fees on top of their proposal payments.

The Consumer Proposal Fee Tariff

Under the BIA, the trustee’s fees in a consumer proposal are calculated using a specific tariff:

1. Initial Filing Fee

   The trustee receives a fee of $1,500 upon the filing of the consumer proposal. This covers the initial consultation, financial assessment, proposal preparation, and filing with the OSB.



2. Percentage of Distributions

   The trustee receives 20% of all funds distributed to creditors under the proposal. This incentivizes the trustee to maximize the recovery for creditors while keeping the proposal affordable for the debtor.



3. Counselling Fees

   The trustee receives $85 per mandatory counselling session (2 sessions required), for a total of $170.



4. OSB Levy

   A 5% levy is paid to the Office of the Superintendent of Bankruptcy from the funds collected under the proposal.



5. HST/GST

   Applicable sales taxes are charged on the trustee’s fees.

The key thing to understand about consumer proposal fees is that they are included in your monthly proposal payment. When the trustee prepares your proposal, they calculate the total amount that creditors will receive and the total fees, and these are all factored into the monthly payment amount. You do not pay any additional fees beyond your agreed monthly proposal payment.

Example: Fee Breakdown for a Typical Consumer Proposal

To illustrate, consider the following example:

Scenario: Mark owes $45,000 in unsecured debt. He files a consumer proposal offering to pay $450 per month for 60 months (5 years), for a total of $27,000.

In this example, Mark pays $450 per month and nothing more. The trustee’s fees and all other costs are deducted from the $27,000 total before the remaining funds are distributed to creditors. Mark’s creditors are forgiving approximately $26,656.58 of his $45,000 debt (roughly 59%) in exchange for receiving approximately $18,343 over five years.

Comparing the Costs: Bankruptcy vs Consumer Proposal

One of the most important factors in choosing between bankruptcy and a consumer proposal is the total cost. While the fee structures are different, comparing the overall cost can help you make a more informed decision.

Shopping for a Trustee: What You Should Know

Many Canadians do not realize that they have the right to consult with multiple Licensed Insolvency Trustees before choosing one. Shopping around can help you find a trustee whose approach, communication style, and fees align with your needs and preferences.

What to Look for When Choosing a Trustee

1. Verify Their Licence

   Ensure the person you are considering is a Licensed Insolvency Trustee registered with the OSB. You can verify this through the OSB’s online directory at the Innovation, Science and Economic Development Canada website. Beware of debt consultants or advisors who claim they can file a bankruptcy or consumer proposal — only an LIT can do this legally.



2. Take Advantage of Free Consultations

   Most LITs offer free initial consultations. Use this opportunity to discuss your situation, learn about your options, and get a sense of the trustee’s communication style and approach. You should feel comfortable and confident in your trustee’s abilities.



3. Ask About All Options

   A good trustee will not push you toward bankruptcy or a consumer proposal if there are better alternatives available. They should explain all of your options — including debt consolidation, credit counselling, and informal arrangements — and help you determine which one is best for your specific situation.



4. Understand the Fee Structure

   Ask the trustee to explain their fee structure in detail. While fees are regulated, there can be differences in the base contribution required for no-asset bankruptcies and in the terms offered for consumer proposals. Make sure you understand exactly what you will be paying and what is included.



5. Check Reviews and References

   Look for online reviews, testimonials, and ratings. Ask the trustee for references from past clients if possible. A trustee with a strong track record of positive outcomes and satisfied clients is more likely to provide a good experience.



6. Consider Location and Accessibility

   Choose a trustee whose office is convenient for you to visit for meetings, document signing, and counselling sessions. Many trustees now offer virtual consultations, which can be particularly helpful if you live in a rural area or have mobility limitations.

Red Flags to Watch For

Not all debt professionals have your best interests at heart. Watch for these warning signs:

• Charging for the initial consultation: Legitimate LITs offer free initial consultations. If someone charges for the first meeting, proceed with caution.
• Pressure to file immediately: A good trustee will give you time to consider your options and will never pressure you into filing on the spot.
• Guaranteeing a specific outcome: No one can guarantee that creditors will accept a consumer proposal or that the court will grant a specific type of discharge.
• Unlicensed individuals: Only Licensed Insolvency Trustees can file bankruptcies and consumer proposals. Debt consultants who claim otherwise are operating illegally and may charge hefty referral fees.
• Lack of transparency about fees: If the trustee is vague or evasive about fees, that is a red flag. You have the right to a clear, detailed explanation of all costs.
• Pushing only one solution: A trustee who only recommends bankruptcy or only recommends consumer proposals without exploring all options may not have your best interests in mind.

In Canada, a growing industry of unlicensed debt consultants and “debt relief” companies charge significant fees to refer people to Licensed Insolvency Trustees. These middlemen add no value — they simply charge you a fee (often thousands of dollars) for a referral that you could make yourself for free. Always go directly to a Licensed Insolvency Trustee for advice about bankruptcy and consumer proposals.

The Free Consultation: What to Expect

The free initial consultation with a Licensed Insolvency Trustee is one of the most valuable resources available to Canadians dealing with debt problems. Here is what you can expect:

Before the Meeting

• Gather your financial documents, including a list of debts, recent pay stubs, tax returns, and a summary of your assets
• Prepare a list of questions you want to ask
• Write down your key concerns and goals

During the Meeting

• The trustee will review your financial situation in detail
• They will explain all available options, including bankruptcy, consumer proposal, and alternatives
• They will answer your questions about the process, fees, and expected outcomes
• They will provide an estimate of costs and timelines
• They should explain the pros and cons of each option as it applies to your specific situation

After the Meeting

• You should receive a summary of the options discussed
• You are under no obligation to file or proceed
• Take time to consider your options and consult with other trustees if desired
• Follow up with any additional questions

Questions to Ask During Your Free Consultation

Can Trustee Fees Be Negotiated?

This is a common question, and the answer is nuanced. Because trustee fees are regulated by the BIA, there is limited room for negotiation on the standard tariff rates. However, there are some areas where differences can arise between trustees:

• Base contribution amounts: Different trustees may set different base contribution amounts for no-asset bankruptcies. While the range is typically $1,800 to $2,500, some trustees may charge more or less depending on their overhead costs and practice.
• Payment schedules: Some trustees offer more flexible payment schedules than others, which can make a significant difference in affordability.
• Consumer proposal terms: While the proposal payment is ultimately determined by what creditors will accept, different trustees may have different perspectives on what terms to propose, which can affect your total cost.
• Additional services: Some trustees include additional services in their standard fee, such as credit monitoring, post-discharge coaching, or extended counselling.

What About Bankruptcy for People Who Cannot Afford to Pay?

One of the fundamental principles of Canadian bankruptcy law is that it should be accessible to people who genuinely cannot pay their debts. The system is designed to be affordable even for people with very limited income:

• No-asset bankruptcies are common and typically involve only a modest base contribution spread over several months.
• Surplus income is only required if your income exceeds the government threshold — if your income is below the threshold, there are no surplus income payments.
• Legal aid may be available in some provinces for individuals who need legal representation at a discharge hearing but cannot afford a lawyer.
• Some trustees have programs for low-income individuals that further reduce the base contribution.

If you are unable to afford the base contribution or other costs associated with filing, speak to multiple Licensed Insolvency Trustees about your situation. Many trustees are committed to making the process accessible and may be able to work with you on a payment plan or reduced contribution. The insolvency system is designed as a safety net, and cost should not be a barrier to access.

Government Fees and Levies

In addition to trustee fees, there are several government fees and levies that apply to bankruptcies and consumer proposals in Canada:

These fees are not paid separately by the debtor — they are deducted from the funds collected during the bankruptcy or consumer proposal and are factored into the trustee’s calculations when determining payment amounts.

How Consumer Proposal Payments Are Determined

Understanding how a consumer proposal payment is calculated can help you evaluate whether a proposal is the right option for you and how much you can expect to pay.

1. Assess Your Total Debt

   The trustee begins by determining the total amount of your unsecured debts that would be included in the proposal. This includes credit cards, personal loans, lines of credit, tax debts, and other unsecured obligations.



2. Evaluate What Creditors Would Receive in Bankruptcy

   The trustee calculates what your creditors would receive if you filed for bankruptcy instead of a consumer proposal. This includes the value of any non-exempt assets, projected surplus income payments, and any other estate realizations.



3. Propose a Better Deal for Creditors

   For a consumer proposal to be accepted, it must generally offer creditors more than they would receive in a bankruptcy. The trustee determines an amount that meets this threshold while remaining affordable for you.



4. Structure the Payment Plan

   The total proposal amount is typically divided into equal monthly payments over a period of up to 60 months. The trustee’s fees, OSB levy, and counselling costs are factored into this total.



5. Submit for Creditor Approval

   The proposal is submitted to your creditors for a vote. Creditors holding a majority of the dollar value of your debts must approve the proposal for it to become binding on all creditors.

Real-World Cost Scenarios

To help illustrate how fees work in practice, here are several real-world scenarios that show the total cost of different insolvency options:

Scenario 1: Low-Income, No Assets

Profile: Single person, earning $2,000/month (below surplus income threshold), no non-exempt assets, $25,000 in unsecured debt.

In this scenario, bankruptcy is significantly cheaper but comes with a greater credit impact. The consumer proposal costs more but provides a less severe credit notation and allows the debtor to keep all assets.

Scenario 2: Moderate Income, Some Assets

Profile: Family of four, combined household income of $6,500/month, $5,000 in home equity above exemption, $50,000 in unsecured debt.

In this scenario, the costs are closer together. The bankruptcy is cheaper in total dollars but requires surrendering the non-exempt home equity and has a more severe credit impact. The consumer proposal costs more but protects the home equity and carries a lighter credit notation.

Scenario 3: Higher Income, Second Bankruptcy

Profile: Single person, earning $4,500/month, no non-exempt assets, $40,000 in unsecured debt, previously bankrupt.

In this scenario, the consumer proposal is actually cheaper than a second bankruptcy while also providing a shorter credit impact (3-6 years vs. 14 years). This illustrates why consumer proposals are often recommended over second bankruptcies for higher-income earners.

Understanding the Inspectors’ Role in Fee Approval

In some bankruptcy cases, inspectors may be appointed to oversee the administration of the estate. Inspectors are typically creditors or their representatives who have a vested interest in ensuring that the estate is administered efficiently and that fees are reasonable.

Inspectors have the authority to review and approve the trustee’s fees before they are paid from the estate. If there are no inspectors, the court can review the trustee’s fees upon request by any interested party. This system of checks and balances helps ensure that trustee fees remain fair and reasonable.

Tax Implications of Fees

There are several tax implications to be aware of when it comes to insolvency proceedings:

• HST/GST on trustee fees: Trustee fees in consumer proposals are subject to HST/GST, which is factored into the total proposal payment.
• Tax refunds during bankruptcy: Any tax refund owing for the year you file bankruptcy (and previous years) typically goes to the bankruptcy estate.
• Consumer proposal payments are not tax-deductible: Payments made under a consumer proposal are not deductible for income tax purposes.
• Forgiven debt is not taxable: In a consumer proposal, the portion of debt that is forgiven is not treated as taxable income (unlike informal debt settlements, where forgiven amounts may be taxable).

One significant advantage of a consumer proposal over informal debt settlement is the tax treatment of forgiven debt. When a creditor forgives a debt outside of a formal insolvency proceeding, they may issue a T4A slip for the forgiven amount, and you would be required to include that amount as income on your tax return. In a consumer proposal, the forgiven debt is not taxable, which can result in significant tax savings.

The Complaint Process: What to Do If You Have a Fee Dispute

If you believe that your trustee’s fees are unreasonable or that the trustee has not fulfilled their obligations, you have several avenues for recourse:

• Discuss the issue directly with your trustee. Many fee disputes can be resolved through direct communication.
• Contact the trustee’s firm. If you cannot resolve the issue with your individual trustee, escalate to a senior partner or manager at the firm.
• File a complaint with the OSB. The Office of the Superintendent of Bankruptcy investigates complaints against Licensed Insolvency Trustees and has the authority to take disciplinary action.
• Request a court review of fees. Any interested party can apply to the court for a review (taxation) of the trustee’s accounts. The court can order fees to be reduced if they are found to be excessive.

Frequently Asked Questions About Trustee Fees in Canada

Making the Right Choice for Your Financial Situation

Understanding how trustee fees work is an important part of making an informed decision about your debt relief options. Whether you are considering a consumer proposal or bankruptcy, knowing what to expect in terms of costs, payment structures, and fee calculations can help you plan effectively and avoid surprises.

The most important step you can take is to consult with a Licensed Insolvency Trustee. During your free consultation, the trustee will review your specific financial situation, explain all of your options, and provide detailed cost estimates for each path. This personalized assessment is far more valuable than any general guide, because the right solution depends on your unique circumstances.

Remember: the goal of the insolvency system is to provide a fair and accessible process for people who genuinely cannot pay their debts. Trustee fees are regulated to ensure affordability, and the system is designed so that cost is not a barrier to getting the help you need.

This article is for informational purposes only and does not constitute legal or financial advice. Fee structures and tariff rates are subject to change. Consult with a Licensed Insolvency Trustee for advice specific to your situation and for the most current fee information.