How much does a consumer proposal cost?

This is the most common and always the first question we are asked. The cost of a consumer proposal is quite simply that is must be have a larger benefit to your creditors than a bankruptcy would. However, there are a couple very important thing that need to be kept top of mind:

  • The rule of thumb is that a consumer proposal is only accepted by major banks with a 30% (or 30 cents on the dollar) payback offer;
  • A proposal is an offer to your creditors – they get to vote over a 45-day period, with each dollar representing 1 vote. It takes 51% of the votes received to be in favour for a proposal to pass, otherwise we have to negotiate.;
  • Different creditors vote differently – for example; in a situation where RBC is owed the most, they often ask for 50%, or more, payback, while TD will only send a vote if they represent 50% or more, they often vote yes for 30% payback;
  • Payments are made by you for up to 60 months as opposed to a bankruptcy which is 21 or 36 months, so you may have to pay the same amount but have 2x or 3x the time to make those payments;
  • Most banks won’t even look a proposal that is less than $115 for 60 months.

So, if a proposal must be better than a bankruptcy how do I know what I’d pay in a bankruptcy?

This is far more complicated than a proposal. To simplify: the government sets an income level depending on the number of people living in your home. That threshold can be found here (link to If your family income is more than that you must pay 50% of every dollar above the amount for 21 months if it is your first bankruptcy or 36 months if it is your second or greater bankruptcy.

Additionally, there is a list of exemptions for assets, if your assets’ value exceeds that exemption limit, you must pay the amount above the exemption.

Complicated, right? Here’s 2 simple examples.

Example 1

  • Jane has 2 kids. She earns $4000 after tax each month, and her children receive $1000 of Child Tax Benefit. She is divorced. She owns a car worth $10,000. She has $50,000 of debt. She has never been bankrupt before. She does not receive spousal or child support.;
  • In a bankruptcy scenario we would start by calculating her surplus income:
    • $5000 household income, three people living in the home.
    • 5000-3433 (income-the government surplus income threshold for 3 people) =1567
    • 1567*50%= $783.50
    • $783.50 is her monthly payment for 21 months which totals $16,453.50
  • Additionally, her vehicle value exceeds the exemption of $6600
    • $10,000-6600=3400
    • She would need to buy back the $3400 of vehicle value or the Trustee can sell the car to get that money
  • The total bankruptcy benefit for the creditors is $19,853.50

Therefore, her proposal must be for more than $19,853.50. If we round it up to $20,100 and divide the payment over 60 months, she could make a proposal offer for $335.

Although her total payment exceeds the 30% rule, it is still a great offer, and is easier to handle for Jane than a bankruptcy payment would be. Jane saves 60% and pays no interest or penalties.

Example 2

Chris earns $2200 after tax per month. He is single, no kids. He has never been bankrupt before. He has no asset. He owes $27,000.

  • In a bankruptcy scenario we would start by calculating his surplus income:
    • $2000 household income, 1 person living in the home.
    • 2200-2243 (income-the government surplus income threshold for 1 person) =-43
    • Chris could actually earn $43 more per month before he has to worry about surplus income.

Therefore, we apply the 30% rule. 27,000*30%/60 months= $150 per month for 60 months. Chris saves 70% and doesn’t pay interest or penalties.

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