Debt relief in Canada worked out: one household, four options, the arithmetic shown

For a single Ontario renter with $42,000 of unsecured debt and $3,500 a month of net income, the illustrative numbers below come out like this: repaying everything at about 17% over five years costs about $1,044 a month; a debt management plan at 0% interest costs $700 a month for five years; a consumer proposal of $280 a month for five years costs $16,800 in total; and a bankruptcy with surplus income costs about $392 a month for 21 months, about $8,232. The cheapest option in dollars is not always the right one: credit-report time, assets, job requirements and how creditors will vote all matter. The point of this guide is to show how each number is built, so you can redo it with your own figures.

This is the overview for the calculations and checklists section; every figure is illustrative and uses the federal rules in force on 27 October 2026. Not financial or legal advice.

The household

Option 1: keep paying

At a blended rate of about 17%, the level payment that clears $42,000 in 60 months is:

Payment = P × r ÷ (1 − (1 + r)^−n), with P = $42,000, r = 0.17 ÷ 12, n = 60, which gives about $1,043.81 a month and about $20,628 of interest.

With $800 a month free after living costs, this does not work. Paying only minimums would stretch the debt over many years.

Option 2: debt management plan

A non-profit credit counsellor asks the creditors to waive interest. If they agree:

$42,000 ÷ 60 = $700 a month, plus any agency fee. Total about $42,000 plus fees.

That is affordable on paper but leaves only about $100 a month of margin. Some creditors may refuse, and a DMP does not stop lawsuits. The DMP saving calculator compares it with repaying at the current rate. See DMP vs consumer proposal.

Option 4 first: what bankruptcy would give creditors

A proposal has to beat the bankruptcy result, so the trustee estimates that first.

1. Surplus income (Directive 11R2-2026): $3,500 − $2,716 (one-person standard) = $784. That is over $200, so she pays 50%: $392 a month. A first bankruptcy with surplus income lasts 21 months: $392 × 21 = $8,232.
2. Assets: the car is within the Ontario exemption; the RRSP is protected by BIA s. 67(1)(b.3). No assets are realized.
3. Trustee's fee (Rule 128, summary administration) on $8,232 of receipts: 100% of $975 + 35% of $1,025 + 50% of $6,232 = $975 + $358.75 + $3,116 = $4,449.75.
4. Other costs: $100 disbursements + $170 counselling + $92.38 OSB filing fee (2026) = $362.38.
5. Left for creditors: $8,232 − $4,449.75 − $362.38 = $3,419.87, less the 5% levy = about $3,249, or under 8 cents per dollar of debt.

For her, bankruptcy costs $8,232 over 21 months, with no assets lost.

Option 3: consumer proposal

She offers $280 a month for 60 months = $16,800. Under Rule 129, ignoring sales tax:

1. Fixed costs: $750 + $750 + $123.17 filing + $170 counselling = $1,793.17.
2. Distributions D: ($16,800 − $1,793.17) ÷ 1.2 = $12,505.69.
3. Levy: 5% × $12,505.69 = $625.28.
4. Creditors receive about $11,880, about 28 cents per dollar, much more than the $3,249 in a bankruptcy.

Creditors would very likely accept, and might accept less. At $200 a month for 60 months ($12,000), creditors would get about $8,080, still well above the bankruptcy figure. The consumer proposal offer calculation explains how a trustee sizes the offer, and the cost split estimator reruns it.

Side by side

For this household, bankruptcy costs least in dollars and finishes soonest, and her assets are safe. A proposal costs about twice as much but avoids the word "bankrupt" on her record and would be removed from her credit report about 6 years after signing, compared with about 6 or 7 years after a discharge that comes 21 months in. Some occupations and licences also treat bankruptcy differently from a proposal.

When the answer flips

• If she owned a home with $64,000 of equity after selling costs, bankruptcy would put that equity at risk and a proposal would almost certainly be better; see your home and car.
• If her income were at or below $2,716, there would be no surplus income, the bankruptcy would end after 9 months, and creditors would get close to nothing, making it hard to justify a proposal much above the minimum.
• If her debts included $20,000 of recent student loans, neither option would release them; see the 7-year rule.

Checklist for your own calculation

• Add up all unsecured debt, excluding any mortgage on your home.
• Compute available monthly income and subtract the 2026 standard for your household size: surplus income calculation.
• List assets and compare with your province's exemptions.
• Estimate what creditors would get in a bankruptcy, then what a proposal offer leaves them after fees.
• Prepare for a trustee meeting with the first meeting checklist, and know your counselling duties.

Frequently asked questions

Why is the bankruptcy fee so high in this example?

The summary administration tariff takes 50% of receipts above $2,000. With surplus income of $392 a month for 21 months, the trustee's share is large. Proposed rule changes published in 2025 would alter the bands, but they were not in force when we checked.

Would creditors really accept 28 cents on the dollar?

Creditors compare the offer with the bankruptcy result, not with the full balance. Here they would get about 8 cents in a bankruptcy, so 28 cents is attractive. Actual acceptance depends on the creditors.

Is the DMP ever better than a proposal?

Yes, if you can afford to repay the principal, want to avoid an insolvency record and your creditors cooperate. Its credit record is shorter.

Sources

• Office of the Superintendent of Bankruptcy — Directive 11R2-2026 and the consumer proposal process
• Justice Laws Website — BIA ss. 67 and 168.1; General Rules, Rules 128–132
• Ontario e-Laws — O. Reg. 657/05 (Execution Act exemptions)
• Financial Consumer Agency of Canada — how long information stays on your credit report