What is debt forgiveness in Canada?
Debt forgiveness is when a creditor agrees to cancel all or part of your debt. It usually happens because you can’t afford to repay it.
If you’re in serious financial hardship and can’t make even the minimum payments, some creditors eventually decide it’s not worth chasing and write the debt off as a loss. But they won’t do this unless you take action and show you genuinely can’t pay.
What debts can be forgiven?
Most unsecured debts can be forgiven. That includes credit card debt, personal loans, lines of credit, payday loans, and some tax debts.
Secured debts like mortgages and car loans don’t qualify for forgiveness. They’re tied to an asset, so the lender can take the property if you stop paying. Some secured debts can be modified if you’re struggling with payments, but the debt itself isn’t forgiven.
Student loans can only be forgiven through a consumer proposal or bankruptcy if you’ve been out of school for at least seven years.
Source: Bankruptcy and Insolvency Act – Section 178
Debt forgiveness programs in Canada
If you’ve seen ads promising “government debt relief” or “government grants” that clear your debt, be careful. In Canada, there are no government-backed programs that simply wipe your debt away.
Debt forgiveness happens through one of two formal legal processes: a consumer proposal or bankruptcy. Both are governed by the Bankruptcy and Insolvency Act and administered by a Licensed Insolvency Trustee, a federally regulated insolvency professional.
Other options like debt management plans or consolidation loans can make your payments easier, but they don’t forgive any of the debt.
| Program | Provided by | Debts covered | Debt forgiven? | Duration |
|---|---|---|---|---|
| Consumer proposal | Licensed Insolvency Trustee | Most unsecured debts | Yes | 1 to 5 years |
| Bankruptcy | Licensed Insolvency Trustee | Most unsecured debts | Yes | 9 or 21 months (longer with surplus income) |
| Debt settlement | Debt settlement company | Most unsecured debts | Sometimes, partial | 2 to 5 years |
Consumer proposals
A consumer proposal is a legal agreement under the Bankruptcy and Insolvency Act. You repay a portion of your unsecured debt through fixed monthly payments for up to five years, and your creditors forgive the rest.
Once filed, interest is frozen, collection calls stop, and you’re legally protected from creditor action. Wage garnishments also stop.
If you stick to the repayment plan, any remaining eligible debt at the end is forgiven. You keep your assets, including your home and car. There’s no requirement to give them up.
Consumer proposals are sometimes marketed as “government debt forgiveness programs” because they’re federally regulated and backed by the BIA. They can only be arranged through a Licensed Insolvency Trustee.
Most unsecured debts qualify. Student loans qualify only if you’ve been out of school for seven years or more. CRA debt can be included if your returns are filed and accepted.
A consumer proposal affects your credit. It stays on your credit report for three years after completion or six years from filing, whichever comes first. That’s the trade-off.
But if you’re already behind on payments, your credit has likely taken a hit already.
Source: Financial Consumer Agency of Canada – Information on Your Credit Report
Bankruptcy
Bankruptcy is a last resort to eliminate your debts. It’s a legal process where you surrender non-exempt assets to a Licensed Insolvency Trustee, who uses the proceeds to pay your creditors. In return, most of your unsecured debts are discharged.
A first-time bankruptcy lasts 9 or 21 months, depending on your income. If you earn more than $200 above the surplus income threshold set by the OSB, the bankruptcy extends to 21 months and you pay more.
Bankruptcy has serious consequences, including the possible loss of assets and a major credit hit. It stays on your credit report for six years after discharge, or seven years in New Brunswick, Newfoundland and Labrador, Ontario, Quebec, and Prince Edward Island with TransUnion. A second bankruptcy stays on file for 14 years.
Not all debts are discharged. Student loans are excluded unless you’ve been out of school for at least seven years.
Source: Bankruptcy and Insolvency Act – Section 168.1
Debt settlement
Debt settlement means negotiating with your creditors to settle for less than the full amount. You typically offer a lump-sum payment, and if they accept, the remaining balance is forgiven.
You don’t need a debt settlement company for this. You can contact creditors directly. But get any agreement in writing before handing over money.
Creditors usually only entertain offers if you’ve already missed payments and they believe you’re unlikely to repay in full. They’re not required to accept your offer, and there’s no legal protection during the process. Creditors can still sue you, garnish wages, or continue collection efforts until a deal is reached.
Be cautious of debt settlement companies that charge high upfront fees or promise to erase your debt quickly. Many don’t deliver. Make sure you fully understand their fees before agreeing to anything.
Debt settlement is not a legally binding program. If you’re considering it, talk to a Licensed Insolvency Trustee first. They can walk you through better, more reliable options, and the consultation is free.
Can student loans be forgiven in Canada?
Student loan forgiveness works differently from regular debt forgiveness. There are several federal and provincial programs, each with its own eligibility rules.
Repayment assistance plan (RAP)
If you’re struggling to make your student loan payments, the Repayment Assistance Plan can reduce them or eliminate them entirely for six months at a time. Eligibility depends on your family income and family size.
As of March 2026, the monthly income threshold for a single person is $3,788. A family of two qualifies at $4,444 per month. A family of four qualifies at $6,283 per month. These thresholds are adjusted annually by CPI.
Source: Government of Canada – RAP Eligibility
If you earn more than the threshold, you may still qualify for reduced payments. You need to reapply every six months through the National Student Loans Service Centre.
After 60 months on RAP (or 10 years after finishing school), the government starts paying down the principal. If you stay eligible, the balance is eventually paid in full.
Federal student loan forgiveness
The Government of Canada offers student loan forgiveness to borrowers who work in eligible professions in rural or remote communities with a population of 30,000 or fewer.
The program covers 17 professions. The original eligible professions were family physicians, family medicine residents, and nurses. Ten new professions were added: dentists, dental hygienists, pharmacists, midwives, teachers, social workers, physiotherapists, psychologists, early childhood educators, and personal support workers.
Source: Government of Canada – Canada Student Loan Forgiveness
Over five years, eligible family physicians, family medicine residents, dentists, psychologists, and pharmacists can receive up to $60,000 in forgiveness. Nurses, midwives, teachers, social workers, and physiotherapists can receive up to $30,000. Early childhood educators, dental hygienists, and personal support workers can receive up to $15,000.
You must work in an eligible community for 12 consecutive months (10 months for teachers, early childhood educators, psychologists, and social workers working in a school) and provide at least 400 hours of in-person service. The forgiveness applies only to the federal portion of your student loan.
Provincial programs
Several provinces offer their own student loan forgiveness programs.
In British Columbia, the Loan Forgiveness Program can forgive the provincial portion of your Canada-B.C. integrated student loan at a rate of up to 20% per year for a maximum of five years if you work in an eligible occupation.
Quebec’s Loan Remission Program forgives a portion of your student loan if you finish your program within a set timeframe and receive a bursary each year through the Loans and Bursaries Program.
In Nova Scotia, graduates from non-professional undergraduate programs at Nova Scotia universities can receive up to $20,400 in forgiveness over five years. Since August 2019, eligible graduates can have their entire Nova Scotia student loan forgiven. The program also covers certificates and diplomas for loans issued since August 2020.
Source: Government of Nova Scotia – Student Loan Forgiveness
In Prince Edward Island, students who borrowed more than $6,000 in student loans each year may qualify for the PEI Debt Reduction Grant Program.
Consumer proposal or bankruptcy
Student loans can be discharged through a consumer proposal or bankruptcy, but only if you’ve been out of school for seven years or more. If it’s been less than seven years, the student loan survives the process and you remain responsible for it.
How does debt forgiveness affect your credit?
Debt forgiveness affects your credit score. But if you’re already behind on payments, your credit has probably already taken a hit. Getting your debt under control is often worth the trade off.
Credit report timelines
As of 2026, here’s how long debt forgiveness programs like consumer proposals and bankruptcy stay on your credit report.
| Program | Credit rating | How long it stays on your credit report |
|---|---|---|
| Debt settlement | R7 | 2 years after the debts have been repaid |
| Consumer proposal | R7 | 3 years after completion or 6 years from filing, whichever comes first (Equifax and TransUnion) |
| Bankruptcy (first time) | R9 | 6 years after discharge. 7 years in NB, NL, ON, QC, and PEI with TransUnion |
| Bankruptcy (second time) | R9 | 14 years with both credit bureaus |
Source: Financial Consumer Agency of Canada – Information on Your Credit Report
What credit rating codes mean
Canadian credit bureaus use a two-part code. The letter tells you what kind of account it is, and the number tells you the payment status.
The letter R means revolving credit, like a credit card. I means instalment credit, like a personal loan or car loan. O means an open account, like some lines of credit.
C means a line of credit, and M means a mortgage. The number 1 means you’re paying on time. 7 means you’re making payments through a special arrangement, like a consumer proposal or debt management plan. 9 means bad debt, sent to collections, or bankruptcy.
So R7 means a credit card included in a consumer proposal. I9 means a personal loan included in a bankruptcy. Only unsecured debts included in a consumer proposal get the 7 rating.
Secured debts like mortgages and car loans aren’t part of the consumer proposal, so they keep their normal rating based on whether you’re making payments.
Source: Equifax – Consumer Credit Report User Guide
Alternatives to debt forgiveness
These options don’t forgive your debt, but they can help you save on interest and pay it off faster.
Ask for a lower interest rate
Before looking at formal programs, call your creditors and ask for a lower rate. It won’t reduce what you owe, but it can make monthly payments more manageable and help you pay off the balance faster.
Creditors don’t have to agree, but many will if you explain you’re struggling. It’s worth asking.
Credit card balance transfer
If your credit score is 650 or above, a balance transfer credit card can give you breathing room. You move high-interest credit card debt onto a new card with 0% or low interest for 6 to 12 months. More of your money goes toward paying off the actual debt instead of interest.
Don’t spend on the card. Focus on paying down the balance before the promotional period ends. Watch for transfer fees, typically 1% to 3%. And don’t run up your old card again, or you’ll end up in a worse position.
Debt management program
A Debt Management Program (DMP) through a non-profit credit counselling agency combines your unsecured debts into a single monthly payment. Interest is often reduced or frozen, which stops your balances from growing. Most plans run for up to five years.
A DMP is not a debt forgiveness program. You’re still expected to repay the full amount you owe, just in a more structured way. Creditors rarely agree to write off a portion of the debt in a DMP, though some may agree to freeze interest and charges.
A DMP is reported on your credit report as R7, meaning you’re repaying through a special arrangement. The notation stays for two years after completion.
Debt consolidation loan
A debt consolidation loan combines multiple debts into one, usually at a lower interest rate. You take out a single loan to pay off your existing debts, leaving you with one monthly payment.
It doesn’t forgive any debt. It simplifies your payments and can save you money on interest. Just make sure you can afford the new loan and avoid running up new debt on the cards you’ve cleared.
Orderly payment of debts (OPD)
Orderly Payment of Debts is a court-approved plan that lets you repay your debts in full over up to three years at a fixed 5% interest rate. You repay everything you owe, but at a lower rate and with legal protection from creditor action.
OPD is only available in Alberta, Saskatchewan, Nova Scotia, and Prince Edward Island. It’s administered by provincial credit counsellors, not Licensed Insolvency Trustees.
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Frequently asked questions
When does a debt become forgiven?
A debt is forgiven when the creditor formally agrees to write off some or all of what you owe. In a consumer proposal, debt is forgiven after you complete the payments (up to five years). In bankruptcy, first-time filers are discharged after 9 or 21 months.
In informal settlements, debt is considered forgiven when the creditor accepts a payment and marks the account as settled. There’s no fixed timeline for that.
How do I know if my debt has been forgiven?
If a creditor agrees to write off your debt, ask for confirmation in writing. Until you get that, the debt may still be active. Check your credit reports with Equifax and TransUnion to see whether the account is listed as written off or settled.
What if creditors still contact me after my debt is forgiven?
If your debt was legally forgiven through a consumer proposal or bankruptcy, creditors shouldn’t be contacting you. Make sure the debt was included in your filing and that you’ve completed your payments. Then ask the creditor for a letter confirming the debt is cleared.
If they persist, you can report it to the Financial Consumer Agency of Canada or speak to your Licensed Insolvency Trustee.
Can CRA tax debt be forgiven?
The CRA won’t simply reduce your tax debt, but they will cancel penalties and interest through their taxpayer relief provisions if you’ve experienced serious hardship like illness or job loss.
If you can’t afford to pay the full amount, a consumer proposal or bankruptcy can reduce or clear tax debt, but only if all your tax returns are filed.
A Licensed Insolvency Trustee is the only person who can make a formal offer to the CRA to settle what you owe.
Does debt settlement affect my credit?
Yes. Settled debts are reported as R7 on your credit report and stay there for two years after the debts are repaid. Settling debt for less than the full amount is better than having unpaid accounts go to collections, but it still affects your ability to borrow.
Can I negotiate debt forgiveness on my own?
You can. There’s nothing stopping you from calling your creditors and offering a lump sum to settle your debt. Some creditors accept these offers, especially if you’ve already missed payments. But get any agreement in writing before paying anything.
If you’re not comfortable negotiating, a Licensed Insolvency Trustee can help you understand your formal options at no cost.
How long does it take to rebuild credit after debt forgiveness?
It depends on what type of debt forgiveness you used and how you manage your credit afterwards.
After a consumer proposal, many people see meaningful improvement within 12 to 18 months of completion, especially if they use a secured credit card and make all payments on time. The proposal notation drops off your credit report three years after completion.
Is a consumer proposal better than bankruptcy for debt forgiveness?
For most people, yes. A consumer proposal lets you keep your assets, has a shorter credit report impact than bankruptcy, and gives you fixed payments with no surprises. Bankruptcy is a better fit only when your situation is severe and a proposal isn’t feasible. A Licensed Insolvency Trustee can tell you which option makes more sense for your situation.
Get debt advice
If you’re thinking about debt forgiveness or want to understand your options, talk to a Licensed Insolvency Trustee. The initial consultation is free, and they’re the only professionals in Canada authorized to file both consumer proposals and bankruptcies.