Why look at alternatives to bankruptcy?
Bankruptcy works. It eliminates most unsecured debt and gives you a fresh start. But it comes with trade-offs that are worth understanding before you commit.
A first bankruptcy stays on your credit report for six years after discharge with Equifax, and six to seven years with TransUnion, depending on the province. A second bankruptcy stays on your credit report for 14 years with both credit bureaus.
You also face potential asset liquidation, surplus income payments if you earn above the government threshold, and a public record of your filing.
Most people assume bankruptcy means losing everything. That is not true, but the restrictions are real enough that alternatives are worth a serious look first.
What is a consumer proposal?
A consumer proposal is the most popular alternative to bankruptcy in Canada. It is a legal agreement filed under the Bankruptcy and Insolvency Act in which you repay part of your unsecured debt over up to five years, and your creditors forgive the rest.
Only a Licensed Insolvency Trustee can file a consumer proposal on your behalf. You need to owe between $1,000 and $250,000 in unsecured debt, excluding your home mortgage. For joint proposals, the limit doubles to $500,000.
How creditors vote on a consumer proposal
Once the consumer proposal is filed, your creditors have 45 days to respond. If fewer than 25% of creditors by dollar value request a meeting, the consumer proposal is automatically accepted.
If a meeting is called, creditors vote by ordinary resolution. A simple majority in dollar value is all you need.
The moment you file, a stay of proceedings kicks in. That means collection calls, wage garnishments, and lawsuits stop.
Your payments are fixed for the full term, and your assets stay with you. Most consumer proposals are accepted without a creditor meeting.
How a consumer proposal affects your credit
A consumer proposal shows as an R7 rating on your credit report. Equifax removes the consumer proposal three years after completion or six years from the filing date, whichever comes first. TransUnion follows the same rule.
Compare that to a first bankruptcy, which stays on your credit report for 6 to 7 years after discharge.
If you complete a consumer proposal in three years, you have a clean credit report within six years of filing. That is faster than bankruptcy in most cases.
How does a debt consolidation loan work?
A debt consolidation loan rolls multiple debts into a single loan with one monthly payment, usually at a lower interest rate than you are currently paying. Banks, credit unions, and other lenders offer them.
You still repay 100% of what you owe, plus interest. You also need decent credit to qualify. If your credit score has already taken a hit from missed payments, most lenders will say no.
A consolidation loan is a sensible route if your credit is still intact, you have a steady income, and your debt level is manageable. It is not the right option if you are already drowning in debt.
Can a debt management plan help?
A debt management plan is an arrangement set up through a non-profit credit counselling agency. The agency negotiates with your creditors to reduce or eliminate interest on your unsecured debts. You then make a single monthly payment to the agency, which distributes it to your creditors.
You repay 100% of the principal you owe, with no debt reduction. Most debt management plans take two to four years to complete. The agency charges a fee for its services, which you pay on top of your debt.
What a debt management plan does not do
A debt management plan has no legal force. Creditors are not required to participate, and government debts, such as CRA balances, typically cannot be included.
There is no stay of proceedings, so creditors can still take legal action if they choose to. Credit bureaus remove the record of a debt management plan two years after you complete it.
Source: Financial Consumer Agency of Canada – Getting help from a credit counsellor
If your debts are modest and you can afford to repay the full amount at a reduced interest rate, a debt management plan is worth looking at. If you need legal protection or debt reduction, a consumer proposal is a better fit.
What about informal debt settlement?
Informal debt settlement means contacting your creditors directly and asking them to accept less than the full amount you owe, usually as a lump sum. No trustee, no court, no formal process.
There is no legal protection in an informal settlement. Your creditors have no obligation to negotiate, and nothing stops them from continuing collection calls or legal action while you try to work something out.
The Financial Consumer Agency of Canada notes that for-profit debt settlement companies are common in this space, and many charge fees regardless of whether they succeed.
Source: Financial Consumer Agency of Canada – Using a debt settlement company
Informal settlement works best when you owe a small amount to one or two creditors and have cash available to make a lump-sum offer. If you owe money to several creditors and need legal protection, it is not the right tool.
Is the Orderly Payment of Debts program an option?
The Orderly Payment of Debts program is a court-supervised repayment plan available only in Alberta, Saskatchewan, Prince Edward Island, and Nova Scotia. Quebec has a similar program called the Voluntary Deposit Service.
Under the Orderly Payment of Debts program, a provincial credit counselling agency applies to the court on your behalf for a consolidation order.
The court consolidates your unsecured debts into a one monthly payment at a fixed 5% interest rate, repayable over up to three years. The order includes a stay of proceedings, so collection actions stop.
Source: Bankruptcy and Insolvency Act – Part X, Orderly Payment of Debts
The Orderly Payment of Debts program requires you to repay your debt in full, plus the 5% interest. It cannot include income tax debts or business debts.
If you live in one of the eligible provinces and can afford full repayment at a lower interest rate, the Orderly Payment of Debts program is a legitimate option. For everyone else, it is not available.
How do you choose the right alternative?
The right alternative to bankruptcy depends on your total debt, income, and whether you need immediate protection from creditors. Here is how they compare.
| Consumer proposal | Debt consolidation loan | Debt management plan | Informal settlement | Orderly Payment of Debts | |
|---|---|---|---|---|---|
| Debt reduction | Yes, you repay a portion | No | No | Possible, not guaranteed | No |
| Legal creditor protection | Yes, stay of proceedings | No | No | No | Yes, court order |
| Includes CRA debt | Yes | No | No | Possible | No |
| Credit score impact | R7 rating | Depends on payment history | R7 rating | Varies | R7 rating |
| Maximum repayment term | 5 years | Loan term (varies) | 2 to 4 years | Varies | 3 years |
| Available across Canada | Yes | Yes | Yes | Yes | AB, SK, PE, NS only |
| Requires good credit | No | Yes | No | No | No |
| Administered by | Licensed Insolvency Trustee | Bank or credit union | Non-profit credit counsellor | Self or for-profit company | Provincial agency |
As of October 2025, consumer insolvencies in Canada increased 1.7% year over year. 78.6% of those filings were consumer proposals, not bankruptcies. That tells you something about which alternative most Canadians and their trustees end up choosing.
Source: Office of the Superintendent of Bankruptcy Canada – Insolvency Statistics, October 2025
A Licensed Insolvency Trustee is required by law to review all your options before recommending any formal insolvency proceeding. That includes consumer proposals, bankruptcy, and everything in between. The initial consultation is free.
Free debt relief consultation
Talk to a Licensed Insolvency Trustee and discover debt relief solutions that eliminate your debt.
- Reduce debt by up to 80%
- Stop collection calls
- Lift wage garnishments
- End all legal action
- Freeze interest + charges
4.8 ★ on Google 170+ reviews
Frequently asked questions
Can I keep my house if I choose a bankruptcy alternative?
With a consumer proposal, yes. A consumer proposal deals with unsecured debt only, so your mortgage is not affected as long as you keep up the payments.
Debt consolidation loans, debt management plans, and informal settlements also leave your home untouched. In bankruptcy, whether you keep your home depends on your equity and provincial exemption rules.
How much does a consumer proposal cost compared to bankruptcy?
A consumer proposal typically costs less overall because you negotiate to repay a portion of your debt, not the full amount. In bankruptcy, the cost depends on your income and your assets.
A Licensed Insolvency Trustee will calculate both scenarios during a free assessment so you can compare them directly.
Will alternatives to bankruptcy stop collection calls and wage garnishments?
A consumer proposal and the Orderly Payment of Debts program both trigger a legal stay of proceedings that stops all debt collection activity, including wage garnishments.
Debt consolidation loans and debt management plans do not provide legal protection from creditors. Informal settlements offer no legal protection at all.
Can I include CRA tax debt in a consumer proposal?
Yes. A consumer proposal can include income tax debt, GST/HST debt, and other government obligations. This is one of the main advantages over a debt management plan or the Orderly Payment of Debts program, neither of which can include CRA balances.
How long do alternatives to bankruptcy stay on my credit report?
A consumer proposal stays on your credit report for three years after completion or six years from the filing date, whichever is sooner. A debt management plan stays on your credit report for two years after completion.
A first bankruptcy stays on your credit report for 6 to 7 years after discharge. The Orderly Payment of Debts program follows the same reporting rules as a consumer proposal.
Do I need a Licensed Insolvency Trustee for all alternatives to bankruptcy?
Only for a consumer proposal. A consumer proposal can only be filed by a Licensed Insolvency Trustee. Banks and credit unions offer debt consolidation loans, and non-profit credit counselling agencies offer debt management plans.
Informal settlements you handle yourself or through a third party. But even if you do not need a trustee for a specific debt relief alternative, talking to one first is a good idea.