Debt Relief in Canada

Canadian households owe $1.77 for every dollar of disposable income, one of the highest debt-to-income ratios in the developed world (Statistics Canada, Q3 2025).

If you need help with debt, here are your options and how to choose among them.

Debt relief options in Canada

Which option makes sense depends on how much you owe, the type of debt, your income, your assets, and whether creditors are already taking action against you.

Consumer proposal

A consumer proposal is a legal arrangement where you agree with your creditors to pay part of your debt, and the remaining balance is forgiven. Payments are fixed and spread over up to 60 months, with no interest. Collection calls, wage garnishments and lawsuits stop the moment you file.

A consumer proposal is the most common alternative to bankruptcy, and you can keep your assets, such as your home, car, and RRSPs. To qualify, you need to owe unsecured debt between $1,000 and $250,000, not counting your mortgage.

Source: Bankruptcy and Insolvency Act, Division II

Trustee fees are regulated by the federal government and built into your payments. You know the total cost before you file, and it does not change. You can also pay a lump sum at any time to finish the proposal early. Consumer proposals can only be filed through a Licensed Insolvency Trustee.

Bankruptcy

Bankruptcy eliminates most unsecured debts when there’s no realistic way to repay them. You surrender certain assets to a Licensed Insolvency Trustee, who then distributes the funds to your creditors. After discharge, the debt is gone.

A first-time bankruptcy with no surplus income lasts nine months. If your income exceeds a government-set threshold, the term extends to 21 months.

Like a consumer proposal, bankruptcy provides immediate legal protection from creditors under the Bankruptcy and Insolvency Act.

Debt consolidation

Debt consolidation combines multiple debts into a single loan, typically at a lower interest rate. Instead of making several payments each month, you make just one.

Banks and credit unions typically charge 7% to 12% interest on consolidation loans. Finance companies charge more, often over 14% on secured loans and over 30% on unsecured loans, sometimes with setup fees on top.

Source: Financial Consumer Agency of Canada – Personal Loans

Consolidation does not reduce the amount you owe. It restructures your payments to make them more manageable. You need a reasonable credit score and steady income to qualify, and it works best when your total debt is still relatively low.

Debt management plan

A debt management plan (DMP) is arranged through a credit counselling agency.

The agency negotiates with your creditors to reduce or eliminate interest, and you make a single monthly payment to the agency, which then distributes it among your creditors.

You repay 100% of the principal under a DMP. There is no debt reduction. Plans typically run for three to five years.

Both non-profit and for-profit agencies offer debt management plans. Agencies charge setup and monthly administration fees, so confirm the total cost before you commit. If the fees eat up most of the interest you are saving, the plan is not worth it. Non-profit agencies are generally cheaper, but check the fees either way.

Debt settlement

Debt settlement involves negotiating with creditors to settle for less than the total amount owed. Unlike a consumer proposal, it is not legally binding. Creditors can refuse, and many do so.

Be cautious of for-profit debt settlement companies. They often charge high upfront fees, make promises they cannot keep, and have no legal authority to stop collection calls, garnishments, or lawsuits. Some collect their fee and then refer you to a Licensed Insolvency Trustee anyway.

If you want a legally binding way to reduce your debt with creditor protection, a consumer proposal does what debt settlement promises, but with the force of law behind it.

Credit counselling

Credit counselling provides advice on budgeting, money management and debt. Non-profit agencies offer free initial assessments and can recommend a path forward, including a debt management plan, consolidation, or a referral to a Licensed Insolvency Trustee.

Credit counselling on its own doesn’t reduce your debt. If you go this route, choose a non-profit agency. Some for-profit agencies receive commissions for recommending specific products, such as a debt management plan.

Compare debt relief options in Canada

	Consumer proposal	Bankruptcy	Debt consolidation	Debt management plan	Debt settlement
Debt reduction	Up to 80%	Up to 100%	None. You repay in full	None. You repay in full	Varies. Not guaranteed
Keep your assets	Yes	Some assets may be surrendered	Yes	Yes	Yes
Interest frozen	Yes, immediately	Yes	No. New rate applies	Usually reduced or eliminated	No
Legal protection from creditors	Yes, by law	Yes, by law	No	No	No
Stops collections and garnishments	Yes, immediately	Yes, immediately	No	No	No
Credit rating impact	R7. Removed 3 years after completion or 6 years from filing, whichever is first	R9. Removed 6 to 7 years after discharge	Depends on payment history	R7. Removed 2 years after completion	Varies
Typical timeline	Up to 5 years	9 to 21 months	2 to 5 years	3 to 5 years	Varies
Who administers it	Licensed Insolvency Trustee	Licensed Insolvency Trustee	Bank or credit union	Credit counselling agency (non-profit or for-profit)	Private company (unregulated)
Government regulated	Yes. Bankruptcy and Insolvency Act	Yes. Bankruptcy and Insolvency Act	No	No	No

Source: Government of Canada – How Long Information Stays on Your Credit Report and Equifax Canada – Consumer Credit Report User Guide

How to choose the right debt relief option

Most people fall into one of three situations:

If you owe less than $10,000 and can still make payments, a debt consolidation loan or a debt management plan might help get things under control.

If you owe $10,000 to $250,000 in unsecured debt and the sums do not add up, a consumer proposal is usually the best option. You keep your assets, reduce what you owe, and get immediate legal protection from creditors.

If you have no realistic ability to repay and limited assets, bankruptcy is the most practical option. It’s a legal fresh start, not the end.

If you’re not sure, talk to a Licensed Insolvency Trustee. The consultation is free, confidential, and without obligation. A trustee is legally required to explain all your options.

Government debt relief programs in Canada

Be cautious of companies offering “government debt forgiveness programs” in Canada. The name is misleading.

The only debt relief programs regulated by the Canadian government are consumer proposals and bankruptcy, both administered under the Bankruptcy and Insolvency Act and overseen by the Office of the Superintendent of Bankruptcy. They’re called “government debt relief programs” because they’re set out in federal law and administered by federally licensed professionals called Licensed Insolvency Trustees.

Debt consolidation loans and credit counselling are not government programs, despite what some companies advertise.

For student loan debt specifically, the federal government offers the Repayment Assistance Plan (RAP), which reduces or pauses payments based on your income.

Source: Government of Canada – Repayment Assistance Plan

Watch out for debt relief scams

Not all debt relief companies in Canada are regulated, and some are outright predatory. Be cautious of any company that charges large upfront fees before starting any work, promises to make your debt disappear, or claims access to secret government programs.

Walk away from any company that pressures you into signing immediately or tells you to stop making payments to your creditors while they “negotiate.” Stopping payments damages your credit and can lead to lawsuits.

If a company offers to file a consumer proposal or bankruptcy on your behalf, check that they are a Licensed Insolvency Trustee. Only an LIT can file these. You can verify any trustee through the Office of the Superintendent of Bankruptcy website.

Source: Office of the Superintendent of Bankruptcy – Search for a Licensed Insolvency Trustee

How many Canadians file for debt relief each year?

In 2024, 137,295 Canadians filed for consumer insolvency. 78.8% chose a consumer proposal over bankruptcy. That was 4.2 filings per 1,000 adults, the highest rate since 2019.

Source: Office of the Superintendent of Bankruptcy – Insolvency Statistics in Canada, 2024

Filings are still climbing. For the 12-month period ending October 2025, consumer insolvencies rose 1.7% year-over-year. The proportion choosing consumer proposals slipped slightly to 78.6%, as bankruptcies grew faster than proposals for the first time in several years.

Source: Office of the Superintendent of Bankruptcy – Insolvency Statistics in Canada, October 2025

Canadian households owe $1.77 for every dollar of disposable income as of Q3 2025. That ratio has been climbing for four consecutive quarters.

Source: Statistics Canada – National Balance Sheet and Financial Flow Accounts, Q3 2025

Frequently asked questions

What is a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee (LIT) is the only professional in Canada authorized by the federal government to manage consumer proposals and bankruptcies. LITs are regulated by the Office of the Superintendent of Bankruptcy and act as officers of the court. The title was previously “bankruptcy trustee” until 2016.

Source: Government of Canada – Office of the Superintendent of Bankruptcy

Can I deal with my debt without filing a consumer proposal or going bankrupt?

It depends on how much you owe and your ability to repay. If you owe less than $10,000 and have steady income, a consolidation loan or a debt management plan is often enough. For higher debt levels or active creditor action, a consumer proposal or bankruptcy gives you legal protection that other options do not.

Will debt relief affect my credit score?

A consumer proposal results in an R7 rating for each included account, which tells potential lenders that you are making payments under a formal arrangement. The consumer proposal stays on your credit report for three years after you complete it or six years from the date you filed, whichever comes first.

Source: Government of Canada – How Long Information Stays on Your Credit Report

Bankruptcy results in an R9 rating, the lowest on the scale. A first bankruptcy stays on your report for six to seven years after discharge. After either process is complete and the record is removed, you rebuild from a clean report.

Source: Equifax Canada – Consumer Credit Report User Guide

How do I know if a debt relief company is legitimate?

Check whether they are a Licensed Insolvency Trustee on the Office of the Superintendent of Bankruptcy website. If a company claims it can file a consumer proposal or bankruptcy but is not on that list, walk away. Be particularly wary of companies that charge fees upfront, guarantee specific outcomes, or pressure you to sign immediately.

Can I include tax debt in a debt relief program?

Yes. CRA debt, including income tax, HST, and payroll source deductions, can be included in a consumer proposal or discharged in bankruptcy. CRA is treated the same as any other unsecured creditor. Tax debt cannot be included in a debt consolidation loan unless you first borrow to pay CRA directly.

What about student loans?

Student loans can be included in a consumer proposal or discharged in bankruptcy, but only if you have been out of school for at least seven years. This is set out in section 178(1)(g) of the Bankruptcy and Insolvency Act.

Source: Bankruptcy and Insolvency Act, s. 178(1)(g)

If you have not reached the seven-year mark, you can still file a consumer proposal for your other debts. That often frees up enough cash flow to manage student loan payments separately.

What is the difference between debt consolidation and a consumer proposal?

Debt consolidation combines your debts into a new loan. You still owe the full amount, but at a lower interest rate. A consumer proposal is a legal agreement where your creditors accept less than the full amount and forgive the rest. Consolidation requires good credit and lender approval. A consumer proposal is available through a Licensed Insolvency Trustee regardless of your credit score.

Does bankruptcy eliminate all debt?

Bankruptcy eliminates most unsecured debt, but not all. Debts that survive bankruptcy include child and spousal support, court fines, fraud-related debts, and student loans if you have been out of school for less than seven years. Secured debts like mortgages and car loans are also not discharged unless you surrender the asset.

Get free debt relief advice

Talk to a Licensed Insolvency Trustee about your options. The consultation is free, confidential, and completely without obligation.

We help Canadians across Alberta, Ontario, British Columbia, Nunavut and the Northwest Territories.