Line of Credit Debt Relief in Canada

How a line of credit works

A line of credit is a revolving loan that lets you borrow up to a set limit, repay, and borrow again. Unlike a personal loan with a fixed end date, there’s no built-in repayment schedule. Your minimum payment is typically interest only.

That’s where the problem starts. The Financial Consumer Agency of Canada found that more than 25% of HELOC holders routinely make interest-only payments, and 19% borrowed more than they originally planned.

As of Q3 2025, Canadian household credit market debt neared $3.2 trillion. Lines of credit are a large part of that picture.

Sources: FCAC – Home Equity Lines of Credit: Consumer Knowledge and Behaviour (2019) and Statistics Canada – National Balance Sheet Accounts, Q3 2025

For example, if you owe $30,000 on a personal line of credit at prime plus 4% (about 8.45% as of February 2026), your monthly interest payment is roughly $211. You pay $211 every month, and the balance stays at $30,000.

That’s $2,532 a year in interest with nothing going toward the principal. Over five years, you will have paid a total of $12,660, yet you still owe the full amount you borrowed. This situation won’t improve unless you change the structure of the debt.

When to get help with line of credit debt

If you’re making interest-only payments every month with no realistic plan to pay down the principal, your line of credit debt has moved past manageable. The same goes if your credit limit has been increased more than once, if regular expenses like groceries or rent are going on the line of credit, or if one credit product is covering payments on another.

The OSB’s Canadian Consumer Debtor Profile for 2024 paints a clear picture of where this leads. The median consumer debtor carried $53,997 in total liabilities. Among those filing insolvency, 89% had credit card debt and 57% had bank loans.

Source: Office of the Superintendent of Bankruptcy – Canadian Consumer Debtor Profile 2024

The median debtor’s monthly expenses exceeded their income by $175. Loss of income was the top reason cited for insolvency at 45%, followed by medical issues at 20%.

In 2024, 137,295 Canadians filed a consumer insolvency, 4.2 per 1,000 adults. That’s the highest insolvency rate since 2019.

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

If your line of credit balance has been sitting at or near the limit for more than a year, that’s a signal worth paying attention to.

Debt relief options for lines of credit

The right option depends on how much you owe, whether your line of credit is secured or unsecured, and whether you’ve got a steady income.

Option	Best for	How it works	Credit impact
Accelerated repayment	Balances under $10,000 with room in the budget	Switch from interest-only to fixed principal-plus-interest payments, or ask your lender to convert to a fixed-term loan	No negative impact
Debt consolidation loan	Good credit score, multiple unsecured debts at higher rates	Replace LOC and other debts with one fixed-term loan at a lower rate	Minor short-term impact from credit inquiry
Debt management program	Unsecured debt under $25,000, steady income	Non-profit credit counsellor negotiates lower interest with creditors, you make one monthly payment	Noted on the credit report
Consumer proposal	Unsecured debt over $10,000, unable to keep up with payments	Licensed Insolvency Trustee files a legal proposal to repay a portion of the debt over up to 5 years, interest-free	R7 rating during proposal, removed 3 years after completion
Bankruptcy	Debt is unmanageable, no realistic repayment path	Legal discharge of most unsecured debts, assets reviewed for potential surrender	R9 rating, removed 6 to 7 years after discharge

Consumer proposals are the most common route

As of Q3 2025, consumer proposals made up 78.6% of all consumer insolvency filings in Canada.

Source: Office of the Superintendent of Bankruptcy – Insolvency Statistics, September 2025

For someone with $40,000 in unsecured line of credit debt plus credit cards, a consumer proposal reduces the total owed and replaces multiple payments with one fixed monthly amount. Interest stops the day the proposal is filed. You know exactly what you’re paying and exactly when it ends.

If your debt is still under control but the interest is the problem, start by calling your lender and asking to convert your line of credit to a fixed-term loan. This forces a repayment schedule and removes the temptation to borrow again. Not every lender agrees, but it costs nothing to ask.

How insolvency treats line of credit debt

Whether your line of credit qualifies for debt relief through a consumer proposal comes down to one thing. Is it secured or unsecured?

Unsecured lines of credit

A personal line of credit with no asset attached is unsecured debt. It qualifies for inclusion in a consumer proposal alongside credit cards, personal loans, payday loans and CRA tax debt.

Under the Bankruptcy and Insolvency Act, a consumer proposal lets you make a single monthly payment to a Licensed Insolvency Trustee, who distributes it to your creditors.

You repay a portion of what you owe over a maximum of five years, and the rest is legally forgiven when you complete the proposal.

The amount you repay depends on your income, assets, and what your creditors would receive if you filed for bankruptcy instead. Your trustee works out a figure that’s fair to both sides.

In most cases, the monthly payment ends up lower than what you were paying across your combined debts before filing.

Home equity lines of credit (HELOCs)

A HELOC is secured against your property. It can’t be included in a consumer proposal or discharged in bankruptcy the same way unsecured debt can. If you stop paying, the lender has a claim against your home.

Filing a consumer proposal for your unsecured debts often frees up enough cash to keep your HELOC payments current.

I discuss this regularly with clients who own their home but are drowning in unsecured debt. When they get rid of the unsecured burden, the secured payments become manageable again.

What happens to your line of credit after you file

Once a consumer proposal is filed, any unsecured line of credit included in the filing is frozen. You lose access to it. The outstanding balance becomes part of the proposal, and you repay the agreed portion through your trustee over the term.

You won’t be able to apply for new unsecured credit during the proposal. Some people get a secured credit card during this time to start rebuilding. A secured card requires a deposit, usually a few hundred dollars, that acts as your credit limit.

After you complete all your payments, your trustee issues a Certificate of Full Performance. The consumer proposal notation is removed from your credit report three years after completion, or six years from the filing date (whichever comes first).

Frequently asked questions

Can line of credit debt be included in a consumer proposal?

Yes, if the line of credit is unsecured. Personal lines of credit, unsecured overdrafts, credit cards, and personal loans all qualify. The consumer proposal covers these debts, stops interest from accruing, and lets you repay a portion over up to five years. A home equity line of credit secured against your property can’t be included.

What happens to my HELOC if I file a consumer proposal?

A HELOC is secured debt tied to your home. Filing a consumer proposal doesn’t eliminate the HELOC obligation. The secured creditor retains the right to the property. However, reducing your unsecured debt through a proposal often frees up enough income to keep HELOC payments current.

Is a personal line of credit secured or unsecured?

A standard personal line of credit from a bank is unsecured. No asset backs it. A home equity line of credit is secured against your property. This distinction matters because only unsecured debts qualify for inclusion in a consumer proposal.

Can I negotiate line of credit debt with my bank?

You can try, but banks are under no obligation to accept a reduced amount from you directly. A consumer proposal filed through a Licensed Insolvency Trustee carries legal weight under the Bankruptcy and Insolvency Act.

If the majority of your creditors, by dollar value, accept the proposal, all unsecured creditors are bound by it. That legal protection is something you can’t replicate on your own.

How much of my line of credit debt is forgiven in a consumer proposal?

It depends on your income, assets, and what creditors would receive in a bankruptcy. From what I see in practice, many consumer proposals result in repaying 20% to 50% of the total unsecured debt, though every case is different. Your trustee calculates a figure that’s fair to creditors while affordable for you.

Does a consumer proposal affect my credit score?

Yes. A consumer proposal results in a 7 rating on your credit report for the duration of the proposal. Lines of credit and credit cards are coded R7 (revolving credit), while instalment loans like car loans get I7. This is removed three years after you complete the proposal, or six years from the filing date, whichever comes first.

A first-time bankruptcy results in a 9 rating, removed six to seven years after discharge.

Can a creditor freeze my line of credit?

Yes. A lender can reduce your credit limit or freeze your line of credit at any time, particularly if your credit score drops, you miss payments, or you file an insolvency proceeding. Once a consumer proposal is filed, any unsecured line of credit included in the proposal is frozen automatically.

What is the difference between a line of credit and a personal loan?

A personal loan gives you a lump sum with a fixed repayment schedule. You know the end date and the total cost from the start. A line of credit is revolving, with no fixed end date and an interest-only minimum payment.

Talk to a Licensed Insolvency Trustee

If your line of credit payments cover only interest and the balance hasn’t moved in months, talk to a Licensed Insolvency Trustee for free.