Debt Relief Canada – Discover government approved programs to get out of debt faster

If you’re juggling too much debt and struggling with your debt repayments, there are several debt relief options in Canada worth knowing about:

• Consumer proposal: A legal agreement to reduce your debt, backed by the federal government.
• Debt consolidation loan: Combines all your debts into one affordable monthly payment, often with lower interest.
• Debt management plan (DMP): Arranged through a credit counselling agency to repay debts in full, usually with interest relief.
• Bankruptcy: The last resort. It clears your debts but comes with serious legal and credit implications.
• Debt settlement: Negotiating with creditors to pay less than you owe, usually done through debt settlement companies.

Each route comes with pros, cons and risks, depending on your financial situation. Choosing the right path can save you time and money.

There’s no magic government grant to pay off debts. However, the federal government regulates two powerful legal solutions: a consumer proposal and bankruptcy.

Both fall under the Bankruptcy and Insolvency Act, and must be administered by a Licensed Insolvency Trustee.

These programs offer legal protection from creditors and can help you get out of debt by reducing debt if you’re truly unable to repay.

Beware of debt consultants and debt settlement companies promising “government programs” but charging fees just to refer you to someone else.

Go directly to a Licensed Insolvency Trustee, save money and get the right advice.

Only two debt solutions are legally regulated by the Canadian government:

• Consumer proposals
• Bankruptcy

That’s why they are often referred to as “government debt relief programs”.

Both are formal processes governed by the Bankruptcy and Insolvency Act and must be overseen by a Licensed Insolvency Trustee (LIT). They offer legal protection from creditors, an interest freeze, and a structured path to becoming debt-free.

Debt consolidation loans, credit counselling, and debt management plans aren’t government regulated, so if someone’s advertising them as official programs, walk away.

A consumer proposal is a legal process where you offer to repay only a portion of what you owe—often much less than the full amount. The rest of your debt is forgiven and the payments are spread out over a period of up to five years.

You can benefit from:

• A debt reduction of up to 80% in some cases
• One affordable monthly payment
• Legal protection from creditors
• No more interest on your debts
• A chance to avoid bankruptcy

It’s handled by a Licensed Insolvency Trustee, and it’s Canada’s most popular form of debt relief.

With a consumer proposal, you keep your assets and rebuild your financial future without the lasting impact of bankruptcy.

Bankruptcy is a legal way to wipe out most of your unsecured debts if you can’t make your debt payments at all. It’s a last resort, not an easy way out.

Here’s what happens:

• You surrender certain assets (though many are protected).
• Your credit score takes a hit.
• You’re discharged from your debts after 9 to 21 months (for a first bankruptcy).

Bankruptcy is administered by a Licensed Insolvency Trustee, and governed by the Bankruptcy and Insolvency Act.

If you’re drowning in debt and have no way out, it may be the reset button you need, but it’s not a decision to take lightly.

Credit counselling helps you understand your finances and explore debt solutions like debt management plans.

It’s typically offered by a certified credit counsellor, either from a non-profit organization or a private firm.

They can help you:

• Create a realistic budget
• Understand your options, like consolidation, debt management programs or avoiding bankruptcy
• Set up a plan to repay your debts over time

Just be careful: some credit counsellors are really for-profit debt consultants in disguise. Always ask about fees and ensure they’re non-profit.

A debt management plan (DMP) combines your unsecured debts, like credit card debt or payday loans, into one monthly payment.

A credit counsellor works with your creditors to reduce or waive interest, helping you repay everything you owe faster and with less stress.

Key things to know:

• You must repay your outstanding debts in full—this isn’t debt forgiveness.
• It doesn’t offer legal protection like a consumer proposal.
• It can affect your credit during the repayment period.

It’s a solid option for people who are overwhelmed with their debt situation but still able to repay with support.

A debt consolidation loan doesn’t reduce what you owe. It’s not debt forgiveness, but it can make things more manageable and relieve financial stress.

You borrow money in the form of a new loan, usually from a bank or credit union, to pay off your existing debts like credit card debt, overdrafts and personal loans.

You’re left with just one debt, with monthly loan payments, often at a lower interest rate than what you were paying before.

It can help simplify your finances, reduce the chance of missed payments and make it easier to stay on track.

But make sure the new debt consolidation loan is affordable, and don’t run up more debt on the old credit cards once they’re cleared.

Debt consolidation is more a tool than an outright solution for debt problems. But if used properly, it can help you clear debt and stay focused on your financial goals. Misused, it just adds more.

Yes, but only in very specific cases.

Creditors may agree to forgive part of your debt if:

• You go through a consumer proposal.
• You declare bankruptcy and meet the discharge conditions.
• You negotiate a debt settlement and they agree to write off the rest.

Whether debt is forgiven on a number of factors, including how much debt you have and your income.

Outside of that, most creditors won’t voluntarily forgive consumer debt unless they believe it’s uncollectible.

Ads promising “total debt forgiveness” are often misleading, so always read the fine print.

You can also get student loan forgiveness through the provincial or territorial government.

A Licensed Insolvency Trustee (LIT) is the only professional in Canada legally allowed to:

• File a consumer proposal or bankruptcy on your behalf
• Provide legal protection from your creditors
• Help you understand government-regulated debt relief options

They’re licensed by the Office of the Superintendent of Bankruptcy, part of the federal government.

Working with an LIT gives you peace of mind. There’s no sales pitch, no middleman fees, just regulated help when you need it most.

A Licensed Insolvency Trustee is the only professional who can file a consumer proposal or bankruptcy for you. There are not other debt relief services that can file one on your behalf.