In this guide
How much debt are Canadians carrying?
For every dollar of disposable income, the average Canadian household owes $1.77. That ratio has climbed for four straight quarters and remains one of the highest among developed nations.
Source: Statistics Canada – National Balance Sheet and Financial Flow Accounts, Q3 2025
Total consumer debt reached $2.62 trillion by Q3 2025, a 3.4% jump from the year before.
Source: Equifax Canada, as cited in CAIRP Q4 2025 Insolvency Statistics
Debt relief options in Canada
Consumer proposal
A consumer proposal is a legally binding agreement filed under the Bankruptcy and Insolvency Act. You offer your creditors a portion of what you owe, paid in fixed monthly instalments for up to 60 months, with no interest. The remaining balance is forgiven. The moment you file, collection calls, garnishments and lawsuits stop.
A consumer proposal covers credit cards, lines of credit, personal loans, payday loans, tax debt owed to CRA, and most other unsecured debts. Your home, car, RRSPs, and other assets stay yours. The debt threshold is $1,000 to $250,000 in unsecured debt, not including your mortgage.
Source: Bankruptcy and Insolvency Act
How consumer proposal payments work
The federal government regulates trustee fees, and they’re built into your monthly payment. The total cost is locked in before you sign. Nothing changes. If you come into extra money, you can pay it off early with a lump sum. Only a Licensed Insolvency Trustee can file a consumer proposal on your behalf.
A consumer proposal lets you settle for less than you owe. What you actually pay depends on your income, assets, and what creditors would get in a bankruptcy. Generally, proposals repay between 20% and 50% of the total debt, with the rest forgiven.
Bankruptcy
Bankruptcy is the last-resort option. It clears most unsecured debts when there’s no realistic way to repay them. You surrender your non-exempt assets to a Licensed Insolvency Trustee, who sells them and distributes the proceeds to creditors. Once you’re discharged, those debts are gone.
For a first-time bankruptcy with no surplus income, the process takes nine months. Earn above the government threshold, and that extends to 21 months. Bankruptcy gives you the same immediate creditor protection as a consumer proposal under the Bankruptcy and Insolvency Act.
Debt consolidation
A debt consolidation loan rolls several debts into one, usually at a lower rate. You go from juggling multiple payments to making a single one each month.
Interest rates at banks and credit unions generally range from 7% to 12% for these loans. Finance companies charge much more, often above 14% on secured products and above 30% on unsecured ones, sometimes with setup fees added.
Source: Financial Consumer Agency of Canada – Personal Loans
A debt consolidation loan doesn’t reduce your total balance. You still owe the full amount, just on different terms. You’ll need decent credit and a steady income to qualify, and it works best when the debt is still manageable.
Debt management plan
A debt management plan (DMP) is a structured repayment plan set up through a credit counselling agency. The agency negotiates lower or zero interest with your creditors. You then pay one monthly amount to the agency. They split it among your creditors.
Under a DMP, you pay back every dollar of the principal. No debt is forgiven. Most plans run three to five years.
Both non-profit and for-profit credit counselling agencies offer DMPs. All charge setup and monthly administration fees. Before signing anything, add up the total fees and compare them against the interest you’d save. If the fees swallow most of your savings, the plan doesn’t make sense. Non-profit agencies tend to cost less, but get the numbers either way.
Debt settlement
Debt settlement means negotiating directly with creditors to accept a lower amount than what you owe. There’s no legal obligation for creditors to comply, so a creditor can say no, and plenty do.
If you want your creditors legally bound to accept reduced payments with full protection from collections, a consumer proposal is the only way to get that.
Orderly Payment of Debts
The Orderly Payment of Debts (OPD) program is a court-supervised option under Part X of the Bankruptcy and Insolvency Act. It consolidates your unsecured debts into one monthly payment at a fixed 5% annual interest rate. You repay the full amount you owe, with no debt forgiven.
OPD is currently available in Alberta, Saskatchewan, Prince Edward Island, and Nova Scotia. Quebec has a similar mechanism called the Voluntary Deposit (Lacombe Law). Manitoba and British Columbia had OPD programs, but cancelled them. In Alberta, the program is administered by Money Mentors on behalf of the provincial government.
OPD gives you a stay of proceedings, which stops collection calls and most legal action. You keep your assets. One limitation worth knowing: CRA debt cannot be included in an OPD. If you owe income tax or HST, a consumer proposal or bankruptcy is the only way to deal with it inside a formal filing.
Source: Bankruptcy and Insolvency Act, Part X
Credit counselling
Credit counselling covers budgeting, money management and debt advice. Non-profit agencies provide free assessments and can steer you toward the right option, whether that’s a debt management plan, a consolidation loan, or a referral to a Licensed Insolvency Trustee.
On its own, credit counselling won’t reduce what you owe. Stick with a non-profit agency. Some for-profit outfits earn commissions when they recommend specific products.
CRA tax debt relief
If you owe money to the Canada Revenue Agency, you have options beyond insolvency. CRA can cancel or waive penalties and interest under its Taxpayer Relief Provisions. The tax itself stays, but penalties and interest pile up quickly, so the relief can be substantial. You apply with CRA Form RC4288.
CRA grants relief on three main grounds: extraordinary circumstances like serious illness or natural disaster, CRA processing errors or delays, and financial hardship. Requests are limited to the preceding 10 calendar years.
Source: Canada Revenue Agency – Taxpayer Relief Provisions (Form RC4288)
The Taxpayer Relief Provisions only address penalties and interest. If the underlying tax bill is more than you can pay, a consumer proposal or bankruptcy is usually the better path. CRA debt, from income tax to HST to payroll source deductions, can be included in a consumer proposal or discharged in bankruptcy. CRA ranks the same as any other unsecured creditor.
Compare debt relief options in Canada
| Consumer proposal | Bankruptcy | Debt consolidation | Debt management plan | Orderly Payment of Debts | Debt settlement | |
|---|---|---|---|---|---|---|
| Debt reduction | Up to 80% | Up to 100% | None. You repay in full | 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 | Yes |
| Interest frozen | Yes, immediately | Yes | No. New rate applies | Usually reduced or eliminated | No. Fixed at 5% annually | No |
| Legal protection from creditors | Yes, by law | Yes, by law | No | No | Yes, by court order | No |
| Stops collections and garnishments | Yes, immediately | Yes, immediately | No | No | Yes | 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 | 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 | Up 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) | Provincial bodies (Alberta, Saskatchewan, PEI, Nova Scotia) | Private company (unregulated) |
| Government regulated | Yes. Bankruptcy and Insolvency Act | Yes. Bankruptcy and Insolvency Act | No | No | Yes. Bankruptcy and Insolvency Act, Part X | No |
Source: Government of Canada – How Long Information Stays on Your Credit Report and Equifax Canada – Consumer Credit Report User Guide
How debt relief affects your credit
A consumer proposal assigns an R7 rating to each account it covers. That stays on your credit report for three years after completion or six years from the filing date, whichever comes first. A first bankruptcy produces an R9 rating and remains for six to seven years after discharge.
Source: Government of Canada – How Long Information Stays on Your Credit Report
A debt management plan also carries an R7 rating, but drops off two years after completion. Debt settlement has no standard timeline because it’s unregulated and depends on how individual creditors report the outcome.
Government debt relief programs in Canada
There is no single government debt relief program in Canada. Some companies advertise “government debt forgiveness programs.” That phrase is misleading.
Consumer proposals and bankruptcy are the only two debt relief options backed by federal law.
Both operate under the Bankruptcy and Insolvency Act, overseen by the Office of the Superintendent of Bankruptcy, and administered exclusively by Licensed Insolvency Trustees. That’s what makes them “government programs.” The government didn’t create a separate forgiveness scheme.
Debt consolidation loans and credit counselling are private-sector products. If someone tells you they’re government programs, that’s a red flag.
Student Loan Repayment Assistance Plan
The federal Repayment Assistance Plan (RAP) is a genuine government program for student loan borrowers. RAP reduces or suspends your monthly payments based on income. Single borrowers earning under $40,000 per year pay nothing. After 15 years in the program (10 with a permanent disability), any remaining balance is written off.
Source: Government of Canada – Repayment Assistance Plan
Licensed Insolvency Trustees vs. debt settlement companies
A Licensed Insolvency Trustee (LIT) is federally regulated by the Office of the Superintendent of Bankruptcy and is the only professional in Canada authorized to file a consumer proposal or bankruptcy. When an LIT files on your behalf, collections stop, garnishments stop, and interest freezes. That protection comes from federal law.
A debt settlement company is unregulated. It has no legal authority to stop collection calls, wage garnishments, or lawsuits, and creditors can refuse to negotiate. Debt settlement firms typically charge large upfront fees with no guarantee of results. Some collect their fee and then refer you to a Licensed Insolvency Trustee anyway. That’s money down the drain.
How to get started with debt relief
Most people wait too long. The sooner you act, the more options are still on the table.
Step 1: Talk to a Licensed Insolvency Trustee. Every LIT offers a free, confidential first meeting with no obligation. They’re legally required to walk you through every option, not just insolvency. You can look one up on the OSB website.
Source: Office of the Superintendent of Bankruptcy – Search for a Licensed Insolvency Trustee
Step 2: Speak with a non-profit credit counsellor. Not sure if you need insolvency protection? A non-profit credit counselling agency will assess your finances for free and help you figure out the right direction. They can also arrange a debt management plan if that fits better.
Step 3: Use government resources. The Government of Canada’s Managing Debt page lays out each option available.
Signs you need debt relief
Debt doesn’t go from manageable to crisis overnight. But there are clear signals that what you’re doing isn’t working anymore.
If you can’t cover your minimum payments month after month, act quickly. Waiting longer just means more interest and more collection activity.
If you’re using credit for basics like groceries, gas, or rent, your expenses are outrunning your income. The gap gets wider every month.
If collection calls are coming in or you’ve received a garnishment notice, informal options like debt consolidation or a DMP won’t fix it. You need the legal protection that only a consumer proposal or bankruptcy provides.
If you’re borrowing from one source to pay another, whether that’s shifting credit card balances, taking a payday loan to cover a line of credit, or pulling from your overdraft to make a minimum payment, that cycle is hard to get out of and requires change.
If any of these apply to you, talk to a Licensed Insolvency Trustee. The consultation is free, confidential, and covers every option available to you.
How to choose the right debt relief option
Three scenarios cover most situations.
Owing under $10,000 with income to make payments? A debt consolidation loan or debt management plan can get things back on track.
Unsecured debt between $10,000 and $250,000, and the math doesn’t work? A consumer proposal is likely your best move. You keep your assets, pay back less than you owe, and creditors can’t touch you while the proposal runs.
No realistic way to repay and few assets to protect? Bankruptcy gives you a clean slate. It’s not a failure. It’s a legal process designed for exactly this situation.
Still not sure which applies? A Licensed Insolvency Trustee will tell you, for free, with no obligation. They’re required by law to cover every option.
Watch out for debt relief scams
Not every company offering debt help in Canada plays by the rules. Some are predatory. Watch for large upfront fees before any work begins, promises that your debt will “disappear,” and claims about secret government forgiveness programs that don’t exist.
If a company pushes you to sign on the spot or tells you to stop paying your creditors while they “negotiate,” walk away.
Any company that says it can file a consumer proposal or bankruptcy must be a Licensed Insolvency Trustee. If they’re not on the OSB registry, they can’t do what they’re promising.
Source: Office of the Superintendent of Bankruptcy – Search for a Licensed Insolvency Trustee
How many Canadians file for debt relief each year?
In 2025, 140,457 Canadians filed for consumer insolvency. The second-highest annual total since tracking began in 1987, and the most since the 2009 recession. Roughly 78% filed a consumer proposal rather than declaring bankruptcy.
Source: Office of the Superintendent of Bankruptcy, as cited in CAIRP Q4 2025 Insolvency Statistics
That averages out to about 385 filings per day, 10 more each day than in 2024. Growth has slowed from the sharp rise in 2024, but the volume hasn’t come down.
The per-capita insolvency rate in 2024 was 4.2 filings per 1,000 adults, the highest since 2019.
Source: Office of the Superintendent of Bankruptcy – Insolvency Statistics in Canada, 2024
Frequently asked questions
What is a Licensed Insolvency Trustee?
A Licensed Insolvency Trustee (LIT) is the only professional authorized by the federal government to administer consumer proposals and bankruptcies in Canada. The Office of the Superintendent of Bankruptcy regulates all LITs, who serve as officers of the court. Before 2016, the title was “bankruptcy trustee.”
Source: Government of Canada – Office of the Superintendent of Bankruptcy
Can I deal with my debt without a consumer proposal or bankruptcy?
That depends on how much you owe. Under $10,000 with stable income? A debt consolidation loan or debt management plan is usually enough. Once you’re looking at higher balances or creditors already garnishing your wages, a consumer proposal or bankruptcy gives legal protection that no other option provides.
Will debt relief affect my credit score?
Yes. A consumer proposal assigns an R7 rating to each account it covers, indicating to lenders that you’re repaying under a formal arrangement. It stays on your credit report for three years after completion or six years from the filing date, whichever is earlier.
Source: Government of Canada – How Long Information Stays on Your Credit Report
Bankruptcy produces an R9 rating. A first bankruptcy remains on your report for six to seven years after discharge. Once either record drops off, you’re rebuilding from a clean file.
How do I know if a debt relief company is legitimate?
Look them up on the OSB’s Licensed Insolvency Trustee registry. Any company claiming to file a consumer proposal or bankruptcy that isn’t on that list is lying. Be especially cautious of upfront fees, guaranteed outcomes, and high-pressure sales tactics.
Can I include tax debt in a debt relief program?
Yes. Income tax, HST, and payroll source deductions owed to CRA can all be included in a consumer proposal or discharged in bankruptcy. CRA gets treated like any other unsecured creditor. Separately, you can ask CRA to cancel penalties and interest through the Taxpayer Relief Provisions (Form RC4288). Tax debt can’t be included in a debt consolidation loan directly. You’d need to borrow and pay CRA yourself.
What about student loans?
Student loans qualify for a consumer proposal or bankruptcy discharge, but only after you’ve been out of school for seven years or more.
Source: Bankruptcy and Insolvency Act, s. 178(1)(g)
Haven’t hit seven years yet? You can still file a consumer proposal on your other debts, which often frees up enough room to handle student loan payments on their own. The federal Repayment Assistance Plan (RAP) can also lower or pause payments based on what you earn.
What is the difference between debt consolidation and a consumer proposal?
A debt consolidation loan gives you one new loan to replace several old ones. You still owe every dollar, just at a better rate. A consumer proposal is a legal agreement where creditors accept a reduced amount and write off the rest. Debt consolidation requires good credit and a lender willing to approve you. A consumer proposal is filed through a Licensed Insolvency Trustee and doesn’t depend on your credit score.
Does bankruptcy eliminate all debt?
Most unsecured debt, yes. Not all. Child and spousal support payments, court fines, fraud-related debts, and student loans under seven years survive bankruptcy. Secured debts like mortgages and car loans aren’t discharged either, unless you give up the asset.
Does Canada have a government debt relief program?
No. There is no federal debt forgiveness program. Consumer proposals and bankruptcy are sometimes called “government programs” because they operate under the Bankruptcy and Insolvency Act and are overseen by the Office of the Superintendent of Bankruptcy, but the government is the regulator, not the provider.
The federal Repayment Assistance Plan exists specifically for student loan borrowers. Anything that advertises a new or special government debt relief program is misleading.
Get free debt relief advice
Talk to a Licensed Insolvency Trustee about your situation. The first meeting is free, confidential, and without obligation. We help Canadians across Alberta, Ontario, British Columbia, Nunavut, and the Northwest Territories.
