Free help first
- Credit Counselling Canada: a network of non-profit credit counselling agencies across Canada. A counsellor looks at your budget and debts, explains every option, and can set up a debt management plan. Call 1-866-398-5999.
- A Licensed Insolvency Trustee (LIT): licensed and supervised by the federal Office of the Superintendent of Bankruptcy, and the only professionals who can file a consumer proposal or bankruptcy. The first meeting is free, and they must explain your other options too.
- Your lenders: call before you miss a payment. Many will lower payments, defer one or two, or cut the interest for a while.
Find more on our free money help page.
Talk to your lenders
Call or write as soon as you think you’ll miss a payment. Explain what’s changed, and offer what you can afford. Keep a note of who you spoke to and what was agreed. Pay essential bills first: rent or your mortgage, heat and hydro, car payments if you need the car for work, and anything owed to the CRA or for child support, which can be collected from your wages or bank account.
If a debt has gone to a collection agency, it must be licensed in your province and follow provincial rules on when and how it contacts you. Ask for the details of the debt in writing before you pay.
The formal options
| Option | What it is | Good to know |
|---|---|---|
| Debt management plan | A non-profit credit counsellor agrees a plan with your creditors, and you make one monthly payment | You usually repay everything you owe, over up to about 5 years, with interest reduced or stopped. Not a legal process, and your cards are usually closed |
| Consumer proposal | A legal deal, filed by an LIT, to repay part of what you owe over up to 5 years | For debts up to $250,000 ($500,000 for a joint proposal), not counting the mortgage on your home. Interest stops and creditors must stop collecting |
| Bankruptcy | An LIT takes over your non-exempt assets, and most of your debts are cleared | A first bankruptcy usually ends after 9 months, or 21 months if you have surplus income. Each province sets which assets you can keep |
A consumer proposal or bankruptcy comes with a legal stay of proceedings: from the day it’s filed, unsecured creditors, including the CRA, must stop collection calls, lawsuits and wage garnishments. Both include two financial counselling sessions, and both are noted on your credit report for years.
Which might suit you?
- You can repay everything with lower interest: a debt management plan.
- You can repay some of it, and want to keep your assets: a consumer proposal. You keep your home and car as long as you keep up their payments, and creditors usually accept less than the full amount.
- You can’t repay much at all: bankruptcy may be the fresh start you need. You keep exempt assets, which vary by province, and may have to pay part of any income above a set level.
Some debts usually survive both: child and spousal support, court fines, debts from fraud, and student loans if you left school less than 7 years ago.
Watch out
Be wary of for-profit “debt consultants” and debt settlement companies that charge upfront fees for advice that non-profit credit counsellors and LITs give for free, or that promise to “erase” debt. Only an LIT can file a consumer proposal or bankruptcy. Free advisers look at your whole situation and tell you every option, not just the one they sell.
Working through it yourself? See how to pay off debt, and list your debts in the debt payoff calculator.