Being in debt is a difficult situation, and it affects thousands of Canadians every year. Many debt relief solutions claim to solve debt problems, but is there a Canadian government debt relief program?
While the Canadian government doesn’t directly offer debt relief, there is a government-approved debt relief program called a consumer proposal.
This helpful guide shows you how the program works and what alternatives are available to those struggling with debt.
Is there a government debt relief program in Canada?
A consumer proposal is the only government-approved debt relief program in Canada. It is a government-regulated legal process under the Bankruptcy and Insolvency Act. This legislation protects your rights and obligations if you file a consumer proposal or personal bankruptcy.
When you enter a consumer proposal, you agree to pay back some of your debt to your creditors. After you make all your payments, the remaining balance owed from the debts in your consumer proposal is forgiven.
A consumer proposal can often be cheaper than other debt solutions (use our consumer proposal calculator to find out). You can restructure your unsecured debt into one lower monthly payment.
Interest on your debts will be frozen, collection calls will stop, and wage garnishments will end. You will not lose your home, vehicle, or RRSP.
Only a licensed and regulated professional, a Licensed Insolvency Trustee, can administer a consumer proposal. This makes it a safe option to resolve your debts.
The service is regulated by the Office of the Superintendent of Bankruptcy (OSB), and the federal government governs fees.
Unsecured debt, like credit card debt, loans and tax debts, can be included in a consumer proposal.
Good to know: Government of Canada debt relief grants do not exist.
Are all debt relief options legitimate?
Many predatory websites advertise government debt relief programs. If any company asks you to pay money upfront for a consumer proposal or bankruptcy, don’t do it.
Only a Licensed Insolvency Trustee can administer a consumer proposal or bankruptcy. Other companies just take your money and pass you on to a trustee.
Unfortunately, there isn’t a single debt relief program that works for everyone because each situation is unique. There are pros and cons to each debt relief solution.
The best Canada debt relief programs for 2023
There are some great Canada debt relief programs that can help you become debt free. Here are some of Canada’s best options:
Debt consolidation loan
A debt consolidation loan lets you combine multiple debts and make one monthly repayment. You’ll benefit from a lower interest rate, reducing your expenses and making payments more manageable.
If you want to get your debt under control but are not defaulting on payments, debt consolidation might help you.
However, you need a stable income and a good credit score.
Credit counselling and debt management plans
Credit counselling services offer advice on resolving debt problems and guidance on household spending and budgeting.
A credit counsellor often recommends a program called a debt management plan, allowing you to repay your debts over three years. You make a monthly payment to the credit counselling agency.
The credit counsellor’s role is to help you repay your debts in full within the agreed timeframe. You cannot reduce your debt through a debt management plan.
Credit counselling services are carried out by for-profit and non-profit agencies. Always choose a non-profit credit counselling agency.
Debt settlement is when a company works with your creditors to lower your debt repayments, often for less than the total amount you owe.
The time it takes to complete a debt settlement program depends on the negotiations with your creditors.
Typically, debt settlement companies are a bad idea. They are only offered by private companies looking to make a quick buck. You will usually pay hefty fees; in many cases, they will refer you to a Licensed Insolvency Trustee.
Furthermore, debt settlement firms cannot guarantee that creditors will accept a settlement offer. They don’t have any powers to stop creditors from contacting you.
If you’re looking for debt settlement that offers protection from creditors, a Licensed Insolvency Trustee can do so through bankruptcy or a consumer proposal.
A consumer proposal is a legally binding debt relief plan between you and your creditors.
Depending on your financial situation, you pay your creditors back part of what you owe them, with the rest of your debt forgiven.
Your unsecured debt is restructured into one affordable monthly payment for up to five years. No interest is applied to your payments; the amount will never increase, even if your income increases. Plus, you can pay off your consumer proposal at any time. Debt collection agencies cannot take any further action against you.
Although it is not a government debt relief program as such, it is a legal process governed by the Bankruptcy and Insolvency Act and overseen by the Office of the Superintendent of Bankruptcy (OSB), with fees set by the federal government.
The service can only be administered by a Licensed Insolvency Trustee, a licenced and regulated professional. Upon completion of your proposal, your trustee shall release you from any remaining debt obligations.
A consumer proposal is usually less expensive than other debt solutions because it offers debt reduction, among other benefits. While it is technically not a free debt relief program, fees are deducted from your debt repayments at no extra cost to you.
Filing for bankruptcy can be avoided by filing a consumer proposal. However, if you are in an unfortunate situation with no income or assets, bankruptcy can sometimes give you the fresh start you need.
Bankruptcy works by surrendering your assets to a Licensed Insolvency Trustee. But you won’t lose everything because some assets are protected depending on where you live.
When you declare bankruptcy, your unsecured creditors cannot take further action, including collection calls, wage garnishments, and legal action.
This consumer protection is called a Stay of Proceedings. This automatically occurs when you file bankruptcy or enter into a consumer proposal.
There is a government-approved debt program
Although the Canadian government does not explicitly offer debt relief, there is a government-approved debt relief program called a consumer proposal.
There are many different debt relief options out there. It is essential to research each option and find the one that best fits your situation.
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