Understanding Your Debt Relief Options in Canada

Key Takeaways

• There are multiple debt relief options in Canada, including consumer proposals, bankruptcy, debt consolidation, home equity loans, and informal settlements.

• A consumer proposal allows you to repay a portion of your debt over time while keeping your assets and avoiding bankruptcy.

• Bankruptcy may be the best option when you cannot reasonably repay your debts, and offers legal protection and a full discharge of eligible obligations.

• Debt consolidation loans and home equity refinancing can work for those with strong credit and stable income, but carry risks and don’t reduce your total debt.

• Informal settlements are unregulated, offer no legal protection, and often result in inconsistent outcomes.

• Only a Licensed Insolvency Trustee (LIT) is legally authorized to file a consumer proposal or bankruptcy in Canada under the Bankruptcy and Insolvency Act.

• Working with an LIT—like those at The Litvack Group—ensures regulated, impartial advice and access to the most effective, legally recognized debt solutions.

Introduction

If you're feeling overwhelmed by debt, you're not alone. Many Canadians struggle with rising interest rates, inflation, and personal setbacks like job loss or medical bills.

The good news? Canada offers several legal, ethical, and effective options to help you get back on your feet. Understanding these choices is the first step toward financial peace of mind.

At Litvack Group, our Licensed Insolvency Trustees (LITs) are federally regulated professionals who can walk you through your options. We offer impartial advice and support grounded in the Bankruptcy and Insolvency Act (BIA).

Option 1: Consumer Proposal

What Is a Consumer Proposal?

A consumer proposal is a formal agreement between you and your creditors to repay a portion of your debt over time—without interest. It’s legally binding and must be administered by a Licensed Insolvency Trustee.

Who Qualifies?

You may qualify if:

• Your unsecured debts total less than $250,000 (excluding your mortgage)

• You have a stable income to support regular monthly payments

How the Process Works

• You meet with an LIT to assess your financial situation

• The LIT drafts a proposal outlining a monthly payment plan

• Creditors vote to accept or reject it (majority rules)

• If accepted, you make payments for up to five years

Key Benefits

• Stops wage garnishments and collection calls

• Freezes interest on unsecured debts

• Lets you keep assets like your home or car

• Allows you to avoid bankruptcy

Role of a Licensed Insolvency Trustee

Only a Licensed Insolvency Trustee can file a consumer proposal. We're your legal representative—not the creditor's—ensuring the process is fair, compliant, and transparent.

Option 2: Bankruptcy

When Is Bankruptcy the Right Choice?

Bankruptcy is typically a last resort when you're unable to make reasonable payments toward your debts.

How the Bankruptcy Process Works in Canada

• You declare bankruptcy with the help of a Licensed Insolvency Trustee

• Your assets (with legal exceptions) are sold to repay creditors

• You report your monthly income to the Trustee and may have to make monthly payments depending on your income

• You attend two credit counselling sessions

• You may be eligible for automatic discharge after 9 to 36 months

What Happens to Your Assets?

Under Section 67 of the BIA, some assets are exempt from seizure, including:

• Basic household items

• Personal clothing

• RRSPs (excluding recent contributions)

• A vehicle up to a certain value (varies by province)

Debts Included and Not Included

Included Debts:

• Credit cards

• Lines of credit

• Payday loans

Not Included:

• Court fines

• Child and spousal support

• Student loans less than 7 years old (BIA s.178)

Timeline and Impact on Credit

Bankruptcy stays on your credit report for 7 to 14 years after discharge. However, it often provides the fastest path to a financial reset.

Option 3: Debt Consolidation Loans

What Is Debt Consolidation?

Debt consolidation involves combining multiple high-interest debts into one lower-interest loan, often through a bank loan or balance transfer credit card.

Pros and Cons of Consolidation

Pros:

• Lower interest rates

• Simplified monthly payments

Cons:

• Requires good credit

• Doesn’t reduce the principal amount owed

• Offers no legal protection from creditors

When It Works

Debt consolidation may be appropriate if you:

• Have stable income

• Have a strong credit score

• Can realistically repay the full amount over time

Option 4: Home Equity as a Debt Solution

Using a HELOC or Mortgage Refinance

Homeowners may use a Home Equity Line of Credit (HELOC) or refinance their mortgage to pay off high-interest debt.

Risks of Tapping into Home Equity

• You’re putting your home at risk

• Can extend the debt cycle

• May involve fees or early payment penalties

How It Compares to a Consumer Proposal

A consumer proposal may be a better solution if:

• Your credit score is low

• You’re at risk of defaulting

• You want to avoid securing debt against your home

Cautions Around Unregulated Advisors

Be cautious of debt consultants who are not federally licensed. These agencies:

• Often charge high fees for services LITs provide for free or at regulated rates

• May misrepresent what they can do

• Do not offer legal protection or recourse

Option 5: Informal Debt Settlement

What Is Informal Settlement?

This is when you or an agency negotiates directly with creditors to reduce your balance. There is no legal process involved.

Why Results Can Be Inconsistent

• Creditors are not obligated to accept

• Settlement offers can vary significantly

• Usually doesn’t stop interest or legal action

Impact on Credit and Legal Protections

• Offers no stay of proceedings or legal protection

• Does not guarantee creditor participation

Cost Comparison

Many informal settlement firms charge upfront fees, while consumer proposals and bankruptcies are regulated and often more affordable overall.

Comparing All Your Debt Relief Options

Questions to Ask Before Choosing a Debt Solution

• Can I afford the monthly payments?

• Am I protected from legal action?

• Will this solution address the root cause of my debt?

How a Licensed Insolvency Trustee Can Help

Your First Consultation Is Free

We begin with a confidential review of your situation and explain your legal options—without pressure or judgment.

Regulated Advice You Can Trust

LITs are officers of the court under the BIA (Sections 13 to 14.07). We’re regulated by the Office of the Superintendent of Bankruptcy.

How to Speak with Litvack Group

Call us or book a free consultation. We proudly serve clients across Ontario with compassion, clarity, and care.

Final Thoughts

Debt relief is not one-size-fits-all. The right solution depends on your income, assets, and long-term goals.

Whether you’re considering a consumer proposal, bankruptcy, or using home equity, make sure you're getting information from a reliable, federally licensed source.

At Litvack Group, we’re here to help you understand your options and take back control of your financial future legally, ethically, and confidently.

If you're in Ontario and struggling with debt, book a free, confidential consultation with a Licensed Insolvency Trustee at the Litvack Group.

We’ll help you understand your options, rebuild your budget, and get your financial life back on track.or work with a professional, you have options and support at your fingertips.

Disclaimer:

This article is intended for informational purposes only and does not constitute legal or financial advice. For personalized assistance, contact a Licensed Insolvency Trustee in your area.