There are several other debt relief solutions available in Canada beyond consumer proposals. Each comes with its own set of pros, cons, and eligibility requirements.
Bankruptcy
Bankruptcy is often viewed as a last resort when other debt solutions are no longer viable. It’s a legally binding process under bankruptcy law that eliminates most unsecured debts. When you file, creditor collection activity stops immediately.
Unlike a consumer proposal, you may be required to surrender non-exempt assets and make surplus income contribution payments based on your earnings. That said, some people may still maintain ownership of key assets depending on provincial exemptions or arrangements they can make with the bankruptcy trustee to buy back those items. It can get complicated in a hurry so we suggest that you speak with a LIT about your situation for a professional suggestion.
Unlike a consumer proposal, you may be required to surrender non-exempt assets and make surplus income payments based on your earnings. That said, some people may still maintain ownership of key assets depending on provincial exemptions.
Credit counselling
Credit counselling provides professional guidance from a credit counsellor who will assess your budget and help you understand your options.
Non-profit credit counselling agencies can set up structured payment plans through debt management programs. While this doesn’t reduce your principal balance, it can lead to more favorable payment terms and lower interest charges. These plans require full repayment of the debt and not all creditors have to accept the settlement (which they must in a consumer proposal where the majority of the creditors accept the offer the other creditors are forced into the plan by Federal law).
Debt consolidation
Debt consolidation loans combine multiple debts into one single payment, sometimes at a lower interest rate. It simplifies your finances and can reduce high interest rates, especially on credit card balances.
While this option can help save on interest charges, it usually requires a good credit score and stable income to qualify. Often, they ask for a co-signer (which brings its own complications) Consolidation doesn’t reduce the amount you owe but may make budgeting and repayment more manageable.
Debt management plan
A debt management plan (DMP) is arranged through a credit counselling agency. Like consolidation, it combines your debts into a single monthly payment, but instead of taking out a new loan, the agency negotiates with your creditors directly.
You’ll follow a structured payment schedule over 3 to 5 years. While interest may be reduced or waived, full repayment is still required.
Debt settlement
Debt settlement involves negotiating directly with creditors to accept less than the full amount owed, often through a lump sum payment.
Debt settlement may be an option for people who can access funds upfront, though it can negatively impact your credit score, and may come with tax implications if the forgiven amount is a large sum. The agreements need to be legally enforceable (by you) so you may require the assistance of a lawyer.
You will need to negotiate with each creditor separately. Even if a relatively small creditor refuses to settle and takes legal action to collect, that can end your ability to honor settlement arrangements you negotiated with the other creditors.