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Drowning in Debt: Your Legal Options in Canada

Published on October 7, 2026 · 6 min read · By CalculQuébec

First: this is not legal advice

This article provides general information about the options under Canadian law when debts become unmanageable. It is not legal advice and doesn't replace meeting a professional. Every situation is different — the right way out depends on your income, your assets and your debts.

That said, if you feel like you're drowning, know this: millions of Canadians have been there before you, and there are legal, structured, judgment-free mechanisms to get out.

The 3 options at a glance

	Consumer proposal	Bankruptcy	Debt management program
Nature	Legal offer to repay part of your debts, interest-free	Legal discharge of most of your debts	Repayment plan through a non-profit agency
Governed by	Bankruptcy and Insolvency Act	Bankruptcy and Insolvency Act	No insolvency statute (voluntary arrangement)
Administered by	Licensed Insolvency Trustee (LIT) — the only authorized professional	LIT	Credit counselling agency (e.g. ACEF in Quebec)
Your assets	You keep your assets	Non-exempt assets are surrendered to the trustee	You keep your assets
Typical length	Up to 5 years maximum	9 months (first time, no surplus income) to 21 months; 24 to 36 months the 2nd time	Varies, often 3 to 5 years
Amount repaid	Negotiated portion of debts	Based on income and assets (surplus income payments possible)	100% of debts, at reduced or zero interest
Credit file	On file for the term + 3 years	6 to 7 years after discharge	Affected during the program
Eligible debts	Under $250,000 (excluding mortgage on principal residence)	No cap of the same kind	Depends on the agency

The consumer proposal, in detail

It's the most-used option in Canada when you have steady income but debts that are too heavy. In practice:

Your LIT prepares a partial repayment offer (for example 30% or 40% of your debts, interest-free) and files it with the Office of the Superintendent of Bankruptcy.
Creditors have 45 days to vote. If those holding the majority of the debt by dollar value accept, the deal binds all creditors, even those who voted no.
From filing: interest stops, collection calls must stop, lawsuits and wage garnishments are frozen.
You keep your house, car and belongings as long as you honour the agreement.
Two financial counselling sessions are mandatory — that's a good thing, not a punishment.

Bankruptcy, in detail

It's the most complete reset — and the heaviest in consequences:

For a first bankruptcy with no surplus income, discharge is automatic after 9 months (if you complete your duties). With surplus income, it becomes 21 months. A second bankruptcy lasts 24 to 36 months.
Non-exempt assets are surrendered to the trustee, who sells them for your creditors. Exemptions vary by province (basic household goods, work tools, part of home equity or vehicle value, generally).
The record stays on your credit file 6 to 7 years after discharge.
Like a proposal, it goes only through an LIT, and creditor proceedings freeze on filing.

The debt management program (non-profit agency)

Before considering the legal options, there is a middle path:

A non-profit credit counselling agency negotiates with your creditors: you repay 100% of your debts, but at reduced or zero interest, in a single monthly payment.
In Quebec, these services are often offered by ACEFs (family economy cooperatives) — consultations are free.
It is not a proceeding under the Bankruptcy and Insolvency Act: it's a voluntary arrangement, so lighter — but also less protective.
Check the agency's reputation before signing: member in good standing of a recognized association, complaints checked with the Better Business Bureau and Quebec's Office de la protection du consommateur.
And an important reminder: talking to a credit counsellor does not affect your credit score.

Where to find free help in Quebec and Canada

ACEF: free budget counselling across Quebec — the list is available through the Coalition des associations de consommateurs du Québec (CACQ).
Licensed Insolvency Trustee (LIT): the first meeting is often free and no-commitment, and fees are regulated by the federal government — nobody else needs to "represent" you for a fee.
Office of the Superintendent of Bankruptcy (canada.ca): the official information on every procedure.
In crisis: if the weight of debt is affecting your mental health, Canada's crisis services answer at 1-833-456-4566 (or text 45645). Asking for help is an act of strength.

To see what repaying on your own would look like before considering these options, our [snowball vs avalanche calculator](/en/debt-snowball-avalanche) shows your debt-free date and total interest. And to see exactly what's left each payday, check our [Quebec paycheque guide](/en/blog/quebec-paycheck).

What if I do nothing?

That’s also an option — but it has a mechanical cost: interest keeps running (at 21% on a card, a balance doubles in under 4 years), late fees pile up, and creditors can eventually sue or seek wage garnishment. Most importantly, the longer you wait, the fewer options you have: a consumer proposal, for instance, requires you to still be able to make regular monthly payments. Acting early keeps the maximum number of doors open — including the one where you get out on your own.

The order that usually makes sense

Most counsellors describe the same ladder, from lightest to heaviest: first, try repaying on your own with an aggressive plan (the snowball method works for many). If the minimums alone exceed what your budget allows, talk to a non-profit credit counsellor — it’s free and it doesn’t affect your credit score. If even a structured repayment plan can’t fit, meet a Licensed Insolvency Trustee to discuss a consumer proposal. Bankruptcy is generally the last resort, when income and assets can’t support any repayment plan. Climbing the ladder in order — instead of jumping straight to the heaviest option — preserves the most choices.

Before considering formal options, run your numbers through the [minimum payment calculator](/en/minimum-payment-true-cost): sometimes seeing the true cost of the status quo is what makes a voluntary plan feel possible — or confirms that professional help is the right call.

The bottom line

Proposal, bankruptcy or debt management program: none of these options is "good" or "bad" in the absolute — your situation determines the least costly way out, financially and personally. The worst choice is doing nothing and hoping it passes. The second worst is paying someone for what an LIT or an ACEF will explain to you for free.

Frequently asked questions

Does it affect my job?

For most jobs, no. But some regulated professions or positions requiring bonding can be affected — check your professional order's rules or your employer's policy, and ask the LIT directly.

Can I keep my house?

With a consumer proposal, yes: you keep your home as long as you keep paying your mortgage normally. In bankruptcy, it depends on your equity and your province's exemptions.

Are tax debts included?

Yes — government debts (unpaid taxes, for example) can generally be included in a consumer proposal or bankruptcy. It's one of the points to confirm with the LIT.

How much does a Licensed Insolvency Trustee cost?

The first meeting with an LIT is often free and no-commitment. If a procedure begins, fees are regulated by the federal government — transparent and identical everywhere.

What if my creditors reject my proposal?

No. The LIT can amend the terms and submit a new proposal. And bankruptcy remains a possible option. A rejection is not a dead end.

Official sources

Snowball vs avalanche →Minimum payment true-cost calculator →