Debt Relief Experts
While the Canadian government doesn’t offer direct grants for personal debt repayment, several government-regulated programs can help you resolve your debt problems and regain financial stability.
Understanding your debt relief options and knowing which programs provide legitimate assistance can help you make informed decisions about managing your financial situation.
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Does Canada Have Free Government Grants for Debt Repayment?
The Canadian government does not provide free grants specifically for paying off personal debts like credit cards, lines of credit, or other consumer debt. What the government does provide is oversight and regulation of legitimate debt relief programs through the Bankruptcy and Insolvency Act. This federal law establishes consumer proposals and bankruptcy as legal debt solutions that can help you manage or eliminate your debt. These programs are administered by Licensed Insolvency Trustees (LITs), the only professionals legally authorized to file consumer proposals and bankruptcies on your behalf.
If you have government student loans, you may qualify for the Repayment Assistance Plan (RAP). This program can reduce or pause your student loan payments based on your income. Under RAP, the government may cover the interest portion of your loan payment and, in some cases, part of the principal.
Government-Regulated Debt Relief Programs
The following debt forgiveness programs are available through the federal government. Each of these programs can eliminate credit card debts, lines of credit, payday loans, installment loans, tax debt and certain student loans. A consumer proposal or bankruptcy provide legal protection from creditors, although a consumer proposal generally offers more control over the terms and process and allows you to keep all your assets.
Consumer Proposals
A consumer proposal is a legal debt solution that allows you to repay a portion of your unsecured debt through a government-regulated process. Your Licensed Insolvency Trustee will help you make an offer to your creditors to pay a percentage of what you owe, often reducing your debt by up to 80%. Once your creditors accept the proposal, you make one monthly payment with no additional interest charges. All collection calls and wage garnishments stop immediately, and you can keep your assets while resolving your debt.
Consider a consumer proposal if you:
- Have stable income but cannot pay your debts in full
- Want to keep your assets while reducing your debt
- Can make consistent monthly payments for up to five years
- Need protection from creditor actions and collection calls
- Prefer a less severe impact on your credit rating than bankruptcy
Once your proposal is accepted by creditors, you make one monthly payment with no additional interest charges. Many people reduce their debt by up to 80% through this process.
A consumer proposal remains on your credit report for the earlier of six years from filing or three years after completion.
Compare the cost of a consumer proposal with other repayment options with our debt repayment calculator.
Bankruptcy
Bankruptcy is a legal process that provides immediate debt relief and a fresh financial start. When you file bankruptcy with a Licensed Insolvency Trustee, most unsecured debts are eliminated, and all collection actions must stop by law. While bankruptcy requires surrendering some assets, many everyday items are protected by law, including basic household items, tools of your trade, and in most provinces, some equity in your home and vehicle. A first bankruptcy typically lasts 9 months if you meet your required duties.
Consider bankruptcy if you:
- Cannot reasonably pay your debts and need immediate relief
- Have little or no assets that would be affected
- Are facing legal action or wage garnishment from creditors
- Need to eliminate most unsecured debts completely
- Can complete the process in 9 to 21 months for a first bankruptcy
Your LIT will help you understand which assets you can keep and guide you through meeting your bankruptcy duties, including credit counselling and income reporting.
Bankruptcy will appear on your credit report as an R9 and remain for six to seven years from completion, depending on the credit bureau.
Alternative Debt Relief Options for Canadians
Debt Consolidation
Debt consolidation involves combining multiple debts into a single debt consolidation loan, often with a lower interest rate. This option can simplify your monthly payments and potentially reduce your interest costs. However, you’ll need a reasonable credit score and stable income to qualify for a rate that makes consolidation worthwhile.
Consolidation loans require you to maintain payments on the full debt amount, though with potentially lower interest rates. This option works best when you can afford your total debt but want to simplify payments and reduce interest charges.
Credit Counselling
Credit counselling agencies are not regulated by the federal government but can provide budgeting and debt support through a debt management plan (DMP).
A debt management plan is an arrangement where a credit counselling agency works with your creditors to combine all your debts into one monthly payment. Your credit counsellor may negotiate with your creditors to stop or reduce interest charges, but you must repay 100% of what you owe – there is no debt reduction available through this option. DMPs typically last 3-5 years, and work best if you need help with budgeting and can afford to repay your debts in full but need structure and interest relief.
A debt management program remains on your credit report for 2 to 3 years after you finish making your payments.
What You Should Know About Debt Settlement
There are two types of debt settlement arrangements: formal and informal.
Licensed Insolvency Trustees can arrange formal debt settlements through legal processes like consumer proposals, where all creditors are bound by the agreement and collections must stop by law.
Informal debt settlement involves trying to negotiate directly with creditors or through unlicensed debt advisors to accept less than what you owe. This approach carries significant risks:
- Each creditor must agree separately, and any creditor can refuse
- Collections and legal action can continue during negotiations
- You typically need a large lump sum payment immediately available
- Some creditors may continue to charge interest while negotiating
- Unlicensed debt advisors often charge high upfront fees with no guarantee of success
Only Licensed Insolvency Trustees can provide legally binding settlements that protect you from creditor actions while reducing your debt.
How to Avoid Debt Grant Scams
Many companies aggressively advertise grants or “government programs” on social media that promise to reduce your debt by up to 80%. While this reduction is possible, it’s through a consumer proposal – a legal process that can only be filed by a Licensed Insolvency Trustee. These companies are not LITs; they are unlicensed debt consultants who will ultimately have to refer you to a Licensed Insolvency Trustee to actually file your proposal.
Be wary of companies that:
- Advertise dramatic debt reductions through “government programs” but are not LITs
- Request upfront fees before providing any service
- Ask you to sign contracts for their consulting services
- Pressure you to act quickly or provide personal information
- Charge fees to refer you to a Licensed Insolvency Trustee
Licensed Insolvency Trustees do not require you to sign service contracts. The only documents you’ll sign with an LIT are official regulatory documents that will be filed with the Office of the Superintendent of Bankruptcy (OSB). Never sign contracts with debt consulting agencies – they may obligate you to continue paying their fees even after they’ve referred you to an LIT.
The OSB has issued a warning against these types of debt consultants, advising that they do not improve your chances of acceptance or get you better proposal terms. After adding in fees, most debtors are worse off by using unlicensed debt consultants.
Remember that legitimate government-regulated debt relief is only available directly through Licensed Insolvency Trustees, who are required by law to provide free initial consultations. All LITs are listed on the OSB’s website including Hoyes Michalos.
For accurate information about managing debt and legitimate debt relief options, visit the Government of Canada’s official guide on managing debt.
Do You Qualify for Government-Regulated Debt Relief?
Government-regulated debt relief programs through Licensed Insolvency Trustees are designed to help people with serious debt problems. You may be eligible for these programs if:
- You are unable to pay your debts as they come due
- Your debt isn’t decreasing despite making regular payments
- You’re receiving collection calls or legal notices
- You’ve missed payments on bills or credit cards
- Your wages are being garnished or threatened with garnishment
The specific program that’s right for you will depend on factors like your income, assets, and total debt level. A Licensed Insolvency Trustee can review your situation and explain your options in a free consultation.
Seek Professional Guidance
If you’re struggling with debt, your first step should be consulting a Licensed Insolvency Trustee. LITs are the only professionals legally authorized to administer government-regulated debt relief programs like consumer proposals and bankruptcies.
LITs are required to provide free consultations where they will review your situation and explain all available options. Contact Hoyes Michalos today for a free consultation to discuss your options and find the best path forward for your financial future.
