With credit being as important as it is, it’s no wonder the majority of people have at least one form of credit, if not several. But with the influx of credit comes the influx of debt. And when you get so much debt that you cannot get out of it, you can try to consolidate your debts, file a consumer proposal, or as a last resort, file for bankruptcy.
In fact, the average Canadian consumer carried approximately $21,183 dollars in debt, excluding mortgages. A lot of Canadians rely on credit cards and personal loans to fill the gaps in their budget. How did they get those budget gaps?
Unfortunately, life happens and you may find yourself struggling to pay off debt due to a job loss, divorce, illness, injury or unexpected expense. You might have had an emergency fund but it is gone now.
That’s why we think it’s extremely important for you to know what your options are for getting out of debt, and we don’t think bankruptcy is your only option.
Debt is a scary thing that’s why people often panic, think the worse, and convince themselves that they’ll have to file for bankruptcy. However, bankruptcy is a worst-case scenario and should only be filed if all other options have been exhausted.
Has Your Debt Become a Serious Problem?
When dealing with debt you need to be completely honest with yourself, avoiding the issue will only make things worse in the future. The best thing you can do to start by figuring out if you can deal with your debt problem on your own or if you need to ask for help to get out debt.
Start by getting organized and make a few lists about the following things:
- Who do you owe money to?
- How much money do you owe these people/ companies/ organizations?
- Are you up to date with your payments or have you fallen behind?
Once you have a better idea about what is happening with your debt(s) you can cut costs and create a new budget.
You can use budgeting apps like Mint and YNAB to save and track your spending. This will ensure you’re sticking to your budget and debt reduction goals.
If you’re unable to create a plan that leads to financial freedom, it may be time to seek a credit counsellor. A credit counsellor is a trained professional with great expertise on how to tackle debt. They will evaluate both your debt and budget to come up with a debt solution that best suits your financial situation.

Bankruptcy Alternatives
When it comes to debt management, there are numerous strategies and programs available that can help you pay off your debt. Each program has its own advantages and disadvantages, so it’s important to research each before committing to any one option.
Bankruptcy Alternatives Overview
Consumer Proposal | Debt Management Program | Debt Consolidation Loan | |
Who do you work with? | Licensed Insolvency Trustee | Credit Consellor | Lender |
Debts Covered | Unsecured debts | Unsecured debts | Unsecured debts |
Debt Requirement | Must have more than $1,000 and less than $250,00 of debt. | Must have at least $1,000 of debt. | No requirement |
Program Length | Up to 5 years | Up to 5 years | Up to 5 years |
Effect on Credit | Stays on your report for 3 years* | Stays on your credit report for 2 years* | Varies** |
** A debt consolidation loan can positively affect your credit if you are able to manage the payments. However, if you miss any of them, they will negatively impact your credit like any missed payment.
Option 1 – Debt Consolidation Loan
If your debt is just starting to get out of hand and your credit history is relatively good then you might want to look into refinancing your debt through a consolidation loan. If you have bad credit, you can still get a debt consolidation loan, but you may need a co-signer. With this option, you’ll consolidate all your debts under a new larger loan. The idea is to reduce your interest, increase your term length and simplify your payment into one affordable monthly payment.
A consolidation loan is significantly easier to manage, especially if you have several credit accounts and find it hard to remember who to pay when. Here are a few things you should remember when deciding whether or not a consolidation loan is the best fit for you.
- The interest rate on the consolidation loan should be lower than the ones associated with your credit accounts. If it’s higher, you’ll be paying more than you were before.
- Once you’ve consolidated all your credit accounts, stop using them. But do not close them, this will only hurt your credit score.
Do note, that with a consolidation loan you’ll still have to pay off all the money you owe. The difference is, you’ll be stretching out your payments over a longer period with a lower interest rate, making your monthly payments more affordable.
Learn more about checking your credit score for free.
Option 2 – Debt Management Program
If you’re unable to qualify for a debt consolidation loan, then a debt management program is probably the best option for you. It does not have any requirements except for being in debt. Like a debt consolidation loan, a debt management program involves consolidating your debt, but, you’ll be working with a credit counsellor who will
- Create a budget that you can afford to keep up with.
- Negotiate with your creditors on your behalf and ask for your monthly payments to be lowered so that they’ll fit you budget.
- Administer your payments to the appropriate creditors.
With a debt management program, you’ll receive some help to reduce your debts but will still have the satisfaction of paying off all or most of the money you owe.
Option 3 – Consumer Proposal
If your debts are so high you’re unable to consolidate them under a debt management program, then a consumer proposal is a good option. Much like bankruptcy, a consumer proposal is a legal proceeding administered by a Licensed Insolvency Trustee (LIT). Your trustee will be responsible for figuring out how much of your debt you can afford to pay back. In general, you can have up to 70% or more of your debts cleared without having to sell your assets. However, your trustee will decide based on your income. Once your trustee decides they will present your creditors with your consumer proposal. Your creditors have the right to reject your proposal; more often than not they will accept your proposal.
Choosing Bankruptcy
Sometimes bankruptcy is the only option that makes sense and cannot be avoided. When this happens it’s best to get in contact with a Licensed Insolvency Trustee right away and start the bankruptcy proceedings. Your trustee has your best interests in mind so if they feel like a consumer proposal is a better choice for you, they will suggest it. Here are few things to remember if you’re currently thinking about filing for bankruptcy:
- A bankruptcy has the worst possible effect on your credit report and score.
- It will be extremely hard to get new credit after all your debts have been discharged.
- Certain occupations forbid the filing of bankruptcy
- You will lose the majority of your assets
- Filing for a second bankruptcy will be an extremely demanding process and therefore bankruptcy should be seen as a once in a life time option.
Keep Tabs on Your Credit Report
Your credit history tells the story of your spending habits and how well you handle your finances. If you’ve come to terms with your finances and feel like you have a serious debt problem then it will definitely be obvious in your credit history. If you’ve realized that your debt problem isn’t quite as bad as you had thought then that will also show up on your credit history.
It’s important to check your credit report at least once a year. You can request a copy of your credit report for free every year with either of Canada’s credit bureaus.
Bottom Line About Bankruptcy
The most important thing you can do is inform yourself about your options. Bankruptcy is not the only solution to debt, that’s why we believe it’s very important to not rush into anything. Dealing with debt is not easy so if you feel like you need help, whether it’s a lot of help or just a little bit, you should definitely ask for it.