One of the first questions that those struggling with debt ask is, “Are there government debt relief programs?”
The short answer to that question is no. However, that’s not the whole story.
Let’s dive into why there are no government debt relief programs and take a look at some of the options for those currently struggling with debt.
Key Takeaways
- Two government debt relief programs are regulated by the Bankruptcy and Insolvency Act (BIA): consumer proposals and bankruptcies.
- Some provinces offer student loan forgiveness programs, such as the BC Loan Forgiveness Program, the Quebec Loan Remission Program and the PEI Debt Reduction Program.
Are There Federal Government Debt Relief Programs In Canada?
The Canadian federal government doesn’t directly give money to consumers to help them repay their debt. However, there are debt forgiveness programs that are regulated by the federal government’s Bankruptcy and Insolvency Act (BIA). This includes consumer proposals and bankruptcies.
Government-Regulated Debt Relief Programs In Canada
Both consumer proposals and bankruptcies are last-resort options when dealing with unresolved debt. These options are typically considered by consumers who cannot keep up with their bill payments and their debt continues to mount.
Consumer Proposal
A consumer proposal is a legal agreement between you and your creditors to pay back a portion of your debt. This government-regulated program is managed by a Licensed Insolvency Trustee (LIT). It typically results in a significant reduction in overall debt by lowering payments or reducing interest costs.
Your trustee will negotiate a new, more affordable payment based on your income and assets. To qualify, your total debt—excluding your mortgage—must be $250,000 or less.
Filing a consumer proposal provides immediate protection from creditors and debt collectors. It also halts wage garnishments and freezes interest on your debt.
Learn more: Consumer Proposals In Canada
Bankruptcy
Bankruptcy is a legal proceeding that provides debt relief to those who cannot get out of debt on their own. Like a consumer proposal, bankruptcy is managed by a LIT. You’re financial situation will be reviewed and certain assets may need to be surrendered.
As part of your obligations, you must attend two crediting counselling sessions. You’ll also need to file monthly income and expense reports. Depending on your situation, you can be discharged from bankruptcy in as little as 9 months.
Bankruptcy is better suited for those with very high debt over $250,000, not including mortgages.
Risks Of Bankruptcy
Sure, bankruptcy will rid you of your debts, but there are some serious side effects.
- Some of your assets such as jewellery, real estate, and other possessions might be lost
- All credit accounts will be frozen while you are in the bankruptcy process.
- Bankruptcies stay on your credit report for at least 6 years
Learn more: Bankruptcy In Canada
Speak With A Debt Expert
Bankruptcy vs. Consumer Proposal In Canada
| Bankruptcy | Consumer Proposal | |
| Definition | Bankruptcy is a legal process where Canadians can have their debts absolved. | Consumer proposals are legally binding agreements with your creditors. |
| Eligibility | Borrowers with at least $1,000 of debt are eligible. | Borrowers with debts between $1,000 to $250,000 (not including mortgages) |
| Debt Repayment Plan | 9 monthly payments or 18 if you have to make surplus payments. | You’ll repay part of your debt over up to 5 years. |
| Impact on Assets | Assets may be sold to repay your debts. | You can keep your assets |
| Credit Score Impact | – R9 rating – Remain on credit report for 6-7 years after discharge | – R7 rating – Remain for 3 years after all debts are paid off, or 6 years from the date of filing, whichever comes first |
| Duration | Typically 9 months to 1 year for a first bankruptcy. | Generally 3-5 years, depending on the payment plan. |
| Type of Debt Discharged | Eligible unsecured debts (e.g., credit cards, personal loans) are discharged. | Unsecured debts are reduced and/or consolidated into a manageable payment plan. |
| Legal Process | Managed by a Licensed Insolvency Trustee who handles, assets, payments, creditor meetings, etc. | Managed by a Licensed Insolvency Trustee who negotiates the proposal. |
| Public Record | Is a public record and is noted in credit reports. | Is a public record and is noted in credit reports. |
Government Debt Relief Programs For Government Student Loans In Canada
Many Canadians rely on student loans to fund their education with the college graduates owing on average $16,700 at graduation and $30,600 for those with a Bachelor’s.
Given the high cost of attending college or university, many Canadian students struggle to pay off their debts. To help offset these financial hurdles, many provinces offer some form of debt relief for student loans.
Student Loan Forgiveness For Doctors And Nurses In Canada
Medical students enrolled in studies to become nurses, doctors, and other types of medical professionals may be eligible for student loan forgiveness from the Canadian government. Loan forgiveness is only offered to cover outstanding Canada Student Loans balances.
It cannot be applied to private student loans, Canada Student Loans that have been converted to lines of credit, or Ontario Medical Resident Loans. Further, Canada Student Loan forgiveness is only applicable to the federal portion of a student loan, not the provincial or territorial portion.
Family physicians can receive up to $60,000 in Canada Student Loan forgiveness over a maximum period of 5 years. Nurses or nurse practitioners can receive up to $30,000 over a maximum period of 5 years.
Provincial Government Debt Relief Programs For Student Loans
Various provinces in Canada offer provincial student loan forgiveness programs, including the following:
| Provincial Program | More Information |
| B.C. Loan Forgiveness Program | Learn More |
| Quebec Loan Remission Program | Learn More |
| PEI Debt Reduction Grant Program | Learn More |
| Nova Scotia Student Loan Forgiveness Program | Learn More |
BC Loan Forgiveness Program
Graduates in specific high-demand jobs may be eligible for provincial student loan forgiveness if they work at publicly-backed organizations in underserved areas in BC, or with children in jobs that need workers.
Those who qualify for the BC Loan Forgiveness Program will have the outstanding provincial portion of their federal-provincial integrated student loan debt forgiven up to 20% a year for a maximum of 5 years. All or a portion of your BC student loan debt may be forgiven if you complete 5 years of work. While in the loan forgiveness program, the province will also cover the outstanding interest that accrued during every year you’re registered in the program.
Quebec Loan Remission Program
The Quebec Loan Remission Program forgives 15% of provincial student loan debt. Eligibility for the program requires the completion of studies within a specific period and after receipt of a bursary under the Loans and Bursaries Program for each year of study.
You must apply for loan remission within 3 years of finishing your program.
PEI Debt Reduction Program
The PEI Debt Reduction Grant program provides graduates with some financial relief from their student loan debt. To qualify for this program, you must be a resident of PEI and have lived in the province for at least 6 months before applying. You must also have graduated from a post-secondary institution over the last 3 years.
The Debt Reduction Grant is only applicable to the provincial portion of your student loan. If eligible, you may receive up to $3,500 per year, as long as it does not exceed the amount borrowed.
Nova Scotia Student Loan Forgiveness Program
Students who graduate from a non-professional undergraduate program in Nova Scotia may be able to have the provincial portion of their student loans forgiven through the province’s Student Loan Forgiveness Program. Eligible graduates can receive up to $20,400 over 5 years of study.
Other Debt Relief Options
Before filing for bankruptcy, consider these debt relief options. Each may impact your credit differently, but all can help you get out of debt, depending on your situation.
Credit Counselling
Credit counselling is a service that helps individuals manage their debt, create a budget, and improve their financial literacy. The ultimate goal is to strengthen your overall financial health so you can make informed decisions in the future.
When you speak with a credit counsellor, they’ll review your finances and provide feedback on the steps you should take. Whether you’re considering a debt consolidation loan or even filing for bankruptcy, credit counselling is a great first step toward regaining control of your financial situation.
Who Should Consider Credit Counselling?
Anyone who needs a professional opinion or who is simply looking for advice on how to get back on track. When choosing a credit counselling agency, make sure they are non-profit.
Learn More: Credit Counselling Canada: How Does It Work?
Debt Consolidation Loan
Debt consolidation is a great option to help better manage multiple debts. Essentially, a debt consolidation loan involves taking out a personal or line of credit to pay off your smaller debts.
This is particularly useful if you have several small high-interest debts. By consolidating all these loans into one low-interest debt consolidation loan, you’ll save money on interest. Moreover, managing your debts will become much easier as you only have one to pay.
Who Should Consider A Debt Consolidation Loan?
Anyone with multiple unsecured high interest debts (credit cards, personal loans, etc.) who cannot keep up with their payments. You must also have fair to good credit to qualify for a lower interest rate.
Learn More: Debt Consolidation Loans In Canada
Debt Management Programs (DMP)
With this option, a credit counsellor helps consolidate your debts by working with your creditors to create a new payment plan, typically lasting 3 to 5 years. While your total debt won’t be reduced, they may be able to stop additional interest charges, making repayment more manageable.
Who Should Consider A Debt Management Program?
Someone who has multiple debts and can’t afford to keep up with them. If you can’t qualify for a debt consolidation loan due to a low income or poor credit, a DMP may be a better option.
Debt Settlement
Debt settlement is a debt relief option where you, or a debt settlement expert, negotiate with your creditors to pay less than what you owe. Typically, you offer a lump sum payment or create a structured repayment plan. If your creditors agree to your settlement your remaining balance is forgiven.
While this can help reduce your debt, it often harms your credit, and future lenders may see you as a higher risk.
Who Should Consider Debt Settlement?
Anyone who is struggling to keep up with a large debt but has enough savings to offer their creditor(s) a sizable settlement.
Learn More: Debt Settlement In Canada
What Out For False Advertising
You may have seen terms like “government of Canada debt relief grants” or “free Canadian government grants to pay off debt”. While these look appealing and might seem like a way to “get a deal”, sadly, this is not the case.
Any company, individual, service, or program that claims they are “government approved” is often embellishing its reputation or simply misleading you.
Final Thoughts
The government does not provide debt relief for citizens who are struggling. However, each province across the country has various debt relief options, which can be highly effective in helping you get out of debt.
Remember, just because something says it’s “government approved” doesn’t necessarily mean it’s better than no-fee or non-profit credit counselling services in your area. As always, it is important to research the various options you come across and see which best fits your unique situation.
