Drowning in Debt in Canada: What to Do Right Now

Last updated: July 2026. Insolvency statistics are drawn from the Office of the Superintendent of Bankruptcy Canada (OSB) 2025 annual data.

Being overwhelmed by debt in Canada is not a character failure. In 2025, 140,457 Canadians filed for consumer insolvency — the equivalent of 384 people per day, every day of the year, according to the Office of the Superintendent of Bankruptcy (OSB). Most of them spent years managing before reaching the point of filing. Most also waited longer than they needed to.

Quick answer: If your total unsecured debt cannot realistically be paid off in 3 years at your current income, you likely qualify for a consumer proposal or bankruptcy — both of which legally reduce or eliminate what you owe and stop collection calls immediately. The only way to know for certain is a free Licensed Insolvency Trustee consultation. You do not need to have a plan when you call. That is what the call is for.

How to Know Which Type of Debt Problem You Have

The right action depends on the shape of your situation, not just the total dollar amount. Four distinct situations lead to very different paths.

If you are in the third or fourth category, the standard “budget harder” advice does not apply. You have crossed from a cash flow problem into a legal debt problem. The tools that solve a cash flow problem (cut expenses, refinance, negotiate) do not solve a legal debt problem. The Bankruptcy and Insolvency Act exists to provide a structured exit when the debt load itself — not the spending behaviour — has become the problem.

What a Consumer Proposal Actually Does

A consumer proposal is a formal legal offer to your unsecured creditors, filed through a Licensed Insolvency Trustee (LIT) under Part III, Division II of the Bankruptcy and Insolvency Act (BIA). You offer to repay a percentage of what you owe over up to 5 years. Creditors vote on whether to accept. If the majority by dollar value accept, all unsecured creditors are bound.

What happens when it is filed:

• Automatic stay of proceedings under Section 69.3 of the BIA — all collection calls, lawsuits, wage garnishments, and bank seizures stop immediately
• Interest stops accruing on all included debts
• You make a single monthly payment to the LIT instead of multiple minimum payments
• The total you repay is typically 30–60% of what you originally owed

According to the OSB, the average consumer proposal filed in 2025 repaid approximately 37 cents on the dollar. The acceptance rate — creditors agreeing to the proposal — was approximately 97%. Canada’s largest banks and credit card issuers (RBC, TD, BMO, Scotiabank, CIBC, and American Express) routinely accept consumer proposals because they recover more through a proposal than through a bankruptcy.

What Bankruptcy Does — and When It Makes More Sense

Personal bankruptcy under the BIA discharges (legally eliminates) most unsecured debt. For a first-time filer with no surplus income, the process completes in 9 months. For a second-time filer, it is 24 months. Surplus income rules — set by the OSB — require filers with income above the threshold to make additional payments during the bankruptcy period.

Bankruptcy makes more sense than a consumer proposal when:

• The debt load is so large that no viable repayment percentage exists
• Income is too low to sustain even a minimal proposal payment
• The filer has no assets creditors care about
• Speed of discharge is the priority over credit rating difference

The credit impact difference between a consumer proposal and bankruptcy is meaningful but narrower than most people expect. A bankruptcy appears on Equifax Canada and TransUnion Canada for 6 years after discharge (first-time filer) or 14 years (second-time filer). A consumer proposal appears for 3 years after completion. Both affect credit. Both have a defined end date.

What to Do If You Are Being Contacted by Collectors

If debt collectors are calling, there are provincial rules governing when and how often they can contact you. The Financial Consumer Agency of Canada (FCAC) publishes the federal credit card rules, and each province has a Collection and Debt Settlement Services Act or equivalent legislation.

In Ontario, the Collection and Debt Settlement Services Act requires collectors to:

• Not call before 7 a.m. or after 9 p.m. on weekdays
• Not call before 1 p.m. on Sundays
• Stop contacting you if you send a written cease-communication request (though this does not stop legal action)

A cease-communication letter stops the calls but does not stop the debt or a lawsuit. The only thing that stops a lawsuit and legal enforcement simultaneously is a filed consumer proposal or bankruptcy triggering the stay of proceedings under BIA Section 69.3.

The Five Debts Most Canadians Are Drowning In

According to OSB insolvency data for 2025, the most common unsecured debts at the time of filing were:

The average total unsecured debt at filing was $67,496, per the OSB’s 2025 consumer insolvency statistical publication. Most filers had been managing for 3–5 years before reaching the insolvency threshold. The average age of a Canadian insolvency filer is 43. Debt problems at every income level and every age group file.

The Debt Relief Options in Canada: A Comparison

The Credit Counselling Society (national non-profit) offers DMPs and free counselling. Hoyes, Michalos & Associates and other LIT firms offer free consultations and administer consumer proposals and bankruptcies. Both consultations are free and take roughly an hour.

The First Call to Make

A Licensed Insolvency Trustee consultation covers your entire situation — not just one debt. In that hour, the LIT will review your total debt, income, assets, and the options you qualify for. You leave knowing exactly what a consumer proposal or bankruptcy would look like for you specifically: the estimated monthly payment, the total repayment amount, the timeline, and the credit impact.

The OSB licenses and regulates all LITs in Canada. You can verify a trustee’s license and standing on the Government of Canada’s LIT registry. There are no upfront fees for the consultation. LIT fees on consumer proposals are set by federal regulation at approximately $1,500 filing fee plus 20% of proposal funds distributed — paid from the proposal payments, not as a separate charge.

If you are drowning in debt right now, the most useful thing in the next 24 hours is that call.