Federal Government Layoffs 2026 - Debt Relief Options for Public Servants

If you are one of the 18,000 federal workers facing 2026 layoffs, you can protect your severance and pension while cutting unsecured debt through tools like consumer proposals and, in some cases, bankruptcy. Between January 26 and 29, 2026, more than 18,000 federal public servants across over 30 departments received official Work Force Adjustment notices. Most terminations are expected to take effect between February and March 2026.

This is the largest federal workforce reduction in decades and part of a four-year plan to eliminate up to 28,000 positions to achieve 60 billion dollars in savings. If you received a notice, you face immediate financial decisions about severance, debt, pensions, and your next steps.

What is happening with federal job cuts in 2026?

The federal government issued over 18,000 layoff notices in a single week as part of Budget 2025’s commitment to reduce the federal workforce and achieve significant cost savings. Notices were concentrated in Statistics Canada with approximately 3,274 notices, Health Canada with 1,932, Global Affairs Canada with 2,395, Shared Services Canada with 1,290, Transport Canada with 1,281, and Employment and Social Development Canada with 1,123.

More than 30 departments have issued notices, and while effective termination dates have not been universally announced, most employees are expected to be terminated within 30 to 60 days of receiving their notice. This accelerated timeline is unusual. Previous federal cuts were phased over multiple years.

The scale and speed of these layoffs make 2026 uniquely challenging. Displaced federal workers are entering a weak job market alongside tariff-driven manufacturing job losses and a mortgage renewal crisis affecting 1.8 million Canadian households. This convergence means federal workers face not only personal job loss but also reduced consumer demand and hiring in the broader Ottawa and regional economies.

The government has committed to achieving these cuts through natural attrition, voluntary departure incentives, and involuntary Work Force Adjustment layoffs. Unions including PSAC, CAPE, and PIPSC are challenging the layoffs as violations of collective agreements, but legal challenges are unlikely to reverse terminations in the short term. If you believe your layoff violates your collective agreement, contact your union representative within 30 days to file a grievance.

How much severance will federal employees receive?

Federal severance is calculated based on your employment type and years of service. Indeterminate employees typically receive approximately two weeks of pay per year of service, with a cap of around 30 weeks. Term employees generally receive about one week of pay per year of service.

Severance is usually paid as a lump sum within 30 days of your last day of work. Payment is made via direct deposit to the same bank account used for your regular paycheques. Severance is taxable income, and your employer will withhold taxes before payment, typically between 25 and 30 percent depending on the total amount. You will receive a T4A slip in early 2027 for tax filing purposes.

Your exact severance amount will be detailed in your termination letter. If your amount differs from these estimates, check with your union representative or HR contact. The severance you receive is a critical financial asset, and protecting it from creditor seizure is essential if you carry unsecured debt. Understanding what a consumer proposal costs can help you decide whether filing before severance makes financial sense.

Strategic timing matters. If you file a consumer proposal or bankruptcy before your severance is paid, that money is protected from garnishment. If you wait until after you receive severance, creditors with existing judgments may seize a portion of that lump sum under provincial garnishment rules. Filing while still employed often provides the strongest protection for your severance package.

Are my federal pension and EI protected if I file for debt relief?

Your federal pension under the Public Service Superannuation Act is a protected asset in both consumer proposals and bankruptcy. You do not lose your pension, your accumulated contributions, or your future retirement benefits when you file for debt relief. This protection is explicitly provided under Canadian insolvency law and applies regardless of whether you file a consumer proposal or bankruptcy.

Your pension remains with the government and continues to grow according to your entitlement. If you are vested in the pension plan, your benefits are locked in and cannot be touched by creditors or trustees. This is one of the most important protections for federal workers facing layoffs with debt.

Employment Insurance is treated as income for the purposes of calculating consumer proposal payments or bankruptcy surplus income. EI benefits are generally protected from garnishment by private creditors under federal law. However, the Canada Revenue Agency can garnish EI for tax debts, child support arrears, or spousal support arrears. Many federal workers also carry CERB debt from 2020-2021 that CRA is now actively collecting, which adds urgency to filing before severance is paid.

If you file a consumer proposal after your layoff, your monthly payment will be calculated based on your current income, including EI. This often results in significantly lower payments compared to what you would have paid while employed. In bankruptcy, EI is factored into surplus income calculations, but because EI benefits are typically much lower than regular employment income, many laid-off workers pay little or no surplus.

You must apply for EI within four weeks of your last day of work to avoid losing benefits. Even if you have not yet been officially terminated, you can begin the EI application process and set your effective date as your last day worked. Delayed applications can result in loss of benefits for the weeks you miss.

Should I file a consumer proposal or bankruptcy before or after my layoff date?

Filing before your termination or before your severance is paid offers the strongest protection for your severance and allows you to negotiate debt relief from a position of greater income stability. When you file a consumer proposal or bankruptcy, a legal stay of proceedings activates immediately. This stay stops all collection actions, including lawsuits, wage garnishments, and seizure of severance pay.

If you file before severance is paid, that lump sum is protected because the stay prevents creditors from obtaining new garnishment orders or seizing funds. If you wait until after you receive severance, creditors who already have judgments may garnish your bank account or seize a portion of the severance under provincial garnishment rules. Once severance is deposited, it becomes vulnerable.

Filing while employed also allows your Licensed Insolvency Trustee to calculate your consumer proposal payment based on your current salary. This typically results in higher monthly payments but a shorter repayment period, often 36 to 48 months instead of 60 months. Higher payments while employed may also make your proposal more attractive to creditors, increasing the likelihood of acceptance.

Filing after your layoff may result in lower monthly payments based on Employment Insurance or unemployment. However, you lose the opportunity to protect severance if it has already been paid and exposed to creditors. The trade-off is lower payments over a longer period versus higher payments with full severance protection.

Both consumer proposals and bankruptcy protect your PSSA pension regardless of when you file. If you have significant unsecured debt and are concerned about creditor action, filing before your last day of work or before severance is paid is usually the better strategic choice. Use the consumer proposal calculator to model payments at your current income versus EI income.

Filing a consumer proposal typically takes 7 to 14 days from your initial consultation with a Licensed Insolvency Trustee to electronic submission with the Office of the Superintendent of Bankruptcy. The stay of proceedings activates the same day your proposal is filed. If you received a layoff notice in late January and expect termination in late February or early March, you have a narrow window to file before severance is paid.

How does job loss fit into the 2026 Canadian financial crisis?

The 18,000 federal layoffs are not isolated. They are part of the larger 2026 Canadian financial crisis affecting households nationwide. Three converging shocks are creating unprecedented financial stress: federal workforce cuts, tariff-driven manufacturing job losses, and a mortgage renewal wave.

Ontario is projected to lose 119,200 jobs in 2026 due to U.S. tariffs, with 57,700 of those losses concentrated in manufacturing. GM Oshawa laid off 1,200 workers on January 30, 2026, marking the largest single-day mass layoff in Ontario’s auto sector since 2009. These private-sector job losses are reducing purchasing power and economic activity in the same regions where federal workers are being laid off.

At the same time, approximately 1.8 million Canadians face mortgage renewals in 2026, with about 60 percent seeing payment increases of 15 to 20 percent. Many laid-off workers with mortgages will face impossible choices between paying their mortgage and paying unsecured debt.

According to the MNP Consumer Debt Index, approximately 41 percent of Canadians are within 200 dollars per month of insolvency. This represents roughly 12 million adults living paycheck to paycheck. In Ontario, that figure rises to 42 percent. Federal workers who appear financially stable may already be carrying high debt loads, and job loss pushes many over the edge. If you are recognizing warning signs that you need a consumer proposal, acting before termination provides the strongest protection.

The combination of job loss, mortgage stress, and high household debt is creating a wave of insolvency filings. Consumer proposals are increasingly preferred over bankruptcy because they allow debtors to keep their homes, vehicles, and pensions while reducing unsecured debt by 60 to 80 percent. For federal workers, the ability to protect PSSA pensions makes consumer proposals especially attractive.

This is not a normal downsizing. The economic context surrounding the 2026 federal layoffs means displaced workers are entering a weak job market with limited financial buffers. Early action on debt relief can prevent financial collapse and protect the assets you have worked decades to build.

What should I do in the next 90 days after a WFA notice?

Your first priority in the days immediately following a layoff notice is to gather financial documentation and assess your debt relief options. Within the first week, collect all pay stubs from the past three months, your most recent tax return and Notice of Assessment, and account statements for all credit cards, lines of credit, and personal loans. Calculate your total unsecured debt and list every creditor with account numbers and balances.

Book a free consultation with a Licensed Insolvency Trustee within the first two weeks after receiving your notice. Most trustees offer video consultations and can assess your situation within 30 to 60 minutes. Ask specifically about the timeline for filing a consumer proposal and whether filing before your termination date would protect your severance. Bring your documentation to this meeting.

If you decide to file a consumer proposal, aim to complete the process before your severance is paid. Filing typically takes 7 to 14 days from consultation to submission. The stay of proceedings activates immediately upon filing, stopping all collection actions and protecting your severance from garnishment.

Apply for Employment Insurance within four weeks of your last day of work. You can submit your application online through Service Canada even before your official termination date, and your benefits will begin after your final day of employment. Missing the four-week deadline can result in lost benefits for the weeks you delay.

In the first 30 days after termination, allocate your severance strategically if you choose not to file a consumer proposal. A common approach is to set aside 50 percent for an emergency fund covering three to six months of essential expenses, 25 percent for debt reduction if you are not filing a proposal, and 25 percent for retraining or job search expenses. Keep severance in a separate bank account to avoid spending it on day-to-day expenses.

Between 60 and 90 days post-layoff, focus on finding new employment and managing your consumer proposal payments if you filed. If you filed a proposal before your layoff and are now unemployed, contact your Licensed Insolvency Trustee to discuss amending your payment amount based on your reduced income. Most proposals allow up to three missed payments before annulment, and trustees often work with clients to restructure payments temporarily during unemployment.

Network aggressively during this period. Approximately 70 percent of federal jobs are filled through internal referrals and personal connections. Update your resume and LinkedIn profile immediately, and reach out to former colleagues who have moved to other departments or private-sector roles. Many federal departments also hire back former employees as contractors, which can provide bridge income while you search for permanent work.

If you have a mortgage, contact your lender within the first 30 days to discuss payment deferral options. Many lenders offer three to six months of deferred payments for borrowers experiencing job loss, though interest continues to accrue during deferral. This can provide breathing room while you navigate unemployment and debt relief.

For Ottawa-area resources, including local Licensed Insolvency Trustees, legal aid, and employment services, consult city-specific guides that can connect you with community support tailored to federal workers.

Bottom Line

More than 18,000 federal workers received layoff notices in late January 2026, with terminations expected between February and March. If you are affected, your severance and PSSA pension can be protected with the right timing and debt relief tools. Filing a consumer proposal while still employed often provides the best severance protection and allows you to negotiate debt reduction from a position of income stability. Job loss does not disqualify you from consumer proposals or bankruptcy, and Employment Insurance income is compatible with both processes.

Federal workers typically receive about two weeks of pay per year of service in severance, capped at around 30 weeks for indeterminate employees. This lump sum is vulnerable to garnishment if creditors already have judgments against you, making early filing critical if you carry significant unsecured debt. Consumer proposals can reduce unsecured debt by 60 to 80 percent and stop all collection actions immediately upon filing.

If you received a WFA notice, talk to a Licensed Insolvency Trustee now and use the consumer proposal calculator to see your options. The 30-day window before severance is paid is your best opportunity to protect that money and eliminate most of your debt.

This article provides general information and should not be considered legal or financial advice. Severance amounts and debt relief options vary by individual circumstances. Consult your union representative for collective agreement interpretation and a Licensed Insolvency Trustee for personalized debt advice.

Last updated: February 2, 2026