Updated January 31, 2026

5 Debt Relief Options in Canada

Q: How do I choose between a consumer proposal and bankruptcy in Canada?

Choose a consumer proposal if you have steady income and assets to protect (home, car, RRSP over $100,000). Consumer proposals reduce debt by 60-80% while letting you keep all assets. They result in an R7 credit rating for 3 years after completion. Choose bankruptcy if you have no assets, minimal income, or debt exceeding $250,000. Bankruptcy discharges 100% of eligible debt in 9-21 months but may require surrendering non-exempt assets. Both options stop wage garnishment immediately. A Licensed Insolvency Trustee (LIT) can file either the same day you meet. Find a Licensed Insolvency Trustee by city or province for a free consultation.

Q: Can debt relief stop wage garnishment in Canada?

Yes. Both consumer proposals and bankruptcy trigger an automatic 'stay of proceedings' under the Bankruptcy and Insolvency Act. This legally stops wage garnishment within 24-48 hours of filing. The stay applies to most unsecured creditors, including the CRA (Requirements to Pay). Debt consolidation, credit counselling, and debt settlement do not provide this protection—only formal insolvency proceedings do.

Q: Can I include CRA tax debt in a consumer proposal or bankruptcy?

Yes. CRA tax debt qualifies for both consumer proposals and bankruptcy. Personal income tax debt, interest, and penalties are treated as unsecured claims. Both options stop CRA collection immediately, including Requirements to Pay notices to your employer or bank.

Q: Will debt relief destroy my credit score?

Consumer proposals result in an R7 rating that remains on your credit report for 3 years after you complete all payments. Bankruptcy results in an R9 rating for 6-7 years from discharge. However, if you are already missing payments or in collections, your credit is being damaged anyway. Many people rebuild their credit to 650+ within 1-2 years after completing a proposal.

Not all options are equal. The right choice depends on your debt amount, income, assets, and goals. Answer 3 questions below to find your path.

Editorial policy

LIT reviewed 2026 OSB data All provinces

Find your path: 3 questions

1. What's your total unsecured debt?

Under $10k → Debt Consolidation, Credit Counselling
$10k–$50k → Consumer Proposal or Consolidation
Over $50k → Consumer Proposal, Bankruptcy

2. Can you afford monthly payments?

Yes → Consumer Proposal, Consolidation
Barely → Credit Counselling, Debt Settlement
No → Bankruptcy

3. Facing CRA debt or wage garnishment?

Yes → Consumer Proposal stops collection immediately
No → All options remain open

Compare at a glance

Solution	Debt reduction	Timeline	Stops garnishment?	Best for
Consumer Proposal	60-80%	3-5 years	Yes	$10k-$250k debt, steady income
Bankruptcy	100%	9-21 months	Yes	No income, need fresh start
Debt Consolidation	0% (interest savings)	2-5 years	No	Under $25k, good credit
Credit Counselling	0%	Varies	No	Need budgeting help
Debt Settlement	40-60%	2-4 years	No	$15k+, lump sum available