Updated April 7, 2026 · Editorial policy

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 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. Rules like garnishment limits vary by province — see your province's guide .

Compare the 5 main options, then choose the best next step for your situation.

LIT reviewed 2026 OSB data All provinces

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Facing CRA action or wage garnishment? A consumer proposal or bankruptcy stops most unsecured collection within 48 hours of filing.

Compare your 5 options

Solution	Debt reduction	Timeline	Stops garnishment?	Best for
Consumer Proposal	60–80%	3–5 years	Yes	$10k–$250k debt, steady income
Bankruptcy	100% eligible unsecured*	9–21 months	Yes	Low income, need fast reset
Debt Consolidation	0% (interest savings)	2–5 years	No	Under $25k, good credit
Credit Counselling	0%	Varies	No	Repayment help, no legal protection
Debt Settlement	40–60%	2–4 years	No	Lump sum available, higher risk

Consumer Proposal Stops garnishment

Reduction: 60–80%

Timeline: 3–5 years

$10k–$250k debt, steady income

Bankruptcy Stops garnishment

Reduction: 100% eligible unsecured*

Timeline: 9–21 months

Low income, need fast reset

Debt Consolidation

Reduction: 0% (interest savings)

Timeline: 2–5 years

Under $25k, good credit

Credit Counselling

Reduction: 0%

Timeline: Varies

Repayment help, no legal protection

Debt Settlement

Reduction: 40–60%

Timeline: 2–4 years

Lump sum available, higher risk

* Bankruptcy discharges 100% of eligible unsecured debt, but surplus income payments and non-exempt asset surrender may apply depending on income and province.

View detailed side-by-side comparison → · Still unsure? Take the 2-minute assessment for a recommended path.