Transparent, easy-to-understand, and complete information so that you can make an informed decision
Debt consolidation is the process of combining all your debts to allow you to repay with one single payment, often with a better rate or term. This could include borrowing from a bank or other lender to repay your debts, using personal wealth such as an RRSP, or by using a negotiated consolidation.
No. While some of the services a credit counsellor offers overlap with what a financial advisor offers, credit counsellors are NOT financial advisors.
Yes, you can keep your car in consumer proposal. However, if your vehicle is still financed you must continue making your regular financing payments.
First-time bankruptcies last 9 or 21 months depending on income, assets, and family size e.g. the number of dependents supported by you. Second or third-time bankruptcies will last 24 or 36 months and will have added restrictions.
For unsecured loans, the process of settling is identical to that of credit card settlement. For secured loans, the loan must typically be detached from the property before settling the debt. While this most commonly affects vehicle loans, it can affect any type of financed property where there is a lien involved.
During a credit counselling session, a qualified credit counsellor will ask you questions about your family size, income, assets, liabilities, debts, budget, and goals. Your counsellor may also ask questions about how your current financial situation makes you feel. Using this information, your counsellor will determine next steps based on the three S’s: safety, stability, and success. If your situation is unsafe or you are in an immediate financial crisis, fixing that is step one.
From there, your counsellor will help you to create a realistic budget and/or repayment plan to stabilize your finances and ensure future financial success.
A basic, fees-only bankruptcy will cost $1800 for a 9-month bankruptcy and $2000 for a 21-month bankruptcy. However, if your income exceeds the maximum permitted for your family size (you plus your dependants) or you have penalties related to assets or equity, the cost of bankruptcy will increase.
Banks, credit unions, private lenders, and consolidation companies.
Debt Management Programs are very different than consumer proposals. First, you will repay the total amount of your debt, just with low-or-no-interest. Second, DMPs do not consider your assets—your house, car, savings plans, and any other items will not be impacted in any way. Lastly, DMPs are voluntary and can be negotiated by a credit counsellor without involving a trustee.
You wouldn’t put up a picture with a wrecking ball or demolish a house with a hammer so why would you go bankrupt $500 or try to consolidate $500,000?
Debt consolidation is a ‘hammer level’ solution to debt. If you can consolidate comfortably and affordably, it’s a good option. But the truth is, sometimes you need to knock the whole house down and rebuild on a better foundation.
If you have borrowed more than you could comfortably repay (even with interest relief or a better term) consolidation is likely not the right tool for you.
- Secured debt (unless surrendered)
- Student loans less than 7 years
- Alimony and child support
- Court-imposed fines or penalties
- Criminal judgements or restitution orders
- Tax debts and HST/GST incurred due to fraud
Yes and no. While a DMP program will not directly build credit, a DMP will allow you to pay off your debts faster and with significantly lower interest rates than if you were to repay on your own. Upon successful completion of a DMP your counsellor will provide next steps for repairing credit and building wealth.
While every consolidation loan is different (see: Types of Consolidation Loans) as a general rule you will need to meet three borrowing requirements:
- Pass a credit check
- Provide proof of income
- Prove affordability
For secured or unsecured loans, you can apply at any reputable bank or credit union. Secured loans such as second mortgages or home lines of credit can also be borrowed from independent financing companies. For reverse mortgages, you will need to find a lender that specializes in this type of borrowing.
If your credit is damaged, you have a non-working income or are recently self-employed, or cannot afford to repay a new loan, you will require a co-signer.
5 years (or less) of repayment, plus 3 years of credit record once paid.
Credit counselling is a goal-oriented financial conversation between yourself and an accredited credit counsellor where you will discuss your credit score, debt history, and any other money management concerns that you may have.
The purpose of credit counselling is to provide the credit education, support, and resources you need to meet your personal financial goals. For most people, credit counselling is the first step in a debt management plan, but other services may include: budgeting, building/improving credit, or creating a savings plan.
- Credit card debt
- Personal/installment loans
- Unsecured lines of credit
- Payday loans
- Past due bills
- Loans from individuals
- Non-criminal judgements
- Tax debts and HST/GST
- Student loans older than 7 years
Once informed of your bankruptcy, debt collectors should not continue to call you. If they do, please inform your licensed insolvency trustee right away.
Just like a bankruptcy, a consumer proposal can include any type of unsecured debt such as credit cards, lines of credit, or payday loans. Consumer proposals can also include certain types of government debt but cannot help with child support, spousal support, or alimony. Consumer proposals also do not include secured debt such as your vehicle loan or mortgage unless surrendered.
Assets such as a house, car, and certain investments such as RRSPs are either fully or partially exempt in bankruptcy. How much or what you can keep is subject to the exemption amounts in the province where you file bankruptcy.
For example: if the exemption limit for a vehicle in Manitoba is $3000, that means that IF it were sold, the total car worth must be less than $3000 or you may need to (a) pay the cash difference to your trustee or (b) surrender the car.
- A collections agency or creditor attempts to collect a debt in full, if they are not successful, they may decide to:
- Offer the debtor a settlement to be paid in full
- Offer the debtor settlement to be paid in installments
- If the collections agency or creditor does not offer a settlement but the individual debt is willing, an outside negotiator can:
- Offer the creditor a settlement to be paid in full
- Offer the creditor a settlement to be paid in installments
- If/when a settlement amount is mutually agreed upon:
- The creditor provides the settlement offer in writing
- The debtor pays the settlement as previously agreed
- The debtor requests or is provided with a receipt
- The creditor marks the debt as ‘paid’ or ‘satisfied’
- The creditor updates the credit report
Bankruptcy does not ruin your credit rating forever, but it will negatively impact your credit/borrowing power for a set period. Credit-wise, when you declare bankruptcy in Canada a record of bankruptcy will appear on your credit bureau for the length of your bankruptcy repayment (9 or 21 months) PLUS 6 additional years following your date discharge. During this time, you may find it challenging to secure new credit and you may pay higher interest/borrowing costs.
Settling your debt will not damage your credit score, but it will also not repair any damage (lates, missed payments) that took place before you settled.
How much you pay is calculated based on how much you earn, how many family members are dependant on your income, how much (if any) equity value you have in your home or other assets, and lastly, how much debt you must repay.
In all situations, you can expect to pay between 30% to 100% of your debt plus the cost of filing, which is $1500 regardless of total debt or province filed.
Credit counselling is not a form of debt consolidation, it is a debt conversation with an accredited credit counsellor who provides an overview of your money management options. However, credit counselling agencies do offer negotiated consolidations in the form of low-or-no-interest debt management programs.
For-profit debt management companies will each have their own in-house requirements for you to qualify. In some cases, this may include a credit check, proof of working income, or an offer of collateral (such as a house or car).
When a debt is settled the difference between the offer amount and the remaining balance is forgiven. For example, if you owe $1000 and settle for $800, the remaining $200 is forgiven but the whole debt is considered paid.
If what you are looking for is a non-profit debt management program, only two need-based questions asked by your counsellor determine your eligibility:
- Do you need help repaying your outstanding debts?
- Could you repay your debts fully with interest or term relief?
If the answer is yes to both and your counsellor feels that a debt management program would be both an ethical and affordable option, you’re approved.
Yes and no. While you can get some types of credit while in consumer proposal, typically you will be restricted as to what type. For example, vehicle financing or leasing is typically permitted, as are mortgages, property rentals, and secured or prepaid credit cards, but other types of borrowing will not be allowed.
Whether consumer proposal is worth it depends on what you need your consumer proposal to do. Consider the three L’s of consumer proposal:
- Do I need LEGAL protection from my creditors to stop wage garnishment or prevent a pending small claims court case?
- Will I pay LESS than the total amount of debt that I owe if I file consumer proposal based on my income, assets, and dependants?
- How will filing a consumer proposal LIMIT my ability to meet future financial goals such as homeownership or retirement?
Remember, the goal of a consumer proposal should always be to improve the situation. If you do not need legal protection from your creditors, will not benefit from reduced debt, or are concerned with credit impact, a credit-sparing alternative such as a Debt Management Program may be more appropriate.
How debt consolidation works will depend on what type of debt consolidation you choose, but any consolidation should provide three basic benefits:
- A single monthly payment
- A lower overall interest rate
- A reasonable repayment timeline
In the real world, debt happens. Dogs get sick, kids have hockey, cars need winter tires; managing debt isn’t just about what’s on the credit report, or about the collection companies calling, or the bills that have fallen behind; it is about you, your personal financial situation, and a plan that makes sense for you. If you are struggling with money or debt, a credit counsellor can help you manage your budget and explore all of your options to effectively deal with your debt.
Yes, you can keep your house in consumer proposal. However, you may have to pay more towards your debts based on the amount of home equity you have.
Unlike consumer debts like credit cards or loans, government debts must typically be negotiated directly with the governing body responsible unless involving a trustee (such as with a consumer proposal or personal bankruptcy).
Credit counsellors deal with credit (good and bad) and focus on everyday affordability, managing debt, and establishing savings. Financial advisors do this as well but from the perspective of wealth-building and financial investment.
In a nutshell, if you have several credits cards that you are struggling to manage or need a better household budget, a credit counsellor can help. If you need advice on if you should invest in Space X or Dogecoin, that’s a financial advisor.
Consumer proposals can help with personal income taxes, CERB, HST/GST, provincial disability repayment, social support repayment, ICBC repayment, and student loans older than seven years. Government debts or overpayments that were incurred due to fraudulent or criminal activity cannot be included.
As they say, always use the right tool for the right job—but, how do you know what the right tool is? You ask someone who not only understands the tools available to you but also what exactly you are trying to build with them.
A consumer proposal is a legally binding agreement made between you and your creditors to repay a portion of your total debt relative to your income, assets, and dependants. Consumer proposals are administered by a licensed insolvency trustee and are regulated by the Office of the Superintendent of Bankruptcy.
Unlike a consumer proposal or bankruptcy, eligibility for a DMP is determined by only two questions: (1) do you have debts to repay and (2) will a DMP help you repay them? Before getting started, your counsellor will carefully review your situation and determine if a DMP is affordable, logical, and if it will address both your current situation and future credit goals. If it will, your counsellor will prepare a program outline and get the negotiation process started.
The short answer is yes, but the real question is not can you keep your house in bankruptcy in Canada but rather, can you afford to keep it. In a bankruptcy, you must always offer your creditors MORE than what they would receive if you liquidated (sold) your assets to pay them. That means the more equity you have in a property, the more debt you will have to repay in your bankruptcy.
If you live or work in Canada and have Canadian debt, you are eligible to file a consumer proposal, however, it is up to your licenced insolvency trustee (or accredited credit counsellor) to determine if it makes sense for you to file. In general, you can expect the following of a consumer proposal in Canada:
- Your total debt amount will be reduced
- You will make a single monthly payment
- You will have up to 5 years to repay
- Creditors will stop collection calls/letters
- Creditors will not be able to garnish wages
- You will not lose your house or vehicles
- You will not lose your RRSPs, RESPs, or TFSAs
Bankruptcy will not affect your spouse or children unless they are either (a) the co-signer or (b) the guarantor of a joint debt with you or, in some cases, if they are the co-owner of a joint asset with you. In general, if a jointly owned debt or asset will be affected by your bankruptcy, it will affect BOTH parties.
In Canada, there are three main types of settlements:
Settlement in full: The lump sum repayment of a debt in full to avoid the accrual of further interest rates or fees, or, more commonly, to prevent a pending small claims case from going to court.
Settlement in part: The lump sum or installment payment plan of a portion of one’s debt, most often offered when other collection methods have failed or the person cannot be sued for the debt.
Negotiated Settlement: The repayment of a debt in full or in part which is facilitated by another body such as a credit counselling agency or one of the many paid settlement companies, typically because the creditor(s) would not offer settlement themselves.
There will be some impact to credit in a debt management program, but it will be less than a consumer proposal or bankruptcy and have a shorter record.
Like other forms of debt settlement, credit card debt settlement requires you to have either a direct offer from the creditor to settle or the ability to prove ‘demonstratable financial need’ such as an illness or injury which will affect your ability to earn money. Additionally, for all types of settlement, you will need to prove that you have the financial means to settle (proof of means).
Once a settlement agreement is reached and the settlement is paid, the remaining balance is forgiven, and the account is closed as ‘paid’ or ‘satisfied’.
Unlike settling with a collection agency, credit card settlement usually involves a settlement directly with the credit card company, often as a final attempt made before they will sell the consumer debt owed to a third party collector.
Typically, credit card settlements will not discount the amount borrowed but may forgive interest, late payment fees, and other penalties. If the settlement involves a credit counselling agency or other negotiator, the discount is larger.
Any secured debt can be included in your program however, DMPs cannot assist with CRA debt, CERB, or student loans. In most cases your credit counsellor can provide alternative solutions for these types of debts outside of a DMP.
For consolidation loans, banks and credit unions are the ‘best’ in terms of interest rate and term (length of repayment). It is best to avoid private lenders and consolidation companies as the added cost of consolidating is high.
- You have been directly offered a settlement by a creditor (or)
- You cannot afford to repay your debt in full, even in installment payments over several months or years based on income (or)
- You have other reasonable and justifiable need of a settlement
- You have the funds needed to settle debt in a single lump sum or in limited installment payments (usually less than 4)
When a person settles a debt, they are paying less than the amount borrowed to a lender who promises to close any outstanding accounts and cease collections in exchange. Settling is a common negotiation tactic among third-party collection agencies that purchase consumer debt from other lending companies at a steep discount. Settling can be negotiated directly between the consumer (you) and lender or collector, or it may involve a settlement program.
Debt consolidation is the right choice if:
- You could pay your debts in full if interest was reduced
- You could pay your debts in full if you had more time to repay
- You could pay your debts in full if you only had one payment
A Debt Management Program (DMP) is a voluntary no-or-low-interest plan negotiated by a credit counselling agency to help you repay your debts.
In brief, each one of your creditors will agree to reduce interest (most often to 0%) but will require repayment in full within 5 years or less. DMPs offer a good alternative to consumer proposal or personal bankruptcy, help limit the damage done to your credit score, and generally have fewer rules and restrictions.
DMP programs are considered ‘credit sparing’ which means that while there will be some impact to credit score, it will be less than if you filed a consumer proposal or bankruptcy. This record will be wiped clean 2 years following successful program completion and does not prevent future borrowing.
Speak to an accredited, non-profit credit counsellor—it’s free, confidential, and it guarantees that you will have the facts needed to make an informed decision.
While some options—like consolidation—are less impactful to credit score, the debt management toolbox contains many different tools for a reason. A credit counsellor can review other key decision-makers with you, such as affordability, effectiveness, future credit goals, and immediate financial need, and they can provide the resources you need to pursue whatever solution you choose
Lump sum payments are the opposite of a monthly payments, where instead of paying smaller payments over time you pay a larger ‘lump’ payment upfront.
Speaking with an accredited, non-profit credit counsellor at the Credit Counselling Society is 100% free–even if you attend more than one session!
Negotiated consolidations (A.K.A. debt management programs) are non-borrowing solutions commonly administered via a credit counselling agency. Instead of borrowing to repay your debts, your creditors are asked to reduce or eliminate interest while you repay. Unlike debt consolidation loans, negotiated consolidations do not require a credit check and accept all income types.
Debt consolidation loans are loans that are borrowed from a bank or other lending institution to repay debt. There are many different types of consolidation loans (see: Types of Consolidation Loans) however all types will require a credit check, proof of income, and will charge some interest.
Self-managed consolidations are not ‘true’ consolidations but involve borrowing from your own assets (such as an RRSP or TFSA) to pay your debt, and then self-managing a plan to replace/rebuild the wealth you borrowed from.
In addition to reducing how much debt you owe, consumer proposals offer several legal benefits such as: stopping wage garnishment, halting a pending small claims case, or nullifying an existing judgement. Consumer proposals also offer additional benefits to those who–because of high earnings or valuable assets such as a house–cannot file personal bankruptcy without penalty.
- Depending on the amount of debt you owe you may not be able to afford to consolidate if the resulting monthly payment is too high.
- Consolidating with the wrong type of lender or with a for-profit debt agency could end up costing more in fees or interest in the long run.
- Avoiding consumer proposal or bankruptcy when it is genuinely a better option may compromise your financial safety and well-being.
- Debt consolidation offers the convenience of a single monthly payment with reduced interest and a more favourable repayment timeline.
- Consolidating your debt replaces multiple (usually higher) interest rates with a lower single rate that makes it easier to repay your debt.
- Using debt consolidation as an alternative to filing a consumer proposal or personal bankruptcy can prevent or reduce credit damage.