This guide covers every legitimate debt relief option available in Canada. We explain what each one is, who it works for, and what it costs you. We work with clients across Ontario, Alberta, and British Columbia every day, and our goal here is to give you a clear, honest picture before you make any decisions.
We are a law firm, not a trustee. When you work with us, our legal duty runs entirely to you. We do not administer a process. We advocate for your best outcome. That distinction matters when it comes to which options are recommended and how aggressively they are pursued.
Your Debt Relief Options at a Glance
| Option | Debt Reduced? | Legal Protection? | Keep Assets? | Best For |
|---|---|---|---|---|
| Consumer Proposal | Yes | Yes | Yes | Individuals, $10K to $250K unsecured debt |
| Division 1 Proposal | Yes | Yes | Yes | Individuals or businesses over $250K unsecured |
| Debt Settlement (Personal) | Yes | No | Yes | Individuals with lump-sum funds available |
| Business Debt Restructuring | Yes | Varies | Varies | Incorporated businesses with asset complexity |
| Debt Consolidation Loan | No | No | Yes | People with good credit and manageable debt |
| Credit Counselling / DMP | No | No | Yes | People who can repay in full with interest relief |
| Bankruptcy | Yes | Yes | Some surrendered | Last resort; no assets and no realistic payment ability |
Option 1: Consumer Proposal
Consumer Proposal
A Consumer Proposal is a government-regulated legal agreement between you and your unsecured creditors. You offer to repay a portion of what you owe. If creditors holding more than 50% of your debt by value vote in favour, all creditors are legally bound by the terms. The remaining balance is forgiven when you complete the proposal.
Interest stops the moment you file. Collections stop. Wage garnishments stop. Your assets are fully protected throughout the process.
This is the most commonly used formal debt relief option in Canada for good reason. It combines meaningful debt reduction with strong legal protection and a manageable payment structure. It is governed by the federal Bankruptcy and Insolvency Act and available to individuals and sole proprietors with between $10,000 and $250,000 in unsecured debt.
This is the option we help most of our clients with. You can read the full breakdown on our Consumer Proposal service page.
Option 2: Division 1 Proposal
Division 1 Proposal
A Division 1 Proposal operates under the same federal legislation as a Consumer Proposal but is designed for larger and more complex situations. It is available to individuals with more than $250,000 in unsecured debt (excluding the primary residence mortgage) and to incorporated businesses of any size.
The process is more formal. A court must approve the proposal. Creditors have a longer window to vote and can request a meeting. The rules around what the proposal must offer are more structured. Despite the added complexity, the core purpose is the same: negotiate a settlement, protect yourself from creditors, and eliminate a portion of the debt legally.
For businesses facing insolvency, a Division 1 Proposal can allow operations to continue during restructuring rather than forcing an immediate shutdown.
See the full details on our Division 1 Proposal page.
Option 3: Personal Debt Settlement
Personal Debt Settlement
Debt settlement involves negotiating directly with individual creditors to accept a lump-sum payment for less than the full balance owed. It is a faster process than a Consumer Proposal and does not involve a formal insolvency filing. There is no court, no government database entry, and no creditor vote.
The trade-off is that there is no legal protection during negotiations. Creditors can continue calling, pursuing legal action, or garnishing wages while you negotiate. Creditors are also not obligated to accept your offer. Each creditor negotiates separately, so one holdout can refuse while others accept.
Debt settlement works best when you have a lump sum available and are dealing with a small number of creditors. It can produce a significant reduction in what you owe, and the entire process can be completed much faster than a formal proposal.
Read more about when debt settlement makes sense on our Debt Settlement page.
Option 4: Business Debt Restructuring
Business Debt Restructuring
Business debt restructuring is a tailored process for incorporated businesses that are carrying debt they cannot sustain. Unlike personal insolvency options, there is no standard template. The approach is designed around the specific situation: the business’s assets, its liabilities, its operational needs, and the goals of the owners.
This can involve negotiating with creditors to reduce or reschedule debt, analyzing which assets are strategic versus which should be sold to reduce obligations, or facilitating a structured wind-down that maximizes value for all parties. We work with businesses in a range of industries including maintenance garages, trucking companies, restaurants, and real estate investment portfolios.
The goal is always to find a path that preserves what can be preserved and resolves what cannot be sustained. Sometimes that means restructuring and continuing operations. Sometimes it means a controlled exit that avoids a chaotic collapse.
More details are on our Business Debt Restructuring page.
Option 5: Credit Counselling and Debt Management Plans
Credit Counselling / Debt Management Plan (DMP)
A Debt Management Plan is offered by non-profit credit counselling agencies. A counsellor negotiates with your creditors to consolidate your payments into one monthly amount, often with reduced or eliminated interest. You repay the full principal of what you owe.
This is a reasonable option if your debt is manageable and full repayment is realistic. It does not require a formal insolvency filing and does not carry the same credit notation as a Consumer Proposal or bankruptcy.
The limitation is that creditors are not legally required to participate. Some will agree to the plan and some will not. If a major creditor opts out, the plan may not fully solve the problem. There is also no legal stay of proceedings, so collection activity can continue during the process.
Credit counselling is best suited for people who are somewhat behind but still within reach of full repayment given some breathing room on interest.
Option 6: Bankruptcy
Bankruptcy
Bankruptcy is the most well-known debt relief option and usually the most misunderstood. It is a legal process under the Bankruptcy and Insolvency Act that eliminates most unsecured debts in exchange for surrendering non-exempt assets and fulfilling certain obligations during the process.
Collections stop the moment you file, just as they do with a Consumer Proposal. But the similarities end there. In bankruptcy, non-exempt assets can be seized. Tax refunds for the bankruptcy year go to the trustee. You must report your income monthly. If your income exceeds a government-set threshold, you make surplus income payments. The R9 credit notation stays on your file for six years after discharge from a first bankruptcy.
We help clients avoid bankruptcy wherever possible. For the vast majority of people who qualify for a Consumer Proposal, that path produces a better outcome. Bankruptcy is appropriate when there are no assets to protect, no income to support proposal payments, and the priority is simply eliminating the debt as quickly as possible.
How to Choose the Right Option
The right choice depends on four things: your total debt, what kind of debt it is, what assets you have, and what your income looks like. Here is a simple framework.
| Your Situation | Likely Best Option |
|---|---|
| $10,000 to $250,000 in unsecured debt, steady income, want to keep assets | Consumer Proposal |
| Over $250,000 in unsecured debt, or incorporated business facing insolvency | Division 1 Proposal |
| Small number of creditors, lump sum available, want fast resolution | Personal Debt Settlement |
| Incorporated business with complex debt and asset mix | Business Debt Restructuring |
| Manageable debt, good credit, can repay full principal with interest relief | Credit Counselling / DMP |
| No assets, no income, need the fastest possible resolution | Bankruptcy (last resort) |
This framework is a starting point. The real answer requires a full review of your specific situation. Many people who think they need bankruptcy actually qualify for a Consumer Proposal. Many who think credit counselling will work discover their debt is too high for full repayment to be realistic. A proper consultation makes the right path clear.
Why Working with a Law Firm Matters
Most of the formal options on this list can be accessed through a Licensed Insolvency Trustee (LIT). Trustees are regulated administrators. Their job is to manage the process fairly for all parties involved, including your creditors.
We are a law firm. Our lawyers are licensed by the Law Society of Ontario. When you work with us, our obligation is entirely to you. We do not administer a process impartially. We advocate for the best outcome for you specifically.
That difference matters most in the structuring of a Consumer Proposal or negotiation of a debt settlement. The terms of a proposal are not fixed by law. The offer you make, the timeline, the monthly amount, and how creditors respond are all shaped by how well the proposal is built and who is representing you during the process. We earn our fee based on what we save you. Our incentive is aligned with yours from day one.
Learn more about our team on our About page.
Frequently Asked Questions
What is the best debt relief option in Canada?
There is no single best option. The right choice depends on your total debt, debt type, assets, and income. For most Canadians with significant unsecured debt who want to keep their assets and avoid bankruptcy, a Consumer Proposal tends to offer the strongest combination of debt reduction, legal protection, and credit recovery. The only way to know for certain is to review your specific situation with a professional.
Can I handle debt relief on my own without a professional?
For informal options like DIY debt negotiation, technically yes. But creditors are experienced negotiators and are under no obligation to reduce your balance. For formal options like a Consumer Proposal or Division 1 Proposal, a Licensed Insolvency Trustee or law firm must be involved. These are legal processes that require a licensed professional to file. Trying to navigate them alone is not possible under the BIA.
Will any of these options eliminate my mortgage?
No. Mortgages are secured debts and are not included in any of the unsecured debt relief options listed here. Your mortgage continues through the process and must be paid as normal. A Consumer Proposal or bankruptcy does not eliminate a mortgage, but it also does not threaten your home as long as you stay current on your mortgage payments.
What happens to CRA debt under each option?
CRA debt including income tax arrears, HST, and GST can be included in a Consumer Proposal, a Division 1 Proposal, and bankruptcy. The CRA is treated as an unsecured creditor in each case. In informal options like debt settlement or credit counselling, the CRA may participate but is not legally required to do so. The CRA can be a difficult creditor to negotiate with informally, which makes the formal legal options particularly valuable for people with significant tax debt.
How do I know if I qualify for a Consumer Proposal?
The basic criteria are: you are a Canadian resident, you carry between $10,000 and $250,000 in unsecured debt, you are insolvent (meaning you cannot repay your debts in full as they come due), and you have enough income to make monthly proposal payments. If you meet those criteria, a Consumer Proposal is likely available to you. The best way to confirm is a free consultation with our team.
Does debt relief affect my ability to own a business?
A Consumer Proposal generally does not affect your ability to own or operate a business as a sole proprietor. As long as you are not required by your industry regulator to disclose insolvency proceedings, your business can continue during and after the proposal. Bankruptcy can affect certain business licences and professional designations, which is one more reason to explore the Consumer Proposal first. Incorporated businesses have a separate set of options covered under our business restructuring services.
How long does each debt relief option take?
Debt settlement can be completed in 30 to 120 days if a lump sum is available. A Consumer Proposal runs for up to 5 years but can be paid off early. Bankruptcy for a first-time filer with no surplus income runs a minimum of 9 months. A Division 1 Proposal and business restructuring timelines depend on the complexity of the situation. In every case, collections stop and legal protection begins well before the process concludes.
What is the difference between a trustee and a debt law firm?
A Licensed Insolvency Trustee is a federally regulated administrator who is legally required to act as a neutral party in the insolvency process. They serve all parties fairly, including creditors. A law firm like Metus Lykos represents you exclusively. Our legal duty runs to our client, not to the process. That means we negotiate on your behalf, push for the best possible terms, and advocate for your interests when creditors take aggressive positions. We are licensed by the Law Society of Ontario, not the Office of the Superintendent of Bankruptcy.
Not Sure Where to Start?
We will walk through every option with you in a free, confidential consultation. No pressure. No judgment. Just an honest review of your situation and a clear recommendation on the best path forward.
