Life in Canada is getting more expensive by the day. Rent and mortgage payments have climbed rapidly in just a few years. Grocery bills are skyrocketing, gas prices are breaking records, and as interest rates start to climb, even debt payments are becoming costlier.
As Canadian budgets are stretched thin, people are falling behind on debt payments, and they’re looking for Canadian debt relief programs that can help them out of unsustainable financial situations.Let’s Talk
Are There Canadian Emergency Debt Relief Programs?
When you’re dealing with high levels of debt and struggling to keep up with payments, it’s only natural that you would start looking for Canadian emergency debt relief. It certainly feels like an emergency when you’re getting penalties from your credit card company or your utility providers are threatening to cut off services.
A consumer proposal is the only process that could be described as a Canadian government debt relief program. Consumer proposals are regulated by the Bankruptcy and Insolvency Act, and can only be administered by Licensed Insolvency Trustees. Although these professionals are not government employees, they are regulated under the Bankruptcy and Insolvency Act and they must adhere to federal standards of practice, including the Code of Ethics for Trustees.
You can find more information about consumer proposals in the section below. While there are many services out there advertised as “debt relief,” only insolvency proceedings administered by a Licensed Insolvency Trustee are federally regulated and legally binding for your creditors. There are other options available, but none require your creditors to forgive debts or waive interest payments.
Your Options for Canadian Debt Settlement
If you are looking for debt settlement, there are two paths you might consider: a consumer proposal or a Debt Management Plan. Consumer proposals are provided by Licensed Insolvency Trustees, who are government-regulated professionals who typically work for a non-profit organization. They provide real debt relief in that they can reduce the original amount you owe and are ideal if you cannot afford to pay back your debts.
There are also Debt Management Plans provided by for-profit companies. Debt Management Plans may work for you, but they do not offer the same legal protections that come with a consumer proposal. The fees can be high without any guarantee of successfully settling with your creditors.
Let’s take a closer look at the key differences between these two forms of debt relief in Canada.
The goal of a consumer proposal is to reduce the balance of your debts, provide relief from interest charges, and give you a clear-cut timeline to get out of debt. A Licensed Insolvency Trustee will sit down with you to review your financial situation, including your income, debt, and expenses.
They will try to find a monthly payment that you can afford. Using that number, they will submit the proposal to your creditors, who vote on whether or not to accept it. The proposal can last up to 5 years, during which time no interest accumulates on the debt. Many people wind up paying significantly less to their creditors than what they initially owed.
Consumer proposals offer a number of advantages and legal protections that you will not enjoy with other types of debt settlement:
- Collection actions such as wage garnishment and collection calls must stop when you file.
- Interest charges and late fees stop accumulating on your debts.
- Part of your debt is forgiven or erased.
In addition, if the majority of your creditors vote to accept the proposal, all of them are legally bound to the terms. The majority is determined based on the amounts owing.
For example, you owe $10,000 to your credit card company and $1,000 from a payday loan company. If your credit card company agrees to the terms of the proposal, the payday loan company cannot opt out and expect to receive full compensation. Even the Canada Revenue Agency (CRA) is bound by consumer proposals.
Consumer proposals are the only Canadian debt relief program. It is regulated by the government and provides legal protection against collection actions.
Debt Management Plans
Debt Management Plans (DMPs) are assisted repayment plans offered by debt solution companies. They are usually intended for repaying credit card debt or overdue bills. DMPs may come with higher management fees and a lower chance of success, especially if you are dealing with larger amounts of debt.
Once you enroll in a Debt Management Plan, they may tell you to stop paying your creditors. Instead, they will have you make payments to them. They will deduct their fees from those payments and once enough funds are collected, they will use the rest to negotiate a lump sum payment, which they can offer to your creditors down the line.
In the meantime, your credit score will continue to decline, and your creditors will be free to take collection actions against you. In addition to collection calls, this also includes pursuing wage garnishment or bank account garnishment, taking away control of your own finances.
The participation of creditors in a DMP is entirely voluntary, and there are several creditors who will not or may not be likely to agree to a DMP. Even if some creditors agree, others may refuse to. Payday loan companies are often unwilling to work with debtors requesting a DMP. If you owe tax debt, the Canada Revenue Agency (CRA) will not work with a debt settlement company.
Similarities Between Consumer Proposals and Debt Management Plans
Despite their significant differences, consumer proposals and Debt Management Plans have some features in common. Both consumer proposals and successful Debt Management Plans should allow you to make one monthly payment rather than having to juggle multiple different payments.
Debt Management Plans and consumer proposals will have a similar effect on your credit history. Consumer proposals will remain on your credit report for a maximum of three years after you conclude it. Otherwise, negative information on your credit report is usually removed after six years.
Both should also provide you with budgeting help and advice on restoring your financial health. The goal of both of these programs is to make sure you are out of debt at the end. While DMPs can prove more expensive, consumer proposals offer more legal protection against collection actions.
Canadian Government Debt Relief Programs for CRA Debt
If you owe back taxes, you may be searching for CRA debt forgiveness and CRA debt relief. The Canada Revenue Agency does offer two programs that provide some relief.
The first is an arrangement to pay your tax debt over time. Usually, the CRA expects payment in full by the tax deadline, or you can be hit with both interest charges and steep late penalties. If you cannot afford to pay the amount in full, you can contact the CRA directly, and they may agree to a payment plan. You will still have to pay the full amount that you owe, but when it comes to tax debt settlement and the CRA, only bankruptcy or a consumer proposal can reduce the principal.
There is also a program that waives interest charges and late penalties. This program was eligible to anyone who owed income tax debt and received financial assistance related to COVID-19 up until April 30, 2022. In other cases, you can qualify for the program if extraordinary circumstances prevent you from paying on time, such as:
- Natural disasters like wildfires or floods,
- Serious personal illness or accident,
- Serious emotional or mental distress (i.e., the death of an immediate family member).
Are There Debt Relief Options for Seniors?
Owing money as a senior can be very difficult, especially as you move into your non-working years. You’re relying on pension payments or savings like an RRSP to pay for expenses and may have limited ability to repay the debt without taking it out of your savings.
Debt relief options for seniors can be more complicated because they also must go hand-in-hand with retirement planning. Given the assets many seniors have accumulated by the time they reach retirement, a consumer proposal may be a solution that works.
If you’re looking for Canadian debt relief programs, talk to a Licensed Insolvency Trustee about your financial options. They will explain the options available to you and review your situation alongside you.