There are real ways out of debt. And one trap to avoid.
When you can't keep up with debt, you have a few real options in Ontario: a non-profit repayment plan, a consumer proposal, or bankruptcy. Each works differently. Here's a plain rundown, plus the for-profit 'debt settlement' pitch to be careful with.
Free. No payment to start. This is information, not legal advice.
In 30 seconds, here's what's true
- A consumer proposal is a legal deal, filed through a Licensed Insolvency Trustee, to repay part of what you owe over up to 5 years. Filing stops interest, collection calls, and wage garnishment, and you keep your assets.
- You can use a consumer proposal if your total debts (not counting a mortgage on your home) are $250,000 or less.
- Bankruptcy also goes through a Licensed Insolvency Trustee. A first bankruptcy with no surplus income is usually cleared in about 9 months (longer if you earn above a set limit).
- Only a Licensed Insolvency Trustee can file a consumer proposal or bankruptcy. A for-profit 'debt settlement' company cannot, and Canada's consumer agency warns they can charge big fees and leave you worse off.
- Some debts don't go away, even in bankruptcy: child and spousal support, court fines, debts from fraud, and recent student loans (within 7 years of studying).
How the process works
Get the full picture
List every debt, who you owe, and the interest. Separate 'secured' debts tied to something you own (like a car loan or mortgage) from 'unsecured' ones like credit cards and payday loans.
Try a debt management plan first if you can
A non-profit credit counsellor can set up a plan where you repay your debts in full, often with interest reduced or waived, usually over about 5 years. Meeting a counsellor doesn't hurt your credit.
Consider a consumer proposal
If you can't repay it all, a Licensed Insolvency Trustee can file a proposal to settle for part of what you owe. It's legally binding on creditors, stops interest and collection, and lets you keep your things.
Understand bankruptcy as the last resort
Bankruptcy clears most debts but you give up certain assets, with some protected by Ontario law. A first-time bankruptcy is often over in about 9 months. A Licensed Insolvency Trustee runs it.
Be careful with for-profit 'settlement'
Firms promising to wipe out debt 'for pennies' often charge large up-front fees, can't file a proposal or bankruptcy, and may leave you deeper in trouble. Check anyone's credentials before you pay.
What to do next
- Write down all your debts, amounts, and interest rates.
- Separate secured debts from unsecured ones.
- Check your credit report so nothing is missed.
- Talk to a non-profit credit counsellor about a debt management plan.
- Book a free consult with a Licensed Insolvency Trustee to compare a proposal and bankruptcy.
- Confirm anyone offering to file is a licensed trustee, using the government's list.
- Avoid paying big up-front fees to a for-profit 'debt settlement' company.
- Ask which of your debts would survive each option before you choose.
Common myths
| Myth | Reality |
|---|---|
| Bankruptcy is my only way out. | It's usually the last resort. A debt management plan or a consumer proposal often solves the problem without bankruptcy. |
| A consumer proposal and 'debt settlement' are the same thing. | They're not. A proposal is filed by a Licensed Insolvency Trustee and binds your creditors. A for-profit settlement company can't do that. |
| I'll lose everything if I file. | In a consumer proposal you keep your assets. In bankruptcy, Ontario law protects some property up to set limits. |
| Any 'debt relief' company can file for me. | No. Only a Licensed Insolvency Trustee can file a consumer proposal or bankruptcy. Always check credentials first. |
| Bankruptcy wipes out every debt. | No. Support payments, court fines, fraud debts, and recent student loans usually survive it. |
| A consumer proposal means paying everything back. | No. It settles your debt for part of what you owe, agreed with your creditors, over up to 5 years. |
| Getting debt advice will wreck my credit. | Talking to a non-profit credit counsellor doesn't hurt your credit. It's filing a proposal or bankruptcy that shows up. |
| Debt settlement companies are the cheapest option. | Often the opposite. They can charge large fees whether or not it works, and Canada's consumer agency warns they can leave you worse off. |
Last reviewed July 2026
Written and reviewed by the founder of PLAIN, checked against primary government and legal sources. How we research these guides
Sources
PLAIN gives legal information, not legal advice. It is not a substitute for a lawyer or paralegal — and we'll point you to free ones. Laws change; we review these pages regularly, but always confirm current rules with a licensed professional.
Free. No payment to start. This is information, not legal advice.