Bankruptcy Alternative In Canada | Alternatives To Avoid Bankruptcy

Are you considering bankruptcy? Make sure to explore alternatives to bankruptcy as well. You may have more options than you think. Although bankruptcy is an important consumer debt solution, it should be considered a last resort to resolve your unsecured debts and satisfy your creditors. 

This article will get you started. We invite you to explore all the information here at, including our Consumer Proposal FAQs page.

How Can You Get Out of Debt Without Filing Bankruptcy?

Even if you already qualify for declaring bankruptcy, there may be an alternative to bankruptcy that would be more suitable for your situation.

It is important to understand how much money you have in the form of savings, income, and assets. You can use some of these resources to pay your debts. As you will read below, a Licensed Insolvency Trustee can help you to sort these items out.

Depending on these financial factors, you may be able to choose between several bankruptcy alternatives, as follows:

  1. Consumer Proposal
  2. Sell Off Assets
  3. Credit Counselling
  4. Debt Management Plan 
  5. Debt Consolidation

Bankruptcy Alternatives and Options in Canada

Before we begin: be sure not to confuse American debt solutions, such as “Chapter 11 Bankruptcy”, with Canadian debt solutions – the two countries’ regulations are quite different!

Some bankruptcy alternatives, such as a consumer proposal, are available only in Canada. Let’s start with this bankruptcy alternative, as we explore your options.

Consumer Proposal as an Alternative to Bankruptcy

Many consumer debtors haven’t heard about consumer proposals, but Canadians have had access to this insolvency option for many years. In some provinces, the number of yearly consumer proposals equals or exceeds the number of consumer bankruptcies.

A consumer proposal is not considered as extreme as a bankruptcy. You remain in control of your finances during the course of your proposal. Also, unlike in a bankruptcy, the majority of your creditors must agree to the terms of the proposal, voting to accept or reject it. Although this might sound a little frightening, most consumer proposals are accepted by creditors, since the creditors benefit by receiving more of their capital back than they would if a debtor declared bankruptcy.

Under certain conditions, student loans may be included in a consumer proposal.

Like bankruptcy, you need the assistance of a Licensed Insolvency Trustee to file a consumer proposal.

Will consumer proposal work for me as an alternative to bankruptcy?

A consumer proposal is distinct from bankruptcy. It is not “another kind” of bankruptcy. If you file and complete a consumer proposal, you will not need to answer “yes” if you are ever asked if you have been bankrupt. 

A consumer proposal is best suited to debtors who have a regular income, although there are exceptions to this. If you wish to avoid bankruptcy and have a steady income, but are unable to meet your monthly financial obligations, a consumer proposal may be your solution.

Most consumer proposals are set up so that the debtor makes a regular monthly payment to the Trustee, who passes the funds along to the creditors. The term of the proposal can be anything up to five years; typical consumer proposals run for three to five years.

Benefits of consumer proposals

Like bankruptcy, the successful completion of a consumer proposal clears your unsecured debts. These are debts that are not secured against the value of a house or other real property. Store credit cards, Visa and Mastercard fall into this category. Secured debts, such as house mortgages and lines of credit secured against a house’s value, are not cleared by a consumer proposal. 

Another similarity with bankruptcy – and this one is particularly beneficial to the debtor – is that once a consumer proposal is filed, interest no longer accrues on your unsecured credit accounts and creditors are no longer permitted to contact you. 

As opposed to bankruptcy, during which you may have to pay extra money if you make over a certain amount of income, in a consumer proposal your payment is not raised if your regular income goes up. This is a key advantage of a consumer proposal as a bankruptcy alternative.

A Trustee can provide more information

Many debtors who have chosen consumer proposal as an insolvency solution find that they can pay the proposal off early due to extra income. This allows them to begin repairing their credit earlier, and puts them on the road to restoring their financial life.

A Licensed Insolvency Trustee can review your financial situation and determine whether consumer proposal is a good option. Use this link to find a trustee near your location. Your conversation is confidential, and your first appointment is free.

Selling Off Assets to Relieve Debts

If you are having difficulty making all your monthly payments, a first step is to consider whether you have any assets you could sell to resolve your highest-interest debts.

This may sound obvious, but in many cases, individuals don’t consider the value in their home or cottage and the money that could be realized by selling the vacation property or moving to a smaller home. Similarly, you may have road or recreation vehicles that are surplus to your needs. Resolving your highest-interest debts by liquidating assets can give you a brighter monthly picture, very quickly. 

Debt Management Plans & Credit Counselling

If you are wondering about bankruptcy and alternatives, seeing a credit counsellor may help clarify your situation. Credit counsellors are experienced in helping individuals sort out their debts. A credit counsellor may be able to offer payment solutions and can counsel you on how to avoid excessive consumer debt.

An informed credit counsellor will suggest ways to economize. Are you in a two-car family that could manage, at least temporarily, on one car?  Do you take advantage of bulk prices when grocery shopping? Do you have redundant or unnecessary telecommunications charges on your phone bill? A counsellor can make sure you are not missing opportunities to save money. Cutting down your monthly budget with these savings, even if the savings seem small, will make debt management and elimination easier.

Where do I find a credit counsellor?

If you are a typical consumer with a low level of stubborn debt ($30,000 or less), credit counselling may be a good fit for you.

Credit counsellors are a diverse category of individuals offering everything from costly professional consulting to free services via not-for-profit agencies. The title “credit counsellor” is unregulated in Canada, as are the organizations that offer this service. It is important to do your research or get recommendations from trusted friends when you are seeking credit counselling. Beware of a firm that requests payment upfront before doing any work for you.

A good credit counsellor can help you develop a budget that takes into account your resources, such as part-time and full-time income and savings, and also your expenses, such as food, auto expenses, rent or mortgage, and debt payments. Using the budget as a guide, you can feel more in control of your monthly finances, and move into a better financial position going forward.

Some credit counsellors can contact your creditors and advocate on your behalf, to secure more manageable payment terms for you.

What is a debt management plan?

A good credit counsellor can review your financial numbers including your income and your monthly bill payments, and suggest alternatives to explore together. If you do not require immediate relief from significantly overdue accounts, one option the counsellor might put forward is a debt management plan. 

In a debt management plan (in some provinces called “orderly payment of debts”), you and your credit counsellor develop a manageable debt repayment plan, in which you repay all your debts over time with a single monthly payment. 

The counsellor then presents the debt management plan to your creditors. If they agree to the plan, it can be an effective way to eliminate your debts. Principal amounts are not reduced, but the interest rate may be lowered and easier payment terms extended.

Note that student loans cannot be dealt with via a debt management plan. Under certain conditions, student loans can be discharged or reduced via bankruptcy or consumer proposal.

Cautions about credit counselling

Since credit counselling is an unregulated industry, make sure you know who you are dealing with when consulting a counsellor. It may be best to start with a counsellor working through a not-for-profit, community-based organization. Caution is especially warranted as you may be disclosing personal financial information.

Also, be cautious of any credit counselling firm that claims to help you with declaring bankruptcy or filing a consumer proposal. Such a firm may be able to advise you about options, but only a Licensed Insolvency Trustee can file for consumer proposal or bankruptcy on your behalf. A Trustee is also highly trained and qualified to provide you with advice and information on these as well as other debt solutions.

Debt Consolidation Loans

If you believe that the main problem in your financial picture is the high interest and high payments of certain credit accounts, you may wish to explore debt consolidation. Debt consolidation can be a solution to high payments, and also to the feeling that you have no credit in reserve in case of an emergency. 

With a debt consolidation loan, your financial institution provides the funds necessary to pay off your high-interest accounts, leaving you with one simple monthly payment to make, typically into a lower-interest loan.

To apply, make an appointment with a loans officer at your financial institution (beware of debt consolidation loans from private lenders, as the interest may be high). The loans officer can help determine if a debt consolidation loan is a good option for your situation. He or she will also determine if the financial institution can approve your loan. You will need to demonstrate the ability to make the required payments.

Debt consolidation loans are typically granted to debtors who have kept up the payments on their accounts (and thus still have a fair-to-good credit rating), but who are having trouble with complicated budgeting or simply want to pay less interest.

A significant risk of debt consolidation is the tendency of many of us to use whatever credit we have available. Thus, a debtor with a debt consolidation loan may find him or herself running up new debts, even as they pay off the debt consolidation loan. 

What if I am not approved?

If you are not approved for a debt consolidation loan, your credit rating may already have been damaged by carrying high balances on credit cards, or by missing payments. If this is your situation, you may still have options aside from bankruptcy – make sure to read about consumer proposals in the section above, or consult with a Licensed Insolvency Trustee..

Why Avoid Bankruptcy?

Keep in mind that bankruptcy should be viewed as a last resort.

Bankruptcy is a stressful solution in that it is embarrassing, it carries a stigma, and you may feel a personal responsibility for not paying back your creditors as promised. 

Bankruptcy also stays on your credit bureau reports for six or seven years after you are issued your Certificate of Discharge.

That being said, when bankruptcy is necessary it is a sound insolvency solution for the honest but unfortunate debtor and provides a clean slate on which to build a new, better financial profile.

A Licensed Insolvency Trustee Can Help!

Are you experiencing financial stress due to overwhelming debts? Do you wish to avoid bankruptcy, and need help sorting out the alternatives?

Take the first step towards a sound, stress-free financial life by contacting a Licensed Insolvency Trustee today. The sooner you sit down and explore alternatives, the more options will be open to you. A Trustee can guide you through them. 

Licensed Insolvency Trustees are the only professionals who can file consumer proposals and bankruptcies in Canada. A Licensed Insolvency Trustee is rigorously trained in consumer insolvency solutions and is licensed by the government. Your first meeting is free – find a Trustee near your location today!