July 9, 2025
Bankruptcy is not the only solution to your debt. There are practical ways to manage debt that can help you regain control over your finances, like a debt consolidation loan or a consumer proposal.
Many Canadians may think that bankruptcy is the only option available for resolving significant debt issues. However, there are alternative paths to financial relief. Although bankruptcy may be appropriate in specific circumstances, it is not the sole solution.
There are a variety of ways to regain control over your finances without declaring bankruptcy. These include consumer proposal, debt consolidation, credit counselling, and budgeting techniques. The one that will work for you will depend on your own situation.
Budgeting is one of the simplest, yet most effective ways, to regain control over your finances. By tracking your spending and setting limits, a budget allows you to understand exactly where your money goes each month and identify areas where you can cut back.
Starting a budget may seem overwhelming, but it can be as easy as listing all your monthly income and expenses. Begin by tracking every purchase and payment for at least one month—this will give you a clearer picture of your spending habits. You can do this with a pen and paper, a spreadsheet, or budgeting apps that automate the process. Use whatever method works best for you to stay on track.
The next step is to categorize your expenses (such as rent, groceries, and transportation) and set realistic spending limits. This will help you stay on top of regular bills AND free up extra money each month to pay down debt.
Look at the most common budgeting methods and their pros and cons here.
Learn the best budget method for youHowever, while budgeting is a powerful tool, it’s not a complete solution for significant debt. If you’re dealing with substantial financial challenges, budgeting should be part of a larger strategy, potentially paired with options like debt consolidation or a consumer proposal. Combining these approaches with a realistic budget can give you a stronger chance to reduce debt steadily and create a sustainable financial future.
Debt consolidation is another alternative to bankruptcy. It's meant to simplify your debt repayment process by combining multiple debts into one, ideally with a lower interest rate than what you’re currently paying.
Debt consolidation is offered through banks, credit unions, and other reputable lenders.
The idea is to combine multiple high-interest debts, such as credit cards or payday loans, into one payment with a lower interest rate than that of the debts you are combining. This saves you money on interest payments, freeing up extra cash each month.
You can then take this extra money and use it to pay down your debt faster.
However, it’s important to remember that debt consolidation DOES NOT reduce the total amount you owe; instead, it restructures it into a single, easier-to-manage payment with a lower interest rate.
While debt consolidation can be a helpful way to streamline your finances, it requires you to make other changes in spending. Successful debt consolidation requires consistent budgeting and a commitment to avoid taking on new debt.
For those who may struggle to qualify for a loan or need a more comprehensive solution, there remain other options than bankruptcy.
Consulting a credit counsellor is a great initial step if you're unsure how to start managing your debt.
Credit counsellors can work with you to review your finances, create a manageable budget, and develop strategies for reducing debt.
They may even negotiate with creditors to set up a debt management plan, which consolidates your debts into a single monthly payment at reduced or zero interest.
A debt management plan is similar to debt consolidation, but a Credit Counsellor who negotiates with your creditors could potentially get a lower interest rate compared to consolidating your debts through your bank.
While a credit counsellor may be able to help with smaller debt issues, they CANNOT LOWER THE AMOUNT YOU OWE. Only a Licensed Insolvency Trustee can do that through a consumer proposal. Licensed Insolvency Trustees can also offer credit counselling services.
If you do choose to work with a credit counsellor, it’s essential to proceed carefully. Credit counsellors in Canada are not legally required to have any specific training or certification, so their expertise and approach can vary widely. Many have specialized qualifications, but it's not required.
Unfortunately, some agencies may prioritize their own profits over helping clients, offering high-cost services that ultimately create more financial strain. It’s critical to know that who you're dealing with is someone who has your best interests at heart.
The Financial Consumer Agency of Canada has a good website on credit counsellors, which can help you find a reputable credit counselling agency.
You can also look at these two websites:
A credit counsellor could provide you the support and information you need to regain control over your finances. But if this isn't enough, there are still options.
If you are dealing with significant debt, a consumer proposal can be an effective way to regain financial stability without declaring bankruptcy. A consumer proposal is a legally binding agreement between you and your creditors, allowing you to pay back a portion of your debt over a set period, typically up to five years.
The best part? You only pay back what you can afford, which can often be a significantly reduced amount. Filing a consumer proposal can reduce the amount you need to pay back by up to 80%.
A consumer proposal also allows you to keep all your assets; you won't lose your car or home by filing one.
Filing a consumer proposal also issues a stay of proceedings, immediately stopping all collection calls and wage garnishments.
It's important to note that a consumer proposal can only be used for unsecured debt, which includes debts not guaranteed by collateral, such as credit cards, personal loans, and payday loans. All of these may be included in a proposal.
Only a Licensed Insolvency Trustee can file a consumer proposal on your behalf. This is the case for bankruptcy. Licensed Insolvency Trustees are financial professionals regulated by the federal government, ensuring they are highly qualified and act in your best interests.
Unlike credit counsellors, who aren’t always required to have formal training and can vary in quality, Licensed Insolvency Trustees follow strict regulatory guidelines.
A consumer proposal will drop your credit rating down to R7, but that's better than what it would be if you declared bankruptcy. It's also better to have a path to becoming debt-free and bad credit, instead of lots of debt and good credit.
A consumer proposal can be a practical alternative to bankruptcy, allowing you to keep your assets and gain control over your finances without wiping out your credit entirely. By working with a Licensed Insolvency Trustee, you get expert guidance on managing your debt in a way that’s fair and achievable.
At BDO Debt Solutions, our team of experienced Licensed Insolvency Trustees can assess your finances and help you determine which course of action is right for you. Our Trustees will work closely with you to understand your financial situation and needs. They can file a consumer proposal or bankruptcy on your behalf and put you on the path to becoming debt-free.
Throughout the process, our Licensed Insolvency Trustees will provide clear and thorough guidance throughout the process, ensuring that you have a full understanding of the implications.
We're here to help you without judgment and ensure you get the best solution for your situation. The first consultation is free of charge.
July 9, 2025
Bankruptcy is not the only solution to your debt. There are practical ways to manage debt that can help you regain control over your finances, like a debt consolidation loan or a consumer proposal.
