The Truth About Government Debt Relief Programs in Canada

By Julien Brault, founder of MooseMoney.

The Canadian government does not offer grants to pay off personal debts, although there is a program doing that for student loans. For most Canadians, what the government does provide is a regulated legal framework, primarily through the Bankruptcy and Insolvency Act (BIA), that allows Canadians to reduce or eliminate debt through consumer proposals and personal bankruptcy. 

"The government programs to repay debts is really the insolvency process that's governed under the Bankruptcy and Insolvency Act and that's a federal law. In a way, that is the main government debt relief program," points out Jeff Schwartz, Executive Director of Consolidated Credit.

Understanding this distinction is critical because dozens of companies actively advertise on social media, promising "government grants" or "government programs" that can slash your debt by up to 80%. While that level of debt reduction is genuinely possible through a consumer proposal, these advertisers are typically unlicensed debt consultants who charge upfront fees and then refer you to a LIT anyway. 

The Office of the Superintendent of Bankruptcy (OSB) has warned Canadians against using these intermediaries, noting that they do not improve your chances of creditor acceptance or secure better terms. After their fees are factored in, most debtors end up worse off. Every Licensed Insolvency Trustee in Canada is legally required to offer a free initial consultation, so there is no reason to pay a middleman.

How Government-Regulated Debt Relief Actually Works in Canada

Two formal debt relief mechanisms fall under the Bankruptcy and Insolvency Act: the consumer proposal and the bankruptcy. 

A consumer proposal allows you to negotiate with creditors to repay a portion of your unsecured debt, often reducing the total by up to 80%. Your LIT files the proposal on your behalf, and once creditors accept it, you make a single monthly payment with no additional interest charges. All collection calls and wage garnishments stop immediately by law. You keep your assets throughout the process, and payments can be spread over a maximum of five years. A consumer proposal stays on your credit report for six years from the date of filing or three years after you complete it, whichever comes first.

Personal bankruptcy provides immediate relief by eliminating most unsecured debts. A first-time bankruptcy typically lasts nine months, though it can extend to 21 months depending on your income and whether you have surplus income as defined by the OSB's thresholds. Bankruptcy does require you to surrender certain assets, but provincial exemptions protect essential items including basic household goods, tools of your trade, and in most provinces, some equity in your home and vehicle. Bankruptcy appears on your credit report as an R9 rating and remains for six to seven years after discharge, depending on the credit bureau.

Student Loan Debt Relief

For Canadians carrying federal student loan debt specifically, the Repayment Assistance Plan (RAP) is a legitimate government program administered through the National Student Loans Service Centre. It can reduce or eliminate your monthly student loan payments based on your family income. If your gross monthly family income falls below $3,788 for a single person (or higher thresholds for larger families), you may qualify for zero payments for a six-month period. You must reapply every six months to maintain eligibility. After 60 months on RAP or 10 years after leaving school, the government begins paying down both the principal and interest on the federal portion of your loan.