Does A Government Debt Relief Program Actually Exist?

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With the additional government funding, financial hardship programs, and other government spending due to the pandemic it is completely understandable why we have seen an increase in queries related to the existence of government debt relief and debt relief for Canadians. If you are looking for a debt relief company, you are certainly not alone.

While many consumers have been able to refinance their house with a real estate secured debt consolidation loan, many have begun to look at other debt-relief options. Unfortunately, while many firms claim to offer government debt relief solutions they unfortunately do not exist as consumers believe they do.

While a debt settlement company may claim that these programs exist, they are often alluding to government-regulated debt relief options; the consumer proposal and bankruptcy. Both of these programs provide relief from creditors for any unmanageable and/or outstanding debts with varying degrees of severity.

Is there a government debt settlement program?

As you can guess from our comments above, there are no government debt relief programs or emergency debt relief that will give you money to help you pay off your debt. The programs mentioned above do allow for the reduction of your unsecured debt (such as credit cards debts & consolidation loans) but they are not government programs.

To clarify further, if a government program exists the implication would be that the government themselves would be the ones either negotiating with your creditors or providing the funds to pay your creditors. This type of program does not exist.

Instead, there are government-regulated programs. These debt repayment programs are offered by private companies that are subject to federal government oversight. The only federally regulated debt relief program firms are Licensed Insolvency Trustees, such as Powell Associates Ltd; Debt settlement companies and unregulated debt relief companies must refer individuals to a trustee for any government-regulated programs.

Debt Relief Options That Do Exist

If you are trying to find the right debt relief solution for your financial situation then there are multiple options you can consider on your journey to becoming debt-free.

A Debt Consolidation Loan

If your situation isn’t tremendously bad, traditional debt consolidation may work well for you. The process involves applying for a personal loan or line of credit from a bank and using that new debt to pay off existing higher-interest debt. This doesn’t result in any debt reduction but does often provide for interest relief if your new loan has a lower interest rate than your previous debts.

While using a new loan to pay out another can be one of the best debt-relief options and is specifically effective when used to consolidate high-interest credit card debt it doesn’t come without risks.

Risks of Consolidation Loans

  • Consolidation loans can sometimes have a higher monthly payment than the debt you originally had. This is particularly true if you are having trouble with line of credit and other low-interest or interest-only payment debts.
  • The approval of a consolidation loan is dependant on your credit score. If you have debt problems now your credit may already be impacted negatively and affect the odds of getting approved. Read more about debt consolidation loans & bad credit here.
  • Oftentimes people cite having multiple payments as the issue and want to consolidate those into one monthly payment. Sometimes there is merit to this issue, however, more often than not if, for example, 5 x $100 payments are unaffordable, then a single $500 payment would also be unaffordable.

Credit Counselling

A Credit Counselling Agency offers what is considered a creditor-sponsored debt relief service known as a debt management plan, or DMP for short. Creditor sponsored simply means that creditors support this type of program actively. In fact, the majority of funding that many credit counseling agencies receive is from creditor donations. While these debt management programs are often marketed as being better for your credit, they have the same negative impact as a consumer proposal.

DMPs are particularly effective when debt levels are relatively low. Otherwise, savings can typically be greater in other options with a similar credit impact. See here for an article on debt management plans.

Risks of Debt Management Plans

  • Similar to the risks above, DMPs can sometimes have higher monthly payments than what you are currently paying. This is because DMPs are termed over a shorter period of time; typically 3 to 5 years in length.
  • While most creditors do participate in debt management plans, they are not obligated to. You may think everything is good to go and suddenly be told that a creditor didn’t agree to the debt management plan.

Consumer Proposal

A consumer proposal is a government-regulated debt settlement option that allows a consumer to negotiate with their creditors and reduce their unsecured debt. These proposals often amount to a significant reduction in the consumer’s overall debt level, allow for one affordable monthly payment, and save interest costs. Consumer proposals require the services of a Licensed Insolvency Trustee.

Those with unmanageable debt levels who are trying to become debt free should explore consumer proposals as they are an extremely effective tool for eliminating debt and the only regulated alternative to the bankruptcy process.

Risks of Consumer Proposals

  • The main risk to a consumer proposal is in the event the majority of your creditors completely refuse your offer to them. This is generally rare and is usually a risk that is known ahead of time based upon your financial situation.
  • Once you enter a consumer proposal, if you are unable to keep up your payments and fall behind a total of 3 monthly payments then your proposal will be annulled. This basically means you will go back to owing what you did prior to entering into your proposal.

Learn if a consumer proposal is worth it in your situation.


Bankruptcy is the most extreme option for debt relief. Put simply, a Licensed Insolvency Trustee will evaluate your financial situation and determine if bankruptcy is a suitable option for you. They will review your income, assets, and your past financial transactions. Based on these, they will be able to determine what a bankruptcy would look like and estimate a monthly payment for your bankruptcy.

Bankruptcy is usually best suited for people who have high debt levels or have had a substantial change in circumstance that significantly, and on a longer-term basis, impacts their expenses and/or income levels.

You can learn which debts bankruptcy will release you from here.

Risks of Bankruptcy

Bankruptcy is based upon your income and assets when you file and for the duration of your bankruptcy. It is possible that if your income increases or if you acquire assets during the term of your bankruptcy that:

  • Your bankruptcy payments may increase to a level that is far higher than originally planned, and/or
  • You may end up losing assets that you received during bankruptcy. An example of this would be if you received an inheritance during the term of your bankruptcy.

Further, if you do not fulfill all the terms of your bankruptcy the trustee must oppose your bankruptcy which can have many consequences such as, but not limited to, an extended bankruptcy period, or additional payments.


It is our opinion that you should always seek professional debt advice before making any decision. If you are looking for helpful debt relief for Canadians you are certainly not alone and navigating the process yourself can lead to poor results.

Every situation is unique and without proper evaluation it is incredibly difficult, if not impossible, to know which option will help you get out of debt in the most effective manner. We’d love to help. Don’t hesitate to contact our office for a free consultation.

Government Debt Relief FAQ

Do debt relief programs hurt you?

The goal of any debt settlement program is to provide relief, not to put you in a worse position. However, it is important that you work with a firm that will ensure you are properly educated on all relevant debt consolidation & relief options in Canada. In certain instances, especially if you are settling bad debt with the various debt solutions your credit may improve as you no longer have the weight of the negative accounts on your credit report.

How can I get my debt forgiven in Canada?

The only government-regulated debt forgiveness programs in Canada are consumer proposals and bankruptcies. These two programs are regulated by the Bankruptcy and Insolvency Act.

Outside of this, you can ask your creditor directly for relief but they will typically only defer interest charges for a short period of time. While this may be enough to get you ahead, in our experience, the duration of the deferral is rarely enough to allow people to catch up.

Does Canada have a debt relief program?

Canadian debt relief plans are only offered by private companies. While no government-funded program exists, a consumer proposal & bankruptcy are both regulated by the Canadian government and are offered by Licensed Insolvency Trustees. A debt settlement company may claim to offer consumer proposals or bankruptcy but only Licensed Insolvency Trustees are legally allowed to implement these solutions.

Does credit consolidation ruin your credit?

Credit consolidation, more commonly known as debt consolidation is simply the process of consolidating your debt into a single monthly payment. The most common methods of consolidating your debt are debt consolidation loans, debt management plans, consumer proposals, and bankruptcy.

Depending on your financial situation these may or may not impact your credit negatively. For many people struggling with consumer debt, even the most severe forms of consolidation can help improve credit in the long run.

Are there any free debt-relief programs?

No. There are no free debt relief programs in Canada. However, for regulated debt solutions, any fees that you pay are built into the monthly amount.

Are there Government of Canada Debt Relief Grants?

No, the Canadian government does not provide debt relief grants. If the government ever does provide a Canada Debt Relief Grant we will let you know on our website!

Angela Rodgers LIT

This article was written by Angela Rodgers, CIRP, LIT. She is a Licensed Insolvency Trustee and the President of Powell Associates Ltd. She has worked in the insolvency industry for over 20 years. No matter if you are looking at filing bankruptcy, a consumer proposal, or simply looking for debt management advice, Angela can help.