Alternatives to Bankruptcy in Canada

January 23, 2010  |  Bankruptcy

Avoid Bankruptcy in Canada

For many Canadians struggling with their credit, filing bankruptcy is not just an option but an inevitability. In fact the number of Canadian’s filing bankruptcy is expected to rise again in 2010. While there are many scenarios where filing bankruptcy is the right thing to do, it is important to remember that bankruptcy should always be a last resort.

Thankfully there are several ways to avoid bankruptcy in Canada. If you reside in Canada and you’re considering bankruptcy, then you should considering some of these bankruptcy alternatives:

Consumer Proposal

The basic consumer proposal definition would involve a settlement, administered by a professional, between the debtor and their creditors. If the creditors accept the consumer proposal they stand to receive more than if the debtor files bankruptcy. Because of this it’s unlikely that a creditor will reject consumer proposal.

Since creditors usually receive a larger settlement in a consumer proposal, it’s not surprising that proposals often last longer than bankruptcies in Canada. Unlike a standard first time bankruptcy in Canada that lasts 9 months, a consumer proposal can go as long as 5 years.

While the cost of a consumer proposal and its timeline are quite different, there are still many similarities between personal bankruptcy and proposal. For instance consumer proposals are filed through a trustee in bankruptcy, they are regulated by the bankruptcy and insolvency act of Canada and they are also governed by the superintendent of bankruptcy.

Most lenders and banks treat consumer proposals in Canada with the same caution they use for bankruptcy. Because of this, many finance institutes will not approve credit applications when the applicant is in consumer proposal.

Credit Counseling

The term credit counseling can have different meanings. For some it can simply mean credit education but in the world of bankruptcy alternatives, it is actually much more.

Credit counseling in Canada is a form of structure debt management that like consumer proposal involves negotiating a settlement with debtors. The goal of the negotiations is to establish a debt management plan that can include reduced payments, a restructured payment plan, reduction in interest rate and more.

It’s very important that consumers understand that signing a credit counseling agreement will affect their credit rating. When you start credit counseling in Canada, your loans will begin reporting under a 7 status. For example a credit card taken into credit counseling will report as R7.

Any bank or finance company that checks your credit file will see that you’re in credit counseling and just like with a bankruptcy, they will consider you a higher risk.

Another important thing to consider when seeking credit counseling is to choose the right credit counselor. In Canada there are both for profit credit counselors and non profit credit counselors. Before you choose a credit counselor, do your research, “shop around” and speak with a professional.

Debt Consolidation

Sometimes bankruptcy is brought on by simple mismanagement of debt. While it’s not an ideal reason to file bankruptcy, sometimes Canadian’s go bankrupt because they cannot manage multiple loan payments at the same time.

It might sound too simple but occasionally bankruptcy can be avoided by a simple consolidation loan. For some people in Canada managing one large loan instead of multiple loans can be the difference between filing and not filing bankruptcy.

Private Loans

If you have an opportunity to take a private loan and borrow cash from someone you know, you may have a valuable opportunity to fix your credit. Not everyone has the luxury of having wealthy friends or family but for Canadian’s that do, it could a chance to avoid bankruptcy.


Discipline is not a product or a service for hire, financial discipline is a practice. A practice that, if perfected, can sometimes be the best way to avoid bankruptcy.

There are times when life happens and bankruptcy is unavoidable but there also times where irresponsible borrowing and bad financial behavior can be the catalyst to bankruptcy.

If you’re approaching insolvency and it’s because you’re just not paying your bills on time, put in a little extra effort – it might help you avoid bankruptcy.

Please remember, regardless of your financial situation, income level or credit score, that a major financial decision such as making a consumer proposal requires real professional advice.

Thank you for reading this entry in the Check Your Credit First Canada Credit Blog. In an effort to keep Canada educated about consumer credit, credit reporting and financing, we’re dedicated to providing on going credit editorials. Please come back soon and see what’s new.

Disclaimer: Check Your Credit First Canada only provides access to Canadian credit reports and consumer credit information – If you are considering a personal bankruptcy, consumer proposal, credit counseling or any other type of debt consolidation, please speak to a qualified professional.

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