If you or your Canadian business are struggling with debt, choosing the right solution matters. In Canada, the main legal ways to deal with insolvency are restructuring, a consumer proposal, and bankruptcy. Each choice has its own rules. The costs and effects on your money and credit are different for each option. All three are managed or overseen by a Licensed Insolvency Trustee (LIT) under Canadian federal law.
Restructuring is often the first thing people try. It aims to fix cash flow and reduce debt without going into bankruptcy.
Key features:
A Licensed Insolvency Trustee can help you decide if restructuring is possible. They can also explain your plan to creditors.
A consumer proposal is a legal agreement with your creditors. You offer to pay back part of what you owe over a set period.
Key features:
Only a Licensed Insolvency Trustee can file and manage a consumer proposal.
Bankruptcy is the last option when debts cannot be paid by restructuring or a proposal.
Key features:
Bankruptcy must also be handled by a Licensed Insolvency Trustee.
| Option | Best For | Assets | Credit Impact | Who Oversees |
|---|---|---|---|---|
| Restructuring | Temporary cash-flow problems | Usually kept | Moderate | LIT or advisors |
| Consumer Proposal | Steady income, manageable debt | Usually kept | High, but less than bankruptcy | LIT |
| Bankruptcy | No way to repay debt | Some may be sold | Highest | LIT |
Tools like GrantHub’s eligibility matcher can help you find government programs that may improve cash flow before you need to consider insolvency.
The federal government keeps a public list to help you find a Licensed Insolvency Trustee near you. LITs are:
First meetings are usually free and private.
Waiting too long to get help
Waiting can make things worse. Early restructuring is often cheaper and less harmful.
Thinking bankruptcy is the only option
Many people can use a consumer proposal or informal restructuring instead.
Using unlicensed “debt consultants”
Only a Licensed Insolvency Trustee can legally file proposals or bankruptcies.
Ignoring business-specific rules
Sole proprietors and corporations have different rules under insolvency law.
Q: Do I need a Licensed Insolvency Trustee to file bankruptcy in Canada?
Yes. Only a federally licensed trustee can handle a bankruptcy or consumer proposal.
Q: Can a consumer proposal stop CRA collection action?
Yes. Once filed, most collection actions, including those from the Canada Revenue Agency, are stopped under the BIA.
Q: How much does a Licensed Insolvency Trustee cost?
Fees are set by federal rules and are usually included in your proposal or bankruptcy payments.
Q: Can small businesses use consumer proposals?
Consumer proposals are for individuals, including sole proprietors. Corporations must use restructuring or bankruptcy processes.
Q: Is talking to a trustee confidential?
Yes. Meetings with a Licensed Insolvency Trustee are private and protected by privacy laws.
After the FAQs, remember that GrantHub tracks hundreds of grant and support programs across Canada — checking which ones fit your business can help with cash flow before you make final insolvency decisions.
Choosing between restructuring, a consumer proposal, and bankruptcy in Canada depends on your debt, income, and goals. A Licensed Insolvency Trustee can explain your legal options and what each one means for you. At the same time, looking at government support programs through GrantHub can help you deal with money troubles sooner and avoid the harshest outcomes.
See also:
Was this article helpful?
Rate it so we can improve our content.
Canada Proactive Disclosure Data
The Canadian government has funded over 400,000 businesses through 1.27 million grants and contributions. Check your eligibility in 60 seconds.