How to deal with different types of debts

Life in Canada is often built around access to credit. Credit cards, lines of credit, personal loans, car financing, mortgages and business loans can all be useful tools when debt is under control. But when prices rise faster than income, interest rates put pressure on the family budget, and minimum payments become an endless circle with no exit, credit stops being a convenience and becomes a problem. According to Statistics Canada, by the end of 2025 Canadian households carried about $1.77 in credit market debt for every dollar of disposable income. This is not just a statistic — it is the reality in which many families live under constant financial strain.

It is good when a person or family can control their debts and make payments on time. But if more and more money goes only toward interest while the balance barely moves, it is time to understand the situation rather than wait. The sooner you know what kinds of debts you have and what legal tools are available in Canada, the better your chances of avoiding lawsuits, collectors, garnishment, liens and unnecessary loss of money.

A Debt Doctor helps Russian-speaking residents of Toronto and Ontario understand their debts and choose a legal path toward significant reduction or full discharge where possible. We work in the interests of debtors, help assess the situation, prepare for discussions with a Licensed Insolvency Trustee and understand which options may fit your circumstances: Consumer Proposal, Bankruptcy, negotiations with creditors, restructuring or another plan.

Not all debts are the same. Some can be included in Bankruptcy or a Consumer Proposal, others require a separate approach, and some cannot be discharged in the standard way at all. That is why the first step is to understand exactly what you are dealing with.

Unsecured Debts

Unsecured debts are debts that are not backed by a specific asset. In other words, there is no house, vehicle, equipment, land, bank funds, investments or other property pledged as security for them. The most common examples include credit cards, unsecured lines of credit, personal loans, payday loans, debts to phone providers, some business debts with personal guarantees and certain tax debts.

When you sign a credit card, loan or line of credit application, you agree to repay the debt under the creditor’s terms. Important terms may include the Annual Percentage Rate, minimum payment, annual fees, cash advance fee, over-limit fee, returned payment fee, balance transfer fee and other charges. A bank or financial institution checks your creditworthiness through Equifax Canada or TransUnion Canada, and reviews income, expenses, assets, liabilities and payment history.

Originally, credit cards were a convenient tool for purchases, travel, hotel reservations, car rentals and short-term use of money. The problem begins when a person can no longer pay the balance in full each month. Interest grows, minimum payments become routine, and the debt barely goes down. In that situation, a person is essentially paying for the right to remain in debt.

If you are already at this stage, it is important not to wait until the situation becomes critical. Under Canada’s Bankruptcy and Insolvency Act, people who cannot manage their debts have legal options for resolving financial problems. A Consumer Proposal or Bankruptcy filed through a Licensed Insolvency Trustee can stop most actions by unsecured creditors, stop interest on included debts and replace chaotic payments with a clear legal process.

In a Consumer Proposal, the debtor offers creditors repayment of part of the unsecured debts through one regular payment. If the proposal is accepted, interest stops, collectors and creditors can no longer demand payment directly, and the debtor receives a legal plan to resolve the debts. In Bankruptcy, many unsecured debts can be discharged, but the process may have more serious consequences for assets, income and credit history.

It is important to be honest: a home, vehicle, business and other assets do not always automatically “remain in your possession” without additional conditions. Everything depends on equity, secured debts, income, exemptions, ownership structure and other factors. That is why a full professional review is necessary before making any decision. But in many cases, the right plan really can help protect key assets, stop creditor pressure and begin financial recovery.

If nothing is done about problem unsecured debts, the situation usually gets worse. You continue losing money to interest and minimum payments, your credit score declines, psychological pressure increases, and creditors may move toward legal action. In some cases, wage garnishment, court judgments or a lien against property may follow. It is far wiser to discuss options earlier, while you still have room to manoeuvre.

Secured Debts

Secured debts are debts backed by a specific asset. The clearest examples are a mortgage secured by real estate, a car loan or car lease secured by a vehicle, equipment financing or a truck loan for an owner-operator. If payments on such a debt stop, the creditor may have the right to repossess or sell the asset securing the debt, according to the contract and the law.

Secured debts are generally not discharged directly through Bankruptcy or a Consumer Proposal if you want to keep the related asset. For example, if you want to keep your home, you must continue paying the mortgage, property tax, insurance, condo fees and other related obligations. If you want to keep a financed or leased vehicle, you must continue meeting the terms of the agreement.

There is, however, an important nuance. If the secured asset is returned to the creditor, repossessed or sold, and the proceeds are not enough to cover the debt, a deficiency balance may remain. This difference often becomes unsecured debt. In that case, it may be included in Bankruptcy or a Consumer Proposal, provided there are no other securities, guarantees or special exceptions.

This situation often occurs when returning a leased vehicle, financed car or truck used by an owner-operator, where the value of the equipment is lower than the remaining debt and penalties, fees and expenses are added. Before returning a vehicle, truck or equipment, it is important to understand what debt may remain after the asset is dealt with and how to include it properly in an overall plan.

Debts that require special attention

Some debts require separate analysis. For example, income tax, HST, payroll deductions and other CRA debts may be included in insolvency procedures, but CRA has its own collection mechanisms and often acts more quickly than ordinary creditors. Student loans in Canada have special rules: in many cases, they cannot be discharged if not enough time has passed since the end of studies. Spousal support, child support, certain court fines, debts connected with fraud and some court-related obligations are generally not discharged in the standard way.

That is why it is dangerous to assume that “all debts are the same.” In practice, one person may have credit cards, tax debt, a car loan, a mortgage, payday loans and a business guarantee at the same time, and each type of debt will have different consequences. A proper strategy begins not with a promise to write everything off, but with a precise classification of the debts.

What to do if debt has already become a problem

First, stop evaluating the situation emotionally. Debt creates shame, fear and the desire to postpone the conversation, but that only makes the problem worse. Second, gather the full picture: a list of creditors, balances, interest rates, minimum payments, secured and unsecured debts, income, expenses, assets, mortgage balance, car financing, tax debts and any letters from creditors or collection agencies.

Third, get professional advice before legal actions or garnishment begin. At an early stage, a debtor usually has more options: prepare a Consumer Proposal, consider Bankruptcy, review refinancing, negotiated settlement or another strategy. At a later stage, solutions become more urgent and often more expensive.

In future articles, we will look more closely at specific types of debts and ways to deal with them. If you already have questions or your debt situation is causing concern, do not postpone the conversation. Call A Debt Doctor and discuss your situation confidentially. We will help you understand which debts can be included in a legal process, which require special treatment and which path may be best for you.

Stay healthy, stay calm and live free from debt.