Can I File Bankruptcy for Payday Loans in Canada?

Going Bankrupt on Payday Loan Debt

Payday loans are supposed to be short-term credit facilities that provide people with quick cash injections in their moment of need.

The companies behind them tout them as a solution for everything, from covering the cost of mending your car to fixing your boiler.

Payday loans, however, have a habit of becoming unsustainable over time.

The people who use them are often the very individuals who are least able to repay.

Firms offer cash upfront promising to help their clients out of a financial bind only to hit them with high fees in their next paycheck they can’t afford.

Inevitably, payday loan debt accumulates.

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And that’s when people get into trouble.

As the months go by, the quantity of outstanding debt increases and interest fees go up.

Eventually, interest alone consumes a large chunk of a person’s wages, increasing the need to go to a second and third lender to make ends meet.

The situation soon spirals out of control.

Good News: You Can Discharge Payday Loan Debt With Bankruptcy

If you are experiencing unsustainable payday loan debt, it can seriously affect your quality of life.

You spend considerable energy worrying about how you can repay the money, making it hard to sleep.

Fortunately, you can discharge payday loan debt under the Bankruptcy and Insolvency Act, a law passed by the Canadian government that protects citizens from debt-induced destitution.

When a court accepts your application for bankruptcy, it clears all the payday loan debts you incurred before the date you filed.

Afterwards, creditors cannot continue to pursue you for that money.

If you have other forms of debt, besides outstanding payday loans, there’s more good news.

Bankruptcy clears all your unsecured debt, allowing you to avoid collection calls for unpaid utility bills, credit cards, tax, and other unsecured borrowing.

Bankruptcy, therefore, offers you two clear advantages.

First, it gives you a way to get out of a personal loan debt spiral.

And, second, it means you have more money left over to meet your basic living needs.

Remember, once you complete the bankruptcy procedure, you no longer need to make payments to creditors.

Should You File A Consumer Proposal To Reduce Payday Loan Debt?

We typically imagine payday loan debt primarily affects those on low incomes, struggling to get by.

However, even those on high incomes can find themselves unable to repay creditors.

If you find yourself in this position, you may be able to file a consumer proposal – a legal mechanism that allows you to reduce the total amount of debt that you owe.

Filing a consumer proposal might be a viable strategy if:


  • There is a large amount of equity in your home;
  • You have an income above the surplus income threshold defined by the Canadian government;
  • You have more than $10,000 CAD in total debts, including personal loans.


To file a consumer proposal, you will need to work with a licensed bankruptcy trustee.

This agent evaluates your current financial situation and then puts together a sensible repayment schedule, based on your ability to repay.

Talented trustees can sometimes reduce the total amount you owe by up to 80 percent.

Consumer proposals offer many of the same benefits as a bankruptcy.

Creditors, for instance, can no longer contact you directly once you begin the filing process.

Instead, they must send all correspondence to the trustee.

Similarly, filing a consumer proposal can help you avoid losing your assets to pay outstanding payday loan debt.

The legal facility that allows you to continue living at your current address.

Creditors, of course, are free to reject your application, but they are unlikely to do so.

They know that if they don’t permit the consumer proposal to go ahead, you may apply for bankruptcy.

And if you do that, they will get nothing.

Creditors decide whether to accept the offer your trustee submits via ballot.

All lenders must accept the terms if creditors representing more than 50 percent of your outstanding debt agree to the proposal.

Is Credit Counselling A Viable Alternative?

Credit counselling is currently a popular route for reducing personal loan debts and making them more manageable.

These non-profit services attempt to get payday loan firms to agree to revised terms, helping reduce your monthly bills.

Counselling services may ask firms to waive high-interest fees, for example.

If you can achieve a voluntary agreement with creditors, that is great news.

Mostly, though, payday loan firms won’t agree to the terms of the settlement, preferring instead that you continue paying them high fees.

Generally, therefore, people prefer to use consumer proposals as a method for reducing debts.

The procedure forces the payday loan company to reconsider how much they charge in interest.

How To Make Sure You Eliminate Payday Loan Debt

Once you file for bankruptcy or consumer proposal, creditors are no longer allowed to pursue you for money.

What’s more, if you file for bankruptcy, you no longer need to make repayments to payday loan companies.

However, before you hand over the process to your trustee, you’ll need to take some additional steps.

First, you should immediately open a new bank account.

Some payday loan companies set up automatic facilities to garnish wages from your account and the end of every month.

Many will continue to try to take money from your accounts through this mechanism, even after receiving the bankruptcy notice.

Lenders may also try to convince you that you still owe them money, even after you file.

If you continue to receive calls or letters from a creditor, speak with your trustee and get them to follow up on the matter.

Where possible, try to avoid any further correspondence.

If you do get into a conversation, inform them that you have completed bankruptcy and that it is against the law for you to pay one creditor over another.

Getting debt relief for payday loans in Canada, therefore, is possible when you file for bankruptcy.

Sometimes, it is your best option.

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

Gordon Sands

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