Behind every successful business in Alberta is a series of promises. Promises to your employees, your family, and your creditors. But when those promises start to feel like a weight that could sink everything you’ve built, debt stops being a business metric and starts feeling like a threat to your home.
That pressure isn’t just in your head. When you’ve signed personal guarantees, the debt on your balance sheet is directly tied to your own home and savings. It feels deeply personal because, for a business owner, it is.
But finding a way out requires a shift in perspective. To fix the situation, we have to look past the stress and treat the debt as a math problem that can be solved with the right strategy.
This guide answers a practical question many entrepreneurs face: how to manage business debt without putting everything they’ve built at risk. We will look at essential strategies that separate your personal liability from your business survival. We will explore options ranging from consolidation loans to legal proposals. This is how you manage your debt and take control back.
First, Check the Warning Lights on Your Dashboard
Entrepreneurs are wired to push through challenges — it’s often how businesses get off the ground. But that same optimism can blur the line between a temporary rough patch and a more serious financial issue.
We often ignore the red flags until the cash flow dries up completely. To assess your financial health, you need to regularly review the data objectively, just like you would for a client.
The “Red Flags” Checklist:
- Are you making only minimum payments on credit cards because that is all the cash flow allows?
- Is the timeline to pay off your total debt stretching beyond 3–5 years at your current pace?
- Are debt payments consistently eating up more than 40% of your gross monthly income?
- Are you using personal credit cards to cover unexpected expenses, inventory, or payroll?
- Have you triggered late payments, incurring fees, or aggressive calls from the CRA?
If you checked more than one of these boxes, effort alone is usually no longer enough to fix the problem. You need a dedicated debt repayment plan.
Immediate Steps You Can Take Right Now to Stabilize
Before you sign contracts or hire professionals, there are practical strategies you can deploy immediately to streamline operations and stabilize cash flow. These are short-term steps to stabilize cash flow and buy time.
Reduce Expenses Strategically
It sounds obvious, but expenses need to be brought back in line with income. Look at your financial statements. Is there any non-essential equipment you can sell? Can you pause software subscriptions? Are you carrying full-time payroll for work that only requires a contractor?
This might mean selling that extra company vehicle to lower monthly costs. Cutting discretionary spending helps you find extra money to start paying down balances or build a small emergency fund.
Find New Revenue Streams
Managing business debt often requires an injection of capital. Can you rent out unused office space or bays in your warehouse? Can you identify additional revenue streams despite challenging market conditions?
Look online for tailored ideas on how to find new revenue for your specific industry. For example, if you run a construction company, you can search for ways to keep your equipment earning during slow months.
You can even use AI tools like ChatGPT or Gemini to brainstorm creative ways to fill your warehouse bays or rent out extra office space. Pivoting into new markets can improve profitability and temporarily patch the hole, creating new growth opportunities.
The “Must-Pay” Rule
Government obligations should never be ignored. We will discuss formal CRA deals later, but note that ignoring government debts, such as GST/HST or payroll deductions, carries serious consequences. The CRA has powers that other debt collectors do not, including the ability to freeze bank accounts instantly, which halts business operations. Prioritize these timely payments to keep your accounts unlocked.
These steps can provide short-term relief, but they rarely solve the underlying debt problem. This is where you need to seek professional advice.
Not All Debt Advisors Can Offer the Same Solutions
When you Google “professional advice for debt,” you get a million results promising to fix your credit history. But in Canada, the regulatory landscape is very specific. There are really only two main paths for financial advisors in this space.
1. The Credit Counsellor
- Best for: Budgeting advice, financial education, and Debt Management Programs (DMP).
- Regulation: Provincially regulated, often non-profit.
- Power: They can negotiate interest, but they cannot legally stop a lawsuit or force a creditor to participate.
2. The Licensed Insolvency Trustee (LIT)
- Best for: Legal protection, Consumer Proposals, Division 1 Proposals, and stopping legal action.
- Regulation: Federally regulated. Only Licensed Insolvency Trustees can file a Consumer Proposal or a Bankruptcy.
- Power: They offer a “Stay of Proceedings,” which is a legal shield that stops collections immediately.
Red Flag Watch: Be cautious of unregulated agencies that promise to settle debt for pennies without a legal framework.
Now that you know who to talk to, let’s look at the specific tools they use. We’ll start with the non-legal routes that work if you just need a break on interest.
Option 1) The Non-Legal Route (DMPs & Consolidation)
If your business is solvent, you might not need a formal legal process. These debt repayment strategies work if you can afford to pay back 100% of your principal but need relief from high interest rates.
Note: These options are for individuals and sole proprietors. If your business is incorporated, these programs generally won’t cover your corporate debts.
Is a Debt Management Program (DMP) Right for You?
A DMP is a voluntary handshake deal. A credit counsellor helps you combine multiple debts into a single monthly payment. This helps simplify repayments.
- The Benefit: They negotiate favourable terms, often dropping interest from 22% on credit cards to single digits, or sometimes 0%. This results in less interest paid, helping more of your payment go toward the principal with clear repayment schedules.
- The Catch: You must repay 100% of the principal. It does not cover CRA tax debt or government programs. Since it is voluntary, a creditor can choose to opt out at any time.
What About a Debt Consolidation Loan?
You take out one new loan to pay off your old credit cards.
- The Fit: This works if you have a strong credit history. It simplifies your life into one payment at a lower rate.
- The Risk: If your credit score is below 600, be careful. The interest rate on the new loan might be just as high as your cards. This makes the math stay the same while your debt grows.
And The Orderly Payment of Debts (OPD)
Alberta has a unique court-ordered program called OPD. Unlike a standard DMP, this is backed by the courts and has a fixed 5% interest rate. In Alberta, Money Mentors is the only place that handles this. It can cover some tax debts you are personally responsible for.
But what happens if paying back 100% is no longer realistic? What if the numbers just don’t add up anymore? When the financial strain is too deep, we have to look at debt management through the lens of federal law.
Option 2) The Legal Route (Consumer Proposal & Bankruptcy)
Remember the “warning signs”? If you are missing payments, using payroll deductions to pay rent, or if the CRA is threatening legal action, a repayment plan isn’t enough. You need the Bankruptcy and Insolvency Act on your side to regain financial stability.
Consumer Proposal: The “Sweet Spot” for Entrepreneurs
A Consumer Proposal is a legally binding deal filed by an LIT. It allows you to pay back a percentage of what you owe (often 20-50%) over a maximum of 5 years.
Why This Works Well for Entrepreneurs:
- Stay of Proceedings: It stops all collection calls, lawsuits, and wage garnishments immediately.
- Debt Consolidation: It combines all your debts (including CRA tax debt and personal guarantees on business loans) into one manageable payment.
- Asset Protection: Unlike bankruptcy, you generally keep your assets, such as your home and car, provided you pay the secured portion.
- 0% Interest: The high interest debts stops accumulating the day you file.
What About Division 1 Proposals?
If your total debt exceeds $250,000 (excluding your primary home mortgage), a Consumer Proposal isn’t an option. In this case, a Division 1 Proposal acts similarly but handles higher debt volumes. This is often the tool used for more complex personal financial situations or restructuring.
Bankruptcy Can Also Be A Fresh Start
Bankruptcy is often seen as a last resort, but in some cases, it is the fastest way to stabilize a situation that cannot be repaired. It eliminates unsecured debt but has a stricter impact on assets and reporting. It should be considered when financial performance cannot support a proposal.
Okay, let’s put them next to each other.
It’s hard to visualize the difference between the “Handshake” deal and the “Legal” deal until you see the math.
| Feature | DMP (Individuals/Sole Props) | Consumer Proposal (CP) |
| Legal Status | Voluntary handshake deal. | Formal legal process under the BIA. |
| Who Can Use It | Only individuals and sole proprietors. | Individuals, sole props, and incorporated owners. |
| Debt Repayment | You pay back 100% of the principal. | Debt is often reduced to only a portion. |
| Interest | Reduced or frozen at the creditor’s choice. | Legally frozen at 0% from the day you file. |
| Legal Protection | No. Creditors can still sue or garnish. | Yes. You get an automatic Stay of Proceedings. |
| CRA Inclusion | Typically excludes CRA tax debt. | Includes personal and business related tax debt. |
Wait, does this cover my business debts or just personal?
This is the question that keeps most Alberta big to small business owners up at night. If you are a sole proprietor, you and the business are legally one and the same. But for incorporated owners, the lines get blurry.
If your corporation is struggling, a Consumer Proposal isn’t for the company itself, it’s for you. It is the tool that settles the personal guarantees and directors’ liabilities (like unpaid GST or payroll taxes) that the CRA can use to come after your personal assets.
- Personal Tax: Yes, this is fully included.
- Directors’ Liability: If your corporation failed to remit GST/HST or source deductions, you are personally on the hook. A Proposal can legally include and settle this liability.
If the corporation needs to survive on its own without you being personally drained, a Division I Proposal is the more robust tool for corporate restructuring.
Sole Proprietors vs. Corporations
The type of debt relief you need depends entirely on your business structure. Because a Sole Proprietorship and a Corporation are treated differently under Canadian law, the solutions for their debts differ as well.
| Feature | Sole Proprietorship | Incorporated Business (Corporation) |
| Legal Status | You and the business are the same legal entity. | The business is a separate legal entity from you. |
| Liability | You are personally responsible for 100% of business debts. | You are generally not liable for corporate debts, unless you signed a Personal Guarantee or have Directors’ Liability (e.g., unpaid GST/HST/Payroll taxes). |
| Consumer Proposal Coverage | Yes. Since business debt is legally personal debt, a Consumer Proposal can consolidate and settle it all. | Partial. A Consumer Proposal can settle your personal liability (guarantees & directors’ liabilities), but it cannot settle the corporation’s own debts. |
| Recommended Solution | Consumer Proposal (Personal Insolvency) | Division I Proposal (Corporate Restructuring) |
Note: If your corporation has debt you didn’t personally guarantee, a Consumer Proposal won’t solve the company’s problem. To keep the business alive while managing its own liabilities, you likely need a corporate restructuring process like a Division I Proposal.
The CRA & Tax Debt
Dealing with the CRA is stressful for most business owners.
- Personal Tax: Yes, personal income tax is included in a Consumer Proposal.
- Directors’ Liability: If the corporation failed to pay Corporate Income Tax, GST/HST, or source deductions, the CRA can come after you personally. A Proposal can include this liability.
Now you have all the pieces. The advisors, the handshake deals, the legal proposals, and the business rules. Let’s put them side-by-side so you can pick the right lane.
So, How Do You Choose the Right Strategy?
You’ve seen the definitions. Now let’s simplify the decision. Do you need a repayment plan or a settlement?
| Choose a DMP if… | Choose a Consumer Proposal if… |
| You can afford 100% of the principal | You can’t afford the full amount; you need “debt reduction.” |
| You just need “lower interest” rates to catch up | You need legal protection to stop garnishments |
| You don’t have major tax debt | You have assets (like a house) you want to protect from bankruptcy |
The Big Question: “Will This Ruin My Credit Rating Forever?”
Many business owners hesitate to seek professional advice because they are overly protective of their credit scores. But if you are already missing payments, your score is likely being impacted already.
Let’s look at the credit history impact clearly:
- The “R” Ratings: Both a DMP and a Proposal give you an R7 rating (a temporary note that you are on a repayment plan). Bankruptcy is an R9 (the lowest rating).
- The Timeline: A DMP note is removed 2 years after you finish paying. A Proposal note is removed 3 years after completion (or 6 years from the filing date, whichever comes first).
You don’t have to wait to fix your financial health. You can start rebuilding during the process by getting a secured card and keeping utilization low. Plus, the proposal includes mandatory counselling to help you build cash flow management skills.
A Few Special Cases That Don’t Fit The Normal Rules
Most unsecured debt follows the rules we just listed. But three categories are unique.
1. Secured Debts (House/Car)
These programs focus on unsecured debt. If you want to keep your house or your company truck, you generally must keep paying the mortgage or loan. The proposal handles the credit cards so you can afford the mortgage.
2. Student Loans
Government student loans are tricky. They can only be discharged if you have been out of school for 7+ years. According to the 2024 debtor profile, about 38% of insolvent Canadians have tax debt, and 17% have student loans when seeking help. Proposals are often the best way to handle these stubborn balances because they stop accruing interest and provide a clear end date.
3. Your Professional License
Most jobs are fine. But if you hold a specialized license, such as being a CPA, a Lawyer, or an Insurance Broker, you need to check your licensing body’s rules regarding insolvency. Some associations have specific reporting requirements for members who file a proposal.
The Cost of Waiting is Higher Than the Cost of Help
We have introduced many legal terms and strategies in this guide. But at the end of the day, this isn’t just about the Bankruptcy and Insolvency Act. It’s about making payroll next week and about reducing stress and regaining control around your finances.
Whether you choose a repayment strategy, such as a DMP, or a legal tool like a Consumer Proposal, the only real risk is doing nothing while warning signs persist. Managing debt effectively means taking action before the choice is taken away from you.
Not Sure Which Path Fits Your Situation Best?
A DMP? A Proposal? Bankruptcy? Stop guessing. Book a free, confidential assessment with a Licensed Insolvency Trustee. We’ll review your numbers and recommend the path that protects your business and household – even if that means referring you to a solution outside our firm.
