Debt Glossary for Canadians: Understanding Financial Terminology

Mar 20, 202632 min read

Debt is a reality for most Canadians. From student loans and car financing to mortgages and credit cards, borrowing is woven into the fabric of modern financial life. But when debt becomes unmanageable — or when you need to understand your options for getting out of it — the terminology can feel overwhelming.

A — Debt Terms Starting with A

Acceleration Clause

A provision in a loan agreement that allows the lender to demand immediate repayment of the entire outstanding balance if the borrower violates certain terms. In Canada, acceleration clauses are common in mortgage agreements and some personal loan contracts. Typical triggers include missing multiple consecutive payments, filing for bankruptcy, or failing to maintain required insurance. When a lender “accelerates” a debt, the full remaining balance becomes due immediately, which can lead to legal action or property seizure if the borrower cannot pay.

Accounts Receivable

Money owed to a business for goods or services delivered but not yet paid for. While primarily a business term, understanding accounts receivable matters to individual Canadians because unpaid debts to businesses can be sent to collections, reported to credit bureaus, and pursued through legal action. From the creditor’s perspective, your unpaid bill is their account receivable.

Accrued Interest

Interest that has accumulated on a debt but has not yet been paid or added to the principal balance. In Canada, accrued interest is significant in several contexts: credit card balances accrue interest daily on unpaid balances, student loans accrue interest during the non-repayment period, and mortgage interest accrues between payments. Understanding how interest accrues helps you see the true cost of carrying debt and motivates faster repayment.

Affidavit of Debt

A sworn statement by a creditor confirming the existence and amount of a debt. In Canadian courts, affidavits of debt are used in collection lawsuits and bankruptcy proceedings. If a creditor sues you for an unpaid debt, they may file an affidavit of debt as evidence. You have the right to challenge the accuracy of this document and request verification of the debt before it can be enforced.

Amortization

The process of paying off a debt through regular scheduled payments over a fixed period. Each payment includes a portion that goes toward the principal (the amount borrowed) and a portion that covers interest. In Canada, loan amortization schedules show how each payment is split between principal and interest. In the early years of an amortized loan (like a mortgage), most of your payment goes toward interest. Over time, the balance shifts and more of each payment goes toward reducing the principal.

Credit Resources Team — Expert Note

“Understanding amortization is crucial because it reveals the true cost of long-term debt. On a $400,000 mortgage at 5.5% amortized over 25 years, you would pay approximately $280,000 in total interest — 70% of the original loan amount. Shortening your amortization or making extra payments can save you tens of thousands of dollars.” — Canadian Financial Planning Association

Annual Percentage Rate (APR)

The total annual cost of borrowing expressed as a percentage, including interest and certain mandatory fees. In Canada, the Cost of Borrowing Regulations require lenders to disclose the APR for most credit products. The APR is designed to give consumers a standardized way to compare the true cost of different loans. For Canadian credit cards, the APR is usually the same as the interest rate. For loans with fees, the APR will be higher than the stated interest rate.

Asset

Anything of value that you own, including cash, investments, real estate, vehicles, and personal property. In Canadian debt and insolvency proceedings, your assets are important because they determine how much creditors can potentially recover and what you may need to surrender in bankruptcy. Each province has exemption rules that protect certain assets from seizure. Understanding the difference between secured assets (pledged as collateral for debt) and unencumbered assets (free of liens) is essential when evaluating your debt situation.

B — Debt Terms Starting with B

Bad Debt

A debt that a creditor has determined is unlikely to be collected. In Canada, creditors typically classify a debt as bad after 180 days of non-payment. From the creditor’s perspective, bad debt is written off as a business loss. From the borrower’s perspective, a bad debt designation on your credit report (R9 or I9 rating) is one of the most damaging entries possible and remains for six to seven years. The debt itself still exists and can be pursued through collections or legal action even after being classified as bad debt.

Bailiff

A court-appointed officer authorized to enforce court orders, including seizing assets to satisfy unpaid debts. In Canada, bailiff regulations vary by province. Bailiffs may seize non-exempt personal property, garnish bank accounts, or enforce other court-ordered remedies. If a creditor obtains a judgment against you in Canada, they may use a bailiff to enforce it. Each province has rules about what assets are exempt from seizure and how the seizure process must be conducted.

Balance

The total amount currently owed on a debt, including the original principal, accumulated interest, and any fees or charges. Your balance changes with each payment you make and each interest charge applied. In Canada, your statement balance (the balance at the end of a billing cycle) is what gets reported to credit bureaus. For debt management purposes, knowing the exact balance on each of your debts is essential for creating a repayment plan.

Bankruptcy

A legal process governed by the Bankruptcy and Insolvency Act (BIA) that provides relief to individuals who cannot pay their debts. In Canada, bankruptcy must be filed through a Licensed Insolvency Trustee (LIT). The process involves surrendering certain non-exempt assets, making surplus income payments if your income exceeds a threshold, attending two counselling sessions, and fulfilling other duties. A first-time bankruptcy can be discharged in as few as 9 months (21 months if surplus income exists). Bankruptcy eliminates most unsecured debts but does not discharge student loans less than 7 years old, court fines, child/spousal support, or debts arising from fraud.

Consult a Licensed Insolvency Trustee (LIT): Only LITs can administer bankruptcies in Canada. The initial consultation is typically free. The LIT will review your financial situation and explain all available options, including alternatives to bankruptcy.

File the Bankruptcy Documents: If bankruptcy is the best option, the LIT prepares and files the necessary documents with the Office of the Superintendent of Bankruptcy (OSB). This officially starts the bankruptcy process and triggers an automatic stay of proceedings, stopping most creditor actions against you.

Fulfill Your Duties: During bankruptcy, you must surrender non-exempt assets, make surplus income payments if required, attend two financial counselling sessions, report your monthly income to the LIT, and cooperate fully with the process.

Receive Your Discharge: For a first-time bankrupt with no surplus income, discharge can occur after 9 months. With surplus income, the minimum period is 21 months. The discharge releases you from most unsecured debts and allows you to begin rebuilding your financial life.

Bankruptcy and Insolvency Act (BIA)

The federal legislation that governs bankruptcy and insolvency proceedings in Canada. The BIA sets out the rules for personal bankruptcy, consumer proposals, commercial bankruptcies, and receiverships. It defines the rights and obligations of debtors, creditors, and Licensed Insolvency Trustees. The BIA is administered by the Office of the Superintendent of Bankruptcy (OSB), a federal government office. Understanding the BIA is important for any Canadian considering formal insolvency options.

Bilateral Agreement

An agreement between a debtor and a single creditor to modify the terms of a debt, such as reducing the interest rate, extending the repayment period, or accepting a reduced lump-sum payment. In Canada, bilateral agreements are informal arrangements that do not have the legal protections of a consumer proposal. They can be effective for managing debt with individual creditors but require direct negotiation and the creditor’s voluntary agreement.

Pro Tip

Know Your Rights: In Canada, you have the right to negotiate directly with your creditors at any time. Many creditors prefer to negotiate a modified repayment arrangement rather than write off the debt entirely or pursue expensive legal action. If you are struggling with debt, reaching out to your creditors early — before accounts go to collections — often yields better results.

C — Debt Terms Starting with C

Canada Revenue Agency (CRA) Debt

Money owed to the federal government for unpaid income taxes, GST/HST, or other tax obligations. CRA debt has special status in Canada because the CRA has enhanced collection powers compared to regular creditors. The CRA can garnish wages, freeze bank accounts, and place liens on property without first obtaining a court order. CRA debt can be included in a consumer proposal or bankruptcy, though the CRA is treated as a preferred creditor in some situations. Interest on CRA debt compounds daily, making prompt attention important.

Cease and Desist Letter

A written request demanding that a collection agency stop contacting you. In Canada, collection agencies are regulated at the provincial level, and each province has rules about collector conduct. While you cannot make a debt disappear by sending a cease and desist letter, you can limit how and when collectors contact you. In some provinces, requesting that a collector communicate only in writing is an effective way to manage collection calls while you work on a debt resolution strategy.

Charge-Off

An accounting action where a creditor removes a debt from its active accounts because it is considered unlikely to be collected, typically after 180 days of non-payment. In Canada, a charge-off appears on your credit report as an R9 rating for revolving accounts. Despite the accounting treatment, the debt still legally exists and can be sold to a collection agency or pursued through legal action. Charge-offs are among the most damaging entries on a Canadian credit report.

Chattel Mortgage

A loan secured by movable personal property (chattels) rather than real estate. In Canada, chattel mortgages are commonly used for vehicle financing, heavy equipment, and mobile homes. If you default on a chattel mortgage, the lender has the right to repossess the chattel. Chattel mortgage laws vary by province, and the registration requirements and repossession procedures differ across jurisdictions.

Collection Agency

A company that specializes in recovering debts on behalf of creditors or after purchasing delinquent debts. In Canada, collection agencies are regulated by provincial consumer protection legislation. Each province has specific rules about when collectors can call, what they can say, and how they must conduct themselves. Common provincial rules include restrictions on calling before 7 a.m. or after 9 p.m., limits on call frequency (typically no more than three times per week), and prohibitions on threatening or harassing behaviour.

Provincial Collection Rules	Calling Hours	Contact Frequency Limit
Ontario	7 a.m. – 9 p.m. (local time)	3 times in 7 days
British Columbia	7 a.m. – 9 p.m. (local time)	Not more than reasonably necessary
Alberta	7 a.m. – 10 p.m. (local time)	3 times in 7 days
Quebec	8 a.m. – 8 p.m. (local time)	No specific limit, but harassment prohibited
Manitoba	7 a.m. – 9 p.m. (local time)	Not more than 3 times in 7 days
Saskatchewan	7 a.m. – 9 p.m. (local time)	3 times in 7 days
Nova Scotia	8 a.m. – 9 p.m. (local time)	Not more than reasonably necessary

Compound Interest

Interest calculated on both the original principal and the previously accumulated interest. In Canada, credit cards typically use compound interest calculated daily (though charged monthly), which means interest is charged on top of previously accrued interest. This compounding effect is why credit card debt can grow rapidly if only minimum payments are made. Federal law requires Canadian lenders to disclose the method of interest calculation and the effective annual interest rate, including compounding effects.

Conditional Discharge

A court-ordered discharge from bankruptcy that includes specific conditions the bankrupt must fulfill. In Canada, a conditional discharge might require additional payments, completion of counselling sessions, or other obligations before the bankruptcy is fully resolved. If the bankrupt does not meet the conditions within the specified timeframe, the discharge may be revoked, and the bankruptcy remains in effect.

Consumer Proposal

A legally binding agreement filed through a Licensed Insolvency Trustee under the Bankruptcy and Insolvency Act, in which you offer to repay your creditors a portion of your debts over a maximum of five years. Consumer proposals are available to Canadians with unsecured debts of $250,000 or less (excluding mortgage on principal residence). The proposal must be accepted by creditors holding a majority in dollar value of the proven claims. Once accepted, all interest is frozen, collection actions stop, and you keep your assets. Consumer proposals remain on your credit report for 3 years after completion or 6 years from the filing date, whichever is first.

Consolidation Loan

A single loan used to combine multiple debts into one payment, ideally at a lower interest rate. In Canada, debt consolidation loans are offered by banks, credit unions, and alternative lenders. The goal is to simplify debt management and reduce total interest costs. To qualify for a consolidation loan at a competitive rate, you generally need a credit score of 650 or higher. Canadians with lower credit scores may need to secure the consolidation loan against assets (such as a vehicle or home equity) or seek an alternative lender at higher rates.

Co-Signer

A person who agrees to share responsibility for a debt with the primary borrower. In Canada, the co-signer is equally liable for the debt and is responsible for making payments if the primary borrower cannot. The debt appears on both the borrower’s and co-signer’s credit reports, and any negative information (missed payments, default) affects both credit files. Co-signing is a significant financial commitment that should be carefully considered, as it can impact the co-signer’s ability to obtain credit for their own needs.

Credit Counselling

Professional financial guidance provided to help individuals manage debt, create budgets, and develop repayment strategies. In Canada, non-profit credit counselling agencies offer free or low-cost services and are regulated by provincial standards. Reputable agencies are members of Credit Counselling Canada. Services include budgeting assistance, financial education, and Debt Management Programs (DMPs). Two mandatory credit counselling sessions are also required during the Canadian bankruptcy process.

Credit Resources Team — Expert Note

“Not all debt help services are created equal. In Canada, non-profit credit counselling agencies are your best starting point. They provide unbiased advice and have no financial incentive to push you toward any particular debt solution. Be wary of for-profit debt settlement companies that charge large upfront fees or guarantee to reduce your debt by specific percentages — these promises are often misleading.” — Credit Counselling Canada

D — Debt Terms Starting with D

Debt Management Program (DMP)

A structured repayment plan administered by a non-profit credit counselling agency. In a Canadian DMP, the agency negotiates with your creditors to reduce or eliminate interest charges and consolidates your unsecured debts into a single monthly payment. You make one payment to the agency, which distributes it to your creditors according to the negotiated terms. DMPs typically take three to five years to complete. While on a DMP, your credit report will show an R7 rating on the included accounts. DMPs do not reduce the principal amount owed — they primarily reduce interest costs.

Debt-to-Income Ratio

A calculation comparing your total monthly debt payments to your gross monthly income. In Canada, this ratio is critical for determining eligibility for loans and mortgages. The Total Debt Service (TDS) ratio used in mortgage lending is a specific version of this concept. A debt-to-income ratio above 40% is generally considered high-risk by Canadian lenders. Knowing your ratio helps you understand your borrowing capacity and identify when your debt level is becoming unsustainable.

Debt-to-Income Ratio	Risk Level	Typical Lender Response
Under 20%	Low	Comfortable borrowing capacity; best rates
20% – 35%	Moderate	Acceptable for most lenders; standard rates
36% – 42%	Elevated	May face limitations; higher rates possible
43% – 49%	High	Limited approval; alternative lenders may be needed
50% or higher	Very High	Most lenders will decline; debt restructuring may be needed

Debt Settlement

An arrangement where a creditor agrees to accept less than the full amount owed to resolve a debt. In Canada, debt settlement can be done individually (negotiating directly with each creditor) or through a for-profit debt settlement company. While settling for less than the full amount can save money, there are risks: creditors are not obligated to negotiate, the process can take months or years, stopped payments during negotiation further damage your credit, and the forgiven portion may be considered taxable income. Consumer proposals offer a more structured and legally protected way to achieve similar results in Canada.

Default

The failure to meet the legal obligations of a debt agreement. In Canada, default triggers vary by type of debt: credit cards typically default after 180 days of missed payments, mortgages after three to six months, and personal loans after the period specified in the contract. Default can lead to acceleration of the debt, collection activity, legal action, credit damage, and potential asset seizure. Understanding what constitutes default for each of your debts helps you prioritize payments when finances are tight.

Deficiency Balance

The remaining amount owed after a secured asset (such as a car or home) is sold and the proceeds are not enough to cover the outstanding debt. In Canada, if your car is repossessed and sold for $15,000 but you owed $20,000, the $5,000 deficiency balance remains your responsibility. Lenders can pursue legal action to collect deficiency balances. In some Canadian provinces, deficiency balance rules vary — for example, some provinces restrict deficiency claims on certain types of vehicle financing.

Discharged Debt

A debt that has been legally released through bankruptcy. In Canada, when you receive your bankruptcy discharge, most unsecured debts are eliminated. However, certain debts survive bankruptcy and cannot be discharged, including student loans less than seven years old, court fines and penalties, debts arising from fraud, alimony and child support obligations, and debts secured by assets you wish to keep. Understanding which debts can and cannot be discharged is crucial when considering bankruptcy as an option.

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“A discharge in bankruptcy gives Canadians a genuine fresh start. The purpose of bankruptcy law is not to punish — it is to provide honest but unfortunate debtors with a chance to rebuild their financial lives while treating creditors as fairly as possible.”

E — Debt Terms Starting with E

Enforcement

Legal actions taken by creditors to collect on unpaid debts after obtaining a court judgment. In Canada, enforcement mechanisms include wage garnishment, bank account seizure, property liens, and asset seizure through bailiffs. The specific enforcement options available and the procedures required vary by province. Enforcement cannot begin until the creditor has obtained a court judgment (with the exception of the CRA, which has self-assessment collection powers). Understanding enforcement mechanisms helps you appreciate the potential consequences of ignoring debt obligations.

Equity

The difference between the value of an asset and the amount owed against it. In the debt context, equity matters because it determines what is at risk if you cannot pay your debts. If you have significant equity in your home, a creditor with a judgment could potentially force the sale of your home to collect. In bankruptcy, non-exempt equity in assets must be surrendered. Conversely, if you owe more on an asset than it is worth (negative equity), the deficiency becomes an additional debt concern.

Exemptions (Bankruptcy Exemptions)

Assets that are legally protected from seizure during bankruptcy proceedings. In Canada, bankruptcy exemptions are determined by provincial legislation and vary significantly across the country. Common exemptions include necessary clothing, household furnishings up to a specified value, tools of the trade up to a specified value, a vehicle up to a specified value, and some equity in your principal residence (in certain provinces). Understanding your province’s exemption rules is essential when considering bankruptcy.

Province	Vehicle Exemption	Home Equity Exemption	Household Goods Exemption
Ontario	$7,117	$10,783	$14,180
British Columbia	$5,000	$12,000 (Capital Region $9,000)	$4,000
Alberta	$5,000	$40,000	$4,000
Quebec	Varies	Varies	Necessary furnishings
Manitoba	$3,000	$1,500	$4,500
Saskatchewan	$10,000	$50,000	$4,500

F — Debt Terms Starting with F

Fair Debt Collection

Provincial regulations that govern how collection agencies can conduct themselves when attempting to collect debts. In Canada, each province has its own debt collection legislation. Common protections include restrictions on calling hours, limits on call frequency, prohibitions on threatening or harassing behaviour, requirements to confirm the debt in writing upon request, and restrictions on contacting third parties about your debt. Knowing your province’s fair debt collection rules empowers you to push back against inappropriate collector behaviour.

First Meeting of Creditors

A meeting held after a bankruptcy filing where creditors can question the bankrupt person, review the trustee’s report, and vote on matters related to the bankruptcy. In Canada, first meetings of creditors are not always held — they occur only if requested by a creditor holding a proven claim of at least $2,500, or if creditors holding at least 25% in value of proven claims request it. Most straightforward consumer bankruptcies do not involve a first meeting of creditors.

Fixed-Rate Debt

Debt that carries an interest rate that remains constant throughout the term of the loan. In Canada, common fixed-rate debts include fixed-rate mortgages, many personal loans, and car loans. The advantage of fixed-rate debt is predictability — your interest cost does not change regardless of market rate movements. The disadvantage is that fixed rates are typically higher than initial variable rates, and you will not benefit if rates decrease during your loan term.

Forbearance

A temporary agreement between a borrower and lender to reduce or suspend payments for a specified period. In Canada, forbearance became widely used during the COVID-19 pandemic when banks offered mortgage and loan deferrals. Forbearance is not forgiveness — interest typically continues to accrue during the forbearance period, and you must eventually repay the missed amounts. Forbearance agreements may or may not be reported to credit bureaus, depending on the arrangement and the creditor’s reporting practices.

G — Debt Terms Starting with G

Garnishment (Wage Garnishment)

A legal process where a portion of a debtor’s wages is withheld by their employer and sent directly to a creditor. In Canada, a creditor must first obtain a court judgment before they can garnish wages (with the exception of the CRA). Each province sets its own rules about the maximum percentage of wages that can be garnished. Filing for bankruptcy or a consumer proposal in Canada triggers an automatic stay that stops most garnishment actions. Garnishment can be financially and emotionally stressful, making early action on problem debts important.

Good Faith Payment

A voluntary payment made to a creditor to demonstrate willingness to repay a debt, even if the full payment cannot be made. In Canada, making good faith payments can help in negotiations with creditors and may prevent accounts from being sent to collections. While there is no legal obligation to accept partial payments, many creditors view good faith efforts positively and may be more willing to work out modified repayment arrangements.

Guarantor

A person who agrees to be responsible for a debt if the primary borrower fails to pay. In Canada, a guarantor’s obligation is triggered when the primary borrower defaults. The guaranteed debt appears on the guarantor’s credit report and can affect their borrowing capacity. If the primary borrower files for bankruptcy, the guarantor is not released from their obligation — they become fully responsible for the debt. Co-signing is similar to guaranteeing but typically involves greater obligations.

Pro Tip

Caution for Guarantors: If you are asked to guarantee or co-sign a loan in Canada, understand that you are taking on full responsibility for the debt. If the primary borrower cannot pay — for any reason including bankruptcy — you will be expected to repay the entire amount. Only guarantee debts for people you trust completely and only for amounts you could comfortably repay on your own.

H–I — Debt Terms Starting with H and I

Hardship Program

A temporary relief program offered by some Canadian lenders to borrowers experiencing financial difficulty. Hardship programs may include reduced interest rates, lower minimum payments, deferred payments, or fee waivers. In Canada, major banks and credit card issuers have internal hardship programs that are not widely advertised. If you are struggling to make payments, contacting your lender to ask about hardship options should be one of your first steps. These programs are typically available for 3-12 months and require you to explain your financial situation.

High-Interest Debt

Debt that carries a significantly above-average interest rate. In Canada, high-interest debt commonly includes credit cards (19.99-29.99%), store credit cards (25-29.99%), payday loans (equivalent to hundreds of percent APR), and some subprime lending products. Prioritizing the repayment of high-interest debt — often called the “avalanche method” — saves the most money on interest over time. The federal government has taken steps to cap certain high-interest products, including limiting payday loan costs in several provinces.

Insolvent

A person or entity that is unable to pay their debts as they become due, or whose total debts exceed the total value of their assets. In Canada, insolvency is a legal concept defined in the Bankruptcy and Insolvency Act. Being insolvent does not automatically mean you must file for bankruptcy — insolvency simply means you meet the criteria to access formal insolvency processes, including consumer proposals and bankruptcy. Many Canadians are technically insolvent but manage their debts through informal arrangements, credit counselling, or debt consolidation.

Interest

The cost of borrowing money, calculated as a percentage of the outstanding principal. In Canada, interest rates are regulated by federal and provincial laws. The Criminal Code of Canada sets the maximum legal interest rate at 60% per year (criminal rate of interest), though recent amendments have lowered this for certain products. Interest can be calculated using simple interest (calculated only on the principal) or compound interest (calculated on both principal and accumulated interest). Credit cards in Canada typically use compound interest calculated daily.

Interim Receiver

A court-appointed officer who takes temporary control of a debtor’s assets to preserve them while insolvency proceedings are underway. In Canada, interim receivers are more commonly appointed in commercial insolvency cases but can apply in personal situations involving significant assets. The interim receiver’s role is to protect assets from being dissipated or devalued before the insolvency process can properly address how they should be distributed.

J–L — Debt Terms Starting with J through L

Joint Debt

A debt for which two or more people are equally responsible. In Canada, common joint debts include joint mortgages, joint lines of credit, joint credit cards, and loans with co-signers. If one party cannot pay, the other party or parties are responsible for the full amount. In a divorce or separation, the division of joint debts is a critical issue — a separation agreement between the parties does not release either person from their obligation to the creditor. The creditor can pursue either party for the full amount regardless of any private agreement between the debtors.

Judgment

A court order establishing that a debtor owes a specific amount to a creditor. In Canada, creditors can obtain judgments by suing debtors in provincial court (Small Claims Court for smaller amounts, Superior Court for larger amounts). Once a judgment is obtained, the creditor can use enforcement mechanisms including wage garnishment, bank account seizure, and property liens. Judgments in Canada are typically valid for 10-20 years depending on the province and can be renewed. A judgment appears on your credit report and significantly damages your credit score.

Licensed Insolvency Trustee (LIT)

A federally licensed professional authorized to administer insolvency proceedings in Canada, including bankruptcies and consumer proposals. LITs are the only professionals who can file bankruptcy or consumer proposal documents with the government. They are licensed and regulated by the Office of the Superintendent of Bankruptcy. LITs have a duty to act fairly for both debtors and creditors. The initial consultation with an LIT is typically free, and they are required to explain all available options — not just bankruptcy.

Lien

A legal claim against property as security for a debt. In Canada, common types of liens include mortgage liens, construction liens (for unpaid contractor work), tax liens (from CRA or municipalities), and judgment liens (resulting from court orders). A lien prevents the property owner from selling or refinancing without first satisfying the lien. Liens are registered against property titles through provincial land registry systems and must be discharged when the underlying debt is paid.

Limitation Period (Statute of Limitations)

The maximum time period during which a creditor can take legal action to collect a debt. In Canada, limitation periods are governed by provincial legislation and vary from 2 to 6 years depending on the province and the type of debt. After the limitation period expires, the creditor can no longer sue you to collect the debt (the debt becomes “statute-barred”). However, the debt still exists, and it may still appear on your credit report until the applicable reporting period expires. Importantly, making a payment or acknowledging the debt in writing can restart the limitation period in some provinces.

M–O — Debt Terms Starting with M through O

Minimum Payment

The smallest amount a borrower must pay on a revolving credit account each billing period. In Canada, credit card minimum payments are typically the greater of a fixed dollar amount ($10-$25) or a percentage of the balance (1-3%), plus any interest and fees. The Credit Business Practices Regulations require Canadian credit card issuers to include a minimum payment warning on statements showing how long it would take to pay off the balance with minimum payments only. This disclosure helps Canadians understand the long-term cost of making only minimum payments.

Moratorium

A temporary suspension of debt payments or enforcement actions, typically declared during exceptional circumstances. In Canada, moratoriums may be ordered by government during natural disasters or economic crises (as seen during COVID-19) or may be negotiated individually between borrowers and lenders. During a moratorium, interest may or may not continue to accrue depending on the specific terms. Moratoriums provide breathing room but do not eliminate the underlying debt obligation.

Negative Amortization

A situation where your loan payments are not large enough to cover the interest charges, causing the unpaid interest to be added to the principal balance. In Canada, negative amortization can occur with variable-rate mortgages when interest rates rise significantly — the fixed payment amount no longer covers the full interest charge, and the shortfall is added to the mortgage balance. This means you end up owing more than you originally borrowed, even though you are making regular payments. Some Canadian lenders have trigger rates or trigger points that cause payment adjustments to prevent excessive negative amortization.

Non-Exempt Assets

Assets that can be seized by creditors or surrendered in bankruptcy proceedings. In Canada, what constitutes non-exempt assets is determined by provincial legislation. Common non-exempt assets include real estate equity above provincial thresholds, vehicles worth more than the provincial exemption, investments (RRSPs contributed within 12 months of bankruptcy are non-exempt), tax refunds, and luxury items. Understanding what assets are at risk helps Canadians make informed decisions about their debt management strategy.

Orderly Payment of Debts (OPD)

A court-supervised debt repayment program available only in the provinces of Alberta, Saskatchewan, and Nova Scotia (the provinces that have adopted Part X of the Bankruptcy and Insolvency Act). OPD is similar to a consolidation order where the court sets up a repayment plan at 5% interest. All unsecured creditors must accept the plan, and wages are protected from garnishment during the program. OPD is a lesser-known alternative to consumer proposals and bankruptcy for residents of qualifying provinces.

P — Debt Terms Starting with P

Payday Loan

A short-term, high-cost loan typically for a small amount (usually up to $1,500 in Canada) that is repaid on the borrower’s next payday. Payday loans in Canada are regulated at the provincial level, with maximum allowable costs varying by province. The effective annual interest rate on payday loans often exceeds 300-500% when fees are annualized. Several Canadian provinces have capped payday loan costs (for example, Ontario at $15 per $100 borrowed, Alberta at $15 per $100). Payday loans are considered a last resort due to their extremely high cost and the debt cycle they often create.

Power of Sale

A legal process used in most Canadian provinces (most notably Ontario) that allows a mortgage lender to sell a property to recover the outstanding mortgage debt after the borrower defaults. Unlike foreclosure (used primarily in British Columbia and Alberta), the lender does not take ownership of the property. Any surplus from the sale after paying the mortgage balance, penalties, and sale costs is returned to the borrower. Power of sale proceedings typically take 3-6 months from the first missed payment.

Predatory Lending

Lending practices that impose unfair, deceptive, or abusive terms on borrowers. In Canada, predatory lending can include excessively high interest rates, hidden fees, misleading terms, and targeting vulnerable populations (including those with bad credit). The Criminal Code sets a maximum interest rate (including all fees) of 60% annually, though recent amendments are lowering this for certain products. Provincial consumer protection laws provide additional safeguards. If you believe you have been subjected to predatory lending, contact your provincial consumer protection office.

Priority Debt

Debts that have legal priority over other debts in terms of repayment. In Canada, priority debts include mortgage arrears (because the lender can take your home), child and spousal support (enforceable through family courts), CRA tax debts (because of enhanced collection powers), utility arrears (because services can be disconnected), and court fines. When managing multiple debts, prioritizing these obligations helps prevent the most severe consequences.

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“Not all debts are equal. When you cannot pay everything, focus first on priority debts — the ones that protect your home, keep the lights on, and prevent legal action with serious consequences. Other debts, while important, generally have more negotiable resolution options.”

R–S — Debt Terms Starting with R through S

Reaffirmation

An agreement to continue paying a debt that would otherwise be discharged in bankruptcy. In Canada, reaffirmation is less formally used than in the United States, but the concept applies when a bankrupt person wishes to keep a secured asset (like a car) by continuing to make payments on the associated debt. The terms of reaffirmation are negotiated between the debtor and creditor with the involvement of the Licensed Insolvency Trustee.

Rehabilitation

The process of restoring creditworthiness after a period of financial difficulty. In Canada, credit rehabilitation involves consistently making on-time payments, keeping credit utilization low, maintaining stable employment and housing, and allowing negative items to age and eventually fall off your credit report. The rehabilitation process typically takes two to five years of consistent positive financial behaviour. Tools like secured credit cards and credit-builder loans can accelerate the process.

Secured Debt

Debt that is backed by collateral — a specific asset that the lender can seize if the borrower defaults. In Canada, common secured debts include mortgages (secured by real property), car loans (secured by the vehicle), and secured lines of credit (secured by home equity or other assets). Secured debts generally carry lower interest rates than unsecured debts because the lender’s risk is reduced by the collateral. However, the borrower risks losing the pledged asset if they cannot make payments.

Stay of Proceedings

A legal order that stops creditor actions including lawsuits, garnishments, and collection calls. In Canada, an automatic stay of proceedings takes effect when you file for bankruptcy or a consumer proposal. The stay prevents most creditors from taking any collection action against you while the insolvency process is underway. There are exceptions — secured creditors may be able to continue enforcement against their collateral, and the stay does not prevent family support obligations from being enforced.

Subrogation

The right of a party (typically an insurer or guarantor) who pays a debt on behalf of another to step into the shoes of the original creditor and pursue the debtor for repayment. In Canada, subrogation is most commonly encountered in insurance contexts (where an insurer pays a claim and then pursues the responsible party) but can also apply in debt situations where a guarantor pays the primary borrower’s debt and seeks reimbursement.

Surplus Income

Income above a threshold set by the Office of the Superintendent of Bankruptcy that a bankrupt person must contribute to their bankruptcy estate. In Canada, the surplus income thresholds are updated annually and are based on family size. If your income exceeds the threshold by more than $200 per month, you must pay 50% of the excess to the trustee for distribution to creditors. Having surplus income also extends the minimum bankruptcy period from 9 months to 21 months for a first-time bankrupt.

T–Z — Debt Terms Starting with T through Z

Tax Debt

Money owed to the Canada Revenue Agency (CRA) or a provincial tax authority. Tax debt in Canada carries special risks because the CRA has enhanced collection powers: it can garnish wages, freeze bank accounts, and register liens on property without first obtaining a court order. Interest on CRA debt compounds daily. Tax debt can be included in a consumer proposal or bankruptcy, though certain tax debts may receive preferred status. Addressing tax debt promptly and working with the CRA on a payment arrangement is always recommended.

Trigger Rate

In Canadian variable-rate mortgages with fixed payments, the trigger rate is the interest rate at which your regular payment no longer covers even the interest portion of the mortgage. At the trigger rate, negative amortization begins. The trigger point is when the mortgage balance grows back to the original principal amount. Many Canadian borrowers encountered these concepts during the rapid interest rate increases of 2022-2023, when variable-rate mortgage holders saw their payments suddenly increase.

Undischarged Bankrupt

A person who has filed for bankruptcy but has not yet received their discharge. In Canada, undischarged bankrupts face several restrictions: they must disclose their status when applying for credit over $1,000, they cannot serve as directors of corporations, and they may face restrictions in certain professional designations. The period of being undischarged is typically 9-21 months for first-time bankrupts and 24-36 months for second-time bankrupts, depending on surplus income.

Unsecured Debt

Debt that is not backed by any collateral. In Canada, common unsecured debts include credit cards, personal loans without collateral, student loans, medical bills, utility arrears, and payday loans. Because there is no collateral for the lender to seize, unsecured debts typically carry higher interest rates. However, unsecured creditors have fewer collection options — they must generally obtain a court judgment before they can garnish wages or seize assets. Most consumer proposals and bankruptcies in Canada primarily involve unsecured debt.

Voluntary Assignment (Voluntary Bankruptcy)

The process of voluntarily filing for bankruptcy, as opposed to being forced into bankruptcy by creditors (involuntary bankruptcy). In Canada, the vast majority of personal bankruptcies are voluntary assignments. The process is initiated through a Licensed Insolvency Trustee who prepares the necessary documents and files them with the Office of the Superintendent of Bankruptcy.

Wage Assignment

A voluntary agreement where a borrower authorizes their employer to deduct debt payments directly from their wages. In Canada, wage assignments are different from wage garnishments — assignments are voluntary while garnishments are court-ordered. Wage assignments are sometimes required as a condition of certain loans, particularly in the subprime lending market. Canadian law places restrictions on wage assignments to protect workers from exploitation.

What is the difference between a consumer proposal and bankruptcy in Canada?

A consumer proposal is a negotiated agreement to repay a portion of your debts over up to five years while keeping your assets. Bankruptcy involves surrendering non-exempt assets and may include surplus income payments for 9-21 months. Consumer proposals have less severe credit impact (3 years after completion vs. 6-7 years after discharge for bankruptcy). Both require a Licensed Insolvency Trustee and provide legal protection from creditors.

Can the CRA garnish my wages without a court order?

Yes. Unlike regular creditors who must first obtain a court judgment, the Canada Revenue Agency has the legal authority to garnish wages, freeze bank accounts, and seize assets without a court order. This is one of the reasons tax debt should be treated as a priority. Filing a consumer proposal or bankruptcy triggers an automatic stay that stops CRA collection actions.

How do I stop collection agency calls in Canada?

Each province has rules governing collection agency conduct. You can request that the agency communicate only in writing. In some provinces, you can send a formal cease and desist letter. If a collector violates provincial collection rules (calling outside permitted hours, using threatening language, contacting you too frequently), you can file a complaint with your provincial consumer protection office.

Is debt consolidation a good idea?

Debt consolidation can be beneficial if you qualify for a lower interest rate than your current debts, it simplifies your payments, and you commit to not accumulating new debt. However, consolidation only works if you address the spending habits that created the debt. Stretching payments over a longer period can also mean paying more in total interest even at a lower rate. Consult a non-profit credit counsellor before deciding.

What debts cannot be discharged in a Canadian bankruptcy?

Certain debts survive bankruptcy: student loans less than 7 years old, court fines and penalties, debts arising from fraud or misrepresentation, alimony and child support obligations, and debts for which you obtained a stay of proceedings. Additionally, secured debts are not discharged unless you surrender the collateral.

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Dealing with debt can feel isolating and overwhelming, but understanding the terminology is a powerful first step toward taking control. Whether you are exploring your options for the first time or are deep into a debt management process, the terms in this glossary give you the vocabulary to communicate confidently with creditors, trustees, counsellors, and legal professionals.

Remember that every debt situation is unique, and the best course of action depends on your specific circumstances. If you are struggling with debt in Canada, consider consulting a non-profit credit counsellor or a Licensed Insolvency Trustee for personalized advice. The initial consultation is typically free, and it could be the first step toward a brighter financial future.