High Income, Heavy Debt: Options Beyond Bankruptcy

A lot of people assume bankruptcy is the "reset button" for debt. The reality is messier—especially if you earn a good income. In Canada, higher income can make bankruptcy more expensive, more restrictive, and sometimes less effective than people expect.

That’s why Mary Castillo’s point matters: when your income is higher, you often need different debt solutions to get back on track. Not because you’ve “failed” less, but because the system is designed to pull more repayment out of higher earners. And in a higher interest rate environment—where credit card APRs remain brutal and variable borrowing costs can jump fast—choosing the right strategy can save you years of payments.

This post is part of our Interest Rates, Banking & Personal Finance series, where we connect real-life money decisions to the forces behind them: bank lending rules, interest rates, and the trade-offs people don’t see until they’re already stuck.

When bankruptcy isn’t practical (or affordable)

If your income is above certain thresholds, bankruptcy can cost more and last longer than you think. In Canada, bankruptcy payments are influenced by surplus income rules, which generally require higher earners to contribute more each month. The result: some people file expecting quick relief, then discover they’re committing to sizable payments and a longer process.

Here’s the blunt truth I’ve seen again and again: bankruptcy isn’t “no-payment debt relief.” It’s a structured repayment-and-reset program—and the “repayment” part gets larger as your income rises.

Why higher income changes the math

Higher income can create three common issues:

1. Bigger required payments during the bankruptcy period.
2. Longer timelines in some cases, depending on income and filing history.
3. Higher opportunity cost because you may have other viable paths—ones that protect assets, reduce interest faster, and limit credit damage.

If you’re earning well but still drowning, it’s usually because your cash flow is trapped by a few pressure points: high-interest revolving debt, a car loan you regret, a mortgage renewal shock, or taxes/child support obligations that don’t pause.

Bankruptcy is a tool. It’s not automatically the smartest tool for a higher-income household.

The “high-income debt trap” in a higher-rate world

Rising or elevated interest rates don’t just affect mortgages—they quietly crush monthly budgets through consumer credit. Credit card rates tend to stay high even when policy rates stop rising, and many lines of credit are variable. If you’re carrying balances, your payment may be going mostly to interest.

A typical scenario looks like this:

• Household income: strong on paper
• Debt load: spread across 3–6 products (cards, LOC, car loan, maybe a consolidation loan)
• Minimum payments: “manageable” individually, catastrophic combined
• Monthly cash flow: constantly short, leading to more borrowing

A quick example (numbers make this real)

Let’s say you have:

• $28,000 on credit cards at 20% APR
• $22,000 on a line of credit at 10% variable
• $18,000 car loan

Even before groceries and housing, you’re fighting:

• high interest charges that don’t care that you got a raise,
• minimum payments that keep you treading water,
• and the stress tax—late fees, overdrafts, and “I’ll fix it next month.”

Higher income doesn’t fix that. Structure fixes it.

Options beyond bankruptcy that often work better for higher earners

The right alternative depends on two things: your ability to pay something each month and whether your debt is mostly secured (mortgage/car) or unsecured (cards/LOC). Below are the options that frequently make more sense when bankruptcy isn’t ideal.

1) A consumer proposal (often the best middle ground)

A consumer proposal is a legal settlement to repay part of what you owe over time—typically with frozen interest. It’s administered through a Licensed Insolvency Trustee (LIT), and it can be a strong fit for higher-income earners who can afford a fixed monthly payment but need the balances and interest to stop snowballing.

Why I like it as a strategy for many high-income debt situations:

• Payments are predictable (cash flow becomes plan-able again)
• Interest is generally stopped on unsecured debts included
• You keep assets in many cases (rules vary by situation)
• It’s legally binding once accepted

A consumer proposal isn’t a “hack.” It’s a structured compromise: creditors get more than they might in bankruptcy, and you avoid the worst-case payment rules that can hit higher earners.

2) Strategic debt consolidation (but only if it truly lowers cost)

Debt consolidation works when it reduces your interest rate and forces repayment discipline. It fails when it simply moves balances around and leaves spending unchanged.

A consolidation loan or a bank line of credit can be useful if:

• you can qualify at a meaningfully lower rate,
• the monthly payment fits your budget,
• and you close or freeze the credit cards you paid off.

One strong approach is “consolidate + automate”:

• consolidate high-interest balances,
• set automatic payments aligned to payday,
• and remove easy access to revolving credit while you rebuild.

In our interest rate-focused series, this is where timing matters: if you’re offered variable-rate consolidation, you’re taking rate risk. That may be fine, but it should be a choice—not a surprise.

3) A debt management plan (DMP) through credit counselling

A DMP can reduce interest rates and create a single payment, without filing an insolvency proceeding. It’s not the same as a consumer proposal. It’s more like a negotiated repayment program, and it’s often best for people who:

• can repay most/all principal over time,
• need interest relief,
• and want a structured plan without a formal insolvency filing.

The trade-off: you may repay more than under a consumer proposal, but you also avoid that legal settlement route.

4) Targeted negotiation (the “surgical” option)

If your debt is concentrated with one or two creditors, direct negotiation can sometimes work—especially when you can offer a lump sum. This is common when:

• you can borrow from family at low/no interest,
• you have a bonus coming,
• or you can sell an asset.

If you go this route, treat it like a business deal:

• get settlement terms in writing,
• confirm the account will be marked appropriately,
• and don’t send money until terms are clear.

5) Budget restructuring that actually frees cash (not “skip lattes”)

Higher-income debt problems often come from fixed commitments, not small spending. The biggest wins usually come from the “big three”:

• Housing (rent/mortgage + property taxes/fees)
• Transportation (car payment + insurance)
• Debt servicing (interest + minimums)

A useful exercise is a 30-day cash flow audit:

1. List every fixed obligation and its due date.
2. Identify which debts are highest interest (usually credit cards).
3. Shift payment timing to match paydays (avoid overdrafts and late fees).
4. Create one weekly “variable spending” number and stick to it.

It’s not glamorous. It works.

How to choose the right path: a simple decision framework

Pick your next move based on constraints, not feelings. Shame makes people delay decisions; math makes decisions easier.

Step 1: Sort your debts into “secured” and “unsecured”

• Secured: mortgage, car loan (tied to an asset)
• Unsecured: credit cards, personal loans, lines of credit, payday loans

Most bankruptcy alternatives primarily target unsecured debt.

Step 2: Calculate your debt pressure ratio

Here’s a quick rule of thumb many planners use:

• Add up minimum monthly debt payments (excluding mortgage if you want a clearer consumer-debt view).
• Divide by net monthly income.

If that ratio is:

• Under 15%: you may have a budgeting/interest optimization problem.
• 15%–25%: you likely need restructuring (consolidation, DMP, proposal).
• Over 25%: you’re in “one emergency away” territory—get professional options on the table.

Step 3: Decide what you’re protecting

High earners often have more at stake:

• professional licenses or reputation concerns,
• home equity,
• vehicles needed for work,
• future borrowing needs (mortgage renewal, business financing).

That’s why “cheapest” isn’t always “best.” The best plan is the one you can finish.

Common myths that keep high-income earners stuck

Myth #1: “I make too much to be in debt trouble.” Income doesn’t cancel high interest, lifestyle creep, family obligations, or a bad sequence of financial hits.

Myth #2: “I’ll just earn my way out next year.” Raises and bonuses help, but if interest is compounding faster than you’re paying down principal, you’re losing ground.

Myth #3: “Bankruptcy is the fastest fix.” Sometimes it is. Often, a consumer proposal or properly structured consolidation is faster in practice because it stabilizes cash flow without surprises.

Myth #4: “If I call creditors, I’ll make it worse.” Avoiding the conversation usually makes it worse. Fees stack, accounts get restricted, and your options narrow.

A practical next-7-days action plan

If bankruptcy isn’t your first choice (or isn’t a good fit), do these three things this week:

1. List every debt with rate, minimum payment, and balance (one page, no apps required).
2. Stop the bleeding: pause extra spending, cancel overdraft “crutches,” and set minimums on autopay to prevent late fees.
3. Get two opinions:
   • one from your bank/credit union about consolidation options,
   • one from a Licensed Insolvency Trustee or non-profit credit counsellor about a consumer proposal or DMP.

You’re not committing to anything by gathering options. You’re buying clarity.

Where this fits in the bigger interest-rate story

Interest rates shape everyday decisions more than people realize. When rates rise or stay elevated, the cost of carrying debt becomes a monthly tax on your future. For higher-income households, the danger is thinking you’re “fine” until the payments crowd out everything else.

If you’re earning well and still can’t get ahead, treat it as a systems problem: interest rates, repayment structure, and cash flow timing. Bankruptcy is one option—but it’s rarely the only one, and it’s often not the best starting point for higher earners.

The next step is simple: choose one path that reduces interest and forces principal repayment—then follow it long enough for the math to swing in your favour. What would change in your life if your debt payments dropped by 30% starting next month?