A consumer proposal brings financial relief to many Canadians by allowing them to eliminate their debts while offering legal protection from creditors.

When you’re looking to file a consumer proposal to resolve your debts, the first step is to ensure that you can include your debts in a consumer proposal.

Let’s examine which debts can and cannot be included in a consumer proposal.

What can be included in a consumer proposal?

You can eliminate most of your unsecured debts when filing a consumer proposal.

Unsecured debts are debts that are not secured against your assets. Here are some examples of unsecured debts that you can include in a consumer proposal:

  • Credit card debts
  • Personal loans
  • Payday loans
  • Bank overdrafts
  • Utility bills (You can’t include bills for services you are continuing to use)
  • Unsecured lines of credit
  • Income tax debts (unless the CRA registers a lien on your property)
  • Student loan debt if you haven’t been a student for seven years or more
  • Unpaid rent
  • Debts owed to friends and family.

A consumer proposal will deal with all these debts and won’t affect your mortgage or any secured car loan as long as you continue making payments.

Student loan debt in a consumer proposal

You can include a student loan debt in a consumer proposal if you haven’t been a student for seven years or more. Doing so will eliminate your student loan debt once your proposal is completed.

If this isn’t the case, you will still need to pay your student loan payments if you decide to file.

However, thanks to a Stay of Proceedings, you can stop making payments during your consumer proposal and start making them again once you are discharged.

Upon completing your proposal, student loan debt repayments would restart. Of course, interest will continue to accrue on the debt, so you may want to continue paying to avoid paying more afterwards.

Either way, a consumer proposal may still benefit you because you can consolidate your other unsecured debts into an affordable monthly payment, meaning you can free up some funds to pay your student loan repayments.

Tax debts in a consumer proposal

All tax debts such as income tax, payroll deductions and GST/HST are included in a consumer proposal.

If you proceed with a consumer proposal, the CRA is treated the same as other creditors. However, they can attach specific clauses, such as requiring you to complete future tax returns (and payments) on time.

You’ll also be required to file all tax returns for previous years so that your proposal includes all outstanding income tax debt.

If most of your creditors accept your consumer proposal, debt collection agents cannot take further action and interest is frozen.

Then, once you complete your proposal, any tax debts owed to the CRA are eliminated.

Source: Grant Thornton: How does a consumer proposal work?

Can I include secured debts in a consumer proposal?

Unfortunately, you cannot include secured debts because they are tied to an asset. For example, a mortgage loan is an example of a secured debt (secured against the value of your home).

With secured debts, such as a mortgage or car loan, you can either continue to pay or stop paying and surrender the asset to the lender before you file your proposal. You can add any resulting shortfall to your proposal as an unsecured debt.

You’ll want to ensure that you have a plan in place for secured debts before you file, as secured creditors can continue legal proceedings against you during a consumer proposal.

While you cannot include secured debts, resolving your unsecured debts in a consumer proposal can help free up money, making it easier to get caught up on late payments for secured creditors.

What cannot be included in a consumer proposal?

Not all debts can be discharged through filing a consumer proposal, such as:

  • Secured debts such as a mortgage or car loan.
  • Property taxes.
  • Any fine or penalty imposed by a court, such as a parking ticket or fine.
  • Unpaid alimony or child support.
  • Debts obtained by fraud.
  • Debt obtained through false pretence (e.g. lying on a loan application).
  • Student loans (if less than seven years since you were a student).
  • An award by a civil court for damages arising from personal or sexual assault.

Do I have to include all creditors in a consumer proposal?

You must include all unsecured debts in a consumer proposal to ensure that all creditors are treated equally.

Plus, you can wipe the slate clean and clear all your debts by doing so. When you’ve completed the proposal, you are entirely free from debt.

Listing all your debts ensures that calls from creditors and debt collectors stop. You are legally protected from creditor actions such as wage garnishments. Interest payments and charges are frozen, and your assets are protected.

When speaking to a Licensed Insolvency Trustee, you must disclose all of your creditors so they can give you the best advice for your circumstances.

See also: Can You Keep a Credit Card with a Consumer Proposal?

How much debt can be included in a consumer proposal?

A consumer proposal can eliminate unsecured debts up to $250,000. This amount doesn’t include your mortgage. If your debts exceed $250,000, consider filing a Division I proposal instead.

What happens to my utility bills in a consumer proposal?

Utility bills such as your cell phone are usually not affected as long as your account payments are up to date and you continue to make your monthly payments.

Any services you wish to include in your consumer proposal should be cancelled so that you can add the final balances.

Business debts in a consumer proposal

You cannot include a corporation’s debts in a consumer proposal.

But, if your business is not incorporated, you can include your business debts. Likewise, if you’re self-employed and have debts resulting from your business, you can include these debts in your proposal.

Conclusion

You can include most unsecured debts in a consumer proposal. These are debts not secured against an asset, such as your home.

You can include your student loan debt if you haven’t been a student for at least seven years. You can also eliminate tax debts under specific conditions.

If you are considering filing a consumer proposal, discuss your situation with a Licensed Insolvency Trustee.

A Licensed Insolvency Trustee can explain your options, offer impartial advice and recommend solutions to help you resolve your debts.

There’s no obligation, and the appointment is free.

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