Debts That Can and Cannot Be Included In a Consumer Proposal
What Debts Can Be Included in My Consumer Proposal?
Debts needn’t be the downfall of your household finances.
But it’s fair to say that they can easily spiral out of control.
The average household in Canada carries over $20,000 of non-mortgage debt, and wastes over 7% of their disposable income paying interest to their creditors.
But as long as interest rates remain low and credit remains abundantly available, we’ll keep relying on it to get out of financial tough spots.
Over time, however, our debts can start to cripple your household cash flow.
They can make it extremely difficult to budget, and render saving virtually impossible.
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As a result, when your car needs repairing or your washing machine starts to leak, you have no choice but to take on more debt to deal with it.
And if your credit rating is less than stellar, your only options may be extremely high-interest debts like Payday Loans.
When your debts exceed your ability to repay them, you are insolvent, and need a little extra help to repay your debts in a manageable way.
A Consumer Proposal can help you to do this.
But it’s important to be aware of what debts can and cannot be covered by one.
What is a Consumer Proposal?
A Consumer Proposal is a Debt Relief option that can forgive up to 80% of your principal debt and write off all interest and fees.
Under a Consumer Proposal you can completely repay your debts within 5 years.
However, you cannot pursue this option on your own.
You need a Licensed Insolvency Trustee to administrate your proposal.
Click Here to find one near you.
They will work with you to come up with a proposal that will make your debts more manageable while also satisfying your creditors.
If 51% of your creditors or more agree to the terms, all your creditors are legally bound by them.
While this is a form of Debt Consolidation, many find it highly preferable to a commercial Debt Consolidation Loan or an informal Debt Management Plan.
It’s legally enforceable, it can nullify interest and some of the principal, and it can be used for some debts to which other measures are not applicable.
What debts can be included in a Consumer Proposal
In order to pursue a Consumer Proposal, your total debts must not exceed $250,000.
This does not include the mortgage on your principal residence.
However, you’ll find that a great many of the debts which are keeping you awake at night and impeding your cash flow can be included in a Consumer Proposal.
No matter how many cards you have, a Consumer Proposal can make the debt more manageable and nullify the often considerable interest rates.
Unsecured Personal Loans
If you have one or more Unsecured Personal Loans, you can also include them in your Consumer Proposal.
This includes high-interest Payday Loans.
Some Student Loans
In order for your Student Debt to be included in your Consumer Proposal, the loan needs to be at least 7 years old.
That means that 7 years have passed since you stopped studying, whether you completed the course or not.
Money owed to the CRA cannot be applied to Debt Management Plans.
However, it can be included in a Consumer Proposal.
Other lines of credit
Other lines of credit may include store cards or any other lending which is not secured against your property or vehicle.
What if my debts exceed $250,000?
All of your debts must fall under the $250,000 limit.
You cannot elect to leave one or two debts out to meet this figure.
However, even if your unsecured debts exceed $250,000 you still have options.
A Division I Proposal may be viable under the Bankruptcy and Insolvency Act.
What debts cannot be included in a Consumer Proposal?
As you can see, there are many debts that can be managed more effectively by including them in a Consumer proposal.
However, there are some to which this option cannot be applied.
Any secured debt
Your mortgage, as well as any other debt secured against your home or vehicle cannot be included in a Consumer Proposal.
Alimony or Child Support
Unfortunately for divorcees, you cannot include money owed in Child Support or Alimony in a Consumer Proposal.
Debts and court fees pertaining to fraud
If debts incurred are a result of criminal activity like fraud, they cannot be included in a Consumer Proposal.
This includes Court Fees and any penalties you may have incurred.
Recent Student Loans
If your Student Debt is recent (i.e. you left school less than 7 years ago) you cannot add your student debt to your Consumer Proposal.
However, the Consumer Proposal will likely allow you much more disposable income, so you can pay off your Student Debts much more easily.
Unfortunately, Consumer Proposals can only be used by individuals that have incurred personal debts.
As such, they are not applicable to the debts of any incorporated businesses they own.
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Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal