Debts You Can and Cannot Include in a Consumer Proposal: Understand the Restrictions

If you’re looking for debt relief solutions, it’s important to consider all the options that are available to you.

By finding out more about consumer proposals, you’ll be able to determine whether it’s the right form of debt resolution for you and, if so, how to go about making one.

In simple terms, a consumer proposal allows you to create an affordable repayment plan with your creditors.

As it’s governed by the Bankruptcy and Insolvency Act, it’s a formal process which provides you with certain rights, as well as some obligations.

Providing your debts aren’t higher than $250,000 (excluding the mortgage on your home), a consumer proposal could be a viable way to manage your debts, protect your assets and safeguard your financial future.

What You Need to Know About Consumer Proposals

One of the most important things to know about any debt relief solution is what sort of debts it can deal with.

Only once you know what debts you can and cannot include in a consumer proposal, you can determine how much of your total debt could be reduced with this form of debt resolution.

Furthermore, you could determine how many of your creditors could be included in any proposal you make and whether a consumer proposal agreement would have a major impact in your overall debt liability.

Consumer proposals routinely include unsecured debt.

This is debt that isn’t secured by an asset, such as a car or a house.

The most common forms of unsecured debt include:

• Personal loans.
• Lines of credit.
• Credit cards.
• Payday loans.
• Income tax debts.
• Some student loans.

If the majority of your total debt is made up from unsecured debt, a consumer proposal could be the best form of debt resolution for you.

Unlike many other forms of debt management, certain government-related debts, such as income tax arrears and certain student loans, can be included in a consumer proposal.

This makes them a popular choice with people who have government-related loans they are struggling to pay.

Can Secured Debt Be Included in a Consumer Proposal?

No.

Secured debt cannot be included in a consumer proposal, so you can’t reduce your liabilities for these types of debts via this method.

However, you won’t be prevented from making a consumer proposal if you have secured debt as well as unsecured debt.

The secured debt simply won’t be included as part of the proposal and the creditors you owe a secured debt to won’t receive funds from your consumer proposal repayment.

If you make a consumer proposal and you have secured debts, you will need to do one of two things.

Firstly, you can continue to make payments on your secured loans and retain the asset that secures them.

Secondly, you could stop making repayments and relinquish the asset, but this is likely to have an impact on your credit rating.

People routinely use vehicles and property to secure a loan, so the most common forms of secured debt are car loans and mortgages.

If you have either of these, they won’t be included in a consumer proposal, if you choose to make one.

Are Student Loans Included in a Consumer Proposal?

Most forms of debt resolution don’t include student loans or other forms of government-related loans.

However, consumer proposals and bankruptcy can include these types of loans.

However, student loans won’t always be included in a consumer proposal.

Student loans are only automatically included in a consumer proposal if you have been out of school for a minimum of seven years.

If you left school less than seven years ago, your student loans won’t generally be included if you make a consumer proposal.

However, even if your student loans won’t be included, making a consumer proposal could still help you to manage this type of debt.

When you are making consumer proposal repayments, they are typically far lower than the repayments you are currently making.

As a result, it’s highly likely that you’ll have more money each month.

This can be used to make repayments on your student loans and will mean you have more flexibility to pay off your student loans.

In addition to this, making a consumer proposal or a bankruptcy invokes a stay of proceedings.

This means that creditors cannot pursue you for your debts while you’re filing for bankruptcy or making a consumer proposal and, crucially, this includes student loans.

You may choose to continue paying your student loans while you’re making a consumer proposal, or you may decide to stop making payment temporarily.

However, if you stop making payments on your student loans, interest and/or charges could be added, so you may end up owing more than you do now.

Are Business Debts Included in a Consumer Proposal?

A consumer proposal is an individual debt solution, so only personal debts can be included.

However, if you’re self-employed, debts relating to your work activities could be part of your consumer proposal, providing they’re in your name.

As sole traders or self-employed workers don’t enjoy the separate liability associated with company directors and limited firms, their business liabilities are normally in the form of personal loans and credit cards.

Due to this, a significant number of people are able to include work-related debts in their consumer proposal.

Are All Debts Included in a Consumer Proposal?

All unsecured debt must be included in your consumer proposal.

Although creditors may not agree to the terms, it’s essential that you include them when making your proposal.

This allows each creditor to be treated fairly when determining how much of your debt is repaid.

Furthermore, including all your unsecured debts means you a consumer proposal can allow you to address all of your unsecured liabilities and achieve a debt-free status.

Making a consumer proposal is a legal process that must be managed by a Licensed Insolvency Trustee (LIT).

If you want to find out more about the benefits of making a consumer proposal, contact Bankruptcy Canada now on (877) 879-4770.

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