Should Debts to Family and Friends be Included in a Bankruptcy?

When you’re assessing your financial situation, it’s important to include all types of income and expenditure.

Similarly, you’ll need to remember every debt you have so that you can ensure they’re repaid or resolved appropriately.

Bankruptcy is an increasingly popular form of debt resolution but it’s not one that’s particularly well understood.

Before filing for bankruptcy, people tend to have lots of questions about how the process works.

For example, people often ask should debts to family and friends be included in a bankruptcy, or, what happens to my credit file after bankruptcy.

It’s important to understand every element of a potential debt solution before you decide whether it’s right for you.

By determining exactly what sorts of debts are included in a bankruptcy, you can assess whether it’s the best solution for your specific financial situation.

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Borrowing money from friends and family can be embarrassing, particularly if you’ve kept your debt problems private for some time.

However, it’s very common for people to rely on the people around them for financial support when they need help.

Even though loans from family and friends can be fairly informal agreements, they should still be included in any debt solutions you plan to use.

This means including them in a bankruptcy or consumer proposal, if you decide that filing for insolvency is the right way forward.

What Debts are Included in a Bankruptcy?

When you file for bankruptcy, all forms of unsecured debt are generally included.

This means that credit cards, payday loans and loans from friends and family can – and should – be included when you file for bankruptcy.

There are special rules for some types of debts, such as student loans.

Although official student loans are unsecured, they aren’t automatically eligible for inclusion in a bankruptcy.

Instead, you’ll need to wait for at least 7 years from your end of study date to file for bankruptcy if you want your student loans to be included.

In some cases, however, it may be possible to include student loans in a bankruptcy after 5 years from your end of study date, if you can prove financial hardship will prevent you from repaying them.

Secured debt isn’t included in bankruptcy, so you’ll need to make other arrangements to resolve these types of debts.

If you have the funds, you may choose to keep making monthly payments to these lenders and keep the asset that the debt is secured against.

Alternatively, you may default on the loan and accept that the lender will take ownership of the asset that you used to secure the credit.

Remember – you may have significantly more disposable income every month after filing for bankruptcy, so making payments on a secured loan could be a more realistic prospect.

Will Friends and Family Know I’ve Been Declared Bankrupt?

If they are creditors, yes.

When you file for bankruptcy or make a consumer proposal, all of your creditors are made aware of the situation.

In the case of a consumer proposal, creditors may need to vote on whether to accept your proposal.

Similarly, a creditors’ meeting can be held during the course of either a bankruptcy or a consumer proposal.

If you owe money to family or friends, you may prefer to tell them about your intentions to file for bankruptcy before they receive official documentation from your licensed insolvency trustee.

Depending on the situation, they may tell you that they have forgiven the debt and you no longer have to pay it back.

If so it’s important to let your licensed insolvency trustee know straight away.

If the debt is forgiven, it could have a significant impact on the total amount you owe, and it may mean that alternative forms of debt solution are now a better option.

Will Creditors Get Their Money Back?

If you file for bankruptcy, creditors can get some of what they’re owed back.

In reality, however, creditors tend to get very little of what they’re owed or nothing at all when someone is declared bankrupt.

When filing a consumer proposal, you will negotiate with your creditors and agree to pay them back a percentage of what’s owed.

You’ll do this by making payments to your licensed insolvency trustee every month, who will ensure that it’s distributed amongst the creditors in accordance with the agreement.

Do You Have to Include Debts from Family and Friends?


If you owe money to anyone, including family and friends, it must be included in your bankruptcy or consumer proposal.

You may feel embarrassed about disclosing your financial situation to the people you’re close to but it’s important that the correct procedure is followed.

As creditors, they have the right to be involved in the bankruptcy or consumer proposal process and they cannot be denied this.

Furthermore, leaving them out of your bankruptcy will simply mean that you will still owe them the full amount that’s outstanding or the amount that they would have received if they had been included in the insolvency proceedings.

Should You File for Bankruptcy?

Filing for bankruptcy is a big decision and it’s not one that should be taken lightly.

Owing money to family and friends may be one factor in your decision, but you shouldn’t consider using a particular debt solution simply because of one type of debt.

Instead, it’s important to assess your financial situation as a whole and determine what the best way forward is.

At Bankruptcy Canada, we’ve been helping people to overcome debt problems for more than 20 years and we can help you too.

By speaking with a licensed insolvency trustee, you can find out more about the debt solutions that are available to you and how each process works.

To speak to someone about your financial situation, why not contact us today?

Simply call us on (877) 879-4770 and we’ll do everything we can to provide the help you need.

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

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