What Types of Debt Can a Debt Consumer Proposal Pay Off?

A Debt Consumer Proposal (DCP) is a powerful tool that Canadians can leverage to manage their debts. It’s a legal procedure, supervised by a Licensed Insolvency Trustee (LIT), that allows individuals to negotiate a settlement with creditors. Let’s explore the kinds of debts a DCP can help you address.

Types of Debt: Secured Versus Unsecured

Before delving deeper, it’s crucial to distinguish between two categories of debt: secured and unsecured. Secured debts are tied to an asset (like your house or car), while unsecured debts are not. This distinction is crucial when considering a DCP.

Unsecured Debts: Prime Targets for a DCP

A DCP primarily targets unsecured debts. Here’s a list of the types of unsecured debts a DCP can address:


  • Credit Cards: Credit card debt is a common issue that many Canadians face. High interest rates can make it challenging to pay off the balance, making a DCP an attractive option.
  • Overdrafts and Lines of Credit: Bank overdrafts and lines of credit can be bundled into a DCP.
  • Payday Loans: These high-interest short-term loans can be debilitating due to their exorbitant interest rates and fees.
  • Government Debts: DCPs offer a unique advantage in dealing with government debts. Personal or corporate income tax, GST, and payroll debt can be included.
  • Student Loans: Both privately held student loans and government student loans (provincial, federal) can be included in a DCP.
  • Private Individual or Family Debts: If you owe money to family or friends, these debts can also be rolled into a DCP.


Not All Debts Are Created Equal

While a DCP can cover a wide range of unsecured debts, certain debts remain immune to it. These include court fines, child or spousal support arrears, damages connected with bodily harm or sexual assault, and debt incurred through fraud or misrepresentation. It’s also worth noting that government student loans can’t be included if it’s been less than seven years since you were a student.

Secured Debts and DCPs: It’s Complicated

Secured debts, like mortgages or vehicle loans, are not directly affected by a DCP. In most cases, if you continue to make your regular payments, your assets will be safe. However, if you’re struggling with your mortgage or car loan payments, you could use the start of the DCP as a chance to surrender these assets. Any shortfall would be included in the DCP.

The Process: How Does a DCP Work?

The first step in filing a DCP involves meeting with a Licensed Insolvency Trustee. They’ll review your financial situation and help you develop a proposal for your creditors. Once submitted, your creditors will vote on whether to accept the proposal. If the majority agree, all are bound by the terms of the DCP.

The Benefits: Why Choose a DCP?

A DCP offers several advantages, including the ability to:


  • Reduce your overall debt.
  • Consolidate your debts into a single monthly payment.
  • Retain your assets.
  • Stop accruing interest on your debts.
  • Protect yourself from legal action and debt collection.


The Duration: How Long Does a DCP Last?

The length of a DCP depends on your personal circumstances and the terms agreed upon with your creditors. However, the payment period typically spans up to five years. Once you’ve made all the agreed-upon payments, any remaining debt included in the proposal is eliminated.

The Bottom Line: Is a DCP Right for You?

A DCP is a potent tool to help manage and eliminate debt. But remember, it’s not a one-size-fits-all solution. Consider your personal circumstances, consult with a professional, and weigh your options carefully.

A DCP offers a lifeline to those struggling with unsecured debts. While it can’t address all types of debt, it can significantly alleviate the burden of many common forms of unsecured debt. If you’re considering a DCP, start by meeting with a Licensed Insolvency Trustee to discuss your situation. It could be the first step toward regaining control of your financial life.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.