You might be wondering if a consumer proposal is the right solution for you to eliminate your debts. For many in Ontario, it is. As an affordable repayment plan, it allows Canadians to achieve debt relief and protection from creditors. A consumer proposal is a program under the Bankruptcy & Insolvency Act that allows you to make a settlement proposal to your creditors as long as your debts (excluding your mortgage on your home) do not exceed $250.000. In addition only certain debts can be included in a consumer proposal filing. We’ve outlined below a complete list of which debts you can and cannot include in a consumer proposal in Canada.
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Debts included in a consumer proposal
A consumer proposal eliminates unsecured debt. An unsecured debt is any type of debt that is not secured by an asset, like a house, for example. In a consumer proposal, you can include the following debts:
- Credit cards
- Lines of credit
- Personal loans
- Payday loans
- Certain student loans
- Income tax debts
You can file a consumer proposal as a form of debt relief if your total debts do not exceed $250,000 (not including mortgages on a principal residence). If your unsecured debts exceed this amount, talk to us about a Division I proposal which is also an option available to consumers under the Bankruptcy & Insolvency Act.
Can I include secured debts?
No. Secured debts are guaranteed by an asset and are excluded from a consumer proposal. If you file a consumer proposal, you can choose to either continue paying your secured creditors to keep the asset, or stop paying the secured creditor and surrender the asset to the creditor. If you stop making payments on a secured debt, the creditor has the legal right to take possession of the agreed asset. They can then resell it to recover their loan. Secured creditors are notified if you file a consumer proposal, but they do not receive any money from the actual proposal.
Some examples of secured debts are:
- Car loans – secured by the car
- Mortgages – secured by the house
If you do want to surrender an expensive vehicle or walk away from your mortgage, you can include any shortfall in your consumer proposal.
If you are struggling financially and are behind on your mortgage, filing a consumer proposal can help you restructure your finances enough to be able to catch up on any mortgage arrears.
Can I include student loan debt in a consumer proposal?
Just like in a bankruptcy, student loans will be automatically discharged in a consumer proposal as long as you have been out of school for at least seven years. Your student loan debt is then included with your proposal and will be eliminated upon completion of all your payments.
Even if you have not ceased being a student at least 7 years ago, you may still find relief from student loan debt by filing a consumer proposal because:
- A consumer proposal will eliminate your other debts. Therefore, your cash flow may improve enough to make meeting your student loan payments easier;
- While you are in a proposal or a bankruptcy, there is a stay of proceedings, so creditors are not able to pursue you for debt, including student loans. Your choices are to continue paying, or to stop making payments against your student loans during your proposal. Be aware, however, that not paying will let the interest and payments accumulate, so you will potentially owe more when the proposal is completed.
Can business debts be included in a consumer proposal?
A consumer proposal is filed by an individual to deal with debts legally owed personally. A consumer proposal does not deal with debts owed by an incorporated business.
If you are self-employed or operate a small business that is not incorporated and have incurred debts related to the business those debts can be included in your consumer proposal. A consumer proposal is a viable option to deal with small business debts if the total debts do not exceed the debt limit of $250,000.
If you guaranteed a business loan and have been called upon to pay the obligation, you can include your personal liability in your proposal. Similarly HST and source deduction obligations can be included in a consumer proposal.
Do all debts have to be included in a consumer proposal?
You must include all unsecured debts when you file a consumer proposal. It is not possible to exclude one or two specific creditors. The main reason being that a proposal is a legal process that deal with all creditors fairly. This is also best for you since you want to finish the process completely debt free.
Debts that cannot be included in a consumer proposal
The Bankruptcy & Insolvency Act specifically excludes certain other debts from being discharged in a consumer proposal. With a proposal, you cannot eliminate:
- Secured debts like your mortgage or car loan
- Support payments or alimony obligations
- Court fines and penalties including parking tickets
- Debts due to fraud
- Student loans if you have been a student within the last 7 years
Is a consumer proposal right for me?
A consumer proposal might be the right solution for your financial situation if you find yourself overwhelmed by unsecured debt. For many, it allows them to become debt free by only repaying a small portion of what they owe. An added benefit to a proposal is that you get to keep all your assets, the equity in your home, and any other savings you may have.
If you’re ready to learn more about how a proposal can help you eliminate your debt, speak to one of our debt relief professionals. We provide you with a free, no-obligation consultation where our trustees take the time to carefully analyze your monthly expenses and review all your debt options with you.