Debts You Can and Cannot Include in a Consumer Proposal (2024)

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.

Table of Contents

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 theBankruptcy & 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.

Similar Posts:

  1. How a Consumer Proposal in Canada Affects Secured Debt
  2. Must A Consumer Proposal Include All My Creditors?
  3. Can You Include Your Car Loan in a Consumer Proposal?
  4. Who Can File a Consumer Proposal?
  5. Can You Stop Paying Bills Before Filing Bankruptcy?
Debts You Can and Cannot Include in a Consumer Proposal (2024)


Debts You Can and Cannot Include in a Consumer Proposal? ›

When you file a consumer proposal, it is sent to all of your unsecured creditors. The proposal includes debt such as credit card debt, unsecured lines of credit, personal loans and other such debt. You cannot include secured debts such as mortgages or automobile loans.

What debts can be included in a consumer proposal? ›

You can include debts from credit cards, overdrafts, lines of credit, personal loans, payday loans, income taxes, student debts and more. Just about every debt that was incurred honestly can be consolidated and reduced using a Consumer Proposal.

Do you have to include all credit cards in a consumer proposal? ›

When you file for a consumer proposal, you will have to hand in any credit cards that are part of the proposal. The creditors will freeze or close the credit card for which you previously qualified. You might have a credit card with a zero balance or a credit balance not included in the proposal.

Can you include a personal loan in a consumer proposal? ›

A Consumer Proposal is designed so that all creditors who submit a valid proof of claim will receive a certain percentage of the debt paid back to them over the term of the Consumer Proposal. Many people choose a Consumer Proposal so they can pay back a portion of their personal loans from friends or family.

How many payments can you miss in a consumer proposal? ›

A consumer proposal is automatically annulled if you miss three monthly payments or miss one payment by more than three months if you are not on a monthly payment schedule. When this occurs, the terms of the agreement are no longer in effect. This means interest rates and penalties on your debts can be reinstated.

What is not considered consumer debt? ›

In general, the following definitions apply: Business debt is anything that doesn't qualify as consumer debt. It's often referred to as non-consumer debt. Consumer debt is a debt incurred by an individual for primarily personal, family, or household purposes. Anything else is non-consumer debt.

What items are included in debt? ›

Net debt is in part, calculated by determining the company's total debt. Total debt includes long-term liabilities, such as mortgages and other loans that do not mature for several years, as well as short-term obligations, including loan payments, credit cards, and accounts payable balances.

Can I use a credit card while in a consumer proposal? ›

Although a consumer proposal will have consequences on your credit report, it is possible to rebuild your credit with a consumer proposal by using a credit card. The most important point to note is that any impact on your credit report is temporary, and it can be fixed through good financial practice and time.

Do creditors usually accept consumer proposal? ›

Consumer proposals are usually accepted as filed and negotiations can take place between you and your creditors with the help of your Licensed Insolvency Trustee to gain a positive vote.

What is the downside of a consumer proposal? ›

Disadvantages of a Consumer Proposal:

A proposal will usually take longer to complete than a bankruptcy. Lowering your monthly payment means longer time paying back, however, if your situation improves, you CAN pay off a proposal early. Credit rating is still affected – A Consumer Proposal DOES affect your credit.

Do banks accept consumer proposals? ›

They can say 'yes' or 'no' to the proposal. If at least half of your creditors vote 'yes,' then the proposal is deemed approved. Banks have 45 days from the date you file the proposal to vote. Banks also have the option to ask for a certain amount of the debt owed to them.

What happens when you pay off a consumer proposal? ›

A successful, and completed consumer proposal will be removed from your credit report 3 years after you've paid off all the debts according to the proposal, or 6 years from the date it was filed whichever occurs first.

Can secured debt be included in consumer proposal? ›

Secured debts are acknowledged in the consumer proposal documents but are not inherently part of the proposal unless you decide to surrender the secured asset. If you wish to keep your secured asset, like a car or a house, you must continue to make payments to the secured creditor.

Why would a consumer proposal be denied? ›

Consumer Proposal Rejected Due to Debtor Conduct

You brought on, or contributed to your financial situation by rash and hazardous speculations, unjustifiable extravagance in living, gambling or by culpable neglect of your business affairs.

What is the success rate of a consumer proposal? ›

With a 99% acceptance rate on any consumer proposals we file, we see many Canadians reducing their debt by up to 80% with a consumer proposal. This means that when you file with Spergel, you have a 99% chance of reducing your debt by 80%.

Does income affect consumer proposal? ›

In consumer proposals, the amount you need to pay in surplus income will only be calculated at the beginning of the proposal and will remain fixed throughout the duration of it. If your income goes up or down during the proposal, the allocation does not change.

What are 5 things debt collection agencies are not allowed to do as part of their efforts to collect debt? ›

Debt collectors cannot harass or abuse you. They cannot swear, threaten to illegally harm you or your property, threaten you with illegal actions, or falsely threaten you with actions they do not intend to take. They also cannot make repeated calls over a short period to annoy or harass you.

What can you put in a consumer proposal? ›

What debts can be included in a consumer proposal?
  • Credit cards.
  • Lines of credit.
  • Personal loans.
  • Payday loans.
  • Income taxes.
  • Highway / Bridge tolls.
  • Insurance Corporation of British Columbia (ICBC) debts.
  • Student loans (as long as you've been out of school for more than 7 years)

What debts are covered by the Consumer Credit Act? ›

The following types of agreements are usually covered by the Consumer Credit Act: personal loans. credit cards. payday loans.

Top Articles
Latest Posts
Article information

Author: Stevie Stamm

Last Updated:

Views: 5559

Rating: 5 / 5 (80 voted)

Reviews: 87% of readers found this page helpful

Author information

Name: Stevie Stamm

Birthday: 1996-06-22

Address: Apt. 419 4200 Sipes Estate, East Delmerview, WY 05617

Phone: +342332224300

Job: Future Advertising Analyst

Hobby: Leather crafting, Puzzles, Leather crafting, scrapbook, Urban exploration, Cabaret, Skateboarding

Introduction: My name is Stevie Stamm, I am a colorful, sparkling, splendid, vast, open, hilarious, tender person who loves writing and wants to share my knowledge and understanding with you.