What Debts Can Be Included in a Consumer Proposal?

TL;DR

A consumer proposal can include most unsecured debts: credit cards, personal loans and lines of credit, CRA tax debts, payday loans, medical bills, utility arrears, and debts in collections. It cannot include secured debts (mortgages, car loans) or certain debts that survive insolvency proceedings, such as student loans less than 7 years old, child support, spousal support, and court-ordered fines.

Debts That Can Be Included

When you file a consumer proposal, you include all unsecured debts. You cannot selectively leave out specific unsecured creditors — the BIA requires full disclosure of all debts. Here are the most common types of debts included in consumer proposals.

Credit card debt. This is the most common debt included in consumer proposals. All credit cards — bank-issued, store cards, and co-branded cards — are unsecured debts that can be included. Once the proposal is filed, interest stops accruing and the credit card company cannot continue collection efforts.

Personal loans and lines of credit. Unsecured personal loans from banks, credit unions, and online lenders are included. Unsecured lines of credit are also included. Note that a secured line of credit (such as a HELOC backed by your home) is treated differently — see the secured debts section below.

CRA tax debts. Income tax debts, GST/HST arrears, payroll source deduction debts, penalties, and interest owed to the Canada Revenue Agency can all be included in a consumer proposal. CRA is treated as an unsecured creditor and votes on the proposal. CRA tends to expect a higher recovery rate than other creditors, which may affect your total offer.

Payday loans. Payday loans are unsecured debts and are fully includable. The automatic stay of proceedings stops the payday lender from collecting through post-dated cheques or pre-authorized debits. Given the extremely high interest rates on payday loans, including them in a proposal can provide enormous relief.

Medical and dental bills. Unpaid medical, dental, and other healthcare bills that are not covered by insurance are unsecured debts. These can be included in the proposal.

Utility arrears. Overdue amounts for electricity, gas, water, phone, and internet services are unsecured debts. Note that the utility provider may still require a deposit for continued service.

Collection accounts. Debts that have been sent to or sold to collection agencies remain unsecured debts. They can be included in the proposal, and the collection agency must stop all collection activities once the proposal is filed.

Judgments from lawsuits. If a creditor has obtained a court judgment against you for an unsecured debt, that judgment can typically be included in the proposal. The automatic stay stops enforcement of the judgment.

CERB and pandemic benefit overpayments. If you received COVID-19 benefits that you were required to repay (CERB, CRB, CRSB, CRCB), these are debts to the federal government and can be included.

Debts That Cannot Be Included

Certain debts either cannot be included in a consumer proposal or survive the proposal even if technically included.

Secured debts. A consumer proposal only covers unsecured debts. Secured debts — where the lender has a claim on a specific asset — continue as normal:

• Mortgages (secured by your home)
• Car loans or leases (secured by the vehicle)
• HELOCs (secured by your home)
• Any loan with collateral pledged

You continue making payments on secured debts during and after the proposal. If you cannot afford a secured debt, you may choose to surrender the asset. Any shortfall (deficiency) after the asset is sold becomes an unsecured debt that can be included in the proposal.

Student loans under 7 years. Under section 178(1)(g) of the BIA, student loans are not discharged if you have been a student within the past 7 years. This applies to both government student loans (OSAP, Canada Student Loans) and provincial student loans. The 7-year clock starts from the date you ceased to be a full-time or part-time student.

You can apply to court for a hardship reduction of this period to 5 years, but you must demonstrate that you have acted in good faith and are experiencing financial hardship.

Child and spousal support. Support obligations — whether from a separation agreement or court order — cannot be eliminated through a consumer proposal. You remain fully responsible for all current and arrears support payments.

Court-ordered fines and restitution. Fines imposed by a court (including traffic fines and restitution orders) survive a consumer proposal.

Debts arising from fraud. If a debt was obtained through fraud, misrepresentation, or fraudulent breach of trust, the creditor can apply to have that debt excluded from the proposal.

Special Situations

Joint debts. You can include your obligation on a joint debt in your consumer proposal. However, your co-borrower or co-signer remains responsible for the full amount. The creditor can pursue the other person for 100% of the debt. If you are considering a consumer proposal and have joint debts, discuss this with your LIT so you understand the impact on the other party.

Business debts. If you are a sole proprietor or in a partnership, business debts that you are personally liable for are included in your consumer proposal. If the business is incorporated, the corporation's debts are separate — but any personal guarantees you signed make you personally liable, and those obligations can be included.

Foreign debts. Debts owed to foreign creditors can be included in a Canadian consumer proposal. However, enforcement across borders can be complex. Your LIT will include foreign creditors in the proposal filing, but the practical ability to enforce the stay in another jurisdiction may be limited.

How the Proposal Process Works for Creditors

When your LIT files the proposal, every unsecured creditor receives notification and a copy of the proposal terms. Creditors then have 45 days to vote on whether to accept the proposal. A majority in dollar value must vote to accept for the proposal to be binding.

Once accepted, the proposal binds all unsecured creditors — including those who voted against it. This is one of the powerful protections of a consumer proposal: even a creditor who objects cannot continue collection activities or refuse to participate.

If you are considering a consumer proposal and want to understand how your specific debts would be handled, consult with a Licensed Insolvency Trustee for a free assessment. You can also explore all your debt relief options or try our debt relief quiz.

FAQ

Can I include debts I forgot to list? If you inadvertently omit a debt from your proposal, you should notify your LIT immediately. The creditor can be added to the proposal. Under the BIA, the proposal is intended to cover all unsecured debts, and an honest omission can be corrected.

What about debts I owe to family or friends? Personal debts to family and friends are unsecured debts and must be disclosed and included in the proposal. You cannot exclude them to "protect" the relationship. However, nothing prevents you from voluntarily repaying them after the proposal is complete.

If student loans are under 7 years, do I still make payments during the proposal? Yes. Student loan payments continue as normal during the proposal since the student loan debt survives the proceedings. The automatic stay does not apply to student loans that are under the 7-year threshold.

Can a creditor refuse to participate in the proposal? Individual creditors can vote against the proposal, but if a majority (by dollar value) votes to accept, the proposal binds all unsecured creditors — including those who voted no. A creditor cannot opt out of a proposal that has been accepted by the required majority.

Sources

• Office of the Superintendent of Bankruptcy Canada (OSB)
• Bankruptcy and Insolvency Act (BIA), R.S.C., 1985, c. B-3, s. 66.12-66.4, s. 178
• Canadian Association of Insolvency and Restructuring Professionals (CAIRP)