Which Debts Can Be Included in a Consumer Proposal?

If you're struggling with debt in St. John's or anywhere in Newfoundland and Labrador, a consumer proposal might be the solution you need. This formal agreement allows individuals to settle their unsecured debts by negotiating a reduced repayment amount with creditors. However, not all debts are eligible for inclusion in a consumer proposal. Understanding which debts qualify is essential for making an informed financial decision.

Debts That Can Be Included in a Consumer Proposal

Consumer proposals are designed to address unsecured debts, which are obligations not tied to collateral. The following debts are commonly included:

• Credit Card Debt – Outstanding balances from credit cards issued by banks, retail stores, and other financial institutions.
• Unsecured Lines of Credit – Loans obtained without assets pledged as security.
• Personal Loans – Money borrowed from financial institutions, family, or friends without collateral.
• Payday Loans – High-interest, short-term loans from payday lenders.
• Income Tax Debt – Amounts owed to the Canada Revenue Agency (CRA), which can often be reduced through a consumer proposal.
• Student Loans – Eligible only if you have been out of school for at least seven years.

By consolidating these debts into a single, manageable repayment plan, a consumer proposal provides relief and a structured path toward financial stability.

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Debts That Cannot Be Included in a Consumer Proposal

While consumer proposals are a powerful debt relief tool, certain debts cannot be included. These exclusions generally fall into two categories: secured debts and non-dischargeable debts.

Secured Debts

Secured debts are backed by collateral, meaning the lender has the right to seize the asset if payments are not made. These include:

• Mortgages – Loans secured against real estate properties.
• Car Loans – Auto financing agreements where the vehicle serves as collateral.

If you wish to keep these assets, you must continue making payments. However, if you choose to surrender a secured asset (e.g., returning a financed vehicle), any shortfall after the lender sells the asset may be included in your consumer proposal as unsecured debt.

Other Non-Dischargeable Debts

Certain debts are legally excluded from consumer proposals due to their nature. These include:

• Support Payments – Child and spousal support obligations set by court orders.
• Court Fines and Penalties – Legal fines, including traffic tickets, remain payable.
• Debts Arising from Fraud – Any financial obligations resulting from fraudulent activities.
• Recent Student Loans – If you have been out of school for less than seven years, student loan debt is not eligible for a consumer proposal.

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Key Considerations When Filing a Consumer Proposal

• Inclusion of All Unsecured Debts – When filing a consumer proposal, you must include all unsecured debts. Selectively omitting creditors is not allowed, ensuring fair treatment for all parties involved.
• Impact on Secured Assets – While secured debts themselves are excluded, any shortfall after surrendering a secured asset can be addressed within the consumer proposal as unsecured debt.

A consumer proposal can be an effective way to manage and reduce debt, but understanding which obligations qualify is crucial. If you’re considering this option, consulting with a Licensed Insolvency Trustee in Newfoundland and Labrador can help you navigate the process and tailor a debt relief solution to your unique financial situation.

For expert guidance on consumer proposals in St. John's and across Newfoundland and Labrador, contact S.R. Stack, a Licensed Insolvency Trustee, to explore your options today.