What Debts Can a Consumer Proposal Consolidate?

Debt consolidation can streamline multiple debt balances and make paying off your debt simpler and cheaper – and with built-in options to reduce balances and stop future interest charges, a Consumer Proposal is one of the best ways to consolidate debt. Read on to learn more about Consumer Proposals and some common types of debts a Consumer Proposal can help you consolidate (and cut).

How Does a Consumer Proposal Help Consolidate Debt?

Canadians have access to a unique legal debt solution called a Consumer Proposal, and, working with a Licensed Insolvency Trustee, a Consumer Proposal will allow you to manage virtually all types of consumer debt and personal liabilities related to business operations.

After considering your situation a Licensed Insolvency Trustee will help you draft a debt repayment plan to your creditors that will allow you to cut your debt down to just what you can afford to repay over a period of up to five years. Your creditors will agree to accept payments from you via your Licensed Insolvency Trustee and at the end of your Consumer Proposal the unpaid balance of your debt will be legally cleared.

Consumer Proposals can help you deal with your debt for good, and have many advantages over other types of consolidation plans, including:

• Consolidated debts are frozen, so no new interest is added.
• Affordable monthly payments, with flexible payment terms of up to five years and a clear debt-free date.
• Options to cut your consolidated debt by up to 50-80% (or more) in full settlement.
• Since no borrowing is required for consolidating debt in a Consumer Proposal, no credit check is done, and you will not have to pay any service fees on top of your debt payments.
• Your Licensed Insolvency Trustee will coordinate payments and communications with your creditors on your behalf.

What’s more – unlike other consolidation solutions, a Consumer Proposal can help you manage almost all types of debts, with very few exceptions.

Basic Debts You Can Include in a Consumer Proposal

From credit card bills to outstanding income tax, student loans to mortgage shortfalls and more – a Consumer Proposal can be used to consolidate and cut virtually all debt, as detailed further here.

General Unsecured Debt

The term ‘unsecured debt’ means that the debt is not backed by an asset; the lender doesn’t hold any collateral in exchange for giving you credit. Unless specifically structured otherwise, many types of debt fall into this category and can be included in a Consumer Proposal, such as:

• Credit cards, overdrafts, and lines of credit.
• Payday loans, personal loans, and money owing to another person.
• Overdue cellphone plans and other utilities.

Government Debt

A Consumer Proposal can also include debts collected on by Canada Revenue Agency for, such as:

• Personal income tax debt.
• Benefit overpayments (including CERB, EI and CPP).
• Federal and provincial student loans (bank-issued student loans are considered unsecured debt).
• Business GST/HST debt.

Learn More About Solutions for Managing Government Debts

Frequently Asked Questions About Debts That Can Be Included in a Consumer Proposal

Here are some specific debts people often ask about:

Can I Include Co-Signed Debt in a Consumer Proposal?

Yes, a borrower can use a Consumer Proposal to consolidate a co-signed debt, although there may be a balance for the unpaid portion of the debt that would remain payable by the co-borrower.

• Joint and co-signed debt can be complex and should be discussed with a Licensed Insolvency Trustee.

Does Filing a Consumer Proposal Affect My Mortgage?

Provided your mortgage is being paid up to date, it is possible to deal with your non-mortgage debt through a Consumer Proposal without affecting your ongoing mortgage, or mortgage renewal.

• Most people will use a Consumer Proposal to deal only with debts other than those involving an active car financing or mortgage agreement (i.e., ‘secured’ debts).

Can you Keep your House if you File Bankruptcy? Learn More

Secured Debt

‘Secured debt’ means you have pledged an asset (or multiple assets) as collateral which could be seized and sold if you default on the terms of the loan agreement. Common examples are a mortgage or vehicle financing; those debts are tied to the creditor holding a lien on your home or vehicle until you have paid off your mortgage or loan in full.

• Banks or finance companies will often ask a borrower to pledge an asset as collateral for things like large lines of credit or consolidation loans.
• Secured debts can also occur where a creditor places charge against an asset “after the fact”, such as with mechanic or builders’ liens.

When it comes to dealing with secured debt in a Consumer Proposal there are a few potential outcomes:

If you want to keep the asset: As mentioned, you can file a Consumer Proposal to settle general consumer debt (credit cards, etc.) without impacting your agreements on secured debts (ongoing mortgage, vehicle loan, etc.) if you want to keep the asset and continue paying for it.

If you DON’T want to keep the asset: The start of a Consumer Proposal can be a good time to allow the secured creditor to take possession of the asset, ending any ongoing commitment.

• If there is a shortfall for this debt (meaning you have a balance owing after the asset has been surrendered) this amount can be consolidated in your Consumer Proposal.

Are There Debts That Can’t Be Reduced in a Consumer Proposal?

There are a small number of debts that cannot be wiped out (or reduced) by filing a Consumer Proposal, and these include: court awards for damages connected with bodily harm or sexual assault, child or spousal support arrears, court fines, debt incurred through fraud or misrepresentation, and government student loans if it has been less than seven years since you were a student before filing the Consumer Proposal. For student loans specifically, hardship provisions do exist where five years have passed – your Licensed Insolvency Trustee can explain all of this in further detail.

• A Licensed Insolvency Trustee can help you fully understand your situation and the solutions available to you.

Read More About What to do When You Can’t Pay a Student Loan

What About Debts That Personal Bankruptcy Covers?

If you can’t afford a monthly or other payment towards a Consumer Proposal, personal bankruptcy can allow you a financial fresh start by wiping out virtually all your debt. In this situation most people will be clear of bankruptcy in just nine months, paying an administrative fee only.

Both Consumer Proposals and bankruptcy can be used to manage the same types of debt (general consumer debts, government debts, etc.), both stopping ongoing interest charges and preventing creditor from pursuing you for payments.

• If you are dealing with unmanageable government debts, besides paying the balance in full, your best resource for help with these debts is a Licensed Insolvency Trustee.
  • Choosing to either consolidate and cut debt with a Consumer Proposal or declaring bankruptcy are the only methods that can effectively address government debts, including halting collection actions.

Can I File for Bankruptcy on a Consolidation Loan?

Yes, you can include a consolidation loan in a bankruptcy (or a Consumer Proposal), with some caveats, however. One of the key factors to consider is whether your debt is a secured debt, which your Licensed Insolvency Trustee can help you determine if you are unsure.

• If you are considering taking on a consolidation loan that requires you to pledge an asset, or bring on a co-signer, think carefully before using credit to solve your debt problem – both can bring secondary complications to managing your debt so it’s a good idea to connect with a Licensed Insolvency Trustee before making these commitments.

Need Debt Help? Talk With a Licensed Insolvency Trustee

Whether you’re facing a debt problem or want a plan to better manage your debt – you can get free, qualified advice from a local Licensed Insolvency Trustee in your province. A Licensed Insolvency Trustees can help you learn about all your debt options, giving you the knowledge to make an informed decision about what’s best for you, and how you want to move forward in addressing your debt.

• When you connect with a Sands & Associates Licensed Insolvency Trustee, we’ll take the time to understand your specific situation and different factors that can impact the outcome of debt solutions you consider.
• Sands & Associates serves all of BC and no referral is needed to speak with our friendly, non-judgmental Licensed Insolvency Trustees.

Our free consultations are offered in person at local offices across the province, over the phone, and online; in under an hour you can get a debt-free plan tailored to your situation, with a clear outline of your next steps.

Book your free, confidential debt consultation with a local Sands & Associates debt help expert now.