You need to include all of your debts in a consumer proposal and can't pick and choose which ones to include. However, only unsecured creditors can participate in the consumer proposal by filing a claim, voting and receiving dividends.
In a consumer proposal, you must include all of your unsecured creditors. Unsecured creditors are those who do not have a claim on any specific asset or collateral. Examples of unsecured debts include credit card debt, personal loans, phone bills, and certain lines of credit.
Including all of your unsecured creditors in the consumer proposal provides a fair and equitable distribution of the consumer proposal amount for them. This is an integral part of the process, as it ensures that each creditor is treated equally and has an opportunity to participate in the proposal. The creditors will file a claim and receive dividends based upon their claim as a percentage of the total claims filed with the Licensed Insolvency Trustee.
If you were to try to use another debt solution, such as debt consolidation or debt management plan with a credit counsellor, then you could make repayments to only certain creditors. However, by not including all of your creditors, you may have trouble repaying all your debts and trying to keep track of them.
What About Debts I Have Owing But Want to Keep the Service?
You may have some debts owing to a company, but you still want to keep the service, such as a cell phone plan. In this case, you should continue to make payments and not include them in your consumer proposal. However, if you don't want to continue services, you could cancel them before filing a consumer proposal, and any outstanding charges and penalties will be included.
Consumer proposals are for unsecured creditors and not secured creditors. Secured creditors differ because they have collateral for the loan you obtained, such as a mortgage or car loan, so if you don't repay your debts, they can repossess or foreclose on your asset to repay the outstanding debts.
In a consumer proposal, the Licensed Insolvency Trustee will list the secured asset and liability and if you want to keep the asset, such as your house and vehicle. The Trustee will notify the secured creditors, but they won't participate in the consumer proposal. However, if you want to avoid maintaining the payments, you could surrender the asset before or upon filing a consumer proposal. For example, if you find the vehicle finance payments are too high, you could return your vehicle upon filing the consumer proposal, and the remaining balance plus any fees and penalties would be included in the proposal.
You may have non-dischargeable debts, which will survive after you complete a bankruptcy or consumer proposal. These include court fines, debts from fraud, student loans less than seven years from completing studies and spousal and child support arrears. The consumer proposal will include these debts so the creditors can file claims, vote, and receive dividends. However, you must continue to make payments to these creditors during the consumer proposal, and they will still need to be paid after the proposal is completed.
If you are considering a consumer proposal to reduce your debts, the Litvack Group would be happy to have a Free Consultation to discuss your financial circumstances and review your options. Contact us today!