There can be confusion on what debts can be included in a consumer proposal and bankruptcy. In general, all debts are included in a bankruptcy or consumer proposal but not all of them can be discharged.
There are two main types of debts, unsecured and secured. Unsecured debts are not secured against any assets, so the lender does not have any access to collateral by the debtor if they default on agreed payments. Secured debts are debts secured against certain assets such as a vehicle or a house. If the secured debts are not paid, the lender can repossess the vehicle or commence power of sale proceedings against the house.
All unsecured debts will be included and may be discharged in your consumer proposal or bankruptcy; this includes:
o Credit card debts
o Tax debts
o Lines of credit
o Bank loans
o Personal loans
o Co-signed debts
o Student loans > 7 years since being a student
o Auto loan debts (shortfall if a vehicle is returned before or at time of the insolvency date)
In both a consumer proposal and bankruptcy, you must include all your unsecured debts, you can’t just exclude one debt but include everything else. For example, if you have 3 credit cards all of them must be included in your consumer proposal. You can’t keep any of them during the proposal even if there is a small or zero balance credit card.
Secured debts such as a car loan or mortgage for assets you want to keep will be excluded from the bankruptcy or consumer proposal, if you agree to continue making the payments
There are also some debts which are included in both options, but they will still survive after the consumer proposal or bankruptcy has been completed.
There are also some debts which are included in both options, but they will still survive after the consumer proposal or bankruptcy has been completed.
Non-dischargeable debts include:
o Student loans < 7 years since being a student
o Fines and penalties imposed by court
o Spousal and child support
o Debts due to fraud
Are you having trouble keeping up with your monthly debt payments? Contact us for a free consultation to review options for reducing your debt.