If debt is weighing you down, a consumer proposal might seem the perfect way to hit reset. It’s a formal legal debt relief option available in Canada, offering a structured repayment plan that’s often more manageable, with a considerable portion of your debt being wiped out after all obligations are fulfilled. But before you jump in, it’s essential to know that not all debts qualify.
In this guide, we’ll explain the types of debts that cannot be included in a consumer proposal. From family support obligations to government-backed loans, understanding these exclusions will help you make informed decisions about managing your finances.
Introduction to Consumer Proposals in Canada
A consumer proposal is a formal debt settlement arrangement regulated by the Canadian Bankruptcy and Insolvency Act (BIA). It is designed to help individuals who are struggling with unmanageable debt. Through a consumer proposal, administered by a Licensed Insolvency Trustee (LIT), you can formally offer your creditors to pay back a portion of your debt over a specific period (up to a maximum of 5 years). This legally binding agreement can provide you with relief from debt collectors, interest charges, and the threat of legal action.
But there are limits. While many unsecured debts can be included, certain obligations—especially those tied to legal or government requirements—are excluded. Knowing what’s in and what’s out is a critical first step.
Understanding Debt Exclusions in a Consumer Proposal
Why Are Some Debts Excluded?
Not all debts are treated equally in Canada’s consumer proposal process. Certain types, like family support payments or government fines, are excluded because they’re tied to essential responsibilities or legal obligations. These exclusions ensure that critical financial commitments remain protected.
Family Obligations and Support Debts
Child Support Payments
Child support isn’t just a financial obligation; it’s a lifeline for children. Because of this, these payments can’t be included in a consumer proposal. You’ll still need to meet these commitments, as they’re considered a top legal priority.
Spousal Support (Alimony)
The same goes for spousal support or alimony. These payments are designed to ensure financial stability for your former partner and are legally protected. A consumer proposal will keep these obligations the same.
Government-Related Debt Exclusions
Student Loans
Student loans come with their own special set of rules. If your loans are over seven years from when you finished studying, they can be included in a consumer proposal to be discharged. However, loans within that seven-year window do not get discharged in a consumer proposal. During the proposal you will get reprieve from making payments to the student loan(s). However once the proposal is completed the payments to student loans will need to commence.
Tax Debts and Government Fines
Unpaid taxes and certain government fines are tricky. While some older tax debts might be negotiable, most recent income tax arrears and government penalties are excluded. Working directly with the Canada Revenue Agency (CRA) might be necessary for these debts.
Legal Fines and Court-Ordered Payments
Criminal Restitution and Fines
If your debt stems from a criminal case—like a fine or restitution order—it’s automatically excluded from a consumer proposal. These obligations are tied to personal accountability and remain enforceable, no matter your financial situation.
Civil Court Judgments
Debts from civil lawsuits, particularly those involving intentional harm or damages, are often excluded. You’ll need to address these separately, as they’re tied to legal judgments prioritizing responsibility to the injured party.
Secured Debts That Are Excluded
Mortgages and HELOCs
Secured debts like mortgages or home equity lines of credit (HELOCs) are a different story. Since these loans are tied to collateral—your home—you’ll need to keep up with payments or risk losing the property. They aren’t eligible for inclusion in a consumer proposal to be compromised.
Car Loans and Leased Vehicles
Similarly, car loans and leases are secured debts. These agreements ensure that the lender has a claim to the vehicle if payments stop. Because of this, they aren’t included in a consumer proposal, and you’ll need to continue making payments to retain the vehicle.
Alternative Solutions for Excluded Debts
Negotiating with Creditors
Negotiating directly with creditors can be an effective strategy for debts that can’t be included in a consumer proposal. This is especially true for government fines or newer student loans. Working out payment arrangements can help you manage these obligations without adding undue stress.
Getting Help from a Licensed Insolvency Trustee
Navigating debt exclusions can feel overwhelming, but you don’t have to do it alone. A Licensed Insolvency Trustee (LIT) can guide you through the process, offering tailored strategies to deal with excluded debts. At Chande Debt Solutions, we specialize in helping individuals find alternative approaches that work for their unique situations.
Why Choose Chande Debt Solutions?
At Chande Debt Solutions, we’re here to make debt relief less daunting. From determining which debt relief solution is the best for your situation to helping you understand the ins and outs of a consumer proposal or finding ways to manage excluded debts, our team is dedicated to providing clear, practical solutions that fit you.
We’ll work with you to create a roadmap for financial stability so you can regain control of your finances with confidence.
Take the Next Step
Understanding what debts are excluded from a consumer proposal is key to making the right financial choices. If you’re unsure how to proceed, schedule a free consultation with Chande Debt Solutions today. We’ll help you explore your options and develop a plan that works for you.
The experienced Licensed Insolvency Trustees of Chande Debt Solutions are focused on personal debt relief and insolvency services. We know that filing a consumer proposal or bankruptcy is a serious matter, and we want to ensure that you are well informed and don’t rush into any solutions. All of our consultations are free, without time limits.
Call us today at 416-366-3328 or fill out our convenient online form to learn how we can help you recover financially.
