What Debts Can Be Included in a Consumer Proposal? | Metus Lykos

If you are carrying debt across multiple creditors, it can feel like every direction you turn someone has a claim on your paycheque. Knowing what a Consumer Proposal can and cannot include is the first step to figuring out whether it is the right path for you.

What Is a Consumer Proposal?

A Consumer Proposal is a formal, government-regulated agreement between you and your unsecured creditors. You offer to repay a portion of what you owe. Your creditors vote. If they accept, you make fixed monthly payments over up to 5 years. When those payments are done, the remaining balance is legally erased.

Consumer Proposals are governed by the Bankruptcy and Insolvency Act (BIA), which is federal law. This means the process has real legal weight. Once your proposal is accepted, every unsecured creditor is bound by its terms, even creditors who voted against it.

To qualify, you generally need between $10,000 and $250,000 in unsecured personal debt. You must be insolvent, meaning you cannot pay your debts as they come due. You must be a Canadian resident.

What Debts Can Be Included in a Consumer Proposal?

The short answer: almost all unsecured debt. Unsecured debt is any debt not tied to a physical asset. If a creditor cannot repossess something you own when you stop paying, it is almost certainly unsecured and eligible for inclusion.

Here is a breakdown of the most common debt types and whether they can be included.

Credit Cards, Lines of Credit, and Personal Loans

These are the most common debts people carry into a Consumer Proposal. All three are unsecured, which means they are eligible. It does not matter how many cards you have, how many lenders are involved, or how high the interest has climbed. Every unsecured personal loan, credit card balance, and unsecured line of credit can be included.

One important note: if you have a secured line of credit (such as a HELOC that is tied to your home), that portion is secured and cannot be included. Only the unsecured portion qualifies.

Payday Loans

Yes, payday loans are included. Many people assume payday lenders are somehow exempt because of the high interest rates or the nature of those loans. They are not. Payday loans are unsecured consumer debt and are treated exactly the same as credit cards in a Consumer Proposal.

If you are caught in a cycle of borrowing short-term loans to cover basic expenses and the fees keep piling on, a Consumer Proposal can break that cycle entirely. All payday balances owed at the time the proposal is filed are included.

CRA Tax Debt: What You Need to Know

This is the question we hear most often, and the answer surprises people. Yes, CRA debt can be included in a Consumer Proposal. The Canada Revenue Agency is a creditor like any other under the BIA. They are entitled to vote on your proposal, but they are also bound by the result of that vote once a majority of creditors accept.

The following CRA debts can be included:

• Personal income tax arrears
• Unpaid GST/HST balances
• CRA interest and penalties on those balances
• Government overpayments, including CERB and Employment Insurance repayments
• HST remittances owed (personal)

There are two important limits to understand. First, any tax debt that arises after your proposal is filed is not included. The proposal covers the picture at the moment of filing. Second, source deductions (payroll remittances withheld from employee wages and never submitted to CRA) are treated differently in a business context and require a separate analysis.

Student Loan Debt

Student loan debt is one of the most misunderstood areas in Consumer Proposals. The rules depend on two things: the type of loan, and how long ago you left school.

The 7-year rule applies specifically to government-funded loans under the Canada Student Loans Act and equivalent provincial legislation. If you borrowed from a bank directly (not through a student aid program), those loans are private and can always be included.

If you are within that 7-year window, a Consumer Proposal can still help with your other debts. Your student loan balance would continue as a separate obligation once the proposal is complete.

Debts That Cannot Be Included in a Consumer Proposal

Some debts are excluded by law. The BIA specifically carves out certain obligations that survive a Consumer Proposal no matter what. Here is what those are and why.

Secured Debts (Mortgage and Car Loan)

Secured debts are backed by an asset. Your mortgage is secured by your home. Your car loan is secured by your vehicle. If you stop paying a secured creditor, they have the legal right to repossess that asset. Because the debt is tied to something physical, it cannot be restructured through a Consumer Proposal.

This is actually good news for most people. You can keep your home and your car as long as you continue making those payments. The Consumer Proposal handles your unsecured debts, freeing up cash flow so you can keep up with secured obligations.

Child Support and Spousal Support Arrears

Support payments are court-ordered obligations. They are specifically excluded from Consumer Proposals and from bankruptcy. The reasoning is that these obligations exist to protect the financial wellbeing of dependents, so insolvency law does not allow them to be discharged. If you have support arrears, those continue regardless of any proposal you file.

Court Fines, Restitution, and Criminal Penalties

Fines and penalties imposed by a court, including criminal restitution orders, parking fines, and other penalty-based obligations, are excluded. These debts are not subject to compromise through the insolvency process.

Debts From Fraud or Intentional Misrepresentation

If a debt arose because of fraud, false pretenses, or deliberate misrepresentation, a creditor can apply to the court to have that specific debt excluded from your proposal. This is not automatic. The creditor must bring a court application, and it is decided case by case. But it is a real exception, and it is worth knowing about.

New Debts Incurred After Filing

The Consumer Proposal covers your financial picture at the moment of filing. Any new debt you take on after the proposal is filed is your personal responsibility, separate from the proposal entirely.

What Happens to Secured Debts During a Consumer Proposal?

Your mortgage lender and your car loan lender are not part of the proposal process. You keep paying them as normal. As long as you stay current on those payments, you keep the assets. Most people who file a Consumer Proposal find that the relief from unsecured debt payments gives them enough breathing room to stay current on secured debts without difficulty.

If you want to understand the full picture of how secured and unsecured debt differ, our article on debt relief options in Canada breaks down how each type of debt is handled under different solutions.

Can You Add Debts After a Consumer Proposal Is Filed?

Generally, no. Once a proposal is filed, the list of creditors and debts it covers is set. If you have a creditor you forgot to list, you can ask to have them added before the vote is finalized, but this requires formal steps and is not guaranteed.

This is one of the reasons it matters to have thorough legal representation before the proposal is filed. We work with clients to make sure every eligible debt is captured, so nothing falls through the cracks.

Consumer Proposal vs. Other Debt Relief Options

Understanding what debts a Consumer Proposal covers also helps you compare it to the alternatives. Here is how the major options stack up.

If you want a deeper side-by-side, our article on Consumer Proposal vs. bankruptcy explains the key differences in plain language.

If your unsecured debt is below $10,000, or you want to explore settling specific accounts individually without a formal insolvency proceeding, our debt settlement service may be a better fit.

Why Having a Debt Lawyer Matters Here

Many people assume they can navigate a Consumer Proposal on their own, or that a trustee will look out for their interests. That is worth examining closely.

A Licensed Insolvency Trustee administers the Consumer Proposal process. Under the BIA, they have a legal duty to act impartially between you and your creditors. They do not work exclusively for you.

We are a law firm. Our legal duty runs entirely to you. We review your full debt picture, help you understand which debts are in scope, represent your interests in the process, and make sure the proposal is structured to give you the best possible outcome. If CRA is a major creditor, or if there are complex debts that require careful treatment, that legal advocacy matters.

We only make money when we save you money. Our fee is 33% of whatever we negotiate off your debt. That means our goal and your goal are exactly the same.

To learn more about how working with a debt lawyer differs from going directly to a trustee, read our breakdown of Licensed Insolvency Trustee vs. debt lawyer.

Who Is a Consumer Proposal Right For?

A Consumer Proposal tends to be a strong option if:

• You have between $10,000 and $250,000 in unsecured debt
• Most of your debt is unsecured (credit cards, CRA, personal loans, payday loans)
• You want to keep your home and your vehicle
• You have some ability to make monthly payments over time
• You want to avoid bankruptcy and the consequences that come with it
• Collection calls, garnishments, or CRA action have already started

If your total unsecured debt exceeds $250,000, a Division 1 Proposal may be more appropriate. This is a similar process but available for larger debt loads with no upper limit, and it requires court approval.

If you are unsure where your situation fits, the best first step is a confidential conversation with our team.

Frequently Asked Questions

Can CRA debt be included in a Consumer Proposal?

Yes. CRA is a creditor like any other under the Bankruptcy and Insolvency Act. Income tax arrears, GST/HST balances, interest, penalties, and government overpayments like CERB repayments can all be included. CRA gets a vote on your proposal, but once the majority of creditors accept, CRA is legally bound by the result even if they voted against it.

Can payday loans be included in a Consumer Proposal?

Yes. Payday loans are unsecured consumer debt and are treated the same as credit card balances in a Consumer Proposal. All payday balances owed at the time the proposal is filed are included, and no additional interest accrues once filing occurs.

What happens to my mortgage if I file a Consumer Proposal?

Your mortgage is not included in a Consumer Proposal. It is a secured debt tied to your home. You continue making your normal mortgage payments. As long as you stay current, you keep your home. In fact, many people find that eliminating unsecured debt makes it easier to keep up with the mortgage.

Can student loan debt be included in a Consumer Proposal?

It depends. Government student loans (federal or provincial) can only be included if you have been out of school for 7 or more years. If you left school less than 7 years ago, those loans survive the proposal. Private student loans from banks or credit unions are treated as regular unsecured debt and can always be included regardless of when you graduated.

Are child support or spousal support arrears included?

No. Child support and spousal support arrears are specifically excluded by the Bankruptcy and Insolvency Act. These obligations survive a Consumer Proposal and must be paid separately. This rule exists because support payments protect the financial wellbeing of dependents.

Can I include a debt owed to a family member or friend?

Yes. Debts owed to family members or friends are unsecured personal debts and can be included in a Consumer Proposal. That person would be listed as a creditor and would have the right to vote on your proposal, just like a bank or credit card company.

What if I have a debt from fraud?

Debts arising from fraud or intentional misrepresentation can be excluded from a Consumer Proposal, but only if the creditor applies to the court to have that specific debt carved out. It does not happen automatically. A judge decides on a case-by-case basis. If this applies to your situation, it is something to discuss with us before filing.

Can I include utility arrears in a Consumer Proposal?

Yes. Unpaid utility bills, including electricity, gas, water, internet, and phone, are unsecured debts and can be included in a Consumer Proposal. Your service provider may require a deposit to restore or continue service, but the arrears themselves can be addressed through the proposal.

What about medical bills or hospital debt?

Yes. Medical bills and hospital debt are unsecured and can be included in a Consumer Proposal. This is more common for Canadians who received care not covered by provincial health coverage, or who have outstanding balances from private clinics, dental care, or services received outside Canada.

Can I add more debts after a Consumer Proposal is filed?

Generally no. Once the proposal is filed, the list of included debts and creditors is set. Any debt you take on after the filing date is your personal responsibility, separate from the proposal. This is why it is important to make sure your debt picture is complete before the proposal is filed.

Do court fines get included in a Consumer Proposal?

No. Fines and penalties imposed by a court, including criminal fines, traffic violations, and restitution orders, are excluded from Consumer Proposals by law. These obligations survive the insolvency process.

What if the CRA objects to my Consumer Proposal?

CRA can vote against a proposal, and because they are often a large creditor, their vote carries weight. However, if the majority of creditors by dollar value accept the proposal, CRA is bound by that outcome even if they voted no. Structuring a proposal that gives CRA a realistic offer compared to what they would recover in bankruptcy is a key part of the legal strategy. We work with you on that before anything is submitted.