Debts included in a consumer proposal
Include unsecured debts in a consumer proposal
When making a consumer proposal to your creditors there are rules about what debts can be included. With consumer proposals, not every debt can be included to resolve your debt problems. Generally, you would make a consumer proposal to unsecured creditors. You must list all of your “unsecured debt”, which are the debt obligations that do not have security provided to the creditor. Some examples of these are:
Lines of credit
Secured debts and a consumer proposal
It is not possible to make a consumer proposal to modify a secured debt. A “secured debt” means that the debt is backed by an asset, such as your house (in the case of a mortgage) or your car (in the case of a vehicle loan). If you are unable to make payments on a secured debt, the creditor has the legal right to take possession of the agreed asset and can resell it to recover its loan. Any shortfall on a surrendered asset is an unsecured debt included in your consumer proposal as long as the consumer proposal makes it clear.
Secured creditors will be notified when you file a consumer proposal, but they will not receive any money from the actual proposal if you choose to keep your payments to them in good standing. When you file this proposal, you can either continue paying the secured debt obligations (in which case, you keep the asset) or stop paying, with the understanding that the secured creditor will take back the asset that was used to secure the debt.
If your secured debt is in good standing (i.e. your car loan or mortgage is up-to-date), the secured creditor cannot demand the surrender of your asset simply because you have filed a consumer proposal. If there are other deficiencies, they may be able to terminate the contract, but not simply due to the consumer proposal. If a contract is terminated, the shortfall can be included in the proposal.
To get a better understanding of how your debts would be handled in a consumer proposal, talk to a BDO trustee.