One of the most common questions we receive is about what debts can be covered in a bankruptcy or a consumer proposal.
Most unsecured debts may be included, but what exactly is an unsecured debt? These are the ones that do not have collateral or items held in security against them. Some examples of unsecured debts are: past due income tax, credit cards, lines of credit, payday loans and personal loans from both lending institutions and from individuals. You may include utility bills, past due rent and cell phone debts but only if you have already moved and/or have stopped using these services. You can even include payment shortfalls on mortgages and car loans if you have surrendered these items back to the lender or if they have been repossessed or seized in a Power of Sale.
Secured debts can be trickier. Some secured debts are obvious. If you have a mortgage or a car loan or lease these are secured debts because they will take these items and sell them if you stop paying the loan. Where it gets tricky is with lines of credit and consolidation loans. You need to be aware of whether they have been secured to a home or to a vehicle. Secured debts may not be included in a bankruptcy or proposal unless, as stated earlier, you give back the secured item and there is a shortfall. If you have equity in your home or car there are ways to keep those assets even if you are insolvent.
There are also a few debt that cannot be included even though they are not secured debts. These include:
- co-signed debts ( the lender will leave you alone and go after the co-signer for full payment),
- student loans if it has been less than 7 years since your end of study date,
- child and spousal support arrears,
- court fines or penalties and
- any government overpayments for things like child tax credit or employment insurance.