What Happens To Debt In A Consumer Proposal?

Category: Consumer Proposal (9) comments


A common question that trustees receive is, “what happens to debts after filing a bankruptcy or consumer proposal?” The legal status of the debt is very simple in a bankruptcy, however, slightly more complicated during a consumer proposal because of its length.

When filing a consumer proposal, you are effectively making an offer to the creditors to pay a specific amount or percentage of your debts over a period of time inside of 60 months (5 years).  During the length of the proposal, those debts continue to exist, but the question is, where?

The simple answer: debts continue to exist with the creditor internally and at the credit bureaus.

Just like with a bankruptcy, the debts that are included in a consumer proposal stay active for the length of the process. Once the proposal is filed, and until the terms are completed or it is cancelled (annulled), the creditors do not have any rights to pursue payment for the debts and they will receive payments (dividends) from your proposal administrator as outlined in the terms of the proposal. This is why it’s so important to complete all of your duties and finish the process; if you don’t, you will still be on the hook for all debts included in the uncompleted proposal and creditors are able to re-establish the collection process.

Once all duties in the proposal are completed and your administrator files the certificate of compliance, the debts are eliminated.  If however, the proposal is abandoned or cancelled for any reason, the person who filed the proposal will still be responsible for the entire balance of the debts, including interest, less any payments made by the administrator to the creditors.

At the credit bureau, the individual debts included in the proposal will continue to show during the length of your proposal, as well as for three years following its completion.  Three years after the proposal is finished, any debts discharged in the process must be completely removed from the file by the credit bureau. Keep in mind that it is up the consumer debtor (you) to verify that this has been done correctly. This is why it is important to keep a copy of the certificate of compliance, proving that the proposal was successfully completed.

Is A Co-Signer Protected By My Consumer Proposal?

It is very important to remember that any co-signers or co-borrowers will not be protected by a consumer proposal filed by another person.  The creditors will receive dividend payments, however, the accounts will remain completely active and continue to charge interest to the non-proposal account holder.

If you’re considering filing a consumer proposal and would like more information about the process, contact a local Trustee in Bankruptcy to book a free consultation to review whether it’s right for you.

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  1. meera

    I have a consumer proposal on file and at the same time I have been approved for the Disability Tax Credit by CRA for 2005 to 2014. I have submitted by T1-ADJ’s to CRA. Will I have to forfeit refunds, if any, towards the consumer proposal. My income has been between $28,000 to $31,000 and nothing more. Your feedback would be appreciated. Thank you.

    1. J. Douglas Hoyes

      Hi Meera. In a consumer proposal you keep your assets, including your tax refunds, so in general you do not forfeit tax refunds, or disability credit refunds. The only exception would be if you owed CRA taxes for those years; they may apply those refunds against the tax arrears. I would suggest you discuss this with your consumer proposal administrator who can give you a more complete answer based on your situation.

  2. Jane

    Hi, I have a consumer proposal on file and am making my monthly payments. I recently went on my CRA account to look at my T4’s and noticed that listed are 2 outstanding debts to provincial student loan and department of motor vehicle listed on CRA website. In doing my tax refund for this year, will I loose my refund due to these outstanding debts?

    1. J. Douglas Hoyes

      Hi Jane. The answer will be largely dependent on whether or not those debts were included in your proposal; this is an issue you should discuss with your trustee, who will have more information available to answer your question.

  3. Cam

    I filed a consumer proposal in 2013 and included a car loan. Just recently the car loan company sent the account balance to a third party collection agency which has now reported to Equifax and Transunion as a collection agency seeking my balance. My proposal is still active as of right now. Can the car loan company send the account to a third party collections agency during a proposal and if so, can that third party company report on my credit bureaus? Thank you for your feedback.

  4. Ryan

    I filed a consumer proposal in 2017, yet the creditor is reporting in collections / charge off every single month (until present) on one of the debts (visa) but only reported one in collections / charge off for the line of credit from the month it was accepted. Can they do this cause it’s showing like 20 months with a in collection / write off and the other one just has one and they have not kept reporting on it.

    1. J. Douglas Hoyes

      Hi Ryan. It is very common for a credit card to not “stop” the reporting once an account is included in a consumer proposal; they are not good at keeping information accurate on your credit report. I suggest two action items:

      First, confirm with your trustee that visa has in fact filed a claim in your proposal; it’s possible that they have not processed the paperwork.

      If they have, you can file a dispute resolution form with the credit bureau and ask them to correct the inaccurate information (the account should show as “included in proposal).

  5. Jeff

    I just completed my consumer proposal and I received the Final Statement of Receipts and Disbursements, and Dividend Sheet. I originally thought that my student loan was not included in the proposal but NSLSC is listed as a creditor along with the claim amount and dividends paid. Does this mean that my student loan debt will also be cleared with my trustee discharge?

    1. Ted Michalos

      Not necessarily… Student loans had the right to send in a claim and receive a share of the dividends (money paid to creditors) without compromising their ability to try and collect the loans after you finsihed the proposal if you hadn’t been out of school for 7 years when you filed the proposal. Give your trustee a call if you’d like a more detailed explanation.


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