Should Debts To Family And Friends Be Included In A Bankruptcy?

2019-11-07   minute read

Linda Paul

Consumer Proposal


Owing money to a family member or friend can spark anxiety. You may believe you don’t have to include these types of debts in a Bankruptcy or Consumer Proposal. Or you may feel embarrassed that you had to turn to friends or family for financial help. However, personal loans from family or friends are considered debts under the Bankruptcy and Insolvency Act —and should be included in a Bankruptcy or Consumer Proposal.


Will Creditors Know I’ve Filed a Bankruptcy or Proposal?

Yes — each creditor in a Bankruptcy or Proposal receives legal paperwork disclosing your debts, assets, income and expenses and the reason for your insolvency.

Before filing your documents, you may want to consider approaching your family member or friend to explain your financial situation. Sometimes the person you owe money to will actually say that you no longer owe them money because, in their eyes, they have forgiven the debt.

If so, the elimination of personal debts may lower your debt obligations so you can pay off any other debts or file a Consumer Proposal. However, if they do not dismiss your debt, this debt should be included in your Bankruptcy or Consumer Proposal.

Will Creditors Get Paid in a Bankruptcy?

Any Bankruptcy could result in a dividend paid to your creditors. However, dividends paid out from Bankruptcies can be low or non-existent. When you meet with a Licensed Insolvency Trustee, they will explain how funds are distributed at the conclusion of a Bankruptcy.

If They Don’t Get Paid, Why Include the Debt?

Each creditor must be treated fairly. This means they must be given the opportunity to participate in the Bankruptcy by submitting a valid proof of claim.

Anything could happen during the term of a Bankruptcy which could result in the Bankruptcy estate receiving additional funds. For example, unexpected windfalls of money, such as an inheritance or lottery winnings, may impact how much creditors will receive. A Licensed Insolvency Trustee can explain how a money windfall you receive after filing for Bankruptcy could impact your ;Bankruptcy and creditors.

Will They Get More Money in a Consumer Proposal?

A Consumer Proposal is designed so that all creditors who submit a valid proof of claim will receive a certain percentage of the debt paid back to them over the term of the Consumer Proposal. Many people choose a Consumer Proposal so they can pay back a portion of their personal loans from friends or family.

What Happens If I Don’t Include the Debt?

If you left a family member or friend out of your Bankruptcy or Proposal on purpose, you could be liable to pay them the amount they would have been entitled to if they have been included in the insolvency proceeding. Under Bankruptcy legislation, including this debt ensures you are protected from collection action by that person, just like you are protected from other creditors.

Can They Come After Me Later for the Debt?

Not as long as you complete your Bankruptcy or Consumer Proposal. Since the debts were included in your Bankruptcy or Consumer Proposal, the debt is non-collectable while you are completing your insolvency proceeding and afterwards. All debts, including debts to friends and family, will be legally discharged when you finish your Bankruptcy or Consumer Proposal.

Relief from All Debts

If you have been struggling to repay personal and other debts, we invite you to speak with a Licensed Insolvency Trustee.

During a free, no obligation consultation, you will find out what debts can be included and discharged in a Consumer Proposal or Bankruptcy. This is the first step in finding debt stress relief and in starting a new financial life.

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