What Types of Debt Do Canadians Struggle With Most?

Understanding what kind of debt you have matters. Some debts can be eliminated through a consumer proposal or bankruptcy. Others can’t. Knowing the difference helps you figure out what options are actually available to you.

Secured vs unsecured debt

Unsecured debt isn’t tied to an asset. Credit cards, personal loans, payday loans, medical bills, and most tax debts fall into this category. If you stop paying, creditors can take legal action, but they can’t automatically seize your property.

Secured debt is backed by collateral: your home, your car or another asset. If you stop paying, the lender can take the asset. Mortgages and car loans are the most common examples.

This distinction matters because consumer proposals and bankruptcy only eliminate unsecured debts. Secured debts stay in place unless you surrender the asset or negotiate separately with the lender.

Which debts can be included in a consumer proposal or bankruptcy?

Type of debt	Included in consumer proposal?	Included in bankruptcy?	Notes
Credit cards	Yes	Yes	Most common debt we see
Personal loans	Yes	Yes
Lines of credit (unsecured)	Yes	Yes
Payday loans	Yes	Yes
Medical bills	Yes	Yes
Cellphone contracts	Yes	Yes
Utility arrears	Yes	Yes
CRA tax debt	Yes	Yes	Income tax, HST, payroll. All included
Student loans	Only if 7+ years out of school	Only if 7+ years out of school	Otherwise excluded
Mortgage	No	No	Secured. Keep paying or surrender the property
Car loan	No	No	Secured. Keep paying or surrender the vehicle
Child/spousal support	No	No	Can never be discharged
Court fines	No	No
Fraud-related debts	No	No

Common types of debt

Credit card debt

The most common unsecured debt in Canada. High interest rates (often 19.99%+) make it easy to fall behind. Credit card debt can be eliminated entirely through a consumer proposal or bankruptcy.

Payday loans

Short-term, high-interest loans that trap people in cycles of borrowing. Interest rates can exceed 400% annually. Payday loan debt is fully included in consumer proposals and bankruptcies.

Tax debt (CRA)

Owed money to the Canada Revenue Agency? Income tax, HST, and payroll source deductions can all be included in a consumer proposal. CRA is treated the same as any other unsecured creditor. Learn how tax debt works in a proposal.

Student loans

Student loans can only be included in a consumer proposal or discharged in bankruptcy if you’ve been out of school for at least seven years. If you haven’t reached that mark, you can still file a proposal for other debts, freeing up cash to manage student loan payments separately.

Lines of credit

Unsecured lines of credit are fully included in proposals and bankruptcies. Secured lines of credit (like a HELOC) are tied to your home and work differently.

Car loans

Car loans are secured debt. If you want to keep your car, you keep making payments. If you can’t afford it, you can surrender the vehicle. Any shortfall after the lender sells it becomes unsecured debt, which can then be included in a proposal.

Mortgage debt

Your mortgage is secured against your home. It’s not included in a consumer proposal or bankruptcy. If you’re behind on payments, you need to negotiate directly with your lender or consider selling.

Medical debt

Less common in Canada than in the US, but it happens, especially for services not covered by provincial health plans. Medical debt is unsecured and fully included in proposals and bankruptcies.

Utility bills

Overdue hydro, gas, water, or internet bills are unsecured. Utility arrears can be included in a consumer proposal or bankruptcy.

Cell phone debt

Unpaid cell phone bills and early contract termination fees are unsecured. Cell phone debt is included in proposals and bankruptcies.

Frequently asked questions

What’s the difference between secured and unsecured debt?

Unsecured debt isn’t backed by collateral. Credit cards, personal loans, and medical bills are unsecured. If you stop paying, creditors can sue you, but they can’t automatically take your property. Secured debt is tied to an asset, like a mortgage or car loan. If you stop paying, the lender can seize the asset.

Can I include CRA tax debt in a consumer proposal?

Yes. Income tax, HST, and payroll source deductions owed to the Canada Revenue Agency are treated the same as any other unsecured creditor. CRA is bound by the terms of the proposal if the majority of creditors accept it.

What happens to my car loan in a consumer proposal?

Your car loan is secured debt, so it’s not included in the proposal. If you want to keep the car, you keep making payments as normal. If you can’t afford it, you can surrender the vehicle. Any shortfall after the lender sells it becomes unsecured debt, which can then be included.

Can student loans be discharged?

Only if you’ve been out of school for at least seven years. If you haven’t reached that mark, student loans survive a consumer proposal or bankruptcy. You can still file for other debts, which often frees up enough cash flow to manage student loan payments separately.

What debts can never be discharged?

Child support, spousal support, court fines, and debts arising from fraud can never be eliminated through a consumer proposal or bankruptcy.

Not sure what applies to your situation?

Most people we help have a mix of debt types. A Licensed Insolvency Trustee can review your full picture and explain exactly which debts can be dealt with and how.