Canadian debt categories

Your debt profile might be a key factor in choosing your optimal debt resolution option

  • If you file for personal bankruptcy or make a consumer proposal then you will  be able to eliminate all of yourr unsecured consumer debt and some, and, possbily all, of the monies that you owe to the government
  • Filing for personal bankruptcy or making a consumer proposal does not eliminate any of your secured debt
  • The only debt which can be included in a Debt Management Program with a credit counselling agency is unsecured consumer debt
  •  Taking advantage of a limitation period to avoid paying a creditor is only available if your debt is an unsecured consumer debt and some, but not all student loans

Knowing these different types of debt is important because the type of debt that a person has might very well dictate what debt relief option is the most optimal for them.  Some examples will help illustrate this point.

  • monies owing for child support and spousal support
  • government fines
  • civil judgments arising out of fraud
  • student loans where a student has ceased attending school less than seven years ago

Non-dischargeable debt:  There is a special category of debt  which are not discharged or forgiven if a person were to file for personal bankruptcy or to make a consumer proposal.  These non-dischargeable debts include the following:

Not all debt is created equal.  In fact, as a practical matter there are four different categories of debt that you ought to be aware of.  Here is a brief introduction to these four different types of debt:

Secured debt:   A secured debt is a debt in which the creditor has some type of security to look to in the event of non-payment.  The most common types of secured debt Canadians will recognize is the lien on a car arising from the purchase or lease of an automobile and a mortgage arising from the purchase of a house, condominium, townhouse, cottage, rental property, or farm.

Unsecured debt:    Any debt which is not secured debt is unsecured debt.  Where a debt is unsecured the creditor has no security to look to in the event of non-payment.  If a consumer does not make payments on an unsecured debt then typically a creditor will make payment demands, forward the unpaid account to a collection agency, or possibly sue the consumer.  Their are different categories of unsecured debt. 

The most common type is unsecured consumer debt-- monies owing to a creditor in the private sector arising out of a consumer transaction.  The most common type of unsecured consumer debt in Canada are monies owed on an unsecured credit card and monies owed to firms offering services such as telephone, cellphone, cable television and internet.

Monies owing to the government:  Monies owing to the government are usually unsecured debt.  Property taxes are one example of a secured debt owing to a municipal government.  Unsecured debt owing to the government would include outstanding income tax and H.S.T., unpaid government fines, and outstanding student loans.

What are the Different Types of Debt and

Why are these Distinctions Important?