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Client Inquiry: Money Owed to Friends and Family
Q: I owe my parents money that I have been paying back monthly. If I file a proposal can I leave them out and continue to pay them as normal?
A:Many people who have out of control debt owe money to friends or family as well as their other creditors. Often people wish to leave this debt out of their proposal and continue paying it on a schedule worked out personally between the parties. Unfortunately this is not an option.
S.95 of the Bankruptcy and Insolvency Act (BIA) disallows preferential treatment of any creditor. This means one creditor cannot be paid off, leaving less for other creditors who will only receive a portion of the moneys owed to them. The BIA attempts to ensure that all creditors are treated equally which means you are required to list ALL creditors, including family and friends in your proposal.
Even if this weren’t the case, creditors get to see your budget before they approve your proposal. Seeing money set aside to pay debts other than theirs would be unlikely to receive a positive response.
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