Consumer Proposal Debt Limit
A consumer proposal is a legal filing that offers your creditors repayment at a percentage of the total debt, interest free, over a period of five years or less. It is a great option for those individuals that can afford to pay back some of their consumer debt but can’t afford the minimum monthly payments and interest charges.
A consumer proposal is legislated under the Bankruptcy and Insolvency Act of Canada (“BIA”). This is federal legislation that outlines the options for individuals with debt problems and very specifically dictates the rules and regulations surrounding these options.
To qualify for a consumer proposal the consumer debtor must make sure their total debt does not exceed the consumer proposal debt limit.
In order to file a consumer proposal you will need to work with a Licensed Insolvency Trustee.
There are pros and cons to filing a consumer proposal. When you meet with a Licensed Insolvency Trustee they will help you determine if a consumer proposal is right for you. Part of that analysis is figuring out if you meet the consumer proposal debt limit.
What’s the consumer proposal debt limit?
Effective September 18, 2009, the consumer proposal debt limit per individual was increased.
The total amount of debt owing, excluding the mortgage on your principal residence, must be less than $250,000 in order to qualify for a consumer proposal.
How do I calculate if my debts are under the limit?
To determine if you are eligible to consider a consumer proposal you must first make a list of all of your debts and total the balances owing. In your initial list include all of your debts no matter what their type. From this total you can then subtract the amount owing for the mortgage on your principal residence. Your principal residence is the home where you reside most of the time. If the amount remaining is less than $250,000 you can consider a consumer proposal.
Depending on your income, expenses and other factors you may not be eligible to file a consumer proposal even if your debt is below the consumer debt limit – but it is a good first step in determining eligibility.
What if I want to file a consumer proposal with my spouse?
If you are considering a consumer proposal with your spouse and are looking to file a joint consumer proposal, you would have to double the consumer debt limit to less than $500,000.
In this case you would make a list of all of your debts, whether jointly held or held individually. You would again total the balances owing and subtract the amount owing for your principal residence. In this example, the total debt remaining must be less than $500,000 to consider a consumer proposal filing.
There are other criteria used to determine whether you and your spouse are eligible to file a joint consumer proposal or whether you must consider filing separate consumer proposals. A Trustee can help you determine whether a joint consumer proposal filing is possible.
What about debts that I am not including? Are they part of the limit?
There are certain debts that will not receive any proceeds from your consumer proposal payments. This may be because they are secured to an asset and you are going to maintain the payments, like with a car loan. Even though you may have debts that are not going to participate in the consumer proposal you must still include them for the purposes of determining whether you qualify for a consumer proposal. Likewise, only the mortgage on your principal residence is excluded from the total debt calculation. A mortgage owed on any other property is added to the total debt like all the other consumer debts.
What if I owe more than the proposal debt limit?
If your debt is higher than the proposal debt limit you cannot file a consumer proposal but you can still make a proposal to your creditors if you are otherwise able to do so. When the Bankruptcy & Insolvency Act refers to a consumer proposal they are referring to the rules and regulations regarding a specific type of proposal made to creditors.
Under the Bankruptcy & Insolvency Act there is another type of proposal to creditors available to debtors. It is generally called a Division I proposal.
As a consumer you should not see much difference between the two types of proposals available in Canada. From my experience you will have to provide the same paperwork to the Trustee, sign the proper forms and make the required payments. The difference between the two types of Proposals has more to do with the administration of the file and the different statutory deadlines and obligations that the Trustee must meet. The administration is much more complicated with a Division I Proposal.
What should I do?
Figuring out whether you qualify for a consumer proposal or a Division I proposal is more than understanding the consumer proposal debt limit.
It is recommended that if you are looking for help with your debt issues you go to a qualified individual, such as a Licensed Insolvency Trustee, that is legally able to help you with a consumer proposal or other debt options available to you. They can also help you weigh the consumer proposal pros and cons. All it takes is an email or a phone call to set up a free consultation.