Consumer Proposal Eligibility
A Consumer Proposal is a legal arrangement between you and your creditors to pay a portion of your debt.
In most cases you will only pay 30 cents or less on the dollar.
The rest of your debt is then eliminated and forgiven by your creditors.
In order to file a consumer proposal you must be eligible.
When you’re in financial difficulty, a trustee will inform you of the options available to you.
The Consumer Proposal is regulated by the Office of the Superintendent of Bankruptcy under the Bankruptcy and Insolvency Act.
Can You File for a Consumer Proposal?
When you go to your initial consultation with a trustee, he/she will advise you the best solution for your situation.
To consider a Consumer Proposal, the trustee will look at the following elements regarding your situation:
- Filing as an individual not a corporation or a company;
- Declared to be insolvent and not able to pay your debt as they are due;
- Owe at least $1000 and no more than $250,000;
- You have not filed any other debt relief claim such as bankruptcy, etc.;
- You work and have a stable income.
These are the minimum requirement to file for a Consumer Proposal in Quebec.
A consumer proposal can also be filed by two or more individuals when their debts are shared.
For example, a couple with similar debt, can file a joint consumer proposal.
You will have to file a Joint Consumer Proposal.
The eligibility to file a Joint Consumer Proposal is that all or the majority of the debt of each individual are similar in nature.
The limit for filing a Joint Consumer Proposal is $500,000 – double the maximum amount for a single individual.
A joint Consumer Proposal is the best option for couples or people sharing financial responsibilities.
It allows them to deal with all their debts simultaneously instead of each filing a separate proposal.
It is also cheaper because you’ll only be dealing with a single trustee and pay just for the one case.
Bankrupt and filing for a Consumer Proposal
Section 66.11 of the Bankruptcy and Insolvency Act outlines the eligibility for a Consumer Proposal.
Any person with a total debt of less than $250,000 is eligible for a consumer proposal.
This does not include mortgage debt on a principal residence.
Consumer Proposal While in Bankruptcy
However, you cannot both file for a Consumer Proposal and bankruptcy.
Instead, if you had already filed for bankruptcy and during your bankruptcy your financial circumstances changes, then you may want to switch from bankruptcy to a Consumer Proposal.
For example, at the time you filed for bankruptcy, you were unemployed and could hardly make payments.
You then find a job during your bankruptcy that provides you with surplus income.
Continuing with your bankruptcy means that you’ll have to pay more and probably have your bankruptcy discharge delayed.
Converting to a Consumer Proposal allows you to better consolidate your debt by accepting to make monthly payments instead of having your bankruptcy delayed and paying more than was initially agreed.
Dealing With Income Tax Debt
When a person is in debt and declares insolvency, it usually means that they are also finding it difficult to pay their income tax debt.
Normally, when you file for a Consumer Proposal, debt you owe to the Canadian Revenue Agency (CRA) is also included in the Consumer Proposal.
However, when a large percentage of your debt is income tax debt, it may be very difficult to get the CRA on board to accept your Consumer Proposal.
For them to consider your proposal, most often they will seek to see measures you’ve taken to guard yourself against any future income tax debt.
Such changes could involve hiring a professional bookkeeper for your paperwork and/or GST/HST payments, etc.
Schedule a Free Consultation Today
Regardless of your circumstances, you will only make an informed decision about your eligibility for a Consumer Proposal after your initial consultation with a Licensed Insolvency Trustee (LIT).
You can always trust the recommendation of the trustee as they follow a strict code of ethics.