What is The Debt Limit For a Consumer Proposal?
Filing a consumer proposal is often a good way to avoid filing for bankruptcy if you owe a substantial amount of money.
Consumer proposals allow you to come to an agreement with your creditors so you can make lower monthly payments over a period of time.
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- Your assets are protected;
- You can avoid a surplus income penalty;
- Your monthly payments are lower.
In order to start the consumer proposal process, you’ll need to talk to a licensed trustee.
Who Qualifies for a Consumer Proposal?
Consumer proposals fall under the Bankruptcy and Insolvency Act, which provides options to those who are struggling with debt.
While the options within the act can be extremely helpful for those looking to get out of debt, there are very strict rules and regulations that must be followed.
One of the most important rules to understand is what it takes to qualify for a consumer proposal.
Knowing the qualifications for both a regular consumer proposal and Division I proposal can help you to learn whether it’s the right option for you.
So, how do you qualify?
First, you must make sure that your total debt doesn’t exceed the debt limit being proposed.
Currently, the consumer proposal debt limit is $250,000, which excludes your mortgage (on a principal residence).
Calculating Your Proposal
One of the best things you can do to determine if you are under the consumer proposal debt limit is to work with a licensed trustee.
They can help you to figure out all of your debts and balances owed.
That should be your first step in determining your debt limit.
Many times, you might not even realize where all of your debts are coming from, or you might be too overwhelmed by them to add them up.
But, it’s essential to have an accurate calculation of all of your debts when you’re applying for a consumer proposal, so you can ensure it doesn’t go past the debt limit.
If all of your debts added together come to less than $250,000, you should be able to qualify for a consumer proposal.
Keep in mind that there are other external factors that might come into play with your proposal, but, for the most part, having your debt limit come in at less than what is allowed is a good sign that a consumer proposal will work for you.
Certain debts, like a car payment, need to be included in your calculations, but they often won’t receive any of the payments you make from your consumer proposal.
That also includes your mortgage debt on your principal property.
Any other properties you might have also need to be included in your debt limit.
If you want to file a joint consumer proposal with your spouse, your total debts must be less than $500,000 when combined.
There are other important criteria you’ll have to meet in order to be able to file with your spouse instead of individually.
Sometimes, filing jointly isn’t possible, but a trustee can help you to determine if it’s a possibility or if you’ll need to file your consumer proposal(s) separately.
What if Your Debts Are Above the Limit?
Though the average amount of debt in Canada is just under $73,000, there are, of course, those who have much higher amounts of debt to worry about.
If your debts are above the debt limit, you may not qualify for a traditional consumer proposal.
However, you might qualify for a Division I proposal.
What’s the difference?
First, creditors have 45 days to meet when it comes to a traditional consumer proposal.
With a Division I proposal, they only have 21 days to reach an agreement.
Because of the time constraints and pressures, it’s often more difficult to get creditors to agree to a Division I proposal.
From your end, you probably won’t notice much of a difference between a standard consumer proposal and a Division I proposal.
The same paperwork will be given to your Trustee, and you’ll have to work out a payment plan, etc.
However, there will be different deadlines and obligations that must be met.
In short, the process is much more complicated than it is with a typical consumer proposal.
So, while it might not be an ideal option, it’s still something to consider if you have over $250,000 in debt.
The best thing to do is to talk to a trustee about it to determine if it’s a viable option that can fit your needs.
Is a Consumer Proposal Right for You?
For many people in debt, a consumer proposal can be the best option that allows you to keep your assets, avoid interest fees, and escape filing for bankruptcy.
But, it’s important to talk to a licensed trustee who can help you to better understand some of the pros and cons.
Not everyone knows the full amount of their debt because they may not know what needs to be included and what can be excluded.
Knowing how much debt you officially have will be the determining factor in knowing whether you can file for a consumer proposal or whether you’ll have to go with a Division I proposal.
Again, these are all things a licensed trustee can (and should) handle for you.
If you’re struggling with debt and you don’t want to file for bankruptcy, feel free to contact us at Bankruptcy Canada for more information.
One of our qualified trustees will be happy to work with you, not only to help you determine the amount of your debt but to explore the best options for moving forward and finding financial stability for the future.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal