What Happens if My Spouse Does a Consumer Proposal?

In many families, financial burdens are shared, causing stress and strain on relationships and experiences at home. A popular mechanism that individuals and couples alike explore to handle such burdens is the Consumer Proposal. This article aims to clarify any queries you might have regarding the implications on you and your household if your spouse decides to file a Consumer Proposal.

Understanding Consumer Proposals

Consumer Proposals are a unique form of non-borrowing debt consolidation available to Canadian citizens. Over the years, amendments to the Consumer Proposal regulations have made it more accessible and popular among debtors. The main benefit of a Consumer Proposal is that it merges the perks of debt consolidation with legal protection and enables partial debt write-offs.

The Basics of a Consumer Proposal

A Consumer Proposal operates under the following principles:

  • It allows you to consolidate all your debts into a single manageable payment plan, where you commit to repay a fraction of your debt within a five-year period.
  • Typically, individuals propose to repay between 20-50% of their total debts through monthly payments.
  • The remaining portion of the debt is written-off/forgiven by the creditors, considering your debt fully paid.
  • Almost all types of debts can be included in a Consumer Proposal, such as credit cards, overdrafts, payday loans, lines of credit, tax debts, student loans, and more.
  • A Consumer Proposal is the only government-approved method that allows for partial forgiveness of government debts, without affecting any future access to government benefits.
  • The debts are frozen at the time of filing the Consumer Proposal, thereby stopping any accumulation of interest charges.
  • Your credit score doesn’t impact your eligibility to file a Consumer Proposal; rather, you work with a Licensed Insolvency Trustee, not a lender.
  • Licensed Insolvency Trustees are the exclusive legal debt solution providers endorsed by the Federal government and don’t charge extra for their services. The Consumer Proposal laws stipulate the costs, which are paid out of the creditor’s funds.

Comparing Consumer Proposal and Consolidation Loan Payments

To provide a clearer picture, here’s an example. An individual with a total debt of $25,000 spread across a few credit cards and an overdraft might have the following options:

  • Payments of $635/month to fully repay their debt at 18% interest compounded annually.
  • Payments of $555/month with a 12% interest consolidation loan.
  • Payments of $415/month PLUS program fees and other charges to repay all their debts using a no-interest credit counselling.
  • Payments of $125/month with a Consumer Proposal to settle all their debts by repaying just 30% of their total debt (without interest or added service charges).

Spousal Involvement in Consumer Proposals

It’s crucial to understand that each person is considered a separate entity when it comes to debt, regardless of their marital status. This means that one spouse is not liable for the other’s debts just because they are married or in a common-law relationship. Filing a Consumer Proposal does not change this fact.

There are only a few circumstances where spouses can become responsible for paying each other’s debts:

  • If they separate and debts are divided as “family debt” under BC’s Family Law Act.
  • If they have expressly accepted joint liability by co-signing, guaranteeing, or being a co-cardholder.

Whether you and your spouse have any joint debt is an important factor to consider when exploring options to deal with debt.

Joint Debts and Consumer Proposals

If a couple has joint or co-signed debts, there are several possibilities to consider when exploring debt relief options. For example:

  • If the joint debts are significant, you may decide to file a joint Consumer Proposal to consolidate and manage all your combined debts.
  • If the joint debts are minimal but both of you have substantial separate debts, you might each file your own Consumer Proposal.
  • In some situations, only one spouse chooses to file a Consumer Proposal, leaving the other responsible for repaying the full balance of the joint debt – less the amount that the creditor receives as part of the Consumer Proposal.
  • One spouse may file a Consumer Proposal while the other files personal bankruptcy.

It’s crucial to understand all your options and their implications on your financial situation and your family. A Licensed Insolvency Trustee can provide confidential advice to help you understand all the pros and cons related to your unique situation.

Other Aspects of Consumer Proposals

Impact on Assets

Generally, a Consumer Proposal does not affect your assets, including those tied to a secured debt such as a mortgage or financed vehicle. You can choose to maintain payments to your secured creditors to keep the asset, or give up the asset and get out of the contract.

Impact on Income

The income you and your spouse or other family members earn during your Consumer Proposal is yours and does not need to be reported to the Trustee in a monthly budget.

Impact on Credit

A Consumer Proposal is noted on the individual’s credit history for only three years after it’s completed (or six years from the date it started, whichever comes first). If a spouse files a Consumer Proposal (or bankruptcy) for a debt that belongs solely to them, it has no effect on the other’s credit history or credit score.

  • You can apply for new credit at any time, and most people are eligible for standard rates/terms on everything from credit cards to mortgages within one or two years of finishing their Consumer Proposal.

Always remember that the stress related to debt can have a significant impact on your household and relationships. It’s crucial to understand all the options available to you to manage your debt effectively. The experts at Sands & Associates are here to help you navigate these financial challenges and move towards a debt-free future.

Your debt-free future awaits – start devising your debt-free plan today. Book your confidential free debt consultation

Conclusion

Understanding “What Happens if My Spouse Does a Consumer Proposal?” is crucial for managing your financial situation effectively. It’s essential to consider various factors, including your own financial situation, joint debts, and the overall impact on your household. Remember, it’s okay to seek help and advice when it comes to managing your finances. A Licensed Insolvency Trustee can provide you with the necessary guidance to navigate through this process.

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