Key Takeaways
If you have joint debts, you may want to consider filing a joint consumer proposal with that person instead of filing consumer proposals separately. However, you must first confirm with a Licensed Insolvency Trustee, if you will qualify for this option. You should also review the advantages and disadvantages of a joint consumer proposal over an individual one.
What is a Joint Consumer Proposal?
A consumer proposal is made through a Licensed Insolvency Trustee and is a legally binding agreement if accepted by the creditors. A joint consumer proposal is a type of debt relief solution in Canada that allows more than one individual to file a single consumer proposal to their creditors to pay off their debts over an extended period of time. This can be done is instead of filing two separate consumer proposals for each individual.
In a joint consumer proposal, the individuals agree to make regular payments over a specified period, usually up to 60 months, in exchange for a reduction of the total amount owed. The payments are made to the Licensed Insolvency Trustee, who then distributes the funds to the creditors. The goal of a joint consumer proposal is to provide debt relief to individuals while also allowing them to fulfill their financial obligations in a more manageable way.
Who Can File a Joint Consumer Proposal?
Firstly, to file a consumer proposal in Canada, an individual must have at least $1,0000 owed to their creditors and be unable or unwilling to pay their debts as they become due. An individual can file a consumer proposal if their unsecured debts are less than $250,000, excluding a mortgage in the primary residence.
To file a joint consumer proposal, the individuals must have all or substantially all of their debts that are similar. There is no exact definition of what would qualify as “similar” and “substantially”.
Similar could mean the debts are owed to the same creditors. This could be joint debts such as a joint credit card or both individuals owing debts to the same financial institutions.
Substantially is somewhat unclear. The law does not specify a specific definition of this term, it could be interpreted as being more than 70% or even 90% of the debts involved are the same. This is more of a general guideline and a joint consumer proposal should only be used if it is beneficial for the debtors and creditors to combine the debts into a single consumer proposal.
When individuals file a joint consumer proposal, they make a single offer to their creditors to settle their similar debts. This allows the creditors to be treated fairly and equitably, as all similar debts are being paid off at the same rate.
Joint Consumer Proposal Example
John and Jane are married and have been struggling with their finances for some time. They have accumulated a total of $80,000 in unsecured debt, including credit card balances and personal loans. They cannot make their monthly debt payments and fall further behind each month.
John and Jane meet with a Licensed Insolvency Trustee who explains their options for debt relief. They have 90% of their credit card debts with the same bank. They decide to file a joint consumer proposal to get back on track with their finances.
In their joint consumer proposal, John and Jane offer to pay $400 per month for 60 months, for a total of $24,000, to settle their debts. This offer is submitted to their creditors through the Licensed Insolvency Trustee.
The creditors review the proposal and vote to accept it. With a majority of the creditors accepting the proposal, it becomes a legally binding agreement. John and Jane now make their monthly payments to the Licensed Insolvency Trustee, who distributes the funds to the creditors.
At the end of the 60-month period, the remaining debt is forgiven and John and Jane are no longer obligated to pay it. They have successfully managed their debt and have taken control of their finances.
Advantages and Disadvantages of Joint Consumer Proposal
When deciding between filing an individual consumer proposal and a joint consumer proposal, you need to make sure you understand the advantages and disadvantages of this option and whether it is a better option for your financial situation.
Advantages
Total Debts Included – In a consumer proposal an individual can file a consumer proposal for debts up to $250,000. In a joint consumer proposal, this amount is doubled to $500,000.
Lower Costs – The Licensed Insolvency Trustee will be administering one consumer proposal instead of two, so the fees will be less and more money will go to the unsecured creditors.
Disadvantages
The main disadvantage of a joint consumer proposal is both parties are locked into the agreement. In the joint consumer proposal, the individuals are committing to pay a monthly payment towards the consumer proposal. If one person decides not to make their portion of the payment, the other person will be responsible for the full payment.
For example, if a married couple were to separate after filing the joint consumer proposal, then one spouse may not want to continue making payments. Therefore, the other spouse would have to make the full monthly payment or the proposal will become deemed annulled. It is impossible to split the joint consumer proposal into two separate proposals once the creditors accept.
Is Filing a Joint Consumer Proposal the Right Choice for Me?
If you are considering filing a joint consumer proposal, you first need to determine if you are eligible for filing a joint consumer proposal by reviewing your debts with the individual also planning to file a consumer proposal. You want to determine how much of your total debts are similar by reviewing which debts are jointly owed and which debts are with the same financial institution. The debts must be substantially similar for a joint consumer proposal to even be an option.
You also need to ensure the person you are filing with it is committed to completing it. You should evaluate your relationship with that person because a consumer proposal can take up to 5 years to complete. For example, if you are currently having marital issues with your spouse, it may not be best to file a joint consumer proposal because it may be difficult to ensure the other person will pay their fair share of the proposal payments throughout the proposal.
Conclusion
A joint consumer proposal may or may not be better than filing an individual one. It is first necessary to see if you will qualify for one by speaking with a Licensed Insolvency Trustee. Then you should go through the pros and cons of each option and see which option will work best for your financial and personal situation.
If you are considering filing a joint consumer proposal or individual consumer proposal, Litvack Group would be happy to have a Free Consultation to discuss your financial circumstances and review your options. Contact us today!