Are you thinking about filing a consumer proposal to cope with your debt problems? If you and your spouse or loved one have a lot of debt together and are looking for ways to relieve your debt, you should consider a joint consumer proposal.
Can You File A Joint Consumer Proposal?
Yes, it is possible, and actually very common, to file a joint consumer proposal. This is usually when a married couple or common law couple files a consumer proposal together. In order to file a joint consumer proposal both parties must have “all or substantially all” the same debts.
While this may seem confusing and there really isn’t a legal definition for the term “substantially all”, joint consumer proposals are approved based on common sense. So if it makes sense to allow two people to file jointly, because they share a large amount of debt, then generally they can file a joint consumer proposal.
What Is A Joint Consumer Proposal?
A consumer proposal can be filed jointly by two or more people if all or substantially all of their debts are similar:
What Does “Similar Debts” Mean?
This means both people are responsible for repaying the same debt. For instance, if a husband and a wife co-signed on a loan, they are both required to pay back that debt.
What Does “Substantially All Debts” Mean?
This concept is a bit more complex, as it is not explicitly defined under the law. That said, “substantially all” debt may informally suggest that 90% of the debts are the same. Generally speaking, it would make sense to file a consumer proposal together only when dealing with joint debts.
Filing a consumer proposal jointly requires each individual to qualify for a consumer proposal on their own. More specifically, each person must meet the following criteria:
- Have over $1,000 in debts
- Be unable to repay their debts on time
- Own assets that would not be able to cover their debts if sold
Who Can File A Joint Consumer Proposal?
You may file a joint consumer proposal in Canada with someone that you hold common debts with. However, you must still meet the specific requirements and standards of a regular consumer proposal in order to file jointly.
1. Do You Have A Lot Of Joint Debts?
As we discussed before there is no set definition for “substantially all”, but as a general rule most licensed insolvency trustees will not allow you to file a joint consumer proposal if the two parties in question do not share at least 90% of the debts that are to be cover in the proposal.
What’s Considered Joint Debt?
Joint debt refers to debt that is taken out by two people. For instance, when a husband and wife borrow money together, this is considered joint debt. Both people sign a binding contract that requires them to share the liability for the debt.
Even if one person signs as a co-signer or guarantor, the debt is still considered joint debt. Both people are responsible for the entire outstanding balance.
In the case of a co-signed loan, the co-signer will be required to take over the loan payments if the original borrower ceases to make payments. Any issues with the account will be reported to the credit bureaus, and the credit scores of both the borrower and co-signer could be negatively impacted.
2. Does It Make Sense?
Furthermore, if you wish to file jointly, it must “make sense”. Look at it this way, it probably doesn’t make sense for you to file a joint consumer proposal with your neighbour, but it definitely makes sense to file a joint consumer proposal with your significant other. Here are a few situations when filing jointly “makes sense”:
- A married couple/common law couple. It makes sense for a couple to file a consumer proposal together because the debts in question were likely accumulated together. Also, if you file jointly instead of filing two separate proposals you’ll only need to pay the administrative fees once.
- Parent and child. Parents and children often have interconnected finances and therefore debts, so filing jointly makes sense.
- Business partners. While filing a joint consumer proposal with your business partner is possible, as you probably have credit and loans in both your names. However, your proposal will probably not be accepted if either of you has a lot of personal debt. This is because the vast majority of each of your debts needs to be debts you hold together.
Advantages And Disadvantages Of A Joint Consumer Proposal
There are of course both advantages and disadvantages to filing a joint consumer proposal, if you’re considering filing a joint consumer proposal it’s important that you consider any issues that might arise and determine whether or not it is the best option for your situation.
Advantages
- Filing jointly increases the maximum amount of debt you’re allowed to have from $250,000 to $500,000.
- It technically costs less; you’ll only need to pay the administration fees once instead of twice. This means that more of your income can go towards paying back your actual debts.
Disadvantage
- Both people are equally responsible for the payments. If one person is unable to make the payments anymore or simply stops making payments, the other person is legally responsible for those payments. Depending on the relationship you have with the person you want to file jointly with, this is an important point to consider.
- If you stop making payments your consumer proposal will be annulled.
- A specific payment will be agreed upon in the proposal. It’s up to the two parties to split it equally or figure out a payment agreement between them, your trustee will probably not do this for you.
What’s The Difference Between A Regular Consumer Proposal And A Joint Consumer Proposal?
The decision to file a consumer proposal alone or jointly will depend on your situation.
Filing A Joint Consumer Proposal
A joint consumer proposal makes more sense when you and your spouse both have a significant amount of personal and joint debts. This will save both time and money. Once the creditors have been paid the agreed-upon amount, you’ll both be discharged from your debts.
It should be noted that both your credit reports will be impacted when filing a joint proposal. More specifically, your credit reports will reflect an R7 rating that will stay on your reports for 3 years following the completion of your proposal.
Filing A Consumer Proposal Alone
You may choose to file a consumer proposal on your own if your spouse doesn’t have much debt aside from your joint debts. In this case, your spouse will only have to repay a percentage of the entire joint debt. This is beneficial because your overall debt will be reduced and your spouse’s credit score is protected.
Joint Consumer Proposal FAQs
What happens to joint debt in a consumer proposal?
Can a consumer proposal negatively impact my spouse?
How should I deal with joint debt?
What happens to joint debt if you’re separated or divorced?
Bottom Line
Consumer proposals, joint or single, are meant for very specific situations where the debt in question has become too much to handle and your income is not sufficient enough to cover it. While a consumer proposal is less extreme than bankruptcy it is still a serious financial decision and all other options should be carefully considered before you make your final choice.
As with all big financial decisions, we recommend that you speak with a professional who can help you decide what the best choice for you is.
