Joint Consumer Proposal: Dealing With Joint Debt

joint-consumer-proposal-updatedA consumer proposal in Canada as a negotiated debt settlement arrangement made between a debtor and his creditors through a licensed Consumer Proposal Administrator under the Bankruptcy and Insolvency Act.

So what happens when two people are liable to repay the same debt?

It is possible for two people to file a joint consumer proposal to deal with debt. Whether or not you need to depends on the answers to a few questions.

  • Are you both in debt?
  • Do you both need relief from your debts?
  • Is a consumer proposal the right solution for both of you?

Let’s deal with some basics first.

What is a Joint Consumer Proposal?

Consumer proposals may be filed jointly by more than one person as long as all or substantially all of their debts are similar.

To understand this definition we need to look at two factors: similar and substantially.

  • Similar can be interpreted as meaning that both parties are liable to repay the same debt. So if both a husband and a wife have co-signed on a bank loan or have joint names on a credit card, they each owe that debt.
  • Substantially is a bit trickier. The law doesn’t actually define exactly what substantially is, but it has been interpreted to mean 90% of their debts are the same. This 90% rule is not strictly enforced – it is more of a guideline but essentially it would only make sense to file a consumer proposal together to deal with combined or joint debts.

For example, John and Mary are married.  John owes $40,000 in credit cards and other debts.  Mary is joint on $20,000 of the debts and has another $2,000 in her own debts.  90% of Mary’s debt is similar to John’s so they are eligible to file jointly.

To file a consumer proposal jointly, each person must be eligible to file a consumer proposal individually.  That means each person must:

  • owe more than $1,000 to their creditors (even as a co-borrower),
  • be unable or unwilling to pay their debts as they come due,
  • have assets (the things that they own) that if sold, wouldn’t pay off their debts.

Advantages and Disadvantages

Should you file a joint proposal?

No one can be forced to file a consumer proposal.  Even if you are married and one spouse decides to file, the other spouse is free to file or not, depending on their own decision.

There are two main advantages to filing a joint consumer proposal:

  • The debt limit to file a consumer proposal is increased to $500,000 for a joint proposal, from $250,000 for an individual (excluding any mortgages on a principal residence).
  • Some costs can be saved and therefore more money may be available to offer the creditors increasing the chances of success while keeping your payments affordable.

The downsides of filing jointly:

  • a record of having filed a consumer proposal will appear on both parties credit report so you both will find your ability to borrow limited for a period of time;
  • both persons are responsible for making the full payment (it's like another joint obligation). So if one person doesn't make the payment, the other must or the proposal will be annulled once you miss 3 payments.

Possible Scenarios

The only way to decide whether or not you should file jointly is to consider what makes the most sense for the family and their creditors.  Each case is different and whomever you are working with to deal with your debts should walk you through all possible options.

While the most common approach when debts are substantially the same between spouses is to file a joint consumer proposal we have seen cases where:

  • One spouse files a proposal and the other keeps doing what they have always done.
  • One spouse files a proposal and the other files bankruptcy.
  • Both spouses file their own proposals because that’s what makes the most sense for them.

Do you both need to file a consumer proposal?  Maybe, but you don’t have to.  At the end of the day each of you should do what makes the most sense for you and for the family.

consumer proposal spouse