Consumer Proposals: Debt Limit

Consumer Proposals: Debt Limit

Proposals to creditors are a great way for many people to deal with their debts, without having to file for personal bankruptcy in Ontario. Today we answer the question: “What is the debt limit in a consumer proposal?”

The Bankruptcy & Insolvency Act sets the debt limit in a consumer proposal to $250,000 in debt, excluding the mortgage on your principal residence.

Specifically, a “consumer debtor” is defined to mean “an individual who is bankrupt or insolvent and whose aggregate debts, excluding any debts secured by the individual’s principal residence, are not more than $250,000”.

This higher debt limit (it was increased from $75,000 in 2009) is one of the primary reasons why almost two-thirds of all insolvencies in Ontario are now consumer proposals.

What if your debts are above the Debt Limit?

In this case, you may qualify for a Division 1 proposal.

In a Division 1 proposal a meeting of creditors must be held within 21 days (instead of the 45 days creditors have to consider a consumer proposal), so time pressures sometimes may it difficult to get creditor agreement. In addition, a Division 1 proposals requires a 50% plus one majority in the number of creditors, and a two thirds majority in dollar value to ensure passage. This is a more onerous requirement than the simple majority of creditors required in a consumer proposal.

A Division 1 proposal is also more onerous to administer, since the Administrator (Hoyes, Michalos & Associates Inc.) is required to maintain separate bank trust accounts for each proposal, and must obtain court approval for all Division 1 proposals. These increased costs result in increased fees, which ultimately reduces the proceeds distributed to the creditors, and therefore reduces the chances of the proposal being approved.

Finally, if a Division 1 proposal is rejected, the debtor is automatically bankrupt. In a consumer proposal, an automatic bankruptcy does not occur.

Debt Limit does not solely determine cost

While the debt limit defines who can qualify for a consumer proposal, the amount of debts do not by itself dictate the cost of your proposal.  There is a rule of thumb that says a consumer proposal can result in a reduction in your total debt by as much as 70% and this is true.  This is based on the fact that creditors expect a minimum recovery in most cases.  However the actual cost of a consumer proposal is a much more complicated calculation that requires a debt assessment.  Our licensed insolvency trustees will provide this calculation during your free debt assessment.

Considering a proposal? We can negotiate a solution for you. Contact us today for a free, no-obligation consultation.

Similar Posts:

  1. Consumer Proposal Vs. Division I Proposal to Creditors
  2. Can You File A Consumer Proposal Twice?
  3. How Much Debt Does it Take to File Bankruptcy in Canada?
  4. Bankruptcy Options in Canada
  5. Improving Mandatory Credit Counselling for Bankruptcies and Consumer Proposals

Get A Personalized Debt Free Plan

Debt Free in 30 Podcast with Doug Hoyes

Find an Office Near You

Offices throughout Toronto and Ontario

google logoHoyes, Michalos & Associates Inc.Hoyes, Michalos & Associates Inc.
4.9 Stars - Based on 291 User Reviews
facebook logoHoyes, Michalos & Associates Inc.Hoyes, Michalos & Associates Inc.
4.7 Stars - Based on 33 User Reviews

SignUp For Our Newsletter

Please enter valid email.

Sign up for our newsletter to get the latest articles, financial tips, giveaways and advice delivered right to your inbox. Privacy Policy