In Canada, a consumer proposal is a formal, legally binding process that allows individuals to make an offer to their creditors to repay less than they owe. For couples or related individuals facing shared financial challenges, a joint consumer proposal can be an effective solution to manage debt collectively.

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What is a Joint Consumer Proposal?

A joint consumer proposal allows two people with shared debts to file a single proposal together. It works similarly to an individual consumer proposal, but instead of dealing with your debts alone, you and another person work together to make a single offer to your creditors.

Just like a regular consumer proposal, you’ll work with a Licensed Insolvency Trustee to create an offer to pay a portion of what you owe over a set period (usually up to 5 years). The key difference is that both people are included in the same proposal.

Who Can File a Joint Consumer Proposal?

To file a joint consumer proposal, both people must qualify individually and must share legal responsibility for most of their debts. To be eligible for a joint consumer proposal, both debtors:

must owe more than $1,000,
be unable to pay their debts as they come due
have substantially similar debts,
owe less than $500,000 combined in unsecured debt.

What Does Substantially Similar Mean?

The most important qualification for filing together is having “all or substantially all similar debts”:

Similar means both parties are jointly liable to repay the same debt. So if both a husband and a wife have co-signed on a bank loan or joint credit card, they each owe that debt.
Substantially has been interpreted to mean 90% of their total debts are shared debts. This 90% rule is not strictly enforced – it is more of a guideline.

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.

Understanding Joint Debts

Joint debt means both people are legally responsible for repaying the full amount. This includes:

Credit cards with both names
Co-signed loans
Joint lines of credit
Guaranteed loans where one person guarantees the other’s debt

Understanding the Combined Debt Limit

An individual consumer proposal has a debt limit of $250,000. If you file a joint consumer proposal, the debt limit is increased to $500,000 (excluding your primary residence mortgage).

Who Typically Files Together?

A joint proposal usually makes sense for:

Married or common-law couples with shared household debt
Parent and child or family members who have co-signed loans together
Business partners sharing both business-related debts and personal debts

The most common scenario for a joint consumer proposal is a married couple or common-law partners who have accumulated debts together. You can file a joint proposal if you and your spouse have joint credit cards, a shared line of credit, and co-signed loans.

A more complex situation is divorced or separated couples. Even after separation, you remain legally responsible for any joint debts from your marriage. A joint consumer proposal might still be an option if you continue to share responsibility for most of your debts, though you’ll need to consider if you can work together throughout the proposal period.

You must file individually if one spouse has significant individual debts, including student loans, tax debt or personal loans. Be aware that both spouses do not have to file. A consumer proposal does not affect the other spouse if only one spouse files.

Advantages and Disadvantages

A joint filing offers several advantages:

Both debtors can resolve their debts together while receiving creditor protection
Administration costs are lower since you’re filing one proposal instead of two
Lower costs can mean increased funds for creditors, which can increase the likelihood of approval
You have only one monthly payment to manage
As a couple, you have a higher debt limit ($500,000 combined vs $250,000 for individual proposals)

There are downsides of filing jointly you should consider carefully:

Both credit reports will show an R7 rating for three years after completing your proposal or six years from filing, whichever comes first. You both will find your ability to borrow limited for a period of time.
Both persons are responsible for making the full payment. If one person stops paying, the other must pay the entire proposal payment, or the proposal could be annulled. Think carefully about whether you’re comfortable with this long-term commitment.
Consider your relationship with the potential co-filer. Remember, you’ll be financially linked throughout the proposal term, which could be up to 5 years.
If debts are not significantly shared, separate proposals might be more appropriate.

Steps to File a Joint Consumer Proposal

The consumer proposal process is the same whether you file jointly or separately:

Consult a Licensed Insolvency Trustee (LIT): Engage a federally regulated professional to assess your financial situation and guide you through the process. There are many scenarios that will work when both spouses have debt problems, including filing jointly or separately. An LIT can explore those options with you.
Prepare the Proposal: Work with the LIT to draft a proposal outlining the repayment plan, including the amount of your debt settlement offer and payment schedule.
Submit the Proposal: The LIT files the proposal with the Office of the Superintendent of Bankruptcy (OSB) and notifies your creditors.
Creditor Review: Creditors have 45 days to accept or reject the proposal. If creditors holding the majority of the debt accept, the proposal is approved.
Implementation: Upon approval, both spouses must adhere to the payment schedule and attend two credit counselling sessions.

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Alternatives to a Joint Consumer Proposal

While a joint consumer proposal can work well for couples with shared debt, there are several other options to consider:

Both Spouses File Individual Consumer Proposals: If you and your spouse have mostly separate debts, filing individual proposals might make more sense. This gives each person control over their own debt repayment and allows for different payment terms based on individual circumstances.

Only One Spouse Files a Consumer Proposal: If one spouse has minimal debt beyond the joint obligations, they might prefer to handle full repayment of the joint debts outside a proposal. This could protect their credit rating while allowing the other spouse to get debt relief through an individual proposal.

Joint Bankruptcy: While more serious than a consumer proposal, joint bankruptcy might be necessary if neither spouse can afford proposal payments and you have few assets to protect. Like a joint proposal, you must have mostly shared debts to file bankruptcy together. This option should be considered only after exploring other debt relief solutions.

Individual Bankruptcy: If one or both spouses can’t afford proposal payments but don’t share most debts, filing bankruptcy separately might be the answer. This allows each person to deal with their debts independently while still getting relief from creditors.

Debt Consolidation: For couples who qualify, consolidating your debts into a single joint loan with a lower interest rate might be a better option than a joint proposal. This can simplify payments and reduce interest costs without the same impact on your credit rating. Be cautious, however, when assuming responsibility for individual debts if consolidating with a joint loan.

Credit Counselling: Working with a credit counsellor can help couples develop a debt management plan and budgeting strategies. This might be enough to get your finances back on track without needing a formal debt solution.

Mixed Solutions

Sometimes, the best approach combines different strategies. For example:

One spouse might file a proposal while the other pursues debt consolidation
One person might work with a credit counsellor while their partner files a proposal
One spouse might need to file bankruptcy while the other files a proposal

The key is finding the right debt relief option for your family’s specific situation. A Licensed Insolvency Trustee can review your options and help you understand which approach makes the most sense for your circumstances.

If you’re struggling with joint debts, don’t wait until the situation gets worse. Contact us for a free consultation to discuss whether a joint consumer proposal is right for your situation. Our Licensed Insolvency Trustees can help you understand all your options and make the best choice for your family’s financial future.

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Frequently Asked Questions

Can a divorced couple file a joint consumer proposal?

Yes, divorced couples can file a joint consumer proposal if they still share responsibility for most of their debts from the marriage. However, they must be willing to work together throughout the proposal period, which can be challenging. Alternatively, separated or divorced couples can choose individual proposals to maintain their financial independence.

What happens to joint assets in a consumer proposal?

You keep your assets in a joint consumer proposal, including your house, cars, and other property. Unlike bankruptcy, a consumer proposal doesn’t require you to surrender assets. However, the value of your assets may affect how much you need to offer creditors in your proposal payment plan.

How are payments split in a joint consumer proposal?

While the proposal sets one monthly payment amount, how couples split this payment is a private arrangement between them. Most couples divide payments based on their income or share of the debt. However, both people are legally responsible for the full proposal payment – if one person stops paying, the other must cover the entire amount to avoid the proposal being cancelled.

Joint Consumer Proposal: Who Can File Together?