Most consumer proposals are filed by one person, but it is possible to file a joint consumer proposal.
We will start with the assumption that you are eligible to file a consumer proposal and that this is the best debt relief solution. Whether or not you should file a consumer proposal jointly, or individually, depends on the circumstances.
Joint Proposals are for Joint Debts
A joint proposal can be filed where two people have debts that are substantially the same; the legal term is “commonality of debt” and is sometimes called ‘joint debts‘.
The important aspect to note here is that the debts do not have to be identical, but the majority should be shared debts.
For example, if a husband and wife have a joint credit card for $10,000 and they have both co-signed a line of credit for $40,000, their debts are identical, so they could file a joint consumer proposal. If the husband also had a $5,000 credit card, just in his name, their debts are substantially the same, so they could still file a joint proposal.
There is no specific percentage of debts that must be the same to allow you to file a joint consumer proposal, but as a general rule of thumb if more than half of your debts are the same, you would be eligible to file a joint consumer proposal.
What are the Advantages of Filing a Joint Consumer Proposal?
- Better Chance of Creditor Acceptance. Many creditors require a certain base “cents on the dollar” before they will accept a debt proposal. For example, one large Canadian bank will generally accept proposals if they are getting 35 cents on the dollar or higher. If you submit individual proposals you may be forced into offering a higher payout in order to meet this percentage threshold. As two individuals you may only be able to afford 20 cents each, but in a joint proposal you can offer 40 cents, which has a much greater chance of acceptance. The total payments you make as a couple would be the same, but the creditors ‘perceive’ a better deal because they are receiving above their in-house payout requirement.
- Potentially Reduced Total Proposal Payments. In fact, you may be able to offer less to your creditors together, than you would individually. Following our same example from above, instead of 40 cents on the dollar (20 cents each), you may be able to offer 35 cents in a joint proposal. This offer may acceptable to the bank, and would be less expensive for you than two individual proposals.
- Combined Debts Up To $500,000. A consumer proposal can be filed by an individual who’s debts, excluding a mortgage, do not exceed $250,000. In a joint proposal, the limit is increased to $500,000.
- Easier to Manage. Another reason to file a joint proposal instead of two individual proposals is that one payment per month is easier to manage than two payments. Knowing that all you have to manage is one payment gives you peace of mind.
What are the Disadvantages of a Joint Proposal
While there are many advantages to filing a joint proposal, there are also disadvantages.
- Person A may impair Person B. It’s possible that a creditor is willing to accept a proposal from Person A, but due to past difficulties wants a lot more money to accept a proposal from Person B. By filing jointly it’s possible that the creditor votes no, and as a result no proposal is acceptable. Had Person A filed separately they may have been able to get their proposal accepted.
- Joined at the Hip. If a husband and wife file a joint proposal, and then get separated, they potentially have a problem. The proposal will only continue if they continue to make their payments, even after separation. If it was a $500 per month proposal, the wife may be willing to continue paying $250 per month, but if the husband won’t or can’t make his share of the payments, the entire proposal will die. Had they both filed individual proposals, the wife could have kept her proposal going, even after the separation.
The key point here is that before entering into a joint proposal, consider all advantages and disadvantages, and satisfy yourself that you will be both be able to fulfill your obligations for the term of the proposal.
Credit Rating Impact of Filing a Joint Proposal
Whether you file an individual or joint consumer proposal, your debts are reported as an R7, and the proposal remains on your credit report for three years after you make your final payment. As a result, in most cases a joint or an individual consumer proposal has an identical impact on your credit report.
The only difference would occur where, individually, one of you could complete your proposal faster than the other person. For example, if on spouse pays off the proposal in three years, but the other takes four years to pay off his proposal, the proposal will remain on the second spouse’s credit report for one year longer.
If there is a reason that one spouse wants to rebuild their credit faster, an option may be to file two separate proposals, and to devote all extra funds to paying down one proposal first. However, in most cases it is wise to eliminate everyone’s debts as quickly as possible, so a joint proposal is generally the preferred option.
As you can see, there are many advantages, and some disadvantages to filing joint consumer proposals, so before deciding on the correct option for you, consult a consumer proposal administrator for a free initial consultation where all your questions will be answered.