What are the Qualifications for a Consumer Proposal

One of the most frequent questions we get in e-mail or on the phone is “What are the qualifications for filing a consumer proposal?” Answering this question means we should consider whether or not they are technically eligible to file a consumer proposal and whether or not a proposal will be accepted. The top 5 considerations are as follows:

Qualification 1:

You must be insolvent. What this means is that you have more debts than assets. For the accounting people, you have a negative net worth.  In other words, if you sold all your assets and paid your debts, there would still be debts left over.

Qualification 2:

Your unsecured debts must be less than $250,000. A consumer proposal will only apply to your unsecured debts. So if you have mortgage problems or want to include a car loan where the car was taken as security, these assets would have to be returned and the shortfall would be part of the proposal. If you keep them, you must make the payments and they are excluded.

Qualification 3:

The proposal you offer must be better for the creditors than a bankruptcy.  Therefore if you have equity in your house, if you made payments into your RRSP within the last twelve months, if you have assets that are not exempt from bankruptcy like an RESP, or if you have surplus income, your proposal has to pay more money than there would be paid into your bankruptcy from all of these sources combined.

Qualification 4:

Your proposal would have to be better than the minimum amount that creditors normally decide is acceptable. If you do not offer a net dividend of 20-35%, depending on the creditor, the creditors are likely to say no. As the rate of return goes higher, the success rate goes higher. Once the rate of return reaches thirty percent, the success rate is usually around ninety percent. However, you must also meet qualification three. If you have not met qualification three, your proposal will have to be more.

Qualification 5:

You must reside in Canada at the time you file the proposal. You need to be here so that the trustee who is there when you sign the proposal can witness your signature. Therefore, it is not possible for documents to be exchanged by e-mail in order to file the proposal.

Or more information about whether or not you qualify to file a consumer proposal contact a consumer proposal administrator today.

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