We are often asked, “Is there a minimum amount I can file a proposal for?” The answer depends on how you interpret the question. We’ll answer that question by looking at:
- Is there a minimum debt amount to be eligible to file a consumer proposal?
- Is there a minimum amount you have to agree to repay?
Are You Eligible To File A Consumer Proposal?
In order to file a consumer proposal in Canada you have to meet the eligibility requirements to be considered an “insolvent person” as set out in Section 2 of the Bankruptcy and Insolvency Act. That means:
- you must owe a minimum of $1,000 to your creditors,
- you are unable for any reason to make your payments as they become due or you stop making your payments as they come due,
- and / or your assets if sold, will not generate sufficient money to pay off your debts.
From a practical standpoint, it is unlikely anyone would ever file a consumer proposal for as little as $1,000 in debts, but it is permitted under the law.
How much debt do you need from a practical standpoint? The answer to that question depends entirely upon your personal situation. We have seen people file consumer proposals for less than $10,000 in total debt, but these cases are unusual. Our most recent example was for a person that was being garnisheed by a payday loan company. Their total debt was about $7,500, but the garnishee made it impossible for them to pay their rent. Filing the consumer proposal stopped (stayed) the garnishee and made dealing with their debts more manageable. If they hadn’t been garnisheed I don’t know that a proposal would have made sense, but after a careful review of all of their debt relief options, the consumer proposal proved to be the best way to deal with their unique situation.
Is There A Minimum Payment Requirement In A Proposal?
Under the law, there is no minimum repayment limit, but from a practical standpoint there are a couple of considerations.
First, when you file a consumer proposal your creditors are going to compare your offer to the amount they might receive if you were to file for bankruptcy. If you do not offer your creditors as least as much as they might receive if you filed in bankruptcy then your creditors aren’t going to agree to accept your proposal.
In addition, most of the large commercial lenders in Canada have set internal policies regarding the minimum amount they will agree to accept in a consumer proposal. Currently for most banks and large credit card companies, the rate is 30% of your total debt. In other words, if you do not offer to repay at least 30% of what you owe your creditors are not likely to agree to your proposal.
Of course you need to combine these two criteria when you are deciding how much to offer to repay: you need to offer the greater of (1) what your creditors expect to receive if you were to file for bankruptcy; and (2) 30% of what you owe.
Ignoring the percentages and what a bankruptcy might be worth, is there a bottom line dollar threshold you can offer to repay in a consumer proposal?
There is no legal minimum, but we are not aware of any trustee that will allow you to offer to repay less than $6,000 towards your debts. The reasoning seems to be based on a cost-benefit analysis for your creditors. If you are paying $6,000 in a consumer proposal the various fees that your creditors will be required to pay are approximately $3,000 leaving $3,000 to be applied to your debts. If you repay less than $6,000 then the fees might actually exceed what the creditors receive and so they probably wouldn’t accept your offer.
If you are concerned that you don’t owe enough, or you can’t afford to repay enough of your debt to file a consumer proposal then what we suggest is you discuss your situation with a licensed bankruptcy trustee. They will review all of your debt relief options and help you choose the one that is right for you.