Is There A Debt Minimum For A Consumer Proposal?

Category: Consumer Proposal (10) comments

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.

minimum debt consumer proposalHow 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.

Leave A Comment

  1. Brian L.

    Once engaged in either personal bankruptcy or consumer proposal, is it true that I cannot write a personal cheque for an amount greater than $5,000 for a period of two years? I’d appreciate your commenting on this issue. Regards, BL

    1. Ted Michalos Post author

      It most certainly is NOT true. Bankruptcy laws in no way restrict your ability to write cheques (assuming you have the money in your account to cover the cheque). Whomever has told you this was quite simply wrong.

  2. Andriana

    How will a Consumer Proposal affect my net assests on my divorce financial statement?

    If I file for bankruptcy, do I still owe my ex an equalization amount for our divorce?

    1. Ted Michalos Post author

      Filing a consumer proposal should have no affect on the asset side of your financial disclosure in a divorce. It may alter the liabilities side (since the purpose of a proposal is to reduce the total amount of debt you are required to repay).
      If you file for bankruptcy you may not be required to make an asset equalization payment – it depends on when you file and where you are in the divorce process. For example, when you file for bankruptcy you sign over your ownership interest in your many of your assets. If you file before you commence a divorce then you no longer have the assets to disclose (you’ve already signed them over in the bankruptcy). If you have completed your divorce and there is a Court Ordered Equalization payment and then you file for bankruptcy, you may not be required to make the equalization payment as it is a debt that may be included in your bankruptcy. Be careful – if the equalization is due to equity in a house, your ex may argue the Court Order gives them a security interest in the house (like a mortgage). Similarly, if the equalization is for RRSPs or pensions and these funds are protected from the bankruptcy the Court may Order the equalization to proceed, regardless of your bankruptcy. You need to review your situation with a trustee and your divorce lawyer to determine your best course of action.

  3. Jorge

    Can you file a consumer proposal to CRA only, and still pay off other creditors in full. i.e. if you are running a small business and you want to continue to pay off your accounts owing.

    1. Ted Michalos Post author

      If you file a consumer proposal, you need to treat all of your unsecured creditors the same. If you want to pay all of your trade creditors (suppliers) in full then you will need to pay CRA in full. There is another type of proposal, called a Division I Proposal to Creditors that allows for the creation of different groupings (classes) of creditors. You could use this to set up different rates of repayment, but the more complicated the arrangements, the more difficult it is to have your proposal accepted by each class of creditors and then approved by the Court. In addition, a Division I Proposal to Creditors can be very expensive (when compared to a consumer proposal).

  4. Regan

    I had a bank account and credit card go to collections and was offered a reduced payment to clear myself of the debt. The account and credit card were no more than 1,500 together. I didn’t file for anything, just paid the collectors and off we went.

    Was this a consumer proposal? I tried to get a new credit card a year later and was told this was showing on my credit as such. Is that possible?

    1. J. Douglas Hoyes

      Hi Regan. No, you did not file a consumer proposal. A consumer proposal is a legal process, filed through a licensed consumer proposal administrator (who is also a trustee in bankruptcy).

      You should get a copy of your credit report to see how the collection activity was reported. It is likely that it shows that you made a settlement directly with the creditor. It should show that there is no balance owing. Information like that will show on your credit report for up to six years, so it may be that the new credit card company is rejecting your application due to your past credit problems. You would need to ask the new credit card company to tell you specifically what steps you need to take now to rebuild your credit to allow you to qualify for a new credit card. It may be necessary for you to take steps like getting a secured credit card to rebuild your credit.

  5. Michael S

    Good Morning,
    Bankruptcy and Consumer proposals are meant to help a person who finds themselves in a dire situation and unable to pay creditors the actual amount owing. Being a lose of a job, an injury, etc this is definitely benefical. My concern is when you have for example a Contractor who schemes his clients (request and accepts payment under the table) and uses consumer proposals to his benefit when it is meant for persons in need of help. For instance a contractor has been assessed by the Small Claims Court of Ontario to pay the Plaintiff $35,000. The Contractor ignores this judgement, the Plaintiff sends a demand letter, he ignores again. The Plaintiff file for Garnishment and knows his financial institution. Has his bank account garnished for half the amount owing. The Court has the funds on hold but before the 30 days has past the Debtor files a Consumer Proposal and has a Notice of Stay implemented.
    This is a concern of many Plaintiffs that although their are procedures in place to help those in need it also benefits those individuals that utilize it as a tool to ensure they can keep as much of their illegal assets they scheme from clients.
    How can the individuals that are owed money be protected in this process. I hate to use the term Crime Does Pay, it certainly does with shady contractors who use the process to their advantage.
    If there is anything you can provide to also assist the individual Creditors who are being taken for their hard earned money.
    Thank you.

    1. J. Douglas Hoyes

      Hi Michael. The creditors have a vote in the consumer proposal, so they can vote against a consumer proposal. I suggest you raise your concerns with the trustee who is administering the consumer proposal.


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