Can you file a consumer proposal with a positive net worth?

I’m struggling to pay debt and honestly I’m super confused with all the different debt options available since I never faced this situation before.

Which way to reduce my debt while NOT hurting my credit score? (Ideally)

Debt consolidation, Debt settlement, Credit counseling, Consumer Proposal, or Bankruptcy? (last resort i guess)

I still have a decent credit score (715) and still making mortgage/car/minimum cc payments, but i have the following debt which i cannot pay anymore:

CRA personal: 47k CRA business: 38k Property Taxes: 15k Credit Card balances: 20k (30%ish usage of available credit)

I also own a home valued at 450k and have 175k balance on the mortgage…

What of the above options would be best?

Victor Fong, Licensed Insolvency Trustee replies

In regards to your CRA business debts of $38,000 – what is this for?

If you’re incorporated and you’re a director, you are liable for unremitted sales taxes and payroll taxes, but not corporate taxes.

I’m going to review your situation under the assumption that you’re the director of an incorporated business and the $38K is unremitted HST and/or payroll taxes.

I’m also going to assume that you’re the sole owner of your home.

As another commenter indicated, you aren’t insolvent in the conventional sense. In fact, from the information you’ve provided, you have a net worth of $145K:

Home $450,000

Mortgage 175,000

Property taxes 15,000

CRA personal 47,000

CRA business 38,000

Credit cards 30,000

Net worth: $145,000

In regards to whether you can file a consumer proposal – a CP is a proceeding under the Bankruptcy and Insolvency Act and you can only file a CP if you are an “insolvent person”.

However, the BIA defines an “insolvent person” as follows:

insolvent person means a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors provable as claims under this Act amount to one thousand dollars, and

(a) who is for any reason unable to meet his obligations as they generally become due,

(b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or

(c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due

You might qualify as an insolvent person under paragraph (a).

And if you do, the CP will only deal with your unsecured creditors as your secured debts such as your mortgage and property taxes will have to be paid in the normal course.

Your unsecured creditors won’t accept anything less than full repayment of what you owe them, which is $130,000. The advantage of filing a CP is that the interest stops accruing on your debt. Given the high interest rates on your CRA and credit card debt, this would be a significant benefit to you, despite the negative effect on your credit score.

A CP can be paid over a maximum period of 60 months, so your CP payments would be $130,000/60 months = $2,166.66.

In addition to the $130K, you’ll have to pay the LIT’s fees for facilitating your CP.

In normal circumstances, an LIT would be paid out of the proposal fund according to a tariff (i.e., a regulated percentage of the proposal fund).

But in a situation like yours where the creditors will be 100 cents on the dollar, you’ll have to pay the LIT his fees in addition to the $130K. The amount of fees will vary from firm to firm.

In regards to your concerns about your credit:

1. Once your CP has been approved by your creditors, you can start rebuilding it by obtaining a secured credit card.
2. Your CP will stay on your credit history for either 6 years after you file your CP or 3 years after you pay it in full, whichever occurs first. Therefore, the faster you can pay off the $130K the more quickly you can get the CP removed from your credit report.