Can I Start a Consumer Proposal If My Debt is Co-Signed?

If your debts are too high for you to pay off, a consumer proposal may be a vital avenue to starting a debt-free life — however, many are cautious about starting a consumer proposal when their debts are co-signed. Can you start a consumer proposal if the debt is co-signed? Will the co-signer be forgiven for the debt once the consumer proposal is finished? Keep reading to find out what the co-signers role is in the consumer proposal process. 

What is a Co-Signed Debt?

A co-signed debt is a debt which has been co-signed by somebody else, making both you and your co-signer jointly responsible for the debt.

The co-signer is not the main borrower, but by co-signing the debt, they’re agreeing to pay the debt if the borrower cannot. Borrowers seek out co-signers for a better chance at getting approved for a loan. The co-signer acts as a crucial safety net for the lender. 

With this in mind, it’s understandable why many are concerned about starting a consumer proposal when some or all of their debts are co-signed. In this article, we’ll provide vital information about a co-signers role in the consumer proposal process and if you can start a consumer proposal with co-signed debts. 

Can I Start a Consumer Proposal If My Debt is Co-Signed in Canada?

Yes, a co-signed debt can be consolidated with a consumer proposal. However, borrowers should consider consolidating their co-signed debt with caution. There are still implications for the co-signer if you do choose to consolidate your co-signed debt. Let’s explore this more below… 

What You Should Know Before Filing a Consumer Proposal With Co-Signed Debt

Let’s quickly run through some facts about starting a consumer proposal with co-signed debts: 

1. The co-signer is still liable for any debts you don’t pay, even if you have had that debt consolidated.
2. Once you pay off the agreed upon amount in the consumer proposal, your co-signer can still be contacted by creditors for the remainder you didn’t pay. 
3. You cannot choose to exclude a co-signed debt from your consumer proposal because every unsecured creditor must be treated fairly and equally. 

In some cases, leaving the co-signer responsible for the remaining debt balance is perfectly fine, especially if they’re capable of paying off what’s left of the debt. 

One common scenario we see as debt-relief experts is the borrower’s spouse co-signing the loan. Sometimes, the spouse is in a better position to pay off the debt, and the borrower uses the consumer proposal to pay off what they can while the spouse pays off what’s left.

If the co-signer is not capable of paying off the remaining debt, it’ll have a major impact on their credit. 

We recommend getting the co-signers consent to pay off the remaining debt before filing for a consumer proposal, especially if you want to maintain a positive relationship with them. 

If your co-signer cannot pay off the debt, but you still need to file a consumer proposal, you can file a joint consumer proposal with the co-signer. 

How to File a Consumer Proposal For Co-Signed Debt: Joint Consumer Proposals

Let’s review some key takeaways for filing a joint consumer proposal alongside your co-signer:

1. Both the borrower and the co-signer can be forgiven for the amount of debt they cannot repay. 
2. The borrower and the co-signer will make a joint monthly payment.
3. Both the borrower and the co-signer will have their credit impacted by a consumer proposal (which will show up as a R7 rating on your credit report). 
4. If one person stops paying, the other person is still responsible for paying the full amount. If not, the proposal is subject to being annulled. Once annulled, both of you will once again be responsible for the full debt balance, 

Keep these facts in mind when choosing to pursue a joint consumer proposal with your co-signer. 

To file a joint consumer proposal for co-signed debt, here’s the steps you should take:

• Confirm with your Co-Signer: Before doing anything else, ensure your co-signer is aware of the situation. If they are willing to commit to a consumer proposal with you, you should bring them to any consultations you have with a debt relief specialist or LIT. 
• Speak to a 4 Pillars Debt Relief Specialist: Reach out to one of our local Canadian debt relief specialists. We’ll be able to provide expert insight into the various options available for paying off your debts, not just consumer proposals. We help our clients understand the full implications of a debt consolidation plan, covering both the pros and cons. We’ll work with you and your co-signer to figure out if an individual consumer proposal, joint consumer proposal, or other debt repayment avenue is right for you — Book a free consultation!
• Get Connected to an LIT: After your free consultation with 4 Pillars, you might decide to go through the consumer proposal process. 4 Pillars will connect you with a licensed insolvency trustee (LIT) to begin drafting your consumer proposal. Your LIT will work alongside you to create a proposal that is reasonable for both you and your creditors. 
• Submit the Consumer Proposal: Once you’ve finalized the consumer proposal, your LIT will file the proposal on your behalf. After that, the creditors have a limited timeframe to either accept or reject the proposal. If the proposal is rejected, your LIT will work with you again to revise and re-file it. If the proposal is accepted, you’ll then be responsible for paying the fixed monthly payment outlined in your proposal.