Filing a consumer proposal in Ontario can protect your assets from general creditors, but it does not erase your obligations to pay child support or spousal support. An equalization payment owed to an ex-spouse is generally considered an unsecured debt that can be included in the proposal, though this severely complicates family law proceedings.
Understanding Consumer Proposals in Family Law
Separation almost inevitably brings financial hardship. When the cost of running two households becomes unbearable, many individuals in cities like Brampton, Windsor, and Toronto look for debt relief. A consumer proposal under the federal Bankruptcy and Insolvency Act offers a structured way to pay off a portion of your debts while keeping your assets.
However, intertwining insolvency with an Ontario divorce is highly complex. The Family Law Act has specific rules about property equalization and ongoing support. ❗ While a consumer proposal can stop credit card companies and banks from garnishing your wages, it cannot be used as a weapon to avoid supporting your children or ex-spouse. Understanding how these two legal frameworks interact is vital to protecting your future.
Step-by-Step Process for Filing During a Separation
Filing for insolvency while separated requires coordination between multiple professionals. Most applicants navigate this process carefully to ensure neither family law nor insolvency rules are breached.
Step 1: Consulting a Licensed Insolvency Trustee (LIT)
Your first step is to meet with a Licensed Insolvency Trustee. They are the only federally regulated professionals in Canada authorized to administer a consumer proposal. The LIT will review your income, assets, and debts to determine if a proposal is a better option than declaring bankruptcy, which could force the sale of your assets.
Step 2: Valuing Net Family Property
Before finalizing the proposal, you must determine what you owe your ex-spouse under Ontario family law. Your family lawyer will calculate your net family property. 📝 If you owe an equalization payment (a lump sum to balance the marital assets), this debt must be declared to the LIT. It is generally treated as an unsecured claim, meaning your ex-spouse becomes one of your creditors.
Step 3: Filing the Consumer Proposal
The LIT will draft an offer to your creditors (e.g., paying $30,000 of a $60,000 debt over five years). Once filed, a “stay of proceedings” immediately stops collection calls and lawsuits from banks. However, your ex-spouse gets a vote. Since creditors holding a majority of the debt must agree to the proposal, a spiteful ex holding a massive equalization claim could potentially vote against it.
Step 4: Managing Support Obligations with the FRO
It is crucial to understand that child support and spousal support cannot be compromised in a consumer proposal. 💰 The Family Responsibility Office (FRO) in Ontario will continue to enforce these monthly payments. If you fall behind on support, the FRO retains the power to suspend your driver’s licence or garnish your wages, regardless of the consumer proposal.
Step 5: Dealing with Joint Debts
If you include joint credit cards or a joint line of credit in your consumer proposal, the bank will immediately demand full payment from your ex-spouse. This is due to “joint and several liability.” Your ex-spouse’s family lawyer will likely aggressively pursue you for causing this financial harm, adjusting spousal support claims or challenging the property division in the Superior Court of Justice.
How Much Does it Cost in Ontario?
Combining insolvency and family law requires specialized legal guidance. Here are the expected costs in CAD:
| Licensed Insolvency Trustee Fees | Regulated by federal tariff (built into proposal) |
| Monthly Proposal Payments | $150 – $1,000+ (Depends on your income/debt) |
| Family Lawyer (Advising on Insolvency) | $2,500 – $5,000+ |
- Court Filing Fees: Insolvency filings are handled by the LIT, but any connected motions in family court will incur standard provincial fees (around $408 for a motion).
- Asset Protection: Unlike bankruptcy, a consumer proposal allows you to keep assets like your car or home equity, provided you keep making the secured loan payments.
How Long Does the Process Take?
A consumer proposal can last for a maximum of 5 years (60 months) in Canada. 📅 The initial filing and creditor voting process takes about 45 days. However, resolving the family law side-calculating equalization and signing a separation agreement-often takes 6 to 12 months. It is highly recommended to finalize your family law property division before filing the proposal, whenever possible.
Frequently Asked Questions (FAQ)
Will a consumer proposal clear my child support arrears?
No. Under Canadian law, debts arising from child support and spousal support survive insolvency. You are legally required to pay these arrears in full, and the Family Responsibility Office (FRO) will continue enforcement actions.
Does my ex-spouse get a say in my consumer proposal?
If you owe your ex-spouse an equalization payment, they are considered an unsecured creditor. They will receive notice of the proposal and have the right to vote on whether to accept or reject your offer, proportionate to the amount of debt you owe them.
Can I keep the matrimonial home if I file a proposal?
Yes, generally you can keep your home, provided you continue making your mortgage payments and your proposal offers creditors more value than they would get if you declared bankruptcy and the home was sold. However, family law rules regarding your ex-spouse’s right to the home still apply.
What happens if I go bankrupt instead?
If you declare bankruptcy, control of your assets transfers to the Trustee. Your portion of the equity in the matrimonial home could be seized and sold to pay your creditors, dramatically affecting your family law property settlement.
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