What Happens if I Owe More Than $250,000 to My Creditors?

February 7, 2019

One of the debt recovery questions we’re most frequently asked is what happens if you owe more than $250,000 to your creditors.

Once you pass the $250,000 threshold of debt, some options are taken off the table. You can no longer file for certain Consumer Proposals, for instance, since to be eligible you need to have less than $250,000 total debt, not including your mortgage.

However, there are still ways to recover. We’ll outline those methods below.

Access Home Equity

Home equity is the difference between the value of your home and the unpaid balance of your current mortgage.

If your home is worth $1 million, and you have paid off $500,000 of it, then you would have $500,000 in home equity.

If you have enough equity, you could use it to pay off your debts, even if they are above $250,000. This, of course, depends on the value of your home.

Review Debt Consolidation Options

Even if you do not have enough home equity available to pay off all of your debts, it’s possible that you could still make use of it.

For instance, if you have $100,000 available in home equity, and owe $250,000 in debt, you might use that equity and then look for consolidation options for the remaining $150,000 that is owed.

Owing less could also mean that you are now eligible to file for a Consumer Proposal.

File for a Division I Proposal

When you owe more than $250,000, although you cannot file for a Consumer Proposal, you can file for a Division I Proposal. This is a similar process to a Consumer Proposal; however, if your offer isn’t accepted by the majority of your creditors, you become bankrupt automatically.

File for Bankruptcy

If accessing home equity isn’t an option at all, or wouldn’t help the situation enough, you might consider filing for Bankruptcy.

Unlike a Consumer Proposal, there is no eligibility limit for Bankruptcy. You can file for Bankruptcy regardless of the amount you owe.

A Bankruptcy is a legal process that is best to use as a last resort — if you cannot meet your financial obligations and solve your debt problems in any other way. However, if the alternative is having creditors take collection action, like garnishing your wages, freezing your bank account, or putting liens on your assets, then Bankruptcy is the better choice.

When you become bankrupt, a Licensed Insolvency Trustee takes possession of all of your assets above your exemption limit (this varies by province and territory), such as household goods, clothing, and tools of your trade.

The assets that you turn over to the LIT will be sold, and the money will be used to pay your creditors .

When you owe money to creditors, it is better to take action sooner rather than later. Even if you owe more than $250,000, debt recovery is still possible.

At Fuller Financial Solutions, we can review all of your options and help you decide which choice is best for your specific situation. Our consultations are free and completely confidential.