Bankruptcy vs Consumer Proposal Alberta

Bankruptcy vs Consumer Proposals in Alberta: A Comprehensive Comparison

Facing considerable debt can be overwhelming and leave you feeling trapped. In such situations, two debt relief options commonly considered are bankruptcy and consumer proposals. This article will explore the distinctions and similarities between bankruptcy vs consumer proposal Alberta.

What is a Consumer Proposal?

A consumer proposal is a legally binding agreement that provides debt relief and protection from unsecured creditors without filing for bankruptcy. It is applicable for those who owe less than $250,000, excluding the mortgage on their primary residence.

In a consumer proposal, a licensed insolvency trustee tailors a debt repayment plan that outlines more manageable terms. Once this plan receives approval from the majority of your creditors, you are then obliged to adhere to these new terms.

Circumstances for Choosing a Consumer Proposal

Consumer proposals are usually the best choice for individuals who:

  • Have debt exceeding $5,000 but not more than $250,000 (excluding a home mortgage)
  • Have a regular source of income and can afford some monthly payments
  • Are unable to repay their debts on time
  • Prefer to avoid the implications related to income and asset rules if they were to file for bankruptcy

Quick Facts About Consumer Proposals

  • Division I Consumer Proposals are only available to individuals with less than $250,000 of debt
  • Only licensed insolvency trustees can file consumer proposals
  • Once a Consumer Proposal is filed and a plan is presented to creditors, they have 45 days to vote for approval
  • A majority vote makes the proposal legally binding on all unsecured creditors subject to Section 178 debts (e.g., student loans, child support, etc.)

What is Bankruptcy?

Bankruptcy is a legal procedure initiated by an individual or corporation incapable of repaying their outstanding debt. Upon filing for bankruptcy, it halts collection, legal action, and wage garnishment. While it may not discharge all debt, it can provide financial relief and an opportunity to start fresh.

Circumstances for Choosing Bankruptcy

If you lack the financial resources to pay your debts and your creditors refuse to agree to a consumer proposal or another remedy, you may want to consider filing for bankruptcy.

Who Can Benefit From Bankruptcy?

Filing for bankruptcy may be your best option if:

  • You’ve been unemployed for a prolonged period without any savings or unemployment income.
  • Your wages are being garnished.
  • You have overdue income taxes.
  • You’re facing lawsuits for delinquent bills.
  • Your home is nearing foreclosure.
  • You’re uncertain about how much you owe.
  • You’re using credit cards to pay for necessities.
  • You frequently take out payday loans.

Quick Facts About Bankruptcy

  • Certain specific debts are not discharged as a result of filing for bankruptcy.
  • Bankruptcy halts legal action by unsecured creditors—including wage garnishments.
  • Bankruptcy does not follow you forever, and you may be discharged in as little as 9 months.
  • Bankruptcy will not release your third party’s personal guarantee of the debt.

Comparing Bankruptcy & Consumer Proposals

While both bankruptcy and consumer proposals can provide debt relief, the best option for you largely depends on your unique circumstances.

If you have no income, are dealing with lawsuits, unable to pay back any of your debt, and are overwhelmed financially, bankruptcy might be the best option for you. On the other hand, if you have a source of income, savings, or assets, and the ability to pay down some of your debt, but not all, a consumer proposal could be an advantageous choice.

Consider a Consumer Proposal if you:

  • Have a source of income, assets, or savings.
  • Can make some financial payments.
  • Are not reliant on credit cards for necessities.
  • Can maintain a residence.
  • Are not facing any creditor lawsuits.

Consider Bankruptcy if you:

  • Do not have an income, assets, or savings.
  • Have creditors initiating lawsuits.
  • A home foreclosure is pending.
  • Have maxed out your credit cards.
  • Are using credit cards or loans to pay for necessities and bills.
  • Have liquidated your retirement assets.

Schedule Your FREE Consultation Today

If you’re still unsure whether a Consumer Proposal or bankruptcy is right for you, professional credit counsellors can assist. They can help determine the best debt solution for your unique situation.

Concluding Thoughts

The decision between bankruptcy vs consumer proposal in Alberta can be challenging. Both options have their pros and cons, and the best choice depends on your specific financial situation. It’s crucial to seek professional advice before making a decision. Remember, there is always help available, and you don’t have to navigate these difficult decisions alone.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.