Consumer Proposal Services in Alberta

Mastering Consumer Proposal Services in Alberta: How to Reduce Your Debt

Struggling with overwhelming debt can be a daunting experience, but there is hope for individuals seeking debt relief in Alberta. Consumer Proposal Services offer a legally binding process under the Bankruptcy and Insolvency Act, allowing insolvent Canadians to repay a portion of their debts based on their income and assets 1. This debt management program provides a structured plan for financial recovery, helping individuals achieve a fresh start and become debt-free 2.

In this article, we will delve into the ins and outs of Consumer Proposal Services in Alberta, exploring the process of filing a consumer proposal, comparing it to personal bankruptcy, and discussing the role of licensed insolvency trustees. We will also debunk common myths surrounding consumer proposals and provide insights into what life looks like after completing a debt repayment plan.

Understanding Consumer Proposal Services in Alberta

Consumer Proposal Services in Alberta are offered by various organizations, including:

  1. The Credit Counselling Society, a not-for-profit credit counselling service recognized as one of Canada’s leading debt relief services 3.
  2. Allan Marshall & Associates, helping individuals and families with financial problems since 1979, offering Personal Bankruptcy, Consumer Proposals, Credit Counselling, and Debt Relief Options 4.
  3. Cameron-Okolita Inc., a licensed insolvency trustee company providing Consumer Proposal services with a free initial consultation 5.

A Consumer Proposal is a legal process under the Bankruptcy and Insolvency Act that allows individuals to repay a portion of their debts based on their income and assets 1. This process can significantly reduce the amount of debt owed and is one of the final ways to avoid bankruptcy 1. Consumer Proposals are administered by Licensed Insolvency Trustees (LITs) who help individuals with unsecured debts such as credit cards, personal loans, payday loans, student loans, and income tax debt 1.

The LIT develops a proposal, an offer to pay creditors a percentage of what is owed to them 1. For the proposal to be legally binding, creditors who own the majority of the debt must agree to the arrangement 1. If 50% or more of the creditors vote in favor, then it is binding for all creditors 1. Consumer Proposals are an effective debt consolidation method if the individual cannot afford to pay back all their debt, has steady income, and a budget with enough money for monthly payments 1. The process stops active collection of student loan payments and is protected by the Bankruptcy and Insolvency Act 1.

The Process of Filing a Consumer Proposal

The process of filing a Consumer Proposal begins with a free and confidential consultation with a Licensed Insolvency Trustee (LIT) 4 19. During this consultation, the Trustee reviews the individual’s financial situation and debt obligations, informing them of all available options 5 19. If the individual decides to proceed with a Consumer Proposal, they engage the Trustee to develop a repayment plan 6 20.

The repayment plan considers the following factors:

  • The individual’s expected income 7
  • Family situation 7
  • Current obligations 7
  • The amount creditors would receive in bankruptcy 7

Once the documents are complete, the Trustee files them with the Office of the Superintendent of Bankruptcy (OSB), triggering a stay of proceedings 11 20. This protects the individual from creditors, preventing them from:

  1. Charging interest 12
  2. Garnishing wages 12 [36]
  3. Contacting the individual regarding debts 12 [36]

The Consumer Proposal must be accepted by creditors representing at least 50% of the overall debt 13 [37]. If over 25% of the creditors reject the proposal, a Meeting of Creditors is held, where another vote is taken 14. Once the proposal is accepted, it becomes binding on all creditors, even if they initially rejected it 15 [37].

Throughout the term of the proposal, the individual must:

  • Make the agreed-upon payments 16 22 [38]
  • Attend two credit counselling sessions 16 22 [39]

If more than two payments are missed, the proposal is annulled 17. Upon completion, the Trustee issues a Certificate of Full Performance, releasing the individual from the remaining portion of their original debts 23 [40]. Records of the Consumer Proposal generally remain on the individual’s credit history for up to 3 years 18.

Comparison: Consumer Proposal vs. Bankruptcy

Consumer Proposals and Bankruptcy are both legal processes that help individuals deal with overwhelming debt, but they differ in several key aspects:

Aspect Consumer Proposal Bankruptcy
Debt Limit Maximum of $250,000 in unsecured debt, excluding mortgage 13 14 No debt limits 14
Asset Protection Allows you to keep all assets 12 13 Requires surrendering non-exempt assets 12 13
Monthly Payments Negotiated settlements starting at 20-30% of debt, divided into monthly payments 12 13 Statutory calculations based on income and assets 13, varying depending on income 11 12
Duration Up to 5 years, with no penalty for early termination 12 13 17 9 or 21 months based on income 12 13 14
Reporting Duties No monthly reporting required 12 13 Monthly reporting on budget and income 12 13
Credit Impact R7 rating for 3 years after completion or 6 years after filing 12 13 14 R9 rating for 6 to 7 years after completion 12 13 14

Consumer Proposals offer several advantages over Bankruptcy, such as:

  1. Avoiding bankruptcy and its associated stigma 1
  2. Immediate protection from unsecured creditors 1
  3. Stopping interest accrual on unsecured debts 1
  4. Maintaining ownership and control of assets 1
  5. Allowing early payment without penalty 1
  6. Offering higher recovery to creditors than Bankruptcy 15
  7. Having less impact on credit report than a second Bankruptcy 15

However, Consumer Proposals also have some disadvantages, including:

  • Full disclosure of finances required 1
  • Clear rules and expectations must be followed 1
  • No application to secured creditors 1 2
  • Interest continuing on secured debts 1
  • Limited ability to defer monthly payments 1
  • Negative impact on credit rating, albeit shorter than Bankruptcy 1 2
  • High interest rates on loans obtained during the proposal period 1
  • Generally higher cost than filing for Bankruptcy 18

Ultimately, the choice between a Consumer Proposal and Bankruptcy depends on an individual’s unique financial situation 11. If there is no significant income or assets to be seized, filing for personal Bankruptcy might be a better option 17. A Licensed Insolvency Trustee can help assess the most suitable solution for each case 11.

Pros and Cons of Consumer Proposals

Consumer Proposals offer several advantages for individuals struggling with overwhelming debt:

  • Creditor protection: Immediately stops collection action from creditors 15.
  • Reduced monthly payments: Repay less than what is owed, often reducing debts by as much as 70-75% 15 17.
  • Fixed payments: Monthly payment is fixed and does not increase with income 15 17.
  • Asset protection: Allows keeping of assets, including tax refunds, investments, and home equity 15 17.
  • Debt consolidation: Consolidate all unsecured debts into a single fixed monthly payment 16.
  • Credit rebuilding: The debtor can obtain a new credit card while still in a consumer proposal, which can help rebuild their credit rating 2.
  • Budgeting assistance: Provides budgeting and money management counselling throughout the process 15.
  • Early payment option: Option to pay out the Proposal early by increasing payments or paying a lump sum 15.

However, Consumer Proposals also have some disadvantages:

  • Time: A Consumer Proposal usually takes longer to complete than a bankruptcy, typically 4-5 years 15 17.
  • Credit rating impact: Affects credit rating, showing as an R7 rating and staying on the credit report for 3 years after completion 15 16 17.
  • Proposal terms: Proposal terms must be adhered to, with no missed payments or falling behind, or the proposal terms will be terminated 15 17.
  • Debt limit: Maximum debt permitted is $250,000 or $500,000 for married couples 19.
  • Secured debts: Secured debts such as mortgages, home equity loans and lines of credit, and car loans cannot be included in a Consumer Proposal 19.
  • Higher borrowing rates: Individuals may face higher borrowing rates due to the negative impact on their credit score 16.
  • Student loans: Student loans may not be included if they are less than seven years old 16.

It’s essential for individuals to carefully consider their financial situation and consult with a Licensed Insolvency Trustee to determine if a Consumer Proposal is the most suitable debt relief option for their unique circumstances 17.

Eligibility Criteria for Filing a Consumer Proposal in Alberta

To be eligible for a Consumer Proposal in Alberta, an individual must meet the following criteria:

  1. Insolvency: The person must owe at least $1,000 to creditors and be unable to repay debts as they come due 6.
  2. Debt Limit: The total unsecured debt, excluding claims secured by the principal residence (mortgages, property taxes, etc.), should not exceed $250,000 for an individual or $500,000 for married couples 4 7 8 9.
  3. Insufficient Assets: The individual must have insufficient assets to settle their debts 4 7 8.
  4. Licensed Insolvency Trustee: The person must hire a licensed bankruptcy trustee to mediate with creditors 7.

Additionally, the following points are important to note:

  • The individual filing for a Consumer Proposal must be a person, as corporations are not allowed 2.
  • Debts that can be settled through a Consumer Proposal include income taxes, business debts (for sole proprietors or partners), and debts guaranteed for a business 3.
  • A Consumer Proposal may also be filed to allow time to sell an asset and use the funds to repay debts 5.
  • The individual must have a stable income and not be in an active Consumer Proposal already 10.

The Role of Licensed Insolvency Trustees (LIT) in Consumer Proposals

Licensed Insolvency Trustees (LITs) play a crucial role in administering Consumer Proposals, which are legally binding agreements between debtors and their creditors 3. LITs are trained professionals who assist individuals and businesses facing financial difficulties, including debt management, insolvency, and bankruptcy proceedings 21. They are governed by federal legislation and overseen by the Office of the Superintendent of Bankruptcy (OSB) 21.

The responsibilities of LITs in Consumer Proposals include:

  1. Assessing financial situations and negotiating with creditors 21 22
  2. Filing Consumer Proposals and managing the administration of proposal estates 21
  3. Providing financial counselling to debtors 21
  4. Overseeing the discharge of debts upon successful completion of the proposal 21

During the Consumer Proposal process, LITs cover various costs, such as:

  • Government filing fees
  • Financial counselling sessions
  • Preparation and filing of income tax returns
  • Personal Property Registry Search charges

These costs are included as part of the debtor’s monthly payments 20. LITs are required to maintain a Statement of Receipts and Disbursements, which details all moneys received and paid in each Consumer Proposal proceeding. This statement is reviewed and approved by the Government of Canada branch that regulates LITs 20.

It is important to note that only Licensed Insolvency Trustees are trained and licensed to provide Consumer Proposal services 22. LITs do not have a vested interest in making debtors offer more to their creditors, as their fees are based on a tariff legislated under the Bankruptcy and Insolvency Act 18. Once the proposal is completed, the LIT will make a final distribution of money to the creditors 9. If debtors encounter difficulties in managing their finances after the proposal, they should re-examine their budget, seek help from a Licensed Insolvency Trustee, and avoid the habits and events that led to financial difficulty in the past 23.

Life After a Consumer Proposal: What to Expect

Upon completing a Consumer Proposal, individuals receive a Certificate of Full Performance, signifying that they have honored their commitments and their unsecured debts have been satisfied 23 24 25. The Consumer Proposal will remain on the individual’s credit report for three years after completion or up to six years from the date of filing, whichever comes first 9 18 27.

To rebuild credit after a Consumer Proposal, individuals can:

  1. Use secured credit cards, which are secured by a deposit account owned by the cardholder 10 26 27.
  2. Build relationships with their financial institution and try to arrange two credit cards from major chartered banks 10 26.
  3. Open an RRSP account with an attached loan to pay down monthly 10 26.
  4. Put monthly proposal payments into a monthly savings plan or RRSP 10 26.
  5. Pay all bills on time and pay off credit card balances every month 10 26.
  6. Dispute incorrect information on credit reports and reduce the number of credit applications made 10 26.

After completing a Consumer Proposal, individuals are debt-free, with no unsecured debt 23. They can utilize the money previously allocated for debt repayment and put it into a savings account instead 23. Completing a Consumer Proposal demonstrates responsibility with credit to potential lenders 27. Individuals can qualify for credit cards and even obtain a low-interest loan or mortgage 10 27.

To establish and maintain good financial habits, individuals should:

  • Get their credit report from Equifax and TransUnion and check for accuracy 28.
  • Set financial goals and choose their path forward 28.
  • Design a personal spending plan, determine income and expenses, and create spending categories for credit cards or lines of credit 28.
  • Build a savings plan and set financial boundaries 28.

The benefits of completing a Consumer Proposal include appreciation for and awareness of money, better communication skills, and time to focus on things that matter 28.

Consumer Proposal Myths Debunked

Contrary to popular belief, a Consumer Proposal allows individuals to repay only what they can afford, often ranging from 20-30% of their overall debt, with a repayment period typically spanning 24-48 months, not exceeding 60 months 24. Consumer Proposals can effectively reduce or settle various government debts, including income tax debts, student loans, MSP premiums, and ICBC debts, consolidating and clearing them without interest or penalties 24.

It is important to note the distinctions between Credit Counselling and Consumer Proposals:

  • Credit Counselling requires each creditor to agree to the ‘program’ and 100% of the debts are repaid 24.
  • Consumer Proposals only need 50% of creditors in agreement to the debt settlement to be binding on all creditors 24.
  • Major banks accept Consumer Proposals, while government bodies do not accept settlement through traditional Credit Counselling 24.

When working directly with a reputable licensed insolvency trustee, there is no initial setup fee 29. Trustees are government-appointed, acting as impartial officers of the court and not working for creditors 29. A Consumer Proposal is no worse for credit than working with a credit counselling agency and may even be beneficial in rebuilding credit, unlike bankruptcy 29. The duration of a proposal can range from 1 to 60 months, depending on the individual’s circumstances 29.

Although a Consumer Proposal is registered with the federal government, the information is not easily accessible and does not provide details about the proposal arrangement 29. Secured creditors are not dealt with in a Consumer Proposal, allowing individuals to keep their assets as long as they maintain monthly payments 29. If creditors do not accept a proposal, negotiations can take place to reach an acceptable deal 29. Consumer Proposals can be advantageous for people with assets they wish to protect from bankruptcy 22, and approximately 99% of filed Consumer Proposals are accepted by creditors 22.

The process is not a public record, although it is recorded in the Office of the Superintendent of Bankruptcy (OSB) database, which is not easily accessible and requires specific searches by Licensed Insolvency Trustees (LITs) 18. Defaulting on a Consumer Proposal does not prevent individuals from filing another proposal; they can either revive the original proposal or file a new one under Division I of the Bankruptcy and Insolvency Act 18. While not all debts can be included in a Consumer Proposal, such as debts with liens or charges against specific assets, student loans can be included, with the exception of interest that continues to accrue during the proposal 18. There is no significant upfront cost to filing a Consumer Proposal, as the total amount paid is agreed upon by the creditors, and the LIT’s fees are based on a tariff and drawn from the monthly payments held in a trust account by the Trustee 18.

Conclusion

In summary, Consumer Proposal Services in Alberta offer a legally binding process for individuals struggling with overwhelming debt to repay a portion of their debts based on their income and assets. By working with a Licensed Insolvency Trustee, debtors can negotiate a repayment plan that consolidates their unsecured debts, stops creditor actions, and protects their assets. While a Consumer Proposal may have some drawbacks, such as a temporary negative impact on credit scores, it provides a structured path to financial recovery and debt relief.

Ultimately, the decision to pursue a Consumer Proposal depends on an individual’s unique financial situation and should be made in consultation with a licensed professional. By understanding the process, eligibility criteria, and potential outcomes, Albertans facing insolvency can make informed choices about their debt management options and take steps towards a brighter financial future.

FAQs

How significantly can a consumer proposal reduce the amount I owe?

A consumer proposal is a legally binding agreement with your creditors that allows you to repay only a portion of your debts as full settlement, without accruing any interest, fees, or additional penalties. It’s common for consumer proposals to result in a debt reduction of 70-80%.

Are there any disadvantages to filing a consumer proposal?

Yes, there are some drawbacks to consider. A consumer proposal typically takes longer to complete than declaring bankruptcy. Although it lowers your monthly payments, this also means you’ll be in debt for a more extended period. However, if your financial situation improves, you can pay off the proposal earlier. Additionally, your credit rating will be affected, as a consumer proposal does impact your credit.

What strategies can I use to reduce my debt?

To reduce your debt, you can take several steps:

  • List all your debts to understand what you owe.
  • Revise your budget to better manage your finances.
  • Apply the debt snowball or avalanche method to prioritize repayments.
  • Pay more than the minimum required payment to reduce balances faster.
  • Make biweekly payments to cut down on interest.
  • Try negotiating with creditors to settle for less than the total debt.
  • Look into debt consolidation and refinancing options for better terms.

What is the cost of a consumer proposal in Alberta?

In Alberta, a consumer proposal is a legal proceeding under the Bankruptcy and Insolvency Act that allows you to repay part of your debt based on your income and assets. This process can only be initiated by a bankruptcy trustee and typically costs around $1,500.

References

[1] – https://mnpdebt.ca/en/consumer-proposal [2] – https://www.hoyes.com/blog/how-a-consumer-proposal-works/ [3] – https://nomoredebts.org/debt-help/consumer-proposal-canada/alberta [4] – https://wecanhelp.ca/office-locations/bankruptcy-alberta/consumer-proposal-alberta-what-is-it-how-can-it-help-eliminate-your-debts/ [5] – https://www.cameron-okolita.ca/consumer-proposal-in-alberta/ [6] – https://www.sands-trustee.com/blog/consolidating-debt-consumer-proposal-step-by-step/ [7] – https://www.hoyes.com/consumer-proposals/filing-consumer-proposal-process/ [8] – https://www.remolinoassociates.com/consumer-proposals/ontario-consumer-proposal-process/ [9] – https://www.hoyes.com/blog/what-does-life-after-a-consumer-proposal-look-like/ [10] – https://www.spergel.ca/consumer-proposal/life-after-consumer-proposal/ [11] – https://bankruptcy.mnpdebt.ca/faqs/difference-between-consumer-proposal-and-bankruptcy [12] – https://debtsolutions.bdo.ca/solutions/bankruptcy/consumer-proposal-vs-bankruptcy/ [13] – https://www.hoyes.com/consumer-proposals/consumer-proposal-vs-bankruptcy/ [14] – https://www.sands-trustee.com/personal-debt-consolidation/consumer-proposals/consumer-proposals-vs-bankruptcy/ [15] – https://mnpdebt.ca/en/resources/mnp-debt-blog/what-are-the-pros-and-cons-of-a-consumer-proposal [16] – https://www.remolinoassociates.com/consumer-proposals/benefits-disadvantages-alternatives/ [17] – https://wecanhelp.ca/proposals-advantages-and-disadvantages/ [18] – https://www.linkedin.com/pulse/consumer-proposal-myths-debunked-david?trk=read_related_article-card_title [19] – https://www.consolidatedcreditcanada.ca/consumer-proposal/ [20] – https://www.sands-trustee.com/blog/trustee-get-paid/ [21] – https://ecapital.com/financial-term/licensed-insolvency-trustee-lit/ [22] – https://www.youtube.com/watch?v=Al6oVa25XSM [23] – https://debtsolutions.bdo.ca/how-a-consumer-proposal-ends/ [24] – https://www.sands-trustee.com/blog/consumer-proposals-4-common-myths-debunked/ [25] – https://mnpdebt.ca/en/resources/mnp-debt-blog/life-after-a-consumer-proposal [26] – https://www.reddit.com/r/PersonalFinanceCanada/comments/1bf0dse/life_during_and_after_consumer_proposal/ [27] – https://www.bromwichandsmith.com/blogs/after-consumer-proposal-ever-qualify-credit-card [28] – https://mnpdebt.ca/en/resources/mnp-debt-blog/a-guide-to-life-after-consumer-proposal [29] – https://www.hoyes.com/blog/10-myths-about-consumer-proposals-what-you-really-need-to-know/