Consumer Proposals in Alberta
A consumer proposal is one of the many debt solutions out there.
It’s often considered the last action you can take to avoid filing for bankruptcy.
However, is this the right option for your debts?
What are the advantages or disadvantages of consumer proposals in Alberta?
It’s always important to look at both sides of the coin to get a more accurate view of the situation.
This will help you determine whether or not you should file a consumer proposal.
Advantages of Consumer Proposals in Alberta
What is a consumer proposal?
The Canadian Government states that it is a legally binding process by which you offer creditors a solution to your debt problem.
Effectively, you come to them with a proposal that states you can pay a certain amount of your debts.
They can approve or deny the proposal, and if they approve it, you will pay the agreed amount in monthly installments.
This sounds like a great idea, so what are the advantages of consumer proposals in Alberta?
Lower your debts
The purpose of consumer proposals is to help those who can’t pay their debts.
If you owe too much money, then your debts will only ever increase.
You simply don’t have the capacity to handle your monthly repayments.
If things continue like this, you’re probably going to end up filing for bankruptcy.
So, a consumer proposal gives you an opportunity to reduce your debts.
The proposal you set forth will tell your creditors you can afford to pay x amount of money.
If they accept, you can save thousands of dollars.
Lower your stress
Alongside this, consumer proposals can help you feel less stressed.
This is because they reduce your debts, and they also make them easier to manage.
With a reduction in your monthly payments, you can now afford to keep up with them all the time.
You no longer have to live on scraps or worry about extra fees or interest payments.
The payments stay the same until they have all been met.
This easy management lets you relax a little bit.
Stops collection of payments
When you file a consumer proposal, you will trigger a legal process.
Part of this process means that none of your creditors can keep collecting payments from you.
As soon as the official proposal is filed, they can’t make you pay them any more money.
They also can’t garnish your wages anymore – if they were already doing that.
This is highly beneficial as it means all your problems can be put on hold.
Yes, you will have to make payments again at some point, but they might be reduced payments thanks to an approved proposal.
Even if your proposal is denied, you’ve managed to go at least a month without making payments, which can be so valuable at helping you save money or adjust your budget.
Bankruptcy is the last solution that stands before someone in debt.
It helps you clear all of your obligations, but at a pretty substantial cost.
You will have to sell a lot of your belongings and deal with a heavily damaged credit rating for 6 years.
Put it this way, it’s something you should actively seek to avoid.
Thus, a consumer proposal is beneficial as it is one of the final ways you can avoid bankruptcy.
Many people believe bankruptcy is their only option if other debt-relief techniques don’t work.
If you can’t get a debt consolidation loan or arrange a debt settlement, it’s easy to assume that bankruptcy is the next step.
On the contrary, a consumer proposal presents one last chance to avoid this.
Disadvantages of Consumer Proposals in Alberta
Consumer proposals have some undeniable advantages.
However, that doesn’t automatically mean you should go ahead and file one.
There are a handful of drawbacks that are well worth being aware of:
Consumer proposals are public records
Filing a consumer proposal means you create a public record that anyone can find.
This can present some problems when it comes to background checks.
Even after you’ve completed the proposal arrangements, companies can find a record of it.
If you’re applying for a mortgage or another important loan, this can be a problem.
It can also be slightly embarrassing if someone finds out about this when doing a background check if you’re applying for a job.
Approval is not guaranteed
Yes, a consumer proposal can be highly beneficial.
But, this is only the case if it gets approved.
You have to go through a fairly extensive process before this happens.
For one, your creditors must vote to approve this.
Then, the court has to approve it as well.
The good news is that if your creditors have approved it, the court will usually follow suit.
Still, there’s every chance you file a consumer proposal, and it gets rejected.
It costs more than bankruptcy
Filing a consumer proposal costs more than bankruptcy.
Of course, this extra cost comes with the benefit of avoiding bankruptcy.
So, it’s not that much of a disadvantage.
The problem mainly comes because you might find the costs too high.
On average, it costs around $1500 for a consumer proposal.
If yours gets approved, this isn’t a huge issue.
However, if your proposal is rejected, you’ve paid $1500 for nothing.
Not all debts are included
Do you have secured debts?
Are you struggling with a new student loan debt?
If so, neither of these things are included in a consumer proposal.
Student loans can only feature if they’ve existed for more than 7 years.
As such, if these two things are your main debt problems, you will struggle to find relief from this option.
Who Are Consumer Proposals Aimed At?
A consumer proposal is mainly aimed at someone in dire need of debt relief.
It’s not typically an option for people with small amounts of debt.
If you are beginning to struggle, then it’s suggested you explore the following options:
- Debt consolidation.
- Debt restructuring.
- Debt settlement.
You’ll be surprised at how many people get ahold of their debts by following any of these methods.
Still, if you fail to gain control of the situation, a consumer proposal is the next step.
Effectively, it’s for people who are considering an alternative to bankruptcy.
Do Consumer Proposals Affect Your Credit Rating?
Yes, it will affect your credit rating for some time.
When you file the proposal, the credit bureau is notified.
As a result, they put the consumer proposal on your credit report.
You can think of this as a black mark.
It damages your rating and will make it very hard for you to apply for any credit.
The good news is that this isn’t permanent.
A consumer proposal stays on your report for 3 years after you have paid off all the debts included in it.
This is half the time that bankruptcy will remain on your report.
Once again, this is another reason consumer proposals are an excellent alternative to bankruptcy.
How Do You File Consumer Proposals in Alberta?
If you want to file a consumer proposal, you must go through the correct legal process.
This begins by hiring a Licensed Insolvency Trustee.
This is the only person who is legally allowed to file your proposal.
As it happens, we are a Licensed Insolvency Trustee, so feel free to call us if you’d like help with this process.
From here, you will go through the following stages:
- Putting the proposal together: This stage simply means you put together your offer for the creditors. You will sit with a Licensed Insolvency Trustee to work out how much you can afford to pay, and how long the proposal should last for. The duration is based on your financial situation, but it cannot exceed 5 years.
- Filing the proposal: Your trustee will get all the legal documents together and writes your official proposal. They will require a few pieces of evidence from you and can send off the proposal online. The trustee also sends copies to all of your creditors. This is the stage where you stop making any debt repayments.
- The 45-day waiting period: You have 45 days for your creditors to approve or reject your proposal. If they reject it, they have to call a meeting of creditors. This is only possible if enough people reject your offer. There needs to be at least 25% of your debts represented by rejections. In essence, if you owe $100,000, a meeting can only be called by a creditor or creditors that are owed $25,000. If no meeting is called within 45 days, it counts as the proposal being approved.
- The vote: If a meeting is called, negotiations can take place, and a vote will be taken. You need at least 51% of your debts to be represented by a positive vote for it to be approved.
After this, you will follow through with your obligations and make regular repayments until your debts are paid off.
Get Help With Consumer Proposals in Alberta
Filing a consumer proposal can be tricky, which is why we’re eager to help.
Call us today, and we can book a consultation that gets the whole process started.
We’re also available for other debt-relief services, so feel free to get in touch for more information.