Consumer Proposals in Alberta: A Comprehensive Guide
Struggling with debt can be an overwhelming experience. However, Alberta residents have several debt relief options, with the consumer proposal being one of the most popular. How does a consumer proposal work in Alberta? This guide will answer your question and provide a comprehensive understanding of the process.
What is a Consumer Proposal?
A consumer proposal is a legally binding agreement between you and your creditors. This agreement, supervised by a Licensed Insolvency Trustee (LIT), allows you to repay a portion of your debts over an extended period.
Understanding Consumer Proposal
Consumer proposals are formed under the Bankruptcy and Insolvency Act. It’s an alternative to bankruptcy that helps individuals with less than $250,000 debt (excluding mortgage) regain control of their financial situation.
Under a consumer proposal, an LIT negotiates with your creditors to accept a percentage of the total debt owed and forgive the remaining amount. You then make a series of payments to the LIT over a specified period (up to five years), and the trustee distributes these payments to your creditors.
Advantages of a Consumer Proposal
Consumer proposals offer several benefits that make them an attractive option for individuals dealing with debt.
Protection from Creditors
Upon filing a consumer proposal, you receive immediate protection from your creditors. This protection means that all debt collection calls stop and existing wage garnishments end.
Reduced Monthly Payments
A consumer proposal can significantly reduce the total debt you owe, often by up to 70%. This reduction means your monthly payments will be more manageable.
Retention of Assets
Unlike bankruptcy, where you risk losing your assets, a consumer proposal allows you to keep your possessions, including your home and car.
Disadvantages of a Consumer Proposal
Despite the benefits, there are some potential downsides to consider when deciding if a consumer proposal is the right choice for you.
Limited Coverage
Not all debts can be included in a consumer proposal. Debts such as student loans less than seven years old, court fines, and secured loans (like car finance or mortgages) cannot be discharged.
Lengthy Process
Consumer proposals often take longer to complete than personal bankruptcies. This lengthier duration is because you’re paying back a portion of your debt over a timeframe of up to five years.
Credit Rating Impact
A consumer proposal impacts your credit score. It’s recorded as an R7 rating, which will stay on your credit report for three years after completion.
The Consumer Proposal Process
The process to file a consumer proposal involves several steps.
Choosing a Licensed Insolvency Trustee
You start by finding a trusted LIT who will guide you through the process. The LIT will review your financial situation and develop a proposal for your creditors.
Proposal Development and Filing
Once your financial review is complete, you and the LIT will develop a repayment plan that works for both you and your creditors. The LIT then files the proposal with the Office of the Superintendent of Bankruptcy (OSB).
Creditor Voting
The creditors will vote to accept or reject the proposal. If the majority of creditors agree, the proposal is accepted and becomes legally binding for all creditors.
Making Payments
After the proposal’s acceptance, you’ll begin making payments to the LIT, who will distribute the funds to your creditors. You must also attend two financial counselling sessions.
Consumer Proposal vs. Orderly Payment of Debts (OPD) Program in Alberta
While consumer proposals are a popular choice, another option for Alberta residents is the Orderly Payment of Debts (OPD) program. This program also allows you to consolidate your unsecured debts and make a single monthly payment at a fixed interest rate of 5%.
The OPD program offers several advantages, such as no start-up fees, protection against creditor action, access to a non-profit credit counselor, and improved money management skills through free financial seminars and courses.
Final Thoughts
A consumer proposal can be an effective method to tackle overwhelming debt. However, it’s crucial to understand all the options available to you and to consult with a Licensed Insolvency Trustee to make the best decision for your circumstances.
If you’re considering a consumer proposal or want to learn more about other debt relief options, it’s advisable to speak with a financial expert or credit counselor. They can provide unbiased advice tailored to your unique financial situation.
Dealing with debt is a journey that requires patience, commitment, and a well-thought-out plan. But with the right support and resources, you can achieve financial freedom and regain control of your life.
So, if you’ve ever wondered, how does a consumer proposal work in Alberta? Hopefully, you now have a clear answer. If you need more information or support, don’t hesitate to seek professional help. Remember, knowledge is power, and understanding your financial options is the first step towards a secure financial future.
