Understanding Consumer Proposals in Alberta

Understanding Consumer Proposals in Alberta

In Alberta, as in many other regions of Canada, managing debt can become a significant challenge for individuals. As a response to the difficulty of overcoming substantial financial burdens, many Albertans are turning towards consumer proposals as a viable means to resolve their debt issues. This financial mechanism, legislated under the Bankruptcy and Insolvency Act of Canada, offers an alternative to bankruptcy that can be less severe on an individual’s financial future.

What is a Consumer Proposal?

A consumer proposal is a legal process facilitated by a Licensed Insolvency Trustee (LIT), wherein a debtor reaches an arrangement with their creditors to pay back a percentage of what is owed over a specific period, up to a maximum of five years. The proposal allows for the debtor to retain their assets, which might otherwise be lost in a bankruptcy. Once the terms are agreed upon by the majority of creditors, all proceedings against the debtor by creditors must cease, and interest accumulation is halted.

The Benefits of Filing a Consumer Proposal

There are numerous advantages to choosing a consumer proposal over declaring bankruptcy. Some of these benefits include:

• Asset Retention: One of the most compelling reasons individuals opt for a consumer proposal is the ability to keep their assets, including their home and car, which might not be possible in a bankruptcy scenario.
• Fixed Monthly Payments: The payments made under a consumer proposal are fixed, and not subject to changes in income or additional fees. This allows for easier budget management and financial planning.
• Credit Score Recovery: Although filing a consumer proposal does impact your credit score, the effect is typically less severe than bankruptcy, offering a more manageable path to rebuilding credit.
• Interest Freeze: From the date the proposal is filed, interest on debts included in the proposal stops accumulating. This can result in considerable savings, especially for high-interest consumer debt.

Process and Eligibility for Filing a Consumer Proposal in Alberta

To initiate a consumer proposal, an individual must first consult with a Licensed Insolvency Trustee. The trustee evaluates the person’s financial situation, advising on whether a consumer proposal is the most suitable option and, if so, what the terms might be. An individual is eligible to file a consumer proposal if their total debt does not exceed $250,000, not including mortgages on primary residences.

After the initial consultation, the trustee will work with the debtor to develop a proposal that is fair and feasible for both parties. This proposal is then sent to the creditors, who have 45 days to accept or reject the proposal. If the majority of creditors, by dollar value, accept the proposal, it becomes binding on all parties.

Conclusion

In conclusion, a consumer proposal represents a viable and often preferable alternative to bankruptcy for individuals in Alberta struggling with significant debt. It offers a way to address financial obligations realistically and fairly, without the stigma or the full scope of consequences associated with bankruptcy. Understanding this process and seeking the counsel of a Licensed Insolvency Trustee are crucial first steps towards regaining financial stability.