Understanding Alberta’s Consumer Proposal Process

Understanding Alberta’s Consumer Proposal Process

Navigating through financial distress can be a daunting challenge for many. In Alberta, Canada, one viable option for individuals facing overwhelming debt is a consumer proposal. This legal process, governed by the Bankruptcy and Insolvency Act (BIA), provides a pathway for debtors to negotiate a repayment plan with their creditors, often allowing them to pay back less than the total amount owed.

What is a Consumer Proposal?

A consumer proposal is a formal, legally binding process that is facilitated by a Licensed Insolvency Trustee (LIT). It allows individuals with debt less than $250,000 (excluding the mortgage on their primary residence) to propose an alternative repayment plan to their unsecured creditors. The proposal typically includes terms that are manageable for the debtor, such as reduced payments, extended payment periods, or sometimes even a decrease in the total debt owed.

Steps Involved in Filing a Consumer Proposal in Alberta

1. Consultation with a Licensed Insolvency Trustee

The first step in the consumer proposal process involves consulting with a LIT. During this initial meeting, the trustee assesses your financial situation, discusses various debt relief options, and determines if a consumer proposal is the right path for you.

2. Preparation and Filing of the Proposal

If a consumer proposal is deemed suitable, the trustee will help you draft a proposal that outlines the new debt repayment terms. This proposal is then filed with the Office of the Superintendent of Bankruptcy, and from that moment, you are granted immediate protection from debt collectors. This means creditors cannot take legal action against you, garnish your wages, or continue with any lawsuits related to your debt.

3. Creditor Response

Once filed, the creditors have 45 days to accept or reject the proposal. They may request a meeting to vote on the proposal, but this is only if the creditors holding at least 25% of your debt request it. Your proposal is considered approved if the majority of creditors (by dollar value) vote in favor.

4. Fulfilling the Proposal Terms

After the proposal is accepted, you must adhere to the terms outlined, which usually includes making regular payments to the trustee, who then distributes the funds to your creditors. You are also required to attend two financial counseling sessions. As long as the terms are met, you are protected from your unsecured creditors.

5. Completion and Release from Debts

Once you have fulfilled all the conditions of your consumer proposal, including making all the agreed-upon payments, you will be legally released from the debts included in the proposal. The completion of your consumer proposal will be reported to the credit bureaus and will remain on your credit report for three years after completion.

Advantages and Disadvantages of a Consumer Proposal

A consumer proposal offers several advantages, including the ability to negotiate debt down to a more manageable level, protection from creditors, and avoiding bankruptcy. However, there are also disadvantages such as the impact on your credit score, which, while less severe than bankruptcy, still indicates to lenders that you did not fulfill your original debt obligations as agreed.

Understanding the consumer proposal process in Alberta is crucial for anyone considering this option for debt relief. It offers a structured way to deal with overwhelming debt, making it possible for individuals to regain financial stability while maintaining their dignity and avoiding the more drastic step of bankruptcy. However, careful consideration and consultation with a Licensed Insolvency Trustee are advisable to make the most informed decision possible.

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