Debt can be overwhelming, and when it starts to pile up, it can be challenging to find a way out. In Alberta, Canada, individuals with overwhelming debt may have an option to help them manage their financial situation: Consumer Proposals.

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What is a consumer proposal (Alberta)?

A consumer proposal is a legally binding agreement between an individual and their creditors, facilitated by a Licensed Insolvency Trustee (LIT), that allows for the individual to pay a portion of their debt while also receiving debt relief.

This debt relief option is available to individuals who owe up to $250,000 in unsecured debt, excluding a mortgage on their primary residence.

In a consumer proposal, the individual offers to pay back a portion of their debt in monthly payments, based on what they can reasonably afford, over a period of up to five years.

What are the advantages of using a consumer proposal?

Avoiding personal bankruptcy

One of the primary advantages of a consumer proposal is that it allows individuals to avoid bankruptcy.

Filing for bankruptcy can have long-lasting effects on an individual’s credit score and financial future, making it difficult to obtain loans or credit in the future.

With a consumer proposal, individuals can avoid the negative impacts of bankruptcy while still receiving debt relief.

Consolidating outstanding debts

Consumer proposals also offer a way to consolidate debt. Instead of making multiple payments to multiple creditors, individuals can make one monthly payment to their LIT, who then distributes the funds to the creditors.

This can simplify the repayment process and make it more manageable for individuals with multiple debts.

Stopping wage garnishment

Another advantage of a consumer proposal is that it can help individuals avoid wage garnishments or legal actions taken against them by their creditors.

Once a consumer proposal is filed, all legal actions against the individual must cease, and wage garnishments must stop.

Eligibility and requirements for filing a consumer proposal

To be eligible for a consumer proposal in Alberta, an individual must meet specific requirements.

Minimum debt level to unsecured creditors

They must have a minimum of $6,000 in debt, have a stable source of income, and owe less than $250,000 in total unsecured debt. Additionally, individuals must not have filed for a consumer proposal within the last five years.

Working with a Licensed Insolvency Trustee (LIT)

To file a consumer proposal, individuals must work with a Licensed Insolvency Trustee. LITs are licensed professionals who specialize in helping individuals manage their debt and navigate the consumer proposal process.

The LIT will work with the individual to determine how much they can reasonably afford to pay back each month and will then create a proposal to present to the creditors.

Your LIT will typically take a percentage of your regular contribution as payment for their services, but any payment will be part of your overall consumer proposal fees.

What types of debt can be included in a consumer proposal?

Consumer proposals in Alberta can include many types of unsecured debt, such as:

• Credit card debt
• Personal loans
• Payday loans,
• Lines of credit
• Unpaid bills (e.g., utility bills, medical bills, etc.).

It’s important to note that not all debt can be included in a consumer proposal. Secured debts, such as a mortgage on a primary residence or a car loan, cannot be included in a consumer proposal.

These types of secured loans are tied to a specific asset, and if the individual is unable to make payments, the creditor can repossess or foreclose on the asset.

You should also be aware that some debts, such as student loans, cannot be discharged through a consumer proposal unless the individual has been out of school for at least seven years.

Additionally, any debts owed to the government, such as taxes or fines, cannot be included in a consumer proposal.

How much will my monthly payments be?

The most common structure for a consumer proposal is fixed payments over a period of time. Monthly payments for a consumer proposal are determined by the LIT and are based on the individual’s income and expenses.

The LIT will work with the individual to create a budget that takes into account their necessary expenses, such as rent or mortgage payments, utilities, and food, and subtract that from their monthly income. The remaining funds are then used to make future payments towards the consumer proposal.

It’s important to note that if an individual misses a payment on their consumer proposal, the proposal may be deemed null and void, and creditors can resume legal actions against the individual.

Therefore, it’s crucial to ensure that monthly payments are made on time and in full and that you stick to your payment plan.

Do consumer proposals impact your credit report?

Consumer proposals can have an impact on an individual’s credit record. When a consumer proposal is filed, it will be added as a permanent public record to a searchable online database.

It is also noted on the individual’s credit report, and their credit score may drop as a result. That said, this drop in credit rating is typically less severe than if the individual had filed for bankruptcy.

Once the consumer proposal is paid off, it remains on the individual’s credit report for three years. However, it’s essential to note that making regular, on-time payments towards the consumer proposal can also help improve an individual’s credit score over time.

Additionally, once the consumer proposal is paid in full, individuals can begin to rebuild their credit by using credit responsibly and making timely payments on their bills.

Consumer proposals vs other debt relief options

Consumer proposals are not the only debt relief option available to individuals in Alberta. Two other common options are a debt management plan and bankruptcy.

Debt management plan

A debt management plan is an agreement between the individual and their creditors that allows for the individual to pay back their debts over a period of time.

This option typically involves working with a credit counselling agency, who negotiates with creditors on behalf of the individual.

While debt management plans can provide debt relief, they often require the individual to repay the full amount of their debt, which can be challenging for some individuals.

Bankruptcy

Bankruptcy is a legal process that involves the individual surrendering their assets to a Licensed Insolvency Trustee, who then sells them to pay back creditors.

Bankruptcy can provide significant debt relief, but it can also have long-lasting effects on an individual’s credit score and financial future, so should only ever be considered as a last resort.

When considering debt relief options, it’s essential to work with a licensed professional to determine which option is best for your individual situation.

A Licensed Insolvency Trustee can provide guidance on the advantages and disadvantages of each option and help individuals make an informed decision.

Where can I get more information about debt solutions available in Alberta?

Are you looking for debt advice and support to determine whether a consumer proposal is the right debt relief option for you? Look no further.

At A. Fisher & Associates, we offer assistance to thousands of individuals seeking to regain control of their finances and get their lives back on track. We’re ready to guide you through that process and help you make an informed decision about your financial future.

To get reliable advice and learn more about the debt relief options available to you, reach out to one of our friendly advisors today.