How to File a Consumer Proposal in Alberta? See Alternatives, Costs, etc.

Filing a consumer proposal in Alberta is essentially a legal procedure that allows you to negotiate a settlement with your creditors if you’re unable to pay off your debts in full. This process is a better and less harmful alternative to bankruptcy. It can provide debt relief while allowing you to keep your assets.

Here are the steps to file a Consumer Proposal in Alberta:

1. Consult a Licensed Insolvency Trustee (LIT): The first step is to meet with a Licensed Insolvency Trustee, or LIT for short. You can find a LIT in most cities across Alberta. For example, there are multiple options in large cities like Calgary and Edmonton. The LIT will assess your financial situation, explain your options, and help you determine if a consumer proposal is the best solution for your debt problem.
2. Create a proposal: If you decide to proceed, the LIT will help you draft a proposal to your creditors. This proposal typically involves paying a portion of your total debt over a set period of up to 5 years. The amount offered depends on your income, assets, and what your creditors are likely to accept. It’s not uncommon to get a significant discount on your debt. In some cases, this may mean paying only 25 cents on the dollar. 
3. Filing the proposal: The LIT will file the proposal with the Office of the Superintendent of Bankruptcy (OSB). Once filed, you are legally protected from your creditors and collectors, meaning they cannot take further collection actions against you.
4. Creditor voting: Creditors have up to 45 days to decide whether to accept or reject the proposal. If the majority of your creditors, determined by dollar value, agree with the proposal, it becomes binding on all creditors.
5. Make payments: Once accepted, you make payments as outlined in the proposal. The LIT receives these payments and then distributes them to your creditors on your behalf.
6. Complete the proposal: Once you complete all the payments and any required credit counseling sessions, the legal system will discharge you from the remaining debts covered by the proposal. Remember that your credit rating will take a hit. We’ll dive into that later in the cons section…

Costs Involved in Filing a Consumer Proposal

• Trustee fees: The federal government regulates LIT fees, which are part of the payments you make under the proposal.
• Payments: The amount you pay is negotiable in the proposal and based on your financial situation. It can be a lump sum or regular payments over a maximum of five years.
• Counseling sessions: You are required to attend two financial counseling sessions as part of the process. The goal of these sessions is to help you manage your finances better in the future.

Pros and Cons of a Consumer Proposal

Whether you’re in Alberta or elsewhere, you should understand the pros and cons of filing a consumer proposal. These are the same regardless of which province you’re in.

Pros:

• Avoid bankruptcy: A consumer proposal allows you to avoid the more severe consequences of bankruptcy.
• Keep assets: Unlike bankruptcy, you typically get to keep your assets.
• Debt forgiveness: You can reduce your unsecured debts to what you can afford.
• Legal protection: A consumer proposal protects your assets from creditors once filed.

Cons:

• Credit impact: A consumer proposal will affect your credit rating. It typically shows as an R7, which is better than the R9 rating from bankruptcy.
• Length of process: It can take up to 5 years to complete.
• Requires creditor approval: The proposal needs the approval of the majority of your creditors determined by dollar value.

Better Alternatives to Consumer Proposals

• Debt management plan (DMP): Offered by credit counseling agencies, this involves negotiating with creditors to reduce interest rates and set up a payment plan. Consolidated Credit Canada, a non-profit with offices across Alberta, is Canada’s largest DMP provider. AND they can assist with consumer proposals if your situation calls for it.
• Debt consolidation loan: If you have a manageable debt load AND a good credit score, you might qualify for a lower-rate consolidation loan. This allows you to pay off your debts in one go. Then, you can repay the new loan over time. This option is only good if the rate for this new loan is BETTER than the rates you pay on your existing debt.
• Bankruptcy: If you can’t afford a consumer proposal, bankruptcy might be your best option, which provides you with the opportunity for a fresh start and a clean slate, but with more severe credit score consequences.

Resources for Albertans:

• Government of Alberta – Debt Resources: This site holds an Albertan’s guide to creditors, collection agencies and debt repayment.
• Licensed Insolvency Trustees (LIT) Database: Provides contact for a LIT to explore your options.
• Government of Canada – Office of the Superintendent of Bankruptcy: Provides detailed information about the consumer proposal process.

Filing a consumer proposal in Alberta is a structured way to manage overwhelming debt while avoiding bankruptcy. Consult with a LIT for the best advice tailored to your situation.