A consumer proposal is a popular alternative to filing for personal bankruptcy, and it allows for some flexibility in paying back unsecured debts. If you have unmanageable consumer debt totalling under $250,000, it might be the right option. One of our Licensed Insolvency Trustees (LIT) can help you determine whether or not this process is appropriate for your financial situation.
Eligibility factors
In order for a consumer proposal to be filed, you must have a stable source of income. This signals to your unsecured voting creditor and the Office of the Superintendent of Bankruptcy that you will be able to make the monthly payments.
Only individuals qualify for a consumer proposal. Businesses may not file in this category. As mentioned above, individuals must have debts totalling less than $250,000. This would include consumer debts like credit card bills, vehicle payments, etc. This doesn’t include debts such as a mortgage.
To qualify for a consumer proposal, you must also not have any other consumer proposals filed.
The process of filing a consumer proposal
A consumer proposal is a legal process. Once the agreement is approved by the courts, it’s binding between you and your unsecured creditors. You’ll work with an LIT to put together the proposal, offering to pay a percentage of what is owed, or extend the payment period, or a combination of the two. The proposal will include details about your personal financial situation and the reason for your fiscal troubles.
With a consumer proposal, payments aren’t made directly to the creditors. All debt payments are made through the LIT, and the LIT then disburses those funds to the businesses you owe. The timeline for a consumer proposal can’t be longer than five years.
Pros and cons of consumer proposals
Filing a consumer proposal immediately stops the accumulation of interest on your unsecured consumer debt. Once you’ve started the process, it also halts legal action from unsecured creditors, protects you from receiving collection calls, and stops any wage garnishment which can be a big sigh of relief. All communication from those creditors must go through the Proposal Administrator.
Acceptance of a consumer proposal is subject to a majority vote by the unsecured creditors that you owe. While there are exceptions, a consumer proposal is likely to be accepted as it allows for the chance to have lump sum payments, reduced administration fees, and more frequent payments than in personal bankruptcy. Creditors have 45 days to vote on your proposal.
To file a consumer proposal in Alberta, you also need to have a stable monthly income and prove that through income verification and a monthly budget. If you are unable to make multiple payments, the consumer proposal is annulled, allowing the creditors to resume collection calls and/or legal action. If a consumer proposal is annulled, the only other viable option is personal bankruptcy.
We can help with managing consumer debt
Our Licensed Insolvency Trustees are here to help you navigate your financial situation, and answer any questions you may have on your journey to becoming debt-free. We’re here to walk you through the process. If you’d like to talk to an LIT, please contact us for a free consultation.