Struggling to repay debts can affect your wellbeing and quality of life. If you’re looking for a way to clear your debts, filing a Consumer Proposal in Edmonton could bring you financial peace of mind.
A Consumer Proposal is a legal process between you and your creditors to repay a portion of the debts you owe, and is governed by the Bankruptcy and Insolvency Act.
A Consumer Proposal can only be arranged and administered by a Licensed Insolvency Trustee (LIT). With the help of an experienced and supportive LIT, you can put together a plan to clear your debts and move toward a brighter financial future.
Here, we cover how Consumer Proposals work, to help you decide if it’s the right option for you.
What is a Consumer Proposal?
A Consumer Proposal is an alternative to filing for Personal Bankruptcy in Edmonton, Alberta. It’s a legally binding agreement between you and your creditors that is put in place to help you repay a percentage of your debts, in exchange for full debt forgiveness. They’re governed by the Bankruptcy and Insolvency Act and can only be administered by an LIT.
If you’re struggling to manage your debt payments and your finances feel too much to manage, filing for a Consumer Proposal can offer debt relief, while avoiding Bankruptcy.
Once a Consumer Proposal is filed, there is a legal stay of proceedings that gives you immediate legal protection from your creditors and debt collectors, which can help to take some weight off your shoulders.
Advantages & Disadvantages of Filing a Consumer Proposal in Edmonton
If you’re weighing up whether filing a Consumer Proposal is the best route to take for your debts, here are some potential advantages and disadvantages to consider:
Advantages of a Consumer Proposal
- Alternative to Bankruptcy: If you’re worried about the idea of ‘’going bankrupt’’, a Consumer Proposal can be another way to settle your debts. A Consumer Proposal is not a type of Bankruptcy, but instead is a form of debt solution. This means if you’re ever asked whether you’ve been declared bankrupt in a job application, for example, you’ll be able to say ‘no.’
- Can be paid off early: You will be able to pay off and complete your Consumer Proposal early if you choose to, for example, if you earn some extra money you can put this towards your proposal. By doing this, you may be able to improve your credit score quicker. This means there is more flexibility in the length of a Consumer Proposal than with Bankruptcy which has a fixed time scale.
- Lower monthly payments: You’ll repay only a portion of your debt depending on the terms and agreement set out by your Trustee. You may be able to reduce your debts by as much as 70% of the amount you owe.
- Fixed amount: Your required payment for a Consumer Proposal never changes, unlike in a Bankruptcy where the more you earn, the more you pay. When you file a Consumer Proposal, your monthly payment stays the same throughout the term (unless you choose to pay it off early).
- Creditor protection: Once your Consumer Proposal is approved by your creditors, you’ll receive creditor protection that will stop you from being contacted by them (like debt collection calls).
Disadvantages of a Consumer Proposal
- Cost: A Consumer Proposal is more expensive than filing for Bankruptcy. So if you don’t have significant income and don’t own assets that would be seized to clear your debts, then a Consumer Proposal may not suit you.
- Time to complete: A Consumer Proposal tends to take longer to complete than Personal Bankruptcy. Lowering the amount you pay each month means it will take longer for you to pay it back, but if your situation improves you can pay off your proposal early.
- Credit score: Like Bankruptcy, a Consumer Proposal will affect your credit rating.
- Terms: It’s important that you adhere to all of your proposal payments and agreements. If you fall behind or miss your payments, your proposal terms will be terminated.
Is a Consumer Proposal right for me?
To decide on the best route to take towards being debt-free, the best first step is meeting with a Licensed Insolvency Trustee.
Your LIT will evaluate your financial situation and explain the pros and cons of each option, from credit counselling to a Consumer Proposal, to help clear your debts and take some weight off your shoulders.
If you decide that filing a Consumer Proposal is the right decision for you and your financial situation, your LIT will work with you to develop a proposal that works for both you and your creditors.
How a Consumer Proposal works
Here is the step-by-step process of how a Consumer Proposal works in Edmonton:
1. Meet with a Licensed Insolvency Trustee
Considering filing a Consumer Proposal? Your first step will be to meet with an insolvency professional, who will talk through your options with you. If you decide that a Consumer Proposal is the best option for you, you can meet with an LIT who will review the process and file the Consumer Proposal.
2. Filing your Proposal
Once your Consumer Proposal has been filed, you’ll feel a sense of relief knowing you’re protected from most actions against you from your creditors, including wage garnishments. You’ll no longer receive debt collection calls and won’t be charged any more interest.
3. Fulfill the duties of your Proposal
Once your Consumer Proposal has been accepted by your creditors, you’ll need to fulfill the terms. You’ll need to meet the monthly payments you agreed with your Trustee as well as two mandatory counselling sessions to help you get back on your feet financially.
4. Certificate
Once you’ve completed all the duties laid out in your Consumer Proposal, your LIT will issue a certificate that releases you from the unsecured debts that were included in the proposal. You’ll then be free from your debts and well on your way to the fresh financial start you deserve.
What debts can be included in a Consumer Proposal?
A Consumer Proposal only applies to unsecured debt – debt which isn’t tied to a valuable asset like your home. Types of unsecured debts include:
- Credit card debt
- Personal loans
- Payday loans
- Income tax debts
- Student loans (as long as you’ve been out of school for more than seven years)
If you have secured debts, you should continue to make payments to your secured creditors. But in your Consumer Proposal, you may be able to surrender and return your secured assets, such as your car or home, to your lender and stop making payments for these assets.
Does filing a Consumer Proposal in Edmonton affect my credit score?
While filing a Consumer Proposal will affect your credit score, it won’t damage it as much as Personal Bankruptcy will.
While you may see a dip in your credit rating when you file a Consumer Proposal, it’s important to remember the purpose of a Consumer Proposal and its benefits. Filing a Consumer Proposal can help offer you a fresh start and take away the pressure that comes with a large amount of debt. The damage to your credit score is only temporary, and you can improve your credit score over time by using credit responsibly, paying your bills on time, and keeping an eye on your credit report.
While improvements to your credit rating won’t happen overnight, you should see an improvement over a few months if you take the time to improve your finances and keep on top of your financial commitments. Your LIT will be able to advise you on ways you can improve your credit score, such as applying for a prepaid credit card.
Ready to take a step towards becoming debt-free?
Here at Allan Marshall & Associates, our priority is to provide a supportive and professional service. If you’re looking for financial support, our Licensed Insolvency Trustees specialize in Consumer Proposals to help you settle your debts.
Contact us today for a free consultation to discuss your options and move towards financial wellbeing.
