The average amount of consumer debt that Canadians carry is currently $22,125. That’s a hefty number and includes things like auto loans, credit cards, lines of credit, and personal loans, among others.
In Alberta, that number is even larger, with the average consumer debt (not including mortgages) sitting at a whopping $27,871. Even worse, consumers residing in Calgary carry an astounding average consumer debt amount of $37,345 on average, bringing the province’s average debt load up.
With higher debt loads comes a higher chance of defaulting, placing Alberta consumers at risk of losing their assets and experiencing financial hardship.
When placed in these precarious positions, Alberta consumers may be faced with having to settle their debts, and consumer proposals may be an option.
How Does a Consumer Proposal Work?
A consumer proposal is a means of alleviating your debt. It’s a legal process that is governed by the Bankruptcy and Insolvency Act and occurs between you, and the creditors you still owe money to.
A consumer proposal is a legal agreement made with your creditors to reduce your debts and come up with a specific timeline to repay whatever amount they agree to. How much you end up paying your creditors will depend a great deal on your income and your assets.
You would file a consumer proposal and offer to repay your creditors a portion of the amount that you owe in order to resolve your debt issues. This process needs to be carried out with the help of a Licensed Insolvency Trustee, who will work on your behalf to deal with your creditors and lessen your debt load.
Once your proposal has been submitted, your creditors can either accept or reject it. If your proposal is accepted, you will start repaying your remaining balance according to the schedule each party has agreed to. You will stop making payments directly to your creditors. Instead, your payments will be made through your trustee.
Consumer proposals offer plenty of benefits, including:
- Stopping the collection agency calls
- Eliminating the risk of your wages being garnished
- Putting an end to any threats of legal action taken against you
How Can I Qualify For a Consumer Proposal in Alberta?
In order to eligible for an Alberta consumer proposal, you must meet certain criteria:
- You must be unable to make your debt payments on time or in full
- You must owe no more than $250,000 to your creditors ($500,000 for couples)
- You must lack sufficient assets to be put towards paying off your debt
Your consumer proposal will only go through if creditors representing a minimum of 51% of your total debt accept it. Your Licensed Insolvency Trustee should then mediate on your behalf with any creditors that you have outstanding balances with.
To find out if it’s possible to file a joint consumer proposal, click here.
Do You Think You Need to File a Consumer Proposal?
There are many different reasons why you might want to consider filing a consumer proposal in Alberta to settle your debt:
- You can’t afford to make all of your debt payments
- You’re struggling to make payments on time
- You’re receiving collection calls demanding repayment
- You’re being threatened with wage garnishment
- You’re being threatened with legal action
- You can’t qualify for a debt consolidation loan
- You want to avoid bankruptcy
Disadvantages of a Consumer Proposal in Alberta
Consumer proposals certainly help to alleviate debt and eliminate many of the negative aspects that come with being unable to carry debt. Yet while these proposals have their advantages, they also come with a few drawbacks that all consumers with debt should be aware of:
- Your credit can be negatively affected. In fact, a record of your consumer proposal can stay on your credit report for as long as seven years
- Your consumer proposal might be rejected and not take effect if at least 51% of your creditors veto it.
- Your Licensed Insolvency Trustee is required to pay back your creditors as much as possible, with your money.
In addition, it’s important to be aware of companies that are looking for a way to profit handsomely from those who are seeking debt relief and who may not have your best interests in mind. An increasing number of these for-profit companies are popping up and preying on unsuspecting and vulnerable consumers who are desperate to get out of debt.
The problem is that only Licensed Insolvency Trustees are permitted to file a consumer proposal on behalf of consumers. These so-called debt relief companies often charge exorbitant fees for their services, only to merely refer you to an actual trustee.
You should only be consulting with a trustee who is licensed to act on behalf of a consumer when filing a consumer proposal. Or else, speak with a non-profit credit counsellor regarding your debt situation, they should be able to look over your entire financial situation with you and point you in the right direction.
Click here for some information about credit counselling in Alberta.
How Does a Consumer Proposal Differ From Bankruptcy?
There are a few key differences between bankruptcy and a consumer proposal in Alberta.
For starters, consumer proposals have a limit on the amount you owe in order to qualify, while bankruptcy does not. Usually, this amount is $250,000.
It’s possible that your monthly payments will increase or decrease with bankruptcy, but not with consumer proposals. In addition, you will be required to submit your monthly income and expense statements when filing for bankruptcy, which is not the case with a consumer proposal.
Finally, it’s possible that you might lose some of your assets or your home in bankruptcy, while consumer proposals won’t put them at such risk.
Learn about bankruptcy in Alberta.
Final Thoughts
If you’ve found yourself with a lot of debt that’s affecting your financial life in Alberta, a consumer proposal might be the avenue to take. This option can help end all those bothersome collection calls and eliminate the risk of your wages being garnished. It can also help to alleviate the stress of having to make all of your payments every month. Be sure to speak with a financial advisor or credit counsellor n Alberta to see if a consumer proposal is right for you.
