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No province in Canada struggles with personal debt as much as Alberta. Cities like Edmonton, Calgary, and Fort McMurray all have an average consumer debt of over $25,000. Furthermore, this average does not include mortgage debt and is showing no signs of going down.
While many individuals make enough money to keep up with their debt payments, that isn’t always the case. Many people in Edmonton and the rest of Alberta end up requiring assistance to get out of their debt troubles. While many people in Edmonton may think bankruptcy is right for them, other debt relief solutions should be considered first, such as a consumer proposal.
Curious to know what a 100% consumer proposal is? Click here for the answer.
What is a Consumer Proposal?
A consumer proposal is a legal process in Edmonton in which you work with your creditors to either pay back a portion of what you owe or arrange a longer repayment period. It is a less extreme method of debt relief when compared to bankruptcy, but can be just as effective. If you are unable to pay off the entirety of your debt, a consumer proposal is something to consider.
When interested in a consumer proposal, you need to work with a Licensed Insolvency Trustee (LIT) in Edmonton to come up with a proposal that not only works for you but will also work for your creditors.
What exactly is a licensed insolvency trustee?
Well, a LIT is someone educated and licensed to oversee and file consumer proposals and bankruptcies in Canada. They are Officers of the court and are the only people allowed to file these procedures. While many LITs work for themselves, others are members of financial firms. In addition to consumer proposals and bankruptcies, these experts can help out with other debt relief options like credit counselling, debt settlement, or debt consolidation.
The Consumer Proposal Process in Edmonton
Now that you are aware of what a consumer proposal and a Licensed Insolvency Trustee is, what should you expect from the consumer proposal process in Edmonton? There are a number of steps that you will have to go through, here is a brief overview of the process.
Filing for a second consumer proposal? Read this first.
First off, you will need to find and meet with a Licensed Insolvency Trustee. There are likely a number of LITs who you can work within Edmonton. Choose one that you are the most comfortable working with. Next, you and your LIT will work together to create a proposal based on a number of things such as the amount of debt you have, your financial situation, your income, and your lifestyle needs.
Once the proposal is complete, your LIT will then send it to your creditors. In order for the proposal to be accepted, the creditor who holds the majority of the debt you have will need to agree to it. Once accepted, you will have 5 years to make regular payments to pay off the agreed-upon amount.
Want to know if you can pay your consumer proposal early? Find out here.
How Does Filing a Consumer Proposal in Edmonton Affect Your Credit Score?
So while filing a consumer proposal can help to eliminate your debt, how does it affect your credit report and credit score? While you don’t get off scot-free, a consumer proposal won’t affect your credit score as bad as bankruptcy will.
For example, a credit report in good standing will have a rating of R1, and one that has filed for bankruptcy will have a rating of R9. In comparison, a consumer proposal filing will fetch a rating of R7. As you can see, while it is still negative, it isn’t as bad as it could be.
So while a consumer proposal will hurt your credit, that is often better than dealing with an overwhelming amount of debt for years or decades. Also, rebuilding your credit is entirely possible. Some ways to rebuild your credit include:
- Using credit responsibly
- Making all of your payments on time and not missing any
- Using a secured credit card as a low-risk method for building credit
- Monitor and check your credit report frequently
- Make sacrifices when necessary
While repairing your credit score and report won’t happen overnight, it can happen relatively quickly if you really commit yourself to improve your finances.
Is a Consumer Proposal Right For You?
Deciding whether to utilize a consumer proposal is a big choice. If you have any questions or are interested in working toward a consumer proposal, be sure to reach out to Loans Canada.