Is a Consumer Proposal Worth It?
A consumer proposal is absolutely worth it!
In Alberta, a consumer proposal is a very attractive option because you don’t have to pay any interest and a trustee can help you settle your debts for much less than you owe. On average, BNA Debt Solutions clients only pay back 37% of their current debt load, a significant decrease from the original amount owing. A consumer proposal can only be administered by a Licensed Insolvency Trustee, not an accountant or a lawyer, and there are two things to consider:
- There must be an advantage to the creditors to accept the terms, which means they need to get back more than they would if you filed for bankruptcy or they will turn it down.
- If you have little money or assets (home equity) to pay toward the debt, then this might not be the right option for you. The advantages are many when you opt for a consumer proposal. A few of them are that you can include your tax debt to the Canada Revenue Agency; your payments can possibly be amended if your circumstances change; you will receive financial counselling; and you don’t pay any additional fees or interest to your Trustee.
What is a Consumer Proposal and how does it work in Alberta?
A consumer proposal is an arrangement that’s negotiated with your creditors through a Licensed Insolvency Trustee. It’s an alternative to personal bankruptcy that is preferred by many debtors in Alberta. They are administered in Alberta the same way they are across Canada by a federally appointed and Licensed Insolvency Trustee under the eye of the Office of the Superintendent of Bankruptcy, a federal government department.
A consumer proposal is a legal option for all Canadians and Albertans, who are having difficulties paying back their debt. It is a legally binding agreement that is put in place to provide Canadians with immediate protection from debt collectors and it also secures a partial repayment of your total unsecured debt owing, which is agreed upon by the affected creditors.
When you file a consumer proposal with a licensed trustee, you are agreeing to pay a portion of what you owe, and your creditors are also agreeing to forgive the balance. If you have found yourself unable to repay all of your debt, but you can still afford to repay a portion of what is owing, a consumer proposal is a solution to help you move towards financial freedom.
A licensed Insolvency Trustee will work out a payment plan between you and your creditors. If it is accepted, it becomes a legally binding settlement of your unsecured debts. The process is the same in all Canadian provinces and territories, including Alberta.
How Long After a Consumer Proposal Can I Get a Credit Card?
Generally during the process you can apply for a secured credit card, and will work your way back to an unsecured card after the proposal. Some creditors will give you a card shortly after you complete the proposal.
The ability to borrow money is based on your credit score, as well as your income, other debts, and your past financial history. The quicker you pay off your proposal, the sooner the note will be purged from your credit report, which means paying off your proposal as fast as you can is the best way to rebuild your credit quickly, however in Alberta, a consumer proposal will remain on your credit report for three years after your proposal is completed.
What is the Difference Between a Consumer Proposal and Debt Consolidation in Alberta?
In Alberta, a consumer proposal actively works to pay back your creditors at zero interest. A debt consolidation loan or service merely shifts all of your debts into one loan payment, with interest. Remember, you can not borrow your way out of debt, you must eventually deal with it.
A consumer proposal is a legally binding agreement that is put in place to provide Canadians and Albertans with immediate protection from debt collectors and it also secures a partial repayment of your total unsecured debt owing, which is agreed upon by the affected creditors. Your creditors would rather recover some payment than no payment at all, so under a consumer proposal, a Licensed Insolvency Trustee works out a payment plan between you and your creditors that is mutually agreed upon. All interest ceases, and at BNA Debt Solutions, our clients typically pay back just 37% of their debts on average.
Meanwhile, debt consolidation services offer a loan to cover your outstanding debts. While this will eliminate creditor calls, it puts the debtor right back into another cycle of debt. Some debt consolidation services offer loans at high interest rates, rivalling those of credit cards. When a debtor takes a debt consolidation loan, they are merely putting all of their debts into one “basket” as opposed to actively taking steps to pay them down without interest.
Is a Consumer Proposal Considered Bankruptcy in Alberta?
No, a consumer proposal is not the same as a personal bankruptcy in Alberta, as each have different rules, methods and guidelines as set out by the federally-appointed Office of the Superintendent of Bankruptcy. A consumer proposal can be a faster, easier and much more painless way to pay back debt.
Personal bankruptcy and consumer proposals are the two best options available in Canada to help debtors find relief. Both solutions are legally binding methods to resolve debt and both options provide legal protection from creditors. However a consumer proposal is removed from a credit report in 3 years after completion compared to 6 after a bankruptcy. A consumer proposal also allows the debtor to keep all of their assets, and have lower fixed monthly payments.
In Alberta a consumer proposal is much simpler than bankruptcy, the terms are determined up front and are mutually agreed upon between you and your creditors. Payments under a bankruptcy can shift if you make more income, receive a tax refund or other funds, and there is potential to lose assets like property or vehicles.
Just a warning though, both of these processes fall under the same legislation called the “Bankruptcy and Insolvency ACT” and some inexperienced lenders or other parties will see documents with this on it and presume that you filed a Bankruptcy. It is a continual teaching process for us to inform them and we always encourage our clients to keep their documents in a safe place so they can prove it was a proposal not a bankruptcy.
How Long After a Consumer Proposal Can I Get a Mortgage?
A lender can issue a loan any time, at their own discretion, however in Alberta a consumer proposal stays on your credit report for 3 years after the proposal is completed and in general lenders will not issue a mortgage to someone until they have started to rebuild their credit rating.
Most creditors in Alberta will not approve you for a mortgage while you are in a proposal. You can renew a mortgage though, while in a proposal, but your interest rate may be affected. We often advise clients to renew their mortgages first before filing one.
During the proposal you can save towards the down payment and then apply for mortgage approval afterwards. If you have included a mortgage shortfall in a proposal or bankruptcy you may not qualify for further CMHC insurance in which case you will need a bigger deposit.
The ability to borrow money is based on your credit score, as well as your income, other debts, and your past financial history. The quicker you pay off your proposal, the sooner it will be purged from your credit report, which means paying off your proposal as fast as you can is the best way to rebuild your credit quickly.
How Long Does a Consumer Proposal Stay On a Credit Report?
In Alberta, a consumer proposal stays on your credit report for three years after the final payment is made.
One of the biggest reasons consumer proposals are an attractive option to debtors in Alberta is that they can disappear off of your credit report much faster than a bankruptcy. The consumer proposal stays on your credit report for three years after you receive your Certificate of Full Performance, which means that the faster you can pay your consumer proposal, the faster it will be removed from your credit report.
In Alberta (and the rest of Canada) a personal bankruptcy stays on your credit report for 6 years. If it is your second bankruptcy, it will stay on your record for up to 14 years.
Do Consumer Proposals Include Vehicles in Alberta?
If you have a shortfall on a vehicle, then yes, this can be included. (If your vehicle has been repossessed or you wish to surrender it.) However if you are up to date and remain in good standing on your vehicle payments, and you wish to keep your vehicle you would not include your vehicle in your proposal.
When you file a consumer proposal in Alberta, you can keep all of your vehicles, regardless of how much they are worth or what is left owing, provided you are making the payments and not in arrears on financing or lease payments.
A consumer proposal does not include secured debt, like vehicle or lease payments, so you can keep your vehicle if your loan payments are in good standing, and you keep making all your payments. If however, your vehicle is worth a lot less than the amount you owe or you have rolled over previous balances into this car loan and are paying thousands of dollars more than the vehicle is worth, a proposal is an ideal time to get out from underneath this additional debt. You can return the vehicle to the dealership or financing agency and include any outstanding balance in your proposal and purchase another vehicle (before filing the proposal) and eliminate all of that additional debt.
Are Trustees Fees Included in a Consumer Proposal in Alberta?
Yes they are! There are no additional fees after you agree to the terms with your creditors.
A Licensed Insolvency Trustee works with you and your creditors to reach a mutually agreed upon payment plan (like a referee) that sees the creditors receiving a portion of what’s owed. The Trustees fees are included in the portion that the creditor is to receive. Essentially the creditors are paying the Trustee fees for the service of collecting their debts for them.
Can a LIRA (Locked In Retirement Account) Be Seized in a Consumer Proposal?
No, locked in retirement accounts are considered protected and cannot be seized in a consumer proposal.
All retirement funds are protected in a consumer proposal. When you file a consumer proposal, you do not have to give up these assets . This includes anything invested in a LIRA, RRSP, RSP, RESP and so on. In most situations, the money in your retirement plans will remain untouched under a consumer proposal. On the other hand, many clients may choose to access these accounts to fund a proposal to eliminate debt before retiring.