For some the very phrase “Personal Bankruptcy Alberta” evokes Dickensian images of a family huddled under a street lamp watching all that they own hauled away by dark agents of their unfeeling and uncaring creditors. As you know, the Bankruptcy and Insolvency Act (BIA) of Canada and the personal bankruptcy Alberta Provincial laws make that image a relic of the far distant past.
However, bankruptcy does come with some negative consequences and many personal bankruptcy Alberta filers lose some, but far from all, of what they own. About 15 years ago, the BIA was amended to include a provision for something called a Consumer Proposal in Alberta as an alternative to personal bankruptcy. Is it really a viable alternative?
Let’s briefly review what a Consumer Proposal is and what it can do for you.
What is A Consumer Proposal in Alberta?
First, Consumer Proposals are handled by the same debt solution professionals responsible for filing and administering personal bankruptcies – licensed bankruptcy trustees. To determine if you qualify for a consumer proposal in Alberta you meet with a trustee who assesses your financial situation. If you proceed with a proposal, this becomes a formal Assessment Certificate, filed with the proposal itself.
What’s involved is fairly simple. The trustee will consider your current debt load, living expenses, and income and come up with a monthly payment you can afford to make. The key strategy is to lower your total debt load to a level that can be paid back in five years of making those single payments, with some interest to the creditor. Payments are made to the trustee who distributes them to the creditors over time.
As an example, if you owe a total of $120,000 to 6 different unsecured creditors, the trustee might propose to your creditors that you can repay them $10,000 each or even $8,000 over five years – a 50% or 60% reduction.
If more than 50% of your creditors agree to the proposal, it becomes binding on all creditors. In addition, a Consumer Proposal comes with the same legal protection as bankruptcy – collection activities against you will stop. As long as you continue to make the payments you are fully protected against garnishment, bank attachments, and lawsuits.
What Can a Consumer Proposal Do for You?
As indicated, legal protection is a key benefit of a Consumer Proposal, but the real advantage is asset protection. In a personal bankruptcy Alberta filing there are limits to what assets you can keep. If you have equity value in your home greater than $40,000, you might lose it. If you own a vacation retreat somewhere, you will definitely lose it. If you own luxury cars you might lose them as well. All of these assets are protected from seizure under a Consumer Proposal.
In addition, a Consumer Proposal Alberta will not impact your credit rating as severely as a personal bankruptcy Alberta filing. Although the numbers clearly indicate a consumer proposal will end up costing far more than a bankruptcy in the long run, there is another reason these proposals are attractive, even to those who do not risk losing assets in bankruptcy. And that reason is a feeling of self-worth.
Some Canadians see paying their debts as an ethical and even moral issue. For them paying back at least a portion of what they owe makes them feel better about themselves than if they were to walk away from that debt in a personal bankruptcy Alberta filing.