Why a consumer proposal is (almost) beating out bankruptcy as the best way to deal with debt.

Across Canada individuals are increasingly using a consumer proposal to address (what has now become) their unmanageable debt. A proposal is based on what you are capable of paying . . . not what you owe – and it allows you a fresh start without going bankrupt.

Under a consumer proposal, with the guidance of a Trustee, you negotiate to pay creditors all or a portion of your debt over a specific time period, or to extend the time allowed to pay the entire debt. You just need the majority of creditors to agree to the proposal—then all unsecured creditors are bound by it.

After you make your proposal, most creditors can no longer ‘hound’ you for collection of their accounts and public utilities can’t discontinue their service. Also, a consumer proposal prevents your creditors from garnishing your wages.

In 2006 only 15 per cent of insolvent Canadians chose to make a consumer proposal. Now that number is at an all time high of 40 per cent. There are a number of reasons why.

Firstly, in 2008, changes to the Bankruptcy Insolvency Act (BIA) increased the limit of the size of non-mortgage debt for qualifying for a proposal from $75,000 to $250,000.

And too, economists suggest it’s a sign of improving times where consumers are more optimistic about the future and are keen to ‘clean-up’ their debt issues in ways that are manageable—and without going bankrupt. With a consumer proposal you keep control of your assets and it has shorter-term – and less significant – impact on your credit rating than bankruptcy.

For some it’s all about keeping their car, home or signed jersey by Jerome. A consumer proposal starts with the consumer – you propose a deal to your creditors to pay back the debt. If you want to sell your car to do it, that is your choice. Remember, whatever you negotiate with your creditors should be fair otherwise they may just ask for your prized collection.

Remember too, in a bankruptcy you are mandated to make some payments toward your debts—for example (depending on the debt) you might be required to pay $1,000 a month for 21 months. In contrast, with a proposal you might negotiate to pay $600 a month for 40 months. This can be a more manageable option.

And, sometimes avoiding bankruptcy is very important. Your profession or employer may require that you not be an undischarged bankrupt. You also can’t be a director of an incorporated company if you are an undischarged bankrupt.

Not to mention, sometimes it’s also a psychological thing—people in general don’t like the ‘b’ word (bankruptcy). A consumer proposal provides a solid solution to resolving debt issues without committing to bankruptcy.

To learn more about a consumer proposal and whether it is the best course of action to address your debt issues, visit our website at www.gt.alger.ca or contact us for a confidential, no-obligation, complimentary consultation toll free from anywhere in Alberta 310 8888.


RRSPs protected if you file bankruptcy in Canada

ImageIn a final act of desperation, many consumers resort to the one last asset they have left but fear losing if they have to file a bankruptcy…their RRSP account.  People end up tapping into their future retirement savings to pay creditors or subsidize their living expenses if no money is left after debt payments. But consumers have told me that one of the main reasons why they felt the need to deplete their accounts is the fear that the bankruptcy Trustee will take their RRSPs and so the thought is, why not clean out the account first before the Trustee does.


Before you dip into your retirement savings, you need to know that bankruptcy has no interest in your RRSPs.  People are surprised to hear that there is protection given under provincial and pension legislation for RRSPs, LIRAs and pensions which prevents the seizure of these funds.  Knowing this vital information ahead of time can prevent the depletion of retirement savings that has, for most people, taken years to build.  I am seeing more and more people who’ve cashed out their RRSPs before filing a bankruptcy which not only resulted in eliminating their retirement plan but created a tax liability to Canada Revenue Agency. Don’t add to your debt load… keep your RRSPs for retirement since that was the intention, and still must be, of banking your hard earned dollars.


Start planning a way to deal with your debt…but plan to keep your RRSPs.


Freida Richer, Trustee in Bankruptcy