For individuals in Alberta grappling with overwhelming debt, understanding your options is the first step toward financial relief. If your unsecured debt is $250,000 or less, a Consumer Proposal (sometimes called a Division 2 Proposal) can be a powerful tool. This legal agreement, overseen by a Licensed Insolvency Trustee (LIT), allows you to reduce your debt and establish a manageable monthly payment plan, often eliminating the debt within five years, sometimes sooner. For those with unsecured debt exceeding $250,000, a Division 1 Proposal offers a similar path to restructuring your finances. Both options are governed by the Bankruptcy and Insolvency Act (BIA) and aim to help you retain your assets while working towards a debt-free future. Additionally, you could make an assignment into bankruptcy (or could be petitioned into bankruptcy by one of your creditors) or negotiate settlements with your creditors informally. The choice of which way to address debt is often something that bankruptcy and insolvency lawyer can assist you with.
If you have a limited number of creditors, you can sometimes reach settlements with them independently or as a group saving costs of a bankruptcy proceeding and avoiding the negative connotations of filing a Proposal or Bankruptcy. There are a number of considerations in entering into such negotiations and the assistance of a bankruptcy and insolvency lawyer is often necessary to avoid common pitfalls.
When properly structured, to avoid fraudulent preferences or transfers at undervalue, to ensure that the arrangements take into account your exemptions from creditors (as some assets are protected from your creditors in insolvency proceedings), and ensure strong releases and settlement agreements are obtained, such an approach can sometimes deal with significant debt obligations quickly and informally.
A consumer proposal will often be your first option, if your debt is $250,000 or less. These types of proceedings often do not require a lawyer's assistance and a Licenced Insolvency Trustee (LIT) will often be able to guide you through the process. These proposals often allow a consumer debtor to reduce their debt load, and then pay the remaining balance off on a monthly basis within a maximum five-year time frame. In a consumer proposal you get to retain all of your assets (or some of them) so long as you pay your agreed amounts as agreed. However, as this is a proposal to your creditors, a sufficient number by amount and number of creditors must accept the proposal to have it be binding on your creditors.
If they reject your consumer proposal, you may need to consider higher payments, or even filing for bankruptcy.
For Alberta individuals (and corporations) facing significant financial distress, a Division 1 Proposal or a Notice of Intention to Make a Proposal (NOI) offers a powerful, pathway to restructure debt and avoid outright bankruptcy. These are sophisticated tools, governed by the Bankruptcy and Insolvency Act (BIA) and provide a critical opportunity to regain control and secure a viable financial future. Understanding how these options work is complicated and an insolvency lawyer is nearly essential for strategic decision-making in these contexts.
A Division 1 Proposal is a form binding offer made by an insolvent individual (often owing more than $250,000 in unsecured debt) or any insolvent corporation to their creditors. It proposes a plan to repay a portion of the outstanding debts, or to extend the repayment terms, or a combination of both, over a specified period.
Key Benefits of a Division 1 Proposal:
Immediate Protection: Upon filing, a "stay of proceedings" comes into effect, legally halting all unsecured creditor actions, including lawsuits, wage garnishments, and collection calls against you.
Interest Freeze: Interest on unsecured debts ceases to accrue from the date of filing.
Asset Retention: Unlike bankruptcy, a successful Division 1 Proposal allows the debtor to retain all their assets, provided they adhere to the terms of the proposal.
Binding on All Creditors: Once accepted by the majority of creditors (representing two-thirds in value of the proven claims in the proceedings) and approved by the court, the terms of the proposal become legally binding on all unsecured creditors, even those who voted against it.
Customized Solutions: The proposal can be tailored to the specific financial circumstances of the individual or corporation, offering flexibility not available in a standard bankruptcy.
The Process:
Preparation with an Licensed Insolvency Trustee (LIT): The process begins by working closely with a Licensed Insolvency Trustee (LIT) and a Bankruptcy and Insolvency Lawyer; they will help you assess your financial situation, understand your obligations, and formulate a realistic and compelling proposal to your creditors that they believe could be successful.
Filing: The LIT files the proposal with the Office of the Superintendent of Bankruptcy (OSB).
Creditor Meeting & Vote: A meeting of creditors is convened (typically within 21 days of filing) where they vote on the proposal. For approval, a majority in number of creditors, representing at least two-thirds in value of the claims, must accept it.
Court Approval: If accepted by creditors, the proposal must then be approved by the court to become legally binding.
Implementation: Once approved, you make payments to the LIT according to the proposal's terms, and the LIT distributes these funds to your creditors in accordance with the proposal.
Important Note: While there's no statutory maximum term for a Division 1 Proposal, they are often structured to be completed within five years, similar to Consumer Proposals. If the proposal is rejected by creditors or the court, or if you default on its terms, you will be deemed to have filed for bankruptcy - these are high risk proceedings to commence and you should talk with a Bankruptcy and Insolvency Lawyer prior to considering filing a Division 1 Proposal.
For complex situations, particularly for corporations or individuals needing more time to formulate a comprehensive proposal but need the benefits of 'breathing room' with a stay of proceedings and no enforcement proceeding against them, an NOI can be filed before the Division 1 Proposal. A NOI provides:
Temporary Stay: An NOI provides an immediate 30-day "stay of proceedings," offering crucial breathing room from creditor actions. This allows the debtor to continue operating and focus on developing a detailed proposal without the immediate pressure of collection efforts.
Time to Prepare: This initial period is used to gather financial information, negotiate with key stakeholders, and finalize the terms of the Division 1 Proposal.
Extensions: The initial 30-day period can be extended by the court for further 45-day periods, up to a maximum of six months (or longer in specific circumstances for corporations with significant debt, under the CCAA).
When to Consider an NOI:
An NOI is particularly beneficial when:
The financial situation is complex, requiring extensive analysis and negotiation.
There are many creditors or significant assets involved.
The business or individual needs time to stabilize operations before presenting a formal restructuring plan.
The NOI Process:
Filing with LIT: An LIT files the NOI with the OSB.
Immediate Stay: The stay of proceedings takes effect immediately upon filing.
Proposal Deadline: The full Division 1 Proposal must be filed within the initial 30-day period, or within any court-granted extensions. Failure to file the proposal within the prescribed timeframe will result in the debtor being deemed bankrupt.
Navigating Division 1 Proposals and NOIs is a complex legal undertaking that requires expert guidance.
Licensed Insolvency Trustee (LIT): The LIT is the only professional legally authorized to administer BIA proceedings. They are neutral parties who ensure the process adheres to federal law, assist in drafting the proposal, communicate with creditors, and manage the funds. They do not advocate for your.
An Alberta Bankruptcy Lawyer: While an LIT handles the administration, an experienced Alberta bankruptcy lawyer provides invaluable strategic advice and legal representation. A lawyer can:
Advise on the best course of action (proposal vs. bankruptcy vs. other options).
Protect your rights and interests throughout the process.
Negotiate with creditors on your behalf.
Address complex legal issues that may arise.
Represent you in court for extensions or other applications, such as an NOI proceedings.
Remember, your LIT does not advocate for you but acts as the neutral administrator in the proceedings.
In Alberta, you can voluntarily file for bankruptcy, or in certain situations, your creditors may petition the court to force you into bankruptcy. If a creditor is petitioning you into bankruptcy, you will often need the services of an Insolvency Lawyer. If you are merely voluntarily filing for bankruptcy, or making a consumer proposal, you may not need assistance of counsel.
However, in instances where a more complex proceeding is occurring, engaging an experienced Alberta bankruptcy lawyer can make this complex process less daunting, ensuring your rights are fully protected and you make the most informed decisions for your financial future.
Some examples of when you may want to engage an Alberta insolvency lawyer could include:
If you are looking to make a Notice of Intention to Make a Proposal or Division 1 Proposal;
or in bankruptcy proceedings if there are:
allegations of fraud, or other grounds for the refusal of your discharge in bankruptcy under section 178 of the Bankruptcy and Insolvency Act (BIA);
if a Compelling Order is granted against you;
If your discharge has been suspended or adjourned;
if your trustee has been discharged with your remaining in Bankruptcy.
For personalized advice and to explore your best options for debt relief in Alberta, consulting with a qualified Alberta bankruptcy lawyer is highly recommended. They can help you navigate the complexities of insolvency law and guide you toward a brighter financial future.
Consumer Proposals, Division 1 Proposals, NOIs and Bankruptcies all offer robust frameworks for Alberta individuals to address significant debt challenges. By leveraging the experience of a Licensed Insolvency Trustee and an experienced Alberta bankruptcy lawyer, you can strategically navigate these processes, protect your assets, and lay the groundwork for a stable and prosperous financial future. Don't delay in seeking professional advice to explore the best options for your unique situation.