Consumer Proposal vs. Debt Management Proposal

There are some pretty significant differences between a consumer proposal, offered by a Licensed Insolvency Trustee, and a debt management plan, which is offered by a credit counsellor or “debt consultant.” The most important thing to note is that a consumer proposal is a legal agreement approved by and offering the protection of the courts, while a debt management plan is completely voluntary—your creditors are not obligated to participate and there is no protection against any legal action brought against you.

Let’s take a closer look at some of the differences between these two debt solutions:

Wage garnishments and legal action

Consumer proposal

Collections calls, wage garnishments and threats of legal action stop when a consumer proposal is filed

Debt management plan

A creditor can continue to garnish wages and pursue legal action if they choose not to participate in the plan

Interest charges

Consumer proposal

All debts included in the proposal are frozen and will not earn any additional interest

Debt management plan

It is up to each creditor to decide whether they want to freeze interest charges

Court approved

Consumer proposal

Filed by a Licensed Insolvency Trustee and approved by the courts

Debt management plan

Voluntary agreement that does not receive court approval

Amount of debt repaid

Consumer proposal

Usually pay only a portion of total amount owed

Debt management plan

Usually pay total amount owed

Payment schedule

Consumer proposal

Single monthly payment based on your financial situation

Debt management plan

Single monthly payment

Fees/costs

Consumer proposal

No additional fees beyond your monthly payment

Debt management plan

Additional fees are common and vary widely

Do all creditors have to follow the plan?

Consumer proposal

As long as most of the creditors vote to approve your consumer proposal, all creditors must abide by it

Debt management plan

Any creditor can decide not to participate in a debt management plan; you would have to pay full interest on the debt owed to them

Repayment period

Consumer proposal

Maximum repayment period of five years

Debt management plan

Maximum repayment period of four to five years

Credit counselling

Consumer proposal

Must attend credit counselling

Debt management plan

Credit counselling is optional

How would this affect my credit rating?

Consumer proposal

Remains on credit report for three years after proposal is completed

Debt management plan

Remains on credit report for three years after debts are paid

Licensed Insolvency Trustees Since 1958