Debt Management vs Consumer Proposal
Comparing a consumer proposal to other debt plans
Consumer Proposal vs. Debt Management Plan
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:
| CONSUMER PROPOSAL | DEBT MANAGEMENT PLAN | |
|---|---|---|
| Wage garnishments and legal action | Collections calls, wage garnishments and threats of legal action stop when a consumer proposal is filed | A creditor can continue to garnish wages and pursue legal action if they choose not to participate in the plan |
| Interest charges | All debts included in the proposal are frozen and will not earn any additional interest | It is up to each creditor to decide whether they want to freeze interest charges |
| Court approved | Filed by a Licensed Insolvency Trustee and approved by the courts | Voluntary agreement that does not receive court approval |
| Amount of debt repaid | Usually pay only a portion of total amount owed | Usually pay total amount owed |
| Payment schedule | Single monthly payment based on your financial situation | Single monthly payment |
| Fees/costs | No additional fees beyond your monthly payment | Additional fees are common and vary widely |
| Do all creditors have to follow the plan? | As long as most of the creditors vote to approve your consumer proposal, all creditors must abide by it | 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 | Maximum repayment period of five years | Maximum repayment period of four to five years |
| Credit counselling | Must attend credit counselling | Credit counselling is optional |
| How would this affect my credit rating? | Remains on credit report for three years after proposal is completed | Remains on credit report for three years after debts are paid |
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