Should I file a debt management plan or a consumer proposal?

Sunday, July 26, 2015 - 18:54

Consumer Proposals, Credit Counselling

People come into our offices suffering from various debt issues. Some people have little to no assets and are drowning in debt. Others have several assets that they do not want to part with but are concerned with the amount of debt they have racked up. The important thing to note is that there is help out there for both of these types of debtors

When debtors come to our office, we go over every option with them as every situation is different and the solution is not always the same. Two of those options are Debt Management Plans or Consumer Proposals

A debt management plan would be a good option for the individual who is not insolvent (their assets are greater than their liabilities) and has a relatively small amount of debt. It is an informal arrangement negotiated between the individual and their creditors by a credit counsellor. Although it allows the individual to avoid bankruptcy or a consumer proposal, it is not a complete solution. Therefore, we do not recommend this solution to individuals with a lot of debt.

A debt management plan:

  • Does not stop all interest charges
  • Pays back 100% of balance owed plus administration charge
  • Does not stop wage garnishment
  • Both solvent and insolvent individuals may file
  • Results in R7 credit rating which remains on credit report for three years after debts plus administration charges are paid in full

An individual who is drowning in debt and is unable to make required monthly payments on current debts, may want to consider making a consumer proposal. In order for us to recommend this option, the individual must have a consistent source of income as they will be required to make monthly payments through the consumer proposal. 

A consumer proposal:

  • Formal legislated process forces creditors to participate
  • Stops all interest charges
  • Allows for compromise of debt so you repay less than the total amount owed
  • Stops wage garnishment
  • You must be insolvent to file
  • Results in R7 credit rating which remains on credit report for three years after proposal payments have been completed

No matter what situation you are in, we will go over all options with you so that we recommend the best solution for you. Contact our office today for a free initial consultation. We are here to help.