Debt Negotiation and Settlement

A Consumer proposal is a way to negotiate a debt settlement with your creditors by offering to pay back a reduced amount of your debt, either in a lump-sum payment or in monthly installments over an extended period of time.

The benefits of a proposal are:

  • You are paying back only a portion of your debt.
  • Interest is frozen at the date you file.
  • You don’t lose your house or any other assets.
  • Collection calls and wage garnisheeing immediately stop.

If you find yourself in this situation then you might want to consider making a debt settlement through a formalConsumer Proposal to your creditors. A consumer proposal is a great way to deal with your debts and avoid bankruptcy in Canada.

Debt Settlement vs Consumer Proposal: What is the Difference?

While debt settlement plans and consumer proposals are similar. Both start by having a debtor meet with a debt help advisor who reviews your personal financial situation and determines how much you can afford to pay to settle your debts with your creditors. Under both plans, you and your debt advisor would determine how much of your unsecured debts you could repay over a maximum of five years. There are, however, several key differences that you should be aware of before choosing which option is best for you:

  1. Consumer proposal are legally binding on all unsecured creditors. Debt settlement plans are not. Creditors under a debt settlement plan can still demand payment if they do not want to participate.
  2. Debt settlement plan providers are not licensed or regulated. Bankruptcy trustees are licensed by the federal government and must abide by a stringent code of ethics which requires that they present you with all of your debt relief options.
  3. Under a consumer proposal, your payments, and settlement plan with your creditors is determined, and agree to, up front. Under a typical debt settlement plan, your advisor asks you to make payments into a ‘fund’ and after a period of time they will attempt to negotiate with some of your creditors. The true cost, and final costs, can be quite difficult to determine under a debt settlement plan.
  4. Fees chargeable by the trustee are set by the government. The amount of fees and costs paid to a debt consultant under a debt settlement plan may be hard to determine.

Still have a question? Contact one of our experts for a free, no obligation evaluation.

For more information on how consumer proposals work, please see our consumer proposals FAQ.

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