A consumer proposal is often compared and contrasted with a program provided by credit counselling agencies known as a debt management plan. While both alternatives have some similarities and can help you reduce your debts, there are some very significant differences.
|Consumer Proposal under the Bankruptcy and Insolvency Act||Debt Management Program
|How do you start the process?||Only a Licensed Insolvency Trustee can file a consumer proposal.|
A Licensed Insolvency Trustee is regulated by the Office of the Superintendent of Bankruptcy
|Typically administered by a credit counsellor.|
|Do I lose my assets?||You do not lose your assets in either process. If you receive a tax refund or a raise, you may keep it in both procedures.|
|How much do you repay?||How much do you repay?|
Generally you pay much less than what creditors are owed.
The LIT will provide you with guidance on what may or may not be acceptable.
|Debts are paid in full at little or no interest over 55 – 60 months.|
|Both options allow you to make payments for up to 5 years, only a consumer proposal allows you to repay less than the full principal outstanding.|
|What debts are included?||All debts are included, including government debt, in a proposal. You cannot pick and choose who is in or out.|
Secured creditors are usually paid outside the proposal.
Debts that would not be discharged in a bankruptcy (ie: student loans) would not be discharged in a proposal.
|You can choose which creditors to include and which to leave out. Government debt cannot be included.
This is where it gets tricky. If you leave out certain debts, they still remain active and need to be paid. If the creditor takes action against you, then your DMP may come to a crashing end and your options are then limited.
|How do creditors accept the plan||The creditors have 45 days to approve your proposal. If the majority of your creditors agree, all creditors are bound by the agreement||All creditors must agree. Any creditor can opt out of the plan and pursue you individually.
|Creditors rights||Once a proposal is filed, creditors are stayed from starting or continuing any collection action. You are legally protected.||There is no legal protection. Creditors might agree to a repayment program, but could change their mind.|
|Credit Report||A consumer proposal remains on your credit report for 3 years after your final payment||A debt management plan is purged two years after your final payment.|
|Credit rating||In both cases your credit rating becomes an R7|
Both processes can give you peace of mind, knowing that your debts are being dealt with, but there are so many more advantages to file a consumer proposal. A consumer proposal works better if your debts are larger or complicated (you have tax debts or several debts).
At Boale, Wood and Company Ltd, we can help you understand the differences so you can make an informed decision. Contact us today to discuss your options.
Call us. Its not too late. (604) 605-3335.