Which is better for me - Credit Counselling or Consumer Proposal?
If you're facing financial challenges unable to pay your debts monthly or are only able to service your monthly payments we discuss these two options.
Option One - Credit counselling
Credit counselling agencies offer an option called a Debt Management Plan (DMP). A DMP allows an individual to consolidate the full amount of their debt into one monthly payment usually without interest. This option is not legislated, therefore the creditors reducing or waiving their interest on the debt is purely voluntary. The creditors will voluntarily stop collection activity and this does not impact your assets in any way.
A DMP cannot, however, deal with any government debts such as income tax or student loans.
Option Two - Consumer Proposal
A consumer proposal is an option that is legislated through the Bankruptcy and Insolvency Act and can only be filed by using a Licensed Insolvency Trustee (“LIT”). Upon filing a consumer proposal, the individual receives a stay of proceedings, this means that legally, your creditors cannot take any further action against you without leave of the court. If you have a creditor garnisheeing your wages or suing you, these actions will stop upon filing. In addition, the interest stops upon filing as well. The creditors then have 45 days to consider your offer, which is often significantly less than the total owing. If the majority of creditors by dollar value vote in favour of accepting the proposal, it becomes a legally binding contract between the individual and the creditors to settle the debt.
There are two obligations once the consumer proposal is accepted.
First, you must make your payments as agreed and second, you must attend for 2 credit counselling sessions. These counselling sessions can be done by phone and will help you learn how to budget and manage your money and rebuild your credit rating. Although assets have to be disclosed to the creditors, assets are not impacted.
Here is a summary of the major differences between the two options:
1) In a consumer proposal, the debt can often be significantly reduced to a fraction of the total amount owing. A DMP does not reduce the amount owing; you pay the full amount over time.
2) In a consumer proposal, the interest stops accruing on filing. In a DMP, interest continues to accrue unless creditors agree to stop the interest.
3) In a consumer proposal, the creditors are legally stayed (prevented) from taking any further legal actions against you. A DMP offers no such protection from lawsuits or garnishments if creditors choose to take these steps.
To read the full article covering assets, debt, credit rating etc., visit our Blog
Both of these options can help a person who finds themselves in financial difficulty with a solution to deal with their debt while avoiding bankruptcy.
Contact D. Thode & Associates Inc. for a free consultation today to find out about these options and more.