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What Is The Difference Between A Consumer Proposal And Credit Counselling Or Debt Management
2010-01-06
Generally speaking, a consumer proposal is a formal payment arrangement with unsecured creditors, which allows an individual debtor to settle his or her unsecured debt or have an extension of time for repayment, or both. Formal refers to the fact that a consumer proposal must be administered by a Trustee; it refers to the fact that the consumer proposal provides the individual debtor with legal protection from unsecured creditors and; it refers to the fact that the consumer proposal is a process regulated by the Bankruptcy and Insolvency Act.
A consumer proposal is a process most often utilized by individual debtors who do not have the cash flow (or other resources) to repay their creditors in full within a reasonable period of time.
Credit counselling, or a "debt management plan", is an informal process that involves working with a credit counselor to repay creditors over a maximum period of 5 years. A debt management plan can only be administered by a person licensed under the province or provinces in which they provide service (for example, in BC it is administered by Consumer Protection BC). Creditor participation in a debt management plan is voluntary and no legal protection is provided.
Debt management is a process most often utilized by individual debtors who have the cash flow to repay their creditors in full within a reasonable period of time. The following chart may help explain the key differences:
Consumer Proposal
Debt Management
- must be administered by a federal government licensed Trustee
- must be administered by a person licensed under the province or provinces in which they provide service
- provides legal protection from creditors
- no protection from creditors
- binds all unsecured creditors
- participation by creditors is voluntary
- interest stops upon filing
- interest is usually waived at the discretion of the lender
- debt can be compromised or settled
- debt must often be paid in full
- fees are regulated
- maximum fees are outlined in provincial legislation
For more information about consumer proposals, contact an MNP office in your area. For more information about credit counselling in your area, contact www.creditcounsellingcanada.ca.
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