Consumer Proposal Or Debt Settlement: Which Is Better?

Should I Opt For a Consumer Proposal Or Debt Settlement?

If you are faced with significant unsecured debts, it’s likely that both Consumer Proposals and Debt Settlement Companies will have surfaced during your initial research into potential debt relief solutions.

At a glance, they promise very similar outcomes by settling your debts at a lower cost than is currently owed.

However, they achieve this goal in contrasting ways. So, which is right for you?

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How Consumer Proposals & Debt Settlement Work

Both consumer proposals and debt settlement services require creditors to accept proposals for debt repayments at reduced rates.

Still, the main difference is that the former occurs BEFORE the repayment process commences while the latter relies on a delay.

Consumer Proposals

Consumer proposals are submitted by a Trustee, who will try to organize reduced payments to occur over a period of up to five years.

For example, if a person owes $30,000, the consumer proposal may negotiate this down to $12,000 courtesy of 60 monthly payments of $200.

Creditors are paid something rather than risking the prospect of zero returns following bankruptcy while you reduce the debts to regain control over your finances.

The consumer proposal is a legally binding contract with all creditors, who have 45 days to vote on the proposal.

If over 50% of the creditors (weighted by the value of each debt) vote in favor of the proposal, it will be accepted.

Debt Settlement

Debt settlements are handled by debt settlement companies.

They also focus on negotiating a reduced rate, which could see a $30,000 total debt become $12,000 if all creditors agree.

However, this is submitted after the $12,000 has been saved.

This could mean using a payment plan of $1,000 per month for the next year.

Once the $12,000 (or appropriate amount) has been saved, the debt settlement company approaches the creditors on your behalf.

The Pros & Cons Of Consumer Proposals & Debt Settlement

While both options plan to reduce your overall payments and help you achieve a better financial future, there are distinct differences between the two.

Consumer Proposals



  • You can start to pay off your debts with almost immediate results;
  • Splitting the costs over a longer period of time can make it a lot easier to keep up with the new repayment plan;
  • Legal action taken against you stops as soon as the proposal is filed. This means you’ll no longer receive phone calls and letters hassling you for money;
  • It’s a legally binding contract, providing you with clarity and legal protection.



  • It takes up to five years for you to clear the debts;
  • It takes up to 45 days for you to hear a decision while, if over half of the debt is owed to one creditor, they can overrule the decisions of all other creditors;
  • Consumer proposals will still affect your credit history and general financial health.


Debt Settlement



  • In the immediate future, your only task is to save as much money as possible courtesy of the debt settlement company’s payment plan;
  • If the subsequent proposal is agreed, your debts can be discharged very quickly rather than after a five-year payment period;
  • Creditors may be more open to accepting a deal after waiting for a long time.



  • If it takes you a year to save funds, that’s another year for creditors to harass you or make demands;
  • If one creditor rejects the proposal, you will still be left with their debt, although the debt settlement company can usually reduce your overall payment to the agreeing creditors in this scenario;
  • You have less time to save money, meaning there’s more pressure to save more;
  • Your financial problems will worsen during the period of saving funds due to the lack of any legal contracts or secure agreements.


The Verdict

When faced with financial problems, debt relief can be the answer to your prayers. However, you owe it to yourself to choose the right solution.

In the vast majority of cases, consumer proposals are better than debt settlement agencies.

This is because they:


  • Allow you to regain control of the situation far sooner;
  • Put an end to the stress of debt collection calls;
  • Encourage a better cash flow management situation;
  • Offers legal protection far sooner;
  • Provide an improved sense of confidence.


Before entering any debt relief agreement, though, it’s imperative that you gain the support of a Trustee or financial advisor to identify the best opportunities for your situation.

Call Bankruptcy Canada on (877) 879-4770 to discuss all potential solutions today.

The road to financial recovery starts here.

Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal

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