Protecting Yourself From Your Creditors With a Proposal or Debt Management Plan
Although we’d all like to lead a life that’s free of debt, for many of us it becomes unavoidable.
Interest rates are low.
Access to cheap credit is easy.
As such, we can often lean on lines of credit to pay unforeseen expenses and pay for life’s little luxuries.
Yet, while one or two debts can be manageable, they can add up significantly over time.
Interest rates can get harder to keep track of.
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Your budget can become harder to balance, and it can seem like you’re giving up the lion’s share of your monthly pay to appease your creditors.
Furthermore, when they constantly send you threatening letters and emails, or add fees and charges to your principal (the overall amount owed), it can add significantly to the financial and emotional pressure of debt.
You may feel as though there’s no escape from your debts and that you’ll be shackled to them forever.
But there are options available to you, even if you are resistant to the idea of Personal Bankruptcy.
Here we’ll compare two potential solutions that can offer you Creditor Protection.
These are a Consumer Proposal and a Debt Management Plan.
What is a Debt Management Plan?
A Debt Management Plan is one of the simplest, and most accessible ways in which you can protect yourself from your creditors and pay off your debts faster.
This is the debt relief solution most commonly offered by non-profit Credit Counselling services.
These services can negotiate with your creditors on your behalf in order to reduce the impact that your debts have on your day-to-day life and financial management.
They may be able to reduce interest rates or, in some cases, waive them altogether.
They can pool all of your debts together in to a single, affordable monthly repayment.
In this respect, a Debt Management Plan is similar to a Debt Consolidation Loan.
However, this plan can actually result in even more significant savings on interest and fees, meaning that you pay off more of your principal and pay down your debts much faster.
Most Debt Management Plans are resolved within 4 years and stays on your credit report for 2-3 years after completion.
It’s important to note, however, that a Debt Management Plan is entered into voluntarily by creditors.
They have no legal obligation to agree to the terms of the plan.
Is a Debt Management Plan right for you?
A Debt Management Plan is the right solution for you if you have a relatively small debt ($10,000-$15,000) and have only two or three creditors.
It may be advisable if you have applied for a Debt Consolidation Loan but have been turned down due to your credit score.
It can help you to establish a better relationship with your creditors and prevent them escalating the debt to a collections agency.
If you have a regular income, owe a modest amount and want to pay off your debts more quickly without wasting a fortune on interest, this is the right solution for you.
Please note that a Debt Management Plan cannot be leveraged against government debts such as student loans or tax payments owed to the CRA.
What is a Consumer Proposal?
A Consumer Proposal is functionally similar to a Debt Management Plan, but differs from it in several key ways.
A Consumer Proposal is often used against debts over $15,000 to multiple creditors.
Again, it helps you to pay off your debts faster while completely waiving interest, fees and charges.
Unlike a Debt management Plan, you can also reduce your principal by as much as 80%.
Furthermore, unlike a Debt Management Plan, a Consumer Proposal is legally binding and enforceable.
Your creditors don’t even need to agree unanimously on your terms to be bound by them.
If a 51% majority accepts the proposal, they are all bound by it.
However, a Consumer Proposal will have a more lasting effect on your credit rating.
It can remain on your credit report for up to 8 years from the point of arrangement and is usually settled within 3-5 years.
Unlike a Debt Management Plan, you cannot pursue a Consumer Proposal on your own.
You need to secure the services of a Licensed Insolvency Trustee who can act on your behalf as a Proposal Administrator.
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They will take a long look at your finances and credit history and help you to come up with a proposal that will be satisfactory to you and your creditors.
Is a Consumer Proposal right for you?
This is the right solution if you have significant debts and don’t want to file for bankruptcy.
There are investments and assets protected in a Consumer Proposal that are not protected by bankruptcy such as contributions to a a Registered Retirement Savings Plan (RRSP) or a property with more than $10,000 equity.
It’s a good solution for those who want to condition themselves to get by without credit and live debt free once the proposal has been settled.
Unlike a Debt Management Plan, a Consumer Proposal can be leveraged against government debt, making it a good option for those who owe money to the CRA as well as other substantial debts.
If your creditors have placed a freeze on your bank account or garnished your wages, a Consumer Proposal can put a stop to this action and help you to pay down your debts on your own terms.
How we can help
Since 1999 we’ve been helping Canadians from all walks of life to get out from under the shadow of their debts.
Unlike not-for-profit Credit Counselling services, we can put you in touch with a Licensed Insolvency Trustee who can advise you on the available options and help you to decide which is best suited to your needs.
If you’d like to know more about our debt management solutions, get in touch with us today.
Call us on (877)879-4770 to arrange a risk-free, zero-obligation and 100% confidential callback.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?