Creditor Protection: Consumer Proposal vs. Debt Management Plan

Comparing Consumer Proposal and Debt Management Plan For The Best Protection From Creditor Harassment

It’s a common scenario for individuals to seek advice from us at Bankruptcy Canada to explore options to manage their financial obligations. The trigger to reach out often stems from creditor actions like relentless collection calls, wage garnishments, or an impending lawsuit. Selecting the right debt relief strategy is always a function of your financial situation and the necessary creditor protection.

Debt Management Plan: A Voluntary Approach for Small Debts

Your income and budget play a crucial role in determining your debt relief options. Many individuals choose some form of consolidation allowing them to make a single monthly payment that fits within their budget. There are two primary routes to this outcome: a debt management plan or a consumer proposal.

A debt management plan is a suitable course of action if you owe a limited number of creditors a relatively small sum of money. It’s a voluntary plan where creditors decide whether they want to participate. It amalgamates all your existing debts with little or no interest charges. A typical debt management plan lasts for four years. There are no additional charges beyond your monthly payment.

This solution is ideal if you can afford to repay your debts, but the interest charges are overwhelming. It’s often chosen if your debts are no more than $10,000- $15,000, typically from two or three credit cards. By reaching an agreement with the creditors you’re struggling to pay, you can stop any actions they may be taking, like referring your account to collections or garnishing your wages.

Consumer Proposal: A Legally Binding Solution

However, it’s essential to understand that debt management plans are not legal contracts. They are entirely voluntary. If a creditor declines to participate, or if you need creditor protection, a consumer proposal is likely a better solution. It’s also an option to consider if your debts exceed $10,000 and the monthly debt management plan payment is unaffordable.

Unlike a debt management plan, a consumer proposal can only be filed through a Licensed Insolvency Trustee. It’s a legal remedy under the Bankruptcy & Insolvency Act. This is what offers you creditor protection in the form of a stay of proceedings, which can halt wage garnishments, legal actions, and collection calls.

A consumer proposal is a debt settlement solution that helps manage debt you can’t fully repay. Instead, you repay a fraction of your debt over a maximum period of five years (or 60 months). You can always increase your payments and settle your proposal faster, but you can’t extend payments beyond the agreed date.

The term “consumer proposal” originates from the fact that you – the consumer – make an offer to your creditors. They can either accept, amend, or reject it. Once you sign the consumer proposal paperwork, your creditor protection begins. Your creditors then have 45 days to consider your offer. If accepted by more than half of all votes (each creditor gets one vote for every dollar they’re owed), all of your creditors are forced to accept it, even those who didn’t vote or voted against it. The proposal then becomes a legally binding contract.

Key Takeaways

The main differences between a debt management plan and a consumer proposal are:


  • Consumer proposals are legally binding on your creditors, while debt management plans are voluntary;
  • Filing a consumer proposal can halt wage garnishment or other creditor actions, which debt management plans cannot;
  • Consumer proposals reduce the total amount of debt you repay, whereas in a debt management plan you must repay everything you owe;
  • The monthly payment in a consumer proposal is typically much less than that in a debt management plan (use our calculator to compare potential payments)

If you or someone you know is grappling with overwhelming debt, remember there are options. Contact us to speak with a Licensed Insolvency Trustee to discover your best path to a debt-free future.

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