Most people who get in touch with our licensed insolvency trustees believe that debt settlement and consumer proposal are interchangeable terms.
In reality, a consumer proposal is one type of financial plan that can settle your debt.
It is a legally binding document that provides debt relief to an individual.
In fact, a debt settlement company will not offer consumer proposals to their clients.
If this sounds confusing, don’t panic.
We can help you compare debt settlement vs. consumer proposal by focusing on the key differences.
Here is a brief overview of who can provide debt settlement and consumer proposal, what kind of debt they can settle, and the fees involved in the process.
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Who settles your debt?
Only one authority is authorized to administer a government-regulated program that settles debts in a legally-binding way: A Licensed insolvency trustee (LIT).
The trustee is licensed and regulated by the Canadian federal government to provide debt relief assistance to Canada’s residents.
The government empowers LITs to deliver consumer proposals that can relieve a variety of unsecured debts.
Additionally, trustees are also habilitated to provide objective debt advice and solutions.
The government does not regulate private debt settlement companies.
Governmental agencies do not license financial advisors who offer debt settlement programs; therefore, their debt solution is not legally binding.
Additionally, they are not authorized to provide consumer proposals.
Advisors can operate without accreditations, which can affect the result or effectiveness of their debt relief programs.
How much debt can they settle?
Private debt settlement companies offer to settle debts, but they can offer only a limited debt reduction.
Unfortunately, because they are not regulated by the federal government, they don’t carry any legal weight into negotiation with creditors.
As a result, there is no guarantee of success, as debt settlement will depend on individual talks.
With no legally-binding agreement, the debtor may still face complications with creditors.
Additionally, the debt settlement plan consists of paying a lump sum settlement amount to individual creditors, which means every single debt is settled separately.
Debt settlement doesn’t prevent legal actions or collection from creditors.
The consumer proposal is a legally binding agreement with the creditors, which immediately stops any communication or legal pursuit from all creditors.
The process settles all debts at once, including government debts.
It is the only process, along with personal bankruptcy, which can settle government debts.
The LIT can obtain a drastic debt reduction, by up to 80%, of your debts.
Are there additional fees?
The LIT offers a free first consultation to assess a debtor’s situation and find the most effective debt relief solution.
There is no need for a referral.
Fees are regulated by federal law, which means that an individual always knows how much they need to pay.
More importantly, no further cost is incurred through the process of filing a consumer proposal.
On the other hand, independent debt settlement providers have upfront fees that vary from one company to another.
Due to the nature of their position, they can’t offer any legal guarantee of success.
A debt settlement company is an expensive and less effective debt relief solution for individuals who are already overwhelmed by debt.
To find out how a licensed insolvency trustee can help with a consumer proposal or other debt advice, get in touch: (877) 879-4770.
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?