What is a Debt Management Program and is it Better Than Bankruptcy?

Understanding Debt Management Programs and Their Comparison with Bankruptcy

In recent times, numerous individuals have been confronted with escalating financial challenges, some of which have been exacerbated by the ongoing pandemic. Loss of income and mounting debts are leading to an increase in stress levels, pushing people to consider financial recourse they never thought they’d have to. Here, we delve into the concept of a debt management program, often abbreviated as DMP, and how it measures up against the more stringent financial solution of bankruptcy.

Diving into Debt Management Programs

A debt management program is essentially a debt-repayment plan that consolidates multiple monthly payments into a single payment to a credit counseling organization. This option is usually available via most accredited credit counseling services and does not fall under the jurisdiction of the Bankruptcy and Insolvency Act.

How does a Debt Management Program Work?

Under a debt management program, a credit counseling organization would negotiate with your creditors in a bid to:


  • Persuade them to participate,
  • Ask them to reduce or eliminate future interest charges,
  • Request them to cease any ongoing or future collections action, provided you continue to make your payments in full and on time.

The main limitation of a debt management program is that it cannot reduce the principal value of your debts. This means you would be obligated to pay the entire amount of your outstanding debts over a period of up to five years.

Pros and Cons of a Debt Management Program

Just like any financial solution, a debt management program comes with its own set of advantages and drawbacks.



  • Simplification of your budget and fewer monthly payments to manage.
  • Assistance from a debt professional to negotiate with creditors.
  • Possibility of a reduction in interest.



Creditor and collections calls might not stop:
A debt management plan does not provide an automatic stay of proceedings. The credit counseling organization would have to negotiate with each creditor and convince them to suspend any ongoing or future creditor actions and court judgements.

Creditors can opt-out anytime:
Participation in a debt management program is voluntary, so creditors can revert to your original payment and interest schedule at any point.

Ineligibility of Canada Revenue Agency (CRA) debts:
Any debts owed for unpaid taxes and penalties will continue to accrue at their current principal value and interest rate.

Extended timeline to become debt-free:
Most debt management programs are repaid over a four- to five-year timeline.

Impact on credit report:
A debt management plan registers the same as a Consumer Proposal on your credit report but without many of the legal and financial benefits.

Delving into Consumer Proposal

A Consumer Proposal is another debt solution that is akin to a debt management program in that it consolidates debts into a single monthly payment. However, it differs in that it is administered by a Licensed Insolvency Trustee and is based on your ability to pay.

How does a Consumer Proposal Work?

In a Consumer Proposal, a Licensed Insolvency Trustee negotiates with your creditors to consolidate your debts into a single monthly payment, payable over a period of up to five years. The total amount of your debts may decrease significantly as it stops interest from accruing. It is also a legally binding agreement, which means creditors cannot withdraw or pursue collections action or court judgements against you, provided you fulfill your obligations.

Pros and Cons of a Consumer Proposal



  • Repayment of a lesser amount than you owe.
  • Immediate halt of collections action, interest, and wage garnishments.
  • Fixed monthly payment.
  • Inclusion of CRA and income tax debts.
  • Possibility of including student loan debts in certain situations.
  • No upfront cost required.



  • Majority by dollar value of creditors must agree to accept your proposal.
  • Registers as an R7 on your credit report for three years after completion.
  • The proposal is annulled after three missed payments.
  • Debt limit of less than $250,000, excluding the mortgage on your principal residence.

Unraveling Bankruptcy

Bankruptcy is the most comprehensive and intensive of the three debt solutions. It is a legal proceeding which can only be administered by a Licensed Insolvency Trustee. Bankruptcy may require you to surrender certain non-exempt assets and possibly some income for the benefit of your creditors.

How does Bankruptcy Work?

In a bankruptcy process, you may need to surrender certain non-exempt assets. Depending on your earnings while bankrupt, you may also need to surrender some income for the benefit of your creditors.

Pros and Cons of Bankruptcy



  • Repayment of a lesser amount than you owe.
  • Creditors cannot refuse a Bankruptcy.
  • Immediate halt of collections action, interest, and wage garnishments.
  • Process lasts between nine and 21 months for a first time Bankruptcy.
  • No upper limit on the amount of debt eligible; $1,000 minimum.



  • Non-exempt assets vest with the trustee who is tasked with liquidating these items for the benefit of your creditors.
  • Requirement to report monthly income and expenses.
  • Surplus income payments may apply if your income increases or is greater than prescribed thresholds.
  • Creditors may oppose your discharge from Bankruptcy, which may require a court hearing.
  • Registers as an R9 on your credit rating for seven years.
  • Some tax refunds are turned over to the trustee.

Wrapping Up

Each of these solutions can be effective in helping consumers eliminate their debt and make a fresh start. However, they’re not all ideal for every individual. Understanding your financial situation and the implications of each option is crucial to making an informed decision. It’s recommended to utilize tools like the Debt Calculator tool to get a clearer picture of how each option would impact your current debts. Always remember, the journey of becoming debt-free is not a sprint, but a marathon that requires patience and perseverance.

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