What is the Difference Between a Consumer Proposal and Debt Management Plan?

Consumer Proposal versus Debt Management Plan

Are you struggling with debts and considering the best course of action? The options available to you might seem confusing, especially when considering a Consumer Proposal and a Debt Management Plan. Both are debt relief options, but they differ significantly in their approach, structure, and implications. This article aims to answer the question: What is the difference between a Consumer Proposal and a Debt Management Plan?

1. Understanding The Basics

Before delving into the differences, it is crucial to have an overview of what each plan entails.

1.1 What Is A Consumer Proposal?

A Consumer Proposal is a formal agreement negotiated and administered by a Licensed Insolvency Trustee (LIT). The debtor offers to pay creditors a percentage of what is owed to them or extend the time to pay off the debts, or a combination of both.

1.2 What Is A Debt Management Plan?

A Debt Management Plan, on the other hand, is an informal agreement where the debtor agrees to pay the full amount of debt. A credit counselor usually administers this, and it involves negotiating with your creditors to reduce or freeze the interest on your debts.

2. Common Ground: Similarities Between Consumer Proposal and Debt Management Plan

Though different, these two options share some similarities:


  • They both involve making payments to creditors over a specific period.
  • Both options consolidate unsecured creditors, resulting in a single monthly payment.
  • They equally impact your credit report.


3. Divergent Paths: Differences Between Consumer Proposal and Debt Management Plan

Contrasting these two debt relief options will give a clearer understanding of which best suits your specific situation. Here are the key differences:

3.1 Administration

While a credit counselor administers a Debt Management Plan, a Consumer Proposal is administered by an LIT.

3.2 Debt Repayment

In a Debt Management Plan, you must repay all your debts in full. Conversely, a Consumer Proposal allows you to pay based on what you can afford, which may not necessarily be the full amount you owe.

3.3 Legal Process

Filing a Consumer Proposal is a legal process that can stop wage garnishments and other collection actions. However, these actions only cease in a Debt Management Plan if the creditor agrees to stop them.

3.4 Inclusion of Debts

Tax debts can be included in a Consumer Proposal. On the other hand, it’s challenging (though not impossible) to include tax debts in a Debt Management Plan.

4. Consumer Proposal: Advantages and Disadvantages

4.1 Advantages

Legally binding: Once approved, all creditors must abide by its terms.

Creditor protection: A Consumer Proposal can stop wage garnishments, legal actions, and collection calls.

Debt reduction: You only repay a portion of the total debt.

Fixed monthly payment: This is typically less than a Debt Management Plan.

4.2 Disadvantages

Impact on credit report: A Consumer Proposal remains on your credit report for three years after completion or six years from when it commenced, whichever comes first.

Limited to debts under $250,000: A Consumer Proposal is not an option for debtors with debts over $250,000 (excluding mortgage).

5. Debt Management Plan: Advantages and Disadvantages

5.1 Advantages

No legal process: It’s an informal arrangement and doesn’t involve the court.

Less impact on credit score: It remains on your credit report for three years after your debts are repaid in full.

5.2 Disadvantages

Voluntary: Creditors can choose not to participate in the plan.

Full debt repayment: You need to pay back all your debt without reducing the principal amount.

No legal protection: It doesn’t stop legal actions or wage garnishments.

6. Making A Choice: Consumer Proposal or Debt Management Plan?

Your unique financial situation and needs will determine the best option for you. If you can afford to repay all your debts and your problem is mostly about the interest, a Debt Management Plan may be ideal. However, if your debts are significantly high and you need legal protection from creditors, a Consumer Proposal could be the way to go.

Before making this crucial decision, it’s advisable to seek the advice of a credit counselor or a Licensed Insolvency Trustee. They can provide professional advice tailored to your specific situation.

In conclusion, understanding the difference between a Consumer Proposal and a Debt Management Plan is essential when considering debt relief options. While both offer a pathway to financial freedom, the route you take depends on your unique financial circumstances.

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