Consumer Proposal vs Credit Counselling
Many people are surprised to learn that a Consumer Proposal can be a better option for debt consolidation than traditional credit counselling.
There are several different ‘debt service’ providers working in Canada, such as debt settlement agents, or not-for-profit credit counsellors – however, the federal and provincial governments only legally support the options that a Licensed Insolvency Trustee (former Trustee in Bankruptcy) can conduct.
While advertisements and ‘programs’ offered through these other providers may sound on par with a Consumer Proposal – they are in fact not the same thing and don’t afford the important benefits of Consumer Proposals, or of working with a Licensed Insolvency Trustee.
Below is a comparison of key points of differentiation between using a Consumer Proposal filed by a Licensed Insolvency Trustee, and using a non-profit credit counselling service:
VS. Credit Counselling
We’ve outlined key points comparing the two, some of which may come as a surprise:
Total amount of debt can be reduced. Reductions of 70-80% of total debts are most common.
Interest automatically frozen by law on all debt, including tax debts and student loans.
Generally required to repay 100% of the debt.
Interest frozen by negotiation. Some creditors will not agree to an interest freeze. Tax debts and student loans will continue to charge interest.
Income levels and family size taken into account.
A Licensed Insolvency Trustee cannot file a Consumer Proposal that would result in undue hardship.
No set guidelines on maximum payment amount.
Typically higher payment terms than in a Consumer Proposal because 100% of debt is being repaid.
All administration costs are included in the payment amount offered to creditors – no hidden fees.
Licensed Insolvency Trustee fees are set and regulated by the federal government.
Monthly monitoring and consultation fees, other levies may be charged in addition to monthly debt repayment.
Chargeable fees are unregulated.
An R7 rating will be noted for 3 years after completion, or six years from the date of filing, whichever comes first.
An R7 rating will be noted for 2 years after completion
Must be completed within 60 months. Terms of 24-48 months are most common.
Depends on size of debt and repayment. 5 year terms are common.
Acceptance by 50% of voting creditors means all creditors are bound by Consumer Proposal terms and share monthly payment.
The ONLY method in Canada for reducing balance owing to Canada Revenue Agency.
Only a Licensed Insolvency Trustee can cease a wage garnishment, asset seizure and other collection action.
Contact from creditors must cease upon filing.
100% agreement by each creditor required, otherwise they must continue to be paid separately.
No ability to settle income tax debt for less than 100% of balance owing.
Creditors not in agreement with the plan may continue to pursue legal action or collection.
Creditors in agreement with the plan will typically refrain from contact while the plan is in good standing, but there is no legal authority to enforce this.
Licensed Insolvency Trustees are licensed by the federal government.
Overseen by the Office of the Superintendent of Bankruptcy.
Must comply with Code of Ethics and rules of professional conduct.
No set qualifications required to operate as a Credit Counsellor.
No regulatory body.
No dispute-resolution mechanism in place.
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