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Credit Counselling or Consumer Proposal – which is better for me?

If you are facing financial challenges and you are unable to pay your debts monthly or are only able to service your monthly payments and don’t feel you are getting on top of it, here are two options to consider.

Credit counselling agencies offer an option called a Debt Management Plan (DMP).  A DMP allows an individual to consolidate the full amount of their debt into one monthly payment usually without interest.  This option is not legislated, therefore the creditors reducing or waiving their interest on the debt is purely voluntary.  The creditors will voluntarily stop collection activity and this does not impact your assets in any way.  A DMP cannot, however, deal with any government debts such as income tax or student loans.

A consumer proposal is an option that is legislated through the Bankruptcy and Insolvency Act and can only be filed by using a Licensed Insolvency Trustee (“LIT”).  Upon filing a consumer proposal, the individual receives a stay of proceedings, this means that legally, your creditors cannot take any further action against you without leave of the court.  If you have a creditor garnisheeing your wages or suing you, these actions will stop upon filing.  In addition, the interest stops upon filing as well.  The creditors then have 45 days to consider your offer, which is often significantly less than the total owing.  If the majority of creditors by dollar value vote in favour of accepting the proposal, it becomes a legally binding contract between the individual and the creditors to settle the debt.

There are two obligations once the consumer proposal is accepted. First, you must make your payments as agreed and second, you must attend for 2 credit counselling sessions.  These counselling sessions can be done by phone and will help you learn how to budget and manage your money and rebuild your credit rating.  Although assets have to be disclosed to the creditors, assets are not impacted.

Here is a summary of the major differences between the two options:

  1. In a consumer proposal, the debt can often be significantly reduced to a fraction of the total amount owing. A DMP does not reduce the amount owing; you pay the full amount over time.

  2. In a consumer proposal, the interest stops accruing on filing. In a DMP, interest continues to accrue unless creditors agree to stop the interest.

  3. In a consumer proposal, the creditors are legally stayed (prevented) from taking any further legal actions against you. A DMP offers no such protection from lawsuits or garnishments if creditors choose to take these steps.


Assets are dealt with slightly different in these options.  When filing a DMP, assets are not impacted.  In a consumer proposal, the value of your assets can impact what is offered to the creditors to settle the debt.  However, you do not automatically lose any assets unless you voluntarily include the sale or redemption of one as part of your offer.

Secured Debt

Secured debts like vehicle loans and mortgages are paid outside of both options.

Government Debts

Government debts cannot be included in a DMP.  Consumer proposals can include all government debts including taxes and student loans.  However, if you completed your schooling less than seven years before filing your proposal, the debt will survive the process and interest will continue to accrue.


All creditors must agree to a DMP in order for it to be effective.  A consumer proposal is approved by a majority (by dollar) of your unsecured creditors.  Creditors who vote against the proposal are still bound by the decision of the majority.

Credit Rating 

Both DMP and consumer proposals cause an R7 rating to stay on your credit report for up to three years after completion or six years from the date of filing whichever is sooner.

Both of these options can help a person who finds themselves in financial difficulty with a solution to deal with their debt while avoiding bankruptcy.

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