Comparing a Consumer Proposal to Debt Settlement
If you are in financial trouble and unable to pay your bills as they become due, you may think that the situation is hopeless. Sometimes it can seem as though there are no options. However, in reality, there are several options available for those who are dealing with high amounts of debt. Two of these options are a consumer proposal and a debt settlement plan.
If you are looking for assistance in figuring out your options, it makes sense to sit down with a trustee in bankruptcy. Don’t let the name throw you off. A trustee doesn’t just handle bankruptcy situations. Instead, he or she will review your financial situation and provide you with information on the options that are available to you.
A trustee does not just give you details on the situations where he or she can help you. Bankruptcy trustees are registered and licensed by the federal government. They are required by law to provide you with information on all options so that you can make the right choice for your situation. As mentioned, consumer proposal and debt settlement are two possible options that may be available to you to help you resolve your debt issues.
What is a Consumer Proposal?
A consumer proposal is a situation where you make an offer to your unsecured creditors to pay them on terms that you can afford. It is a legal process. With a consumer proposal, you usually offer to pay a fraction of the amount that you owe, over an extended the period of time.
A consumer proposal must be prepared by a trustee in bankruptcy who will act as the proposal administrator. In a consumer proposal, the trustee reviews your financial situation and determines what a fair offer to your unsecured creditors will be. Only unsecured debt can be included in a consumer proposal. This includes debts such as credit cards, unsecured lines of credit, personal loans and other such debt. All of your unsecured creditors must be included in the proposal.
If the majority of your creditors choose to accept the proposal, then all are bound by its terms, even those who did not vote in favour of it.
Your trustee will become responsible for all communication with your creditors. Creditors will not be legally able to contact you, send collection agencies after you, garnish your wages or commence any legal action against you. Any wage garnishments or legal actions that are currently under way will be stopped with the exception of payments under a separation agreement.
What is Debt Settlement?
Debt settlement is a situation where you or a debt settlement company contacts each of your creditors individually and attempts to negotiate to reduce the amount owing or the time you have to repay your debt. Each individual creditor will be able to decide whether or not they wish to negotiate with you and whether they wish to accept your terms.
If a creditor does not wish to accept your offer, you will still be responsible for paying that creditor in full. Failing to do so can open you up to legal action.
Consumer Proposal vs Debt Settlement
The main difference between consumer proposal and debt settlement is that a consumer proposal is a legal process between you and all of your unsecured creditors. When you submit your proposal with your trustee, all of your unsecured creditors will have 45 days to vote on the offer. If those creditors who hold more than 50% of the debt owing vote to accept the offer, then all must accept it. With debt settlement, you must negotiate with each creditor individually and each creditor can decide whether or not they wish to accept your offer. You do not need to negotiate with all creditors if you do not want to, but then you will be responsible for paying those creditors in full.
Another major difference is that a consumer proposal provides a “stay of proceedings” that results in legal protection. As mentioned, creditors are not able to contact you or take any other steps to collect their debts once the proposal is accepted. If you wish to end legal action in a debt settlement situation, you will need to negotiate an end to these actions with each individual creditor.
Which Should You Choose?
Each financial situation is unique. It is important that you take the time to understand the options that are available to you in order to make the right choice for your particular situation. If consumer proposal and debt settlement are possibilities for you, understanding the different aspects of these situations can help you a great deal in making a wise choice.