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What is Debt Settlement

A debt settlement offer occurs when you make an informal offer to your creditors to pay them a portion of the amount owing in full and final settlement. Using this technique, you or a Debt Settlement company (for example http://www.afarber.com) would contact each creditor individually and try to get them each to agree to the amount you are proposing.

Key Features of A Consumer Proposal and a Debt Settlement

Legal Enforceability

  • A Toronto consumer proposal is a legally enforceable agreement. If the majority of your creditors ( 50% plus one) accept your proposal, then ALL of them are bound by its terms, even if some of them did not vote in favour of it.
  • Under a debt settlement each creditor gets to decide individually whether they accept your offer or not.

Outstanding Legal Actions

  • Under a proposal, all legal actions ( wage garnishees and writs of execution) stop as soon as your proposal is filed.  Once accepted by the majority of your creditors, no creditor may take any legal proceedings to enforce their debt
  • A Debt Settlement offer provides no remedy against ongoing legal actions. You will have to negotiate with each creditor who has an action against you to stop the proceedings.  Creditors that are unwilling to negotiate can still commence a legal action.

Paying your creditors

  • When you pay a debt settlement firm, they usually collect the settlement funds from you and disburse them to the various creditors. You need to check the reputation of the firm you are using to ensure that they are reliable
  • A Proposal Administrator is licensed by the government so you can trust that your payments will be made to your creditors

Fees for Services

  • Debt Settlement firms usually charge a fee up-front for the initial consultation
  • Proposal administrators generally provide the initial consultation for free.  The Administrator’s fees are a fixed tariff set by the federal government and come directly from your proposal payments. In effect, your creditors are paying the Administrators fees, there are no additional fees

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