When To Choose Consumer Proposals Or Credit Counseling

Worldwide, economies have experience an economic tailspin the likes of which most people have only heard stories about from parents. The good news is that signs of an economic recovery on the horizon are everywhere. Unfortunately many people have found themselves burdened with debt and are in need of concrete ways to manage their debt. For many the situation is critical and they need sound financial advice and credit counseling from an expert.

Many people think in terms of  bankruptcy in Calgary as a solution or they may seek out a credit counseling expert to help them resolve their problems. Daily they are bombarded with television and radio commercials promoting assistance with filing for bankruptcy, as well as offers of credit counseling, as a way to help them manage their debt load.

The idea of declaring personal bankruptcy is more than some people can bear, so they turn to credit counseling agencies, unaware there is yet another potential solution that gets little publicity – the Consumer Proposal.  Let’s walk through a brief overview of what’s involved in both a credit counseling service and a Consumer Proposal.

Credit counseling assistance is offered through both for-profit companies and not-for-profit agencies.  Both charge fees for what they do.  The end result of working with a credit counselor is the preparation of a Debt Management Plan, which the credit counselors present to your creditors.  These plans only apply to your unsecured debt, not to secured debt like car loans and home mortgages.

A Consumer Proposal is a concept whereby a credit counselor approaches your creditors with the intention of getting them to lower the percentage of interest you currently pay and waive any late fees that may have been added on to your account. In return you agree to a payment plan that is more manageable. You will make these payments to the credit counseling service and they will pay your creditors. All credit accounts that you currently have will be closed.

It's important to understand that you must qualify for credit counseling. The amount of debt you have will be a determining factor in whether or not you qualify. A credit counseling service will be able to advise you on whether or not your debts are within the qualifying ranges. It's important to know and understand the differences in a Consumer Proposal and a Debt Management Plan, before calling the counseling service.

First, a DMP (Debt Management Plan) does not lower your total debt; it just restructures the repayment in a more manageable way for the consumer.  If you owe $30,000 in unsecured debt, you will pay all that back over time plus the accumulated fees for the credit counseling service, which varies.

When you choose a Consumer Proposal, your credit counseling service will negotiate with your creditors on your behalf. Their goal will be to reduce the amount owed by you to your creditors. If your wages have been garnished then by law this must stop. This is one of the main differences between the two plans. With a Debt Management Plan your wages can still continue to be garnished, and it will be at the discretion of your creditors whether to remove it or leave it in place.

With a Consumer Proposal, the government mandates that the client must use a bankruptcy trustee who is licensed, as this will be a binding legal agreement. It's important for consumers to understand that a bankruptcy trustee can be used for a number of different functions, with bankruptcy being just one of their services.

Bankruptcy trustees are familiar with every aspect of Consumer Proposals as well as Debt Management Plans. These professionals can review your current financial situation and help you to understand the complexities of the two options available to you. There is usually no charge for a consultation and any consumer considering the two plans should avail themselves of this free advice. If nothing else the consumer will gain a better understanding of their options. 

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