When exploring possible debt solutions, it is important to consider all of the available options for debt relief to determine which one is the best fit for your situation. If you are thinking about using a debt settlement plan to deal with financial problems, consult the chart below to see whether a consumer proposal, which is a similar option, is a better alternative.
A debt settlement plan is designed to negotiate an agreement between you and your creditors to reduce the amount of debt you must repay.
A consumer proposal is an agreement you make with your creditors, pursuant to the Bankruptcy and Insolvency Act, to repay a portion of the debt owed and, in turn, a majority of creditors listed in the proposal agree to accept your offer. The offer then becomes binding on all creditors.
Yes. The company will need to contact each of your creditors and try to reach separate agreements with all of them. Any of your creditors can refuse the suggested settlement plan, and your debt with them would remain unchanged. Some creditors do not negotiate with debt settlement companies.
Negotiations with creditors typically start several months after you have signed the contract with the company.
Upon signing, the company will instruct you to stop making any payments (interest or principal) towards your debts and instead, you will make monthly payments to the debt settlement company to build up a lump sum payment in a holding account.
Once they feel you have enough built up in the holding account to offer to the creditors, the company will then start to contact your creditors and try to settle each of your debts for a percentage of what you owe.
You will know early in the proposal process if your consumer proposal is accepted.
You and your Trustee will start the process by reviewing your situation to determine what amount you can afford to repay over a maximum of five years. The proposal is prepared and filed by the Trustee.
The creditors listed in the proposal have the option to request a meeting to discuss the proposal, and determine whether they will accept it, within 45 days. In our experience, few proposals are rejected.
Once you receive confirmation that the proposal is accepted, it is legally binding for all of your creditors. On completion of your proposal, the remaining debt is written off.
It depends. With some companies, the initial monthly payment you make goes directly to them as “administrative fees”. Other companies request a lump sum fee upfront. While the amount of these fees varies, the average is usually $1,500, but there potentially can be fees in excess of $3,000. There is no schedule of costs and you will have to find out on your own.
Yes. A 'stay of proceedings' is in effect when you start the process. Your debts and interest charges are frozen until a decision is made about the acceptance of the proposal. This prevents your creditors from pursuing collections activities against you, such as court action or wage garnishments.
Unsecured debts such credit cards, department store cards, payday loans or other loans that are not secured by a lien on an asset (such as home equity line of credit or a car loan) can be included.
It is not possible to include secured debt in a debt settlement, income tas debt, or student loans .
Unsecured debts such credit cards, department store cards, income tax debt, payday loans or other loans that are not secured against an asset (such as home equity line of credit or a car loan) are included.
It is not possible to include secured debt in a consumer proposal unless you decide to surrender the secured asset.
Since the debt settlement is not negotiated until the end of your plan, interest charges do not stop and will continue to accumulate each month. This means that your debt level will continue to increase over the course of your plan.
After the completion of your proposal, you will receive a credit rating of R7 for a period of up to three years. In some instances before it is even completed (otherwise afterwards), BDO can provide resources to help you re-establish and repair your credit profile.
Contact a BDO professional to compare the options to weigh the benefits of each option and help you decide which one best suits your needs. We offer confidential, no-obligation consultations.
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