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Debt Management Plans and Consumer Proposals: Which is the Better Bankruptcy Alternative?


Note: a consumer proposal can only be filed in Canada. Americans can consider a similar procedure called a Chapter 13 Wage Earner Plan.

At first glance a debt management plan and a consumer proposal appear to be very similar. In both cases you make payments each month that are distributed to your creditors, so they are both a good bankruptcy alternative. There are, however, some significant differences.

A debt management plan is administered by a credit counsellor, while a consumer proposal is administered by a bankruptcy trustee. A bankruptcy trustee is an officer of the court, and therefore has the power to force creditors to accept the proposal. Here is how it works:

In a consumer proposal, each creditor gets one vote for every dollar they owe. If more than half of the dollar value of creditors votes yes, all creditors must accept the proposal. In a debt management plan, even if eight out of nine creditors vote yes, there is no way to force the final creditor to accept the plan. For that reason in most cases a consumer proposal is the preferred bankruptcy alternative.

In addition, in a debt management plan the creditors generally must be paid in full. In a consumer proposal it is often possible to get the creditors to agree to accept 50 cents on the dollar, or even less.

To file a consumer proposal you must be insolvent (owing more than you own, and being unable to pay your debts). Insolvency is not a requirement for a debt management plan, so that may be a reason to select the debt management plan option.

Which bankruptcy alternative is right for you? Contact a proposal administrator or a credit counsellor for more information.

Posted by Editor Bankruptcy Alternatives @ 6:24 pm is a free resource
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