What is a consumer proposal?

A consumer proposal for many people is the best of all of the bankruptcy alternatives. Here's what you need to know:

A consumer proposal can only be filed by residents of Canada. U.S. residents can file a Chapter 13 Wage Earner Plan, which is similar to a consumer proposal.

A consumer proposal is a deal you make with your creditors. It's a "win-win" for everyone. Your creditors get payments on what they are owed, and you don't have to worry about your creditors taking you to court and garnisheeing your wages.

How is a consumer proposal different than credit counselling?

A consumer proposal is very similar to credit counseling. In both cases you have more debts than you can repay on your own, and you have professional assistance to work out a plan. You make monthly payments, and at the end your debts are eliminated.

Both consumer proposals and debt management plans appear as as R7 on your credit report, and remain on your credit report for three years after all payments are made.

There are however two significant differences between credit counseling and consumer proposals.

First, in a credit counselingdebt management planyou will generally be required to repay your debts in full. In a consumer proposal, you do not necessarily repay all of your debts in full.

Second, a consumer proposal offers legal protection; credit counseling does not. Once a consumer proposal is accepted by your creditors and approved by the court, none of your creditors can change their mind, or demand larger payments. A debt management plan prepared by a credit counselor is an informal, non-binding deal with the creditors, so the creditors could ask for more money at a later date.

To decide whether a consumer proposal or credit counseling is right for you, determine first if you require court approved legal protection. If your wages are being garnisheed, or if you have tax debts, a consumer proposal may be your best bankruptcy alternative.

On the other hand, if your debts are manageable, and no-one is threatening legal action, a debt management plan through a credit counselor may be your best option.