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Consumer Proposal versus Debt Settlement

Key Features of a Consumer Proposal and a Debt Settlement:

Legal Enforceability

  • A Vancouver consumer proposal is a legally enforceable agreement. If the majority of your creditors accept your proposal, then ALL of them are legally bound by its terms, whether they voted in favour of it or not.
  • Under a debt settlement each creditor gets to decide individually whether they accept your offer or not. This is very time consuming as you need to convince each one individually of the merits of your offer. If you miss one payment you could be back to where you started including having to pay back all the interest owing

Outstanding Legal Actions

  • Under a proposal, all existing legal actions ( wage garnishees and writs of execution) cease when your proposal is filed. In addition no existing creditor may take any future legal proceedings to enforce any claims they have against you for outstanding debts
  • A Debt Settlement offer provides no remedy against ongoing legal actions from the creditors with whom you have not settled. You will have to negotiate with each creditor who has an action against you to stop any proceedings. Creditors that are unwilling to negotiate can still commence a legal action.

Paying your creditors

  • Debt settlement firms have different models for managing payments to your creditors. Some arrange for you to pay the agreed amount directly to the creditor ( which is preferable) while others collect the money from you and distribute it to your creditors on your behalf after taking their fees. 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 and the monthly payments you make to your administrator for your creditors go into a Trust Account so you rest assured 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 and then a fee based on the total amount you owed prior to agreeing to the reduction
  • If you choose a consumer proposal administrator you will normally get the initial consultation for free. After you have received the Administrator’s advice, if you decide not to proceed at any time prior to filing your proposal there are no fees at all.If you do proceed the fees are regulated by the government and all Administrators charge the same amount. In effect, your creditors are paying the Administrators fees, there are no additional costs


What is Debt Settlement?

While there are some similarities between a Consumer Proposal and a Debt Settlement, there are some significant differences. Debt settlements are usually informal offers to your creditors to pay them a portion of the amount owing in full and final settlement. Often people use this when they want to deal with one large particular debt while leaving other debts aside. Using this technique, you or a Consumer Proposal Vancouver company would contact each of the individual creditors you want to deal with and try to negotiate a proposed settlement amount.Resolving your issues with one creditor will not however prevent other creditors from continuing to pursue you for settlement or implementing legal action against you fro recovery of the debt.


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