Informal Vs. formal Consumer proposals in Canada
An informal proposal, often referred to as a “debt management plan or program” (DMP), and a formal consumer proposal are both agreements with creditors to amend the terms of debt repayment.
However, there are many differences between the two. The table below compares a number of aspects to help you weigh the pros and cons.
Creditor actions/ wage garnishments |
Creditor actions or garnishment orders can be continued if the creditor does not want to participate
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Collections calls, executions, wage garnishments, and other creditor actions stop because there is a “stay of proceedings” when the consumer proposal is filed |
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Stopping interest charges |
Possible interest relief (voluntary depending upon each creditor’s policy) |
All unsecured debts frozen; interest stops accruing |
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Legally binding |
Not legally binding; voluntary agreement between debtor and creditors to waive some interest |
Legally binding agreement after approval by creditors and the courts, and administered by a licensed trustee in bankruptcy |
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Asset protection |
Usually keep assets |
Usually keep assets |
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Amount of debt repaid |
Pay total amount owed |
Usually pay a portion of total amount owed |
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Payment schedule |
Make single monthly payments |
Single monthly payment - the amount is set based on your financial situation |
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Fees/costs |
Fees vary widely
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Trustee fee based on tariff set by government and comes out of the proceeds of the monthly payment; no additional fees paid |
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Uncooperative creditors |
There is no way to deal with a dissenting creditor, or to provide protection to the debtor while other creditors are considering the informal proposal |
As long as most of the creditors vote for your consumer proposal, the dissenting creditors have to go along with it
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Repayment period |
Maximum repayment period of four to five years |
Maximum repayment period of five years |
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Credit counselling |
Option of credit counselling |
Must attend credit counselling |
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