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BDO Debt Help > Home > Proposals > Informal vs formal proposals

Informal vs formal proposals

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 various aspects to help you weigh the pros and cons.

Informal proposal
Consumer proposal
Creditor actions/ wage garnishments
Creditor actions or garnishment orders can be continued if the creditor does not want to participate
Collections calls, executions, wage garnishments, and other creditor actions stop because there is a “stay of proceedings” when the consumer proposal is filed
Stopping interest charges
Possible interest relief (voluntary depending upon each creditor’s policy)
All unsecured debts are frozen; interest stops accruing
 
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, then administered by a licensed Trustee in Bankruptcy
Asset protection
Usually keep assets
Usually keep assets
Amount of debt repaid
Usually pay total amount owed
Usually pay a portion of total amount owed
Payment schedule
Make single monthly payments
Single monthly payment (the amount is set based on your financial situation​)
Fees/costs
Fees vary widely
Trustee fee based on tariff set by government and comes out of the proceeds of the monthly payment; no additional fees paid
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 must abide by it
Repayment period
Maximum repayment period of four to five years
Maximum repayment period of five years
Credit counselling
Option of credit counselling
Must attend credit counselling
Credit rating impact
Remains on credit report as R7 rating for three years after debts paid
Remains on credit report as R7 for three years after proposal is completed 

 

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