What are the differences between a consumer proposal and credit counselling?

Most Canadians would be shocked to learn that it is three times more expensive to eliminate one dollar
of their debt using credit counselling compared with a consumer proposal! Eliminating one dollar of
your debt by making a consumer proposal is a terrific bargain at approximately 35 cents on the dollar.
Credit counselling, on the other hand, which requires between 100 cents and 130 cents worth of
payments to eliminate one dollar of debt costs a kings ransom in comparison!
Mark Silverthorn, author, and former collection lawyer and collection industry insider
Over the past six years I have provided advice to hundreds of Canadians experiencing debt
problems. Ever since I wrote my book titled The Wolf At The Door: What To Do When Collection
Agencies Come Calling(2010), published by McClelland & Stewart, consumersas well as the media
have routinely contacted me for information and advice on consumer debt issues. I have spoken to so
many Canadians on debt-related issues that several acquaintances refer to me as the debt doctor.

Debtors preferred choice: the debt consolidation loan

Every day hundreds of thousands of Canadians deal with debt problems. People who are late making a
credit card payment do not pick up the phone to schedule an appointment with a bankruptcy trustee to
discuss a consumer proposal. Nor do they call a credit counselling agency. The initial response of most
consumers facing mounting debt problems is to try and borrow their way out of their current debt
predicament.
In some instances where a debtor can borrow money at a low interest rate, it might make sense to
obtain a loan, pay off existing debts, and then pay off his loan over an extended period of time, ideally,
with lower monthly payments. Some Canadians, for example, will obtain a low-cost debt consolidation
loan by taking out a second mortgage, and then pay off their high interest rate department store credit
card debt.

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

In contrast, what rarely makes sense is for a consumer to borrow money at high interest rates to
eliminate his existing debt. This happens when individuals pay off their debts by taking cash advances
on their credit card to pay a debt or to pay the debt using a high-interest rate credit card. You would
also be eliminating your debt by borrowing money at high interest rates if you were to obtain a debt
consolidation loan from a finance company.

How much will it cost me to eliminate one dollar of my debt?

When it comes to eliminating your debt there is one key question that you need to ask yourself. How
much will it cost me to eliminate one dollar of my current debt using this particular debt relief option?
If you were able to obtain a debt consolidation loan at five percent interest, then you are eliminating
your debt at 105 cents on the dollar. Similarly, if you were to obtain a debt consolidation loan at 20
percent interest, then you are eliminating your debt at 120 cents on the dollar.

Strategies for improving your short-term debt situation

Many Canadians, however, cannot obtain a low-interest debt consolidation loan to address their current
debt woes. If you are unable to solve your current debt problems by obtaining an inexpensive debt
consolidation loan then you might have some success trying one or more of the following:

Raising some cash by selling some of your assets

Increasing your monthly income by getting a roommate or a lodger

Increasing your monthly income by getting a higher paying job

Reducing your monthly living expenses

Reducing discretionary spending

Borrowing money from family or friends

More aggressive debt relief options

If you cannot obtain a low-interest debt consolidation loan, and despite your best efforts you cannot
adequately deal with your debt situation, then you will likely need to use a more aggressive debt relief
option. These will have a negative impact on your ability to access credit over the next few years.
The most aggressive debt relief option is filing for personal bankruptcy. Most Canadians would consider
bankruptcy a debt relief option of last resort. It is typically not attractive for high net worth individuals
nor those earning more than $40,000 or $50,000 a year. Furthermore, bankruptcy is not desirable for
people who own shares in corporations, and it is a bar to working in a significant number of job
categories and professions.

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

If you cannot obtain a debt consolidation loan and filing for personal bankruptcy is not appealing then
the number of potential debt relief options available to you becomes smaller. Depending upon your
particular circumstances, at the present time you might choose to deal with your debts using one of the
following:

A Debt Management Plan arranged through a credit counselling agency

a consolidation order under an Orderly Payment of Debts (OPD) program only available to
residents of Alberta, Saskatchewan and Nova Scotia)

A consumer proposal

Settle your debts on your own

Do absolutely nothing

Adopt a wait-and-see approach

If you do not live in Alberta, Saskatchewan, or Nova Scotia then you might want to ignore any references
in this blog to a consolidation order or the Orderly Payment of Debts program since the information will
not apply to you.
You can read my comparison of a consumer proposal with settling debts on your own here. And here
you can learn more about all of the debt relief options available to consumers.

Debt relief options affording lower monthly payments and protection from creditors
A significant percentage of those experiencing debt problems want to obtain (1) some protection from
their creditors, and (2) a reduction in their monthly payments to selected creditorsparticularly any
high-interest credit cards or personal loans. Three debt relief options fit this bill, making a consumer
proposal, a Debt Management Plan arranged through a credit counselling agency, and a consolidation
orderthe latter only available to the residents of Alberta, Saskatchewan, and Nova Scotia.

The skinny on credit counselling and consumer proposals

The purpose of this blog is to compare the relative merits of eliminating your debt through credit
counselling and making a consumer proposal. To facilitate a head-to-head comparison between these
two debt relief options I am going to include a consolidation order under the umbrella of credit
counselling.
I am going to do so for two reasons. Firstly, in some circumstances, a consolidation order, sometimes
known as the Orderly Payment of Debts (OPD) program, and a Debt Management Plan arranged
through a credit counselling agency are very similar. Secondly, in some provinces a credit counselling
agency will administer the provincial governments Orderly Payment of Debts program. In Alberta, for
example, Money Mentors, a not-for profit credit counselling agency, is the Alberta Governments
exclusive administrator of the provinces Orderly Payment of Debts program.

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

This blog will set out what happens if you were to do one of the following:

Make a consumer proposal

Enrol in a Debt Management Plan with a credit counselling agency

Obtain a consolidation order (for residents of Alberta, Saskatchewan, and Nova Scotia only)

I will highlight the advantages and disadvantages of each debt relief option. At the end of this blog I will
describe the two limited circumstances in which credit counselling might be more attractive than
making a consumer proposal.
When choosing between credit counselling and making a consumer proposal you should consider the
following ten questions:
1. What happens if you were to do credit counselling?
2. What happens if you were to make a consumer proposal?
3. When are these debt elimination options available?
4. When is a fair apples to apples comparison of these debt relief options possible?
5. What are the advantages of doing credit counselling?
6. What are the disadvantages of doing credit counselling?
7. What are the pros of doing a consumer proposal?
8. What are the cons of doing a consumer proposal?
9. Why is a consumer proposal almost always more attractive than credit counselling?
10. In what two scenarios might credit counselling be more attractive than a consumer proposal?

What happens if you were to do credit counselling?

When people refer to credit counselling they are, in fact, speaking about eliminating unsecured
consumer debt by enrolling in a Debt Management Plan with a credit counselling agency. There is,
however, another debt relief option, a consolidation order, which is not credit counselling, but, in many
circumstances resembles a Debt Management Plan. Debt Management Plans are available as a debt
relief option to Canadians across the country whereas a consolidation order is only available to the
residents of Alberta, Saskatchewan, and Nova Scotia. Consolidation orders are a debt relief option in
these three provinces under the Orderly Payment of Debts Regulations enacted under the
federal Bankruptcy and Insolvency Act. For Quebec residents, there is a Voluntary Deposit program
which is very similar to a consolidation order, available through a consumers local courthouse.

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

Comparison Between Debt Management Plan and Consolidation Order

Factor

Debt Management Plan

Consolidation Order

Where available

Anywhere in Canada

Limited to residents of Alberta,

Saskatchewan, and Nova Scotia

Procedure for setting up this

debt relief option

Enrollment with a credit

counselling services
provider

Must be approved in accordance with

federal law

Debts to be included

Each and every unsecured

consumer debt

Each and every unsecured consumer

debtStudent loansMonies owing to the
government

Suspend or stay current court

proceedings against debtor

No

Yes

Terminate existing wage

garnishments

No

Yes

Debtor must make monthly

payments

Yes

Yes

Percentage of outstanding
debt to be repaid

100 %

100 %

Interest to be paid on
outstanding balance

To be negotiated

Fixed rate of five percent

Total cost to consumer to

eliminate one dollar of
indebtedness

Between 100 and

130 cents

A minimum of 105 cents

In many respects a consolidation order is a hybrid between a consumer proposal and a Debt
Management Plan. It is similar to a consumer proposal as it relates to the following:

Type of debts to be eliminated

The amount of protection from creditors

A consolidation order resembles a Debt Management Plan in that both require that a consumer pay a
minimum of one hundred percent of their original indebtedness in order to eliminate their debt.
In order to have a basic understanding of credit counselling it is helpful to know something about the
following five issues:

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

Credit counselling is a very expensive debt relief option

Different types of credit counselling service providers

The need for due diligence selecting a credit counselling service provider

How a Debt Management Plan actually works

How a consolidation order works (Alberta, Saskatchewan, Nova Scotia residents only)

Credit counselling is an incredibly expensive method for eliminating debt

If you decide to eliminate your debt by enrolling in a Debt Management Plan (or using a consolidation
order) then you are choosing a debt relief option which is three times more expensive than a consumer
proposal! Under a Debt Management Plan you will pay between 100 cents and 130 cents to eliminate
one dollar of your debt. Under a consolidation order you will be paying a minimum of 105 cents on the
dollar to eliminate one dollar of your debt. These two debt relief options do not look very attractive
compared to a consumer proposal under which it typically costs a consumer about 35 cents to eliminate
a dollar of debt!
a. Cost of eliminating debt using a Debt Management Plan
There are three distinct types of costs associated with a Debt Management Plan arranged through a
credit counselling agency:
Your original indebtedness: You will repay one hundred percent of the monies owing to your unsecured
consumer creditors whose debts are included in your Debt Management Planand you are required to
include all of your unsecured consumer debts in your plan.
Fees paid to your credit counselling service provider: Unless you are fortunate enough to find a credit
counselling service provider that does not charge for its services, then you are going to pay fees for its
services. These fees can add an additional 10 to 15 percent to the total cost of your Debt Management
Plan.
Interest charges: In some instances, a consumer will not pay any interest under a Debt Management
Plan. In other cases, however, a consumer might pay a substantial amount of interest on one or more
debts included in a Debt Management Plan.
b. Cost of eliminating debt using a consolidation order
If you are a resident of Alberta, Saskatchewan, or Nova Scotia, and you obtain a consolidation order to
eliminate your debtexcluding secured debt and non-dischargeable debtthen it will cost you a
minimum of 105 cents to eliminate one dollar of your debt. These costs can be broken down as follows:
100 percent Repayment of original indebtedness
5 percent

Fixed interest rate on outstanding balance

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

Different types of credit counselling service providers

Credit counselling agencies are regulated by provincial and territorial governments. There are three
different categories of credit counselling service providers:

Credit counselling services provided by government agencies

Non-profit credit counselling agencies

For-profit credit counselling agencies

The most common type of credit counselling service provider in Canada is the not-for profit credit
counselling agency. There are, however, some credit counselling agencies which do not have non-profit
status.

When choosing a credit counselling agency a consumer should do their homework

Typically, if you enroll in a Debt Management Plan with a credit counselling agency then you will sign an
agreement with it setting out your respective rights and obligations. This document will contain details
with respect to any and all fees that you are to pay to the credit counselling agency for its services
associated with your Debt Management Plan. Anyone contemplating credit counselling should do some
research including the following:

The reputation of the credit counselling agency

The complaints history of the credit counselling agency

Details with respect to fees charged by the credit counselling agency

To what extent, if any, it will be able to obtain interest relief for you on your outstanding
balance during the life of your Debt Management Plan

No one should sign an agreement with a credit counselling agency where its fees are front-end
loaded. If you are going to enroll in a Debt Management Plan with a credit counselling then it is
reasonable for the agency to receive a fee equal to a small percentage of your total monthly or biweekly payment. It is totally unreasonable, however, for a credit counselling agency to expect a
consumer to pay one hundred percent of the credit counselling agencys fees before any monies are
paid to a consumers creditors.
You should determine whether or not a credit counselling service provider is a for-profit credit
counselling agency. Creditors prefer to work with a government-sponsored credit counselling agency or
a non-profit credit counselling agency. You should not be surprised if some creditors decline to offer
any interest relief whatsoever to consumers enrolling in a Debt Management Plan through a for-profit
credit counselling agency.

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

How does a Debt Management Plan at a credit counselling agency work?

A representative from your credit counselling agencyoften referred to as a counsellor will contact all
of your unsecured consumer creditors on your behalf. The purpose of this communication is threefold. Firstly, the counsellor wants to secure your creditors agreement to participating in your Debt
Management Plan as it relates to its debt. Secondly, your counsellor will want to negotiate the number
of months during which you will repay a particular outstanding debt. Finally, your counsellor will
attempt to negotiate some kind of relief with each creditor regarding the amount of interest you will
pay on a specific debt.
Once you enroll in a Debt Management Plan you will make regular payments to your credit counselling
agency. Your credit counselling agency will then distribute these monies, less any fees paid to it, to your
creditors under your Debt Management Plan. Within a few days of enrollment in a Debt Management
Plan collection calls, from creditors whose debts are included in your plan, should stop. The fact that
you have enrolled in a Debt Management Plan will not stop existing wage garnishments nor will it stop
lawsuits which have already been commenced against you. Furthermore, your enrolling in a Debt
Management Plan will not prevent your secured creditors from attempting to recover monies from you!

How does a consolidation order work?

If you are a resident of Alberta, Saskatchewan, or Nova Scotia then you have the option of obtaining a
consolidation order. Consolidation orders are available under the Orderly Payment of Debts Regulations
enacted under the federal Bankruptcy and Insolvency Act. In these three provinces there is an Orderly
Payment of Debts administrator.
A debtor must include all of his or her debtsexcluding secured debt and non-dischargeable debtin his
consolidation order. Where a consumer obtains a consolidation order he must repay one hundred
percent of his indebtedness to his listed creditors. Furthermore, under a consolidation order, a debtor
must pay a fixed rate of five percent interest on his outstanding balance. Under a consolidation order a
debtor makes payments to the plan administrator and the administrator then distributes monies to the
debtors creditors.
A consumer who obtains a consolidation order is entitled to greater protection from creditors than a
consumer enrolled in a Debt Management Plan. When a consumer obtains a consolidation order then it
stays, or suspends, any lawsuits against the consumer, and terminates any wage garnishmentsexcept
those involving secured creditors and those involving child support and spousal support. A consolidation
order does not provide a debtor with any protection from secured creditors.

What happens if you were to make a consumer proposal?

Consumer proposals are regulated by the federal governments Office of the Superintendent of
Bankruptcy. In Canada both consumer proposals and personal bankruptcies are administered by
federally licensed bankruptcy trustees.

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

There are five things that you should know about the process of making a consumer proposal:

Requirement that you meet in person with a bankruptcy trustee

You must provide a detailed list of all your debts

Your consumer proposal will be filed with the Office of Superintendent of Bankruptcy

A consumer proposal requires creditor approval

You must make all the required payments under your consumer proposal

You must meet with a bankruptcy trustee

If you want to make a consumer proposal then it will be necessary for you to meet with a bankruptcy
trustee.

You must provide detailed information with respect to all your debts
If you are going to make a consumer proposal at some point the bankruptcy trustee will instruct you to
complete a document called a Statement of Affairs. This document is a detailed list of your creditors
including the amount of monies owing to them. It is important for you to list all of your relevant
creditors in your Statement of Affairs because listed creditors will be sent a copy of this document and
they are to suspend collection activity against you upon receipt of this document. Furthermore, only
those creditors listed in your Statement of Affairs are required to take a haircut if your consumer
proposal is approved.

Your consumer proposal will be filed with the Office of the Superintendent of Bankruptcy
A bankruptcy trustee will prepare your consumer proposal after reviewing your Statement of Affairs and
your current financial situation including your monthly income and living expenses. This document will
set out the percentage of your debt that you propose to repay, the number of months that you propose
to make monthly payments, as well as the dollar amount of your monthly payment. Your consumer
proposal will be filed with the Office of the Superintendent of Bankruptcy (OSB). On the day that your
consumer proposal is filed with the OSB then all lawsuits against you will be stayed, or suspended,
except for those involving child support and spousal support. Filing a consumer proposal will not affect
the rights of your secured creditors!

Your creditors must approve your consumer proposal

At the same time that the bankruptcy trustee files your consumer proposal with the Office of the
Superintendent of Bankruptcy it will also provide a copy of your consumer proposal to your
creditors. Your creditors must accept or reject your consumer proposal within 45 days. Your creditors
listed in your Statement of Affairs have the right to vote on whether or not to accept your consumer

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

proposal. Each listed creditor is entitled to one vote for each dollar of debt owed to that
creditor. Where there is a vote, a consumer proposal is approved if fifty percent, plus one, of the votes
cast are in favour of acceptance of the proposal. All creditors are bound by the result. If your consumer
proposal is rejected by your creditors then the bankruptcy trustee can submit a second consumer
proposal to your creditors.

You must make all the required payments under your consumer proposal
The fact that your creditors approve your consumer proposal is no guarantee that you will successfully
eliminate your indebtedness to your creditorsexcluding secured debt and non-dischargeable
debt. With a few exceptions, under a consumer proposal an individual must make monthly payments to
the bankruptcy trustee over a period of three to five years. In the event that you were to do a consumer
proposal and you were to become more than 90 days in arrears making your payments then your
consumer proposal would be automatically annulled. In that scenario, you would get credit for any
payments made to date but you would lose any and all of the benefits afforded under your consumer
proposal.

When are these debt elimination options available?

Before we can make a fair comparison between these debt relief options it is helpful to know when each
of these are available to a consumer. The following factors come into play:

The province in which you live

The types of debts which can be eliminated

Limitations regarding the dollar amount that can be eliminated

Whether or not you can cherry pick the debts you want to eliminate

Whether having equity in your home will prevent you from using these options

The province in which you live

There are no residency requirements if you wanted to do a consumer proposal or a Debt Management
Plan through a credit counselling agency. A consolidation order, however, is only available to the
residents of Alberta, Saskatchewan, and Nova Scotia. Quebec residents are able to obtain debt relief
comparable to a consolidation order, something called a Voluntary Deposit program.

Credit counselling vs Consumer Proposal: Types of debts which can be eliminated

The chart below lists five different debt categories and identifies those debt types which can be
eliminated using a Debt Management Plan, a consumer proposal, or a consolidation order.

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

In some instances your creditor, known as a secured creditor, has collateral it can look to if you fail to
repay monies owing to it. The two most common examples of a secured debt is a mortgage on a home
and a lien placed on a car that has been purchased or leased. Any debt that is not secured debt can be
described as unsecured debt. There are different categories of unsecured debt. The most common type
of unsecured debt is unsecured consumer debt. Unsecured debt which is not consumer debt includes
the following:

Student loans

Monies owing to the government

Non-dischargeable debt

Non-dischargeable debt is a category of unsecured debt which cannot be forgiven or discharged under a
consumer proposal, personal bankruptcy, or a consolidation order. This includes the following:

Child support and spousal support obligations

Civil judgments involving fraud

Court fines

Award of damages by a court for sexual assault or the intentional infliction of bodily harm

The type of debt to be included in a consumer proposal is the same as that for a consolidation order.

Limitations regarding the dollar amount of debt that can be eliminated

If you are interested in doing a Debt Management Plan through a credit counselling agency (or obtaining
a consolidation order) there are no restrictions, based on the dollar amount of your debt, as to the
availability of this option. In contrast, a consumer proposal is:
1. typically not available if the debtors relevant debt is less than $10,000,
2. not available where the debtor owes more than $250,000 excluding mortgage debt
A number of bankruptcy trustees have advised me that they have done consumer proposals where the
debtor had a single creditor and the amount owing was $5,000 or $6,000. It would be fair to say,
however, that consumer proposals are generally not available where the debtor owes less than $10,000.

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

Availability of Debt Management Plan, Consolidation Order, and a Consumer Proposal

By Dollar Amount of Debt

Whether or not you can cherry pick the debts you want to eliminate
Regardless of whether you eliminate your unsecured consumer debt by way of a Debt Management
Plan, consolidation order, or a consumer proposal, you cannot pick and choose which debts are to be
eliminated! Furthermore, if you make a consumer proposal or obtain a consolidation order then you
must include all of your student loans and monies owing to the government. None of these options
permit you to cherry pick debt and exclude specific accounts from your chosen debt relief option!

Whether having equity in your home will prevent you from using these options
If you own real property in your own name then it is possible that you might own sufficient equity to
effectively disqualify you from a Debt Management Plan, a consumer proposal, (or where applicable,
aconsolidation order) or possibly all of them. If you own real property it is possible that one or more of
your unsecured consumer creditors might refuse to include its debt in your Debt Management
Plan because their position is you could sell your home or refinance it in order to pay your
creditor. Similarly, the fact that you have substantial equity in your home might mean that you do not

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

satisfy the insolvency requirement under federal law, and, therefore, are not entitled to make a
consumer proposal.

When is a fair apples to apples comparison of these debt relief options possible?
When you are comparing debt relief options it is helpful to know whether or not you are comparing
apples to apples. For example, a Debt Management Plan with a credit counselling agency can only be
used to eliminate unsecured consumer debtand it cannot be used to eliminate outstanding student
loans or monies owing to the government.
Therefore, if you owe a significant amount of money to the government or have substantial outstanding
student loans then comparing credit counselling and a consumer proposal is like comparing apples and
oranges.
If one hundred percent of your indebtedness is unsecured consumer debt then you are comparing
apples to apples if you were to consider resolving your debts by way of the following:

Debt Management Plan with a credit counselling agency

consumer proposal

consolidation order (for residents of Alberta, Saskatchewan, and Nova Scotia only)

If your debts include student loans or monies owing to the government then you are making an apples
to apples comparison in terms of eliminating your debt if you had a choice between the following two
options:

Consumer Proposal

Consolidation order (for residents of Alberta, Saskatchewan, and Nova Scotia only)

It would not be fair to say that making a consumer proposal is a superior debt relief option than credit
counselling. The following statement, however, would be an accurate comparison of the relative merits
of credit counselling and a consumer proposal.
Except for two limited circumstances, making a consumer proposal is virtually always going to be more
attractive than credit counselling. Not only is eliminating debt for about 35 cents on the dollar more
attractive than eliminating debt at 105 cents on the dollar, but a consumer proposal provides a debtor
with much more robust protection from creditors than credit counselling.

What are the advantages of doing credit counselling?

1. Some collection activity will cease
One of the advantages of credit counselling is that collection activity will stop in connection with any
and all debts included in your Debt Management Plan. You can only include unsecured consumer debt
in a Debt Management Plan. Consequently, enrollment in a Debt Management Plan will not stop

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

collection activities against you in connection with secured debt, non-dischargeable debt, as well as
monies owing to the government, or outstanding student loans.
If you live in Alberta, Saskatchewan, or Nova Scotia, and you were to obtain a consolidation order then
you would be entitled to more robust protection from creditors than you would if you were to enrol in
a Debt Management Plan. A person who obtains a consolidation order is entitled to the same level of
protection from creditors as a person making a consumer proposal!
2. Reduce your monthly payments to creditors on your unsecured consumer debt
Another advantage of credit counselling is that a consumer will be able to reduce the size of his monthly
payments arising from his indebtedness to his unsecured consumer creditors.
3. A Debt Management Plan is not automatically terminated if debtor is 90 days in arrears making
payments
If you were to make a consumer proposal and you were to become 90 days in arrears making your
payments then your consumer proposal would be automatically annulled. In contrast, Debt
Management Plans are more forgiving to those in arrears making their payments. There is no
requirement that a Debt Management Plan be automatically annulled if a consumer were to become
more than 90 days in arrears.

What are the disadvantages of credit counselling?

1. You repay creditors a minimum of 100 cents on the dollarand typically much more
The single most important disadvantage of credit counselling is that it is an incredibly expensive debt
relief option! If you successfully complete a Debt Management Plan (or a consolidation order) then you
will have paid a minimum of 100 cents on the dollar to eliminate a dollar of your debtabout three
times the cost of what you would have paid had you done a consumer proposal!
2. If your total debt is more than $10,000 then credit counselling is rarely more attractive than a
consumer proposal
If your total unsecured consumer debtor if your combined indebtedness for unsecured consumer
debt, government debt and outstanding student loansis more than $10,000 then rarely will credit
counselling be a more attractive option than a consumer proposal. If you eliminate your debt using
credit counselling it will cost you somewhere between 100 cents and 130 cents to eliminate a dollar of
your debt. In contrast, if you were to make a consumer proposal then it would typically cost you around
35 cents to eliminate a dollar of your debt.
If you owe more than $250,000, excluding mortgage debt, then a consumer proposal is not available to
you! If you do owe more than $250,000 to your creditors, excluding monies owing on your mortgage,
then you should consider speaking to a bankruptcy trustee about a Division 1 Proposal, which is similar
to a consumer proposal, and a much less expensive debt relief option than credit counselling.
3. If your total debt is less than $10,000 then credit counselling will rarely be the optimal debt
relief strategy

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

If your total debt is less than $10,000 then making a consumer proposal might not be available to you.
Credit counselling, however, is rarely the optimal debt relief option for those owing less than $10,000 to
their creditors. The odds are good that you can obtain better results by doing one of the following:
o

Simply waiting until your indebtedness exceeds $10,000 and then doing a consumer
proposal

Not making any payments on selected unsecured consumer debt and relying upon the
expiry of your provinces limitation period to avoid paying your debt altogether

Not making any payments to selected unsecured consumer creditors until such time
that you can set aside some monies and negotiate a one-time lump sum payment for
less than one hundred percent of the outstanding balance as settlement in fulloften at
a substantial discount

Lets assume that today you owe $9,000 on four high interest credit cards. If you were to do credit
counselling today then you would likely repay somewhere between $9,000 and $11,700, by making
monthly payments. If, however, you were to wait 12 to 24 months until such time that your total
outstanding balance reached $10,000 then you could make a consumer proposal in which case you
would pay approximately $3,500, by making monthly payments over a period not to exceed five years.
Based upon my 12 years of experience as a collection lawyer and collection industry insider I know that
major creditorsbanks, credit card companies, department stores, and utilities, including cellphone and
internet service providersrarely sue individuals who owe less than $4,000 to a single creditor.
Therefore, if you owe less than $10,000 and this indebtedness is split amongst two or more creditors
then there is a real chance that you might one day have the option of never paying a penny to these
creditors. Here you can learn more about why a creditor might never sue you.
Each province in Canada has a provincial limitation period which effectively forces unsecured consumer
creditors to sue debtors within a certain number of years, after which it can be very difficult for creditors
to recover their monies. The relevant limitation period is two years in British Columbia, Alberta,
Saskatchewan, Ontario, and New Brunswick, three years in Quebec, and six years in the rest of Canada.
Creditors rarely sue consumers after the relevant limitation period has expired. If you have an
unsecured consumer debt and you are not sued before the expiry of the limitation period in your
province then you are going to be able to avoid paying your outstanding debt altogether!
Once your unsecured consumer debt remains unpaid for six monthsand for months and years
thereafter then you have the option of attempting to settle your account by negotiating a one-time
lump sum payment as settlement in full. It is quite common for consumers to be able to negotiate
settlements with creditors in which the consumer makes a one-time lump sum payment equal to
somewhere between 25 cents and 50 cents of the current outstanding balance.
4. You might not obtain interest relief from your creditors
After you enroll in a Debt Management Plan then a counsellor from your credit counselling agency will
speak to your creditors and attempt to negotiate some kind of relief regarding interest accruing on your
outstanding balance during the life of your plan. There is, however, no guarantee that your creditor will

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

agree to provide you with (1) generous interest relief, or (2) any relief whatsoever in connection with
interest. It is common for creditors to refuse interest relief to those debtors enrolled in a Debt
Management Plan with a for-profit credit counselling agency. Furthermore, if you fail to successfully
complete your Debt Management Plan then you should not anticipate saving a penny in interest relief.
5. A Debt Management Plan will not terminate existing lawsuits brought by creditors
If you make a consumer proposal any lawsuits brought by your unsecured creditors will be suspended or
stayed. In contrast, enrollment in a Debt Management Plan with a credit counselling agency will not
stay any existing lawsuits against you. Any current lawsuits against you, however, will be stayed if you
were to obtain a consolidation order. Your liability to your secured creditors and your liability for child
support and spousal support are not affected by a Debt Management Plan or a consolidation order.
6. A Debt Management Plan will not terminate existing wage garnishments
Making a consumer proposal or obtaining a consolidation order will terminate wage garnishments
except for those wage garnishments arising from liability for child support and spousal support
payments. Enrolment in a Debt Management Plan with a credit counselling agency does not terminate
any existing wage garnishments.
7. A Debt Management Plan is not available to eliminate student loans or monies owing to the
government
Enrolling in a Debt Management Plan with a credit counselling agency will not enable a consumer to
eliminate student loan debt or monies owing to the government.
In contrast, under a consolidation order a consumer can eliminate student loan debt and monies owing
to the government.
8. You are not entitled to have credit while you are in credit counselling
One of the disadvantages of credit counselling is that during your Debt Management Plan (or the life of
your consolidation order) an individual is not entitled to have access to credit. Neither of these debt
relief options, however, should prevent a person from obtaining a pre-paid credit card.
9. It might not be suitable for those who cannot make regular monthly payments
Credit counselling might not be suitable for those consumers who cannot make regular monthly
payments. This might include people who do not receive a regular paycheque, have seasonal
employment, or who routinely experience periods of unemployment.
10. You must include all of your unsecured consumer debt in your Debt Management Plan
You must include all of your unsecured consumer debts in your Debt Management Plan. In certain
circumstances, this lack of flexibility might be a disadvantage. This would be the case, for example, if
the relevant limitation period has expired, or will soon expire, on one or more of your unsecured
consumer debts.
11. You cannot take advantage of a limitation period to avoid paying a debt

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One of the disadvantages of credit counselling agency is that you will not be in a position to take
advantage of the expiry of a limitation period to avoid paying one or more outstanding accounts.

What are the pros of making a consumer proposal?

1. A consumer proposal stops most wage garnishments against the consumer
Once your consumer proposal is filed with the Office of the Superintendent of Bankruptcy then any and
all wage garnishments against you will end except those for spousal support and child support.
2. A consumer proposal stops most lawsuits against a consumer
If you make a consumer proposal that is accepted by your creditors then most lawsuits against you will
be stayed or suspended. Making a consumer proposal does not prevent your secured creditors from
using the courts to recover monies from you!
A consumer proposal can be incredibly helpful to homeowners and those who own real property.
Making a consumer proposal can be a very effective debt relief option if you own real property in your
own name and one or more of your creditors chooses to sue you.
If you make a consumer proposal before one of your creditors sues you, obtains a judgment against you
and puts a lien on your real property then your creditor will typically be entitled to about 35 cents on
the dollar. If, on the other hand, you were to make a consumer proposal after your creditor sued you,
obtained a judgment, and placed a lien on your property, then your creditor might receive an amount
equal to more than 100 cents on the dollar because of court costs and post-judgment interestthe
latter which can often be a significant amount of money!
3. A consumer proposal stops collection activity against a consumer
Once your consumer proposal is filed with the Office of the Superintendent of Bankruptcy then all
collection activity with respect to unsecured consumer debt, monies owing to the government, and
student loan debt should stop. The fact that you have made a consumer proposal does not prevent your
secured creditors from attempting to recover monies from you!
4. A consumer proposal offers the opportunity to eliminate most types of debt for about 35 cents
on the dollar
The single most important advantage of a consumer proposal is that affords the consumer an
opportunity to eliminate unsecured consumer debt, monies owing to the government, and outstanding
student loans at approximately 35 cents on the dollar by making monthly installments over a period not
to exceed five years. By making a consumer proposal an individual can eliminate their debt for a third of
the cost of either a Debt Management Plan or a consolidation order!
In order to take advantage of this opportunity a consumer must make his monthly payments during the
life of the consumer proposal. A consumer proposal is automatically annulled in the event that a
consumer is more than 90 days in-arrears making his payments under a consumer proposal.

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1-888-823-8239 or Bankruptcy-Canada.ca

The fact that a consumer makes a consumer proposal will have no impact on his secured debt nor on his
non-dischargeable debt.
5. You have the option of eliminating your debt by making a one-time payment of approximately
35 cents on the dollar
When a consumers creditors approve a consumer proposal a creditor will typically make monthly
payments to the bankruptcy trustee over a period of between three and five years. A consumer,
however, does have the option of paying out his consumer proposal liability much more quickly if the
necessary funds become available. This might come about because of funds made available from a
friend or family member. It might also occur because the consumer experiences a windfall such as an
inheritance or receipt of a large settlement cheque arising from a lawsuit. A consumer who can pay
out his indebtedness arising from a consumer proposal will be able to repair his credit rating and obtain
credit more quickly.

What are the cons of making a consumer proposal?

1. A very inflexible, structured debt relief option
Making a consumer proposal is a formal, structured process, lacking in flexibility. It is necessary for the
consumer to meet with the bankruptcy trustee in person. An individual must include all of his debt
excluding secured debt and non-dischargeable debtin his consumer proposal. The consumers
creditors have the right to vote and reject the consumers proposal. A consumer proposal is
automatically annulled if a consumer is more than 90 days arrears making payments under a consumer
proposal.
2. The fact your creditors approve your consumer proposal is no guarantee of successful
completion
The fact that your creditors approve your consumer proposal is no guarantee that you will successfully
complete your proposal and eliminate your debt at approximately 35 cents on the dollar. It has been
estimated that about twenty-five percent of individuals whose consumer proposal are approved by their
creditors do not successfully complete it!
3. A consumer proposal is automatically annulled if a consumer becomes more than 90 days in
arrears making payments to the bankruptcy trustee
By law, if you are more than 90 days in arrears making your payments under your consumer proposal
then your consumer proposal is automatically annulled!
4. You must be able to make monthly payments over three to five years
There is no point in making a consumer proposal if you are unable to make the necessary monthly
payments over the next three to five years. The fact that a person making a consumer proposal must be
able to make monthly payments over a period of three to five years means that it is not attractive for
people who do not earn a regular income or those who routinely experience unemployment.
5. You are not entitled to have credit during the life of your consumer proposal

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

If you make a consumer proposal then you are not entitled to have access to credit during the life of
your consumer proposal, typically between three and five years. It is common for some people
contemplating making a consumer proposal to buy an inexpensive used car before they make a
consumer proposal. The fact that you make a consumer proposal does not prevent you from having a
pre-paid credit card.
6. You must include all of your debts in a consumer proposal
If you make a consumer proposal you must include all of your debts in it, except for non-dischargeable
debt and secured debt. It is quite common for debtors contemplating a consumer proposal to want to
be able to exclude some debts from their consumer proposal. For example, if you have a loan from your
employer, you will likely want to repay this loan in full and not repay 35 percent of your indebtedness to
your employer over a five-year period.
7. You can seldom eliminate your debt for less than 30 cents on the dollar
One of the disadvantages of making a consumer proposal is that you can seldom eliminate your debt for
less than 30 cents on the dollar. While most bankruptcy trustees can share a story about how they did a
consumer proposal for less than 30 cents on the dollar this is not a typical result. In fact, many large
creditors have a policy not to accept settlements below 30 cents on the dollar. A trustee shared with me
that one of Canadas largest chartered banks has a strict policy not to agree to any settlement below 30
cents on the dollar!
In contrast, if you had one or more unsecured consumer accounts and you were to stop making
payments on these accounts, and your creditor did not sue you before the expiry of the relevant
limitation period in your province then you would have the option of not paying a penny in connection
with these accounts and your creditor were not to sue you before the expiry of the relevant limitation
period in your province, then you would be in a position where you could avoid paying a penny on your
unsecured consumer debt!

A consumer proposal will almost always be superior to credit counselling

Over the past six years I have provided advice to hundreds of Canadians across the country experiencing
debt problems. My goal has been to assist those calling me to identify the one or two optimal debt
relief options for their particular financial circumstances. In some instances I have recommended that
an individual speak to a bankruptcy trustee about a consumer proposal or filing for personal
bankruptcy. In other cases I have assisted them with negotiating a settlement where the consumer
made a one-time lump sum settlement for less than one hundred percent of the current outstanding
balance. In a significant number of scenarios I have suggested that an individual take advantage of the
expiry of a limitation period to avoid paying a penny on their outstanding account.
I am considered to be an expert on consumer debt and I am routinely consulted by the media. During
the past six years I have provided advice to hundreds of Canadians experiencing debt problems and not
once have I recommended that a consumer resolve their debt situation using credit counselling! Except
for two very unique circumstances, credit counselling is virtually never the optimal debt relief option for
a Canadian.

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca

In what two scenarios might credit counselling be more attractive than a consumer proposal?
There are two very limited circumstances in which credit counselling might be more attractive than
making a consumer proposal. In both of these instances, however, credit counselling is simply a shortterm fix, and not as the ultimate solution to the consumers debt problems. In these two scenarios, the
use of credit counselling is a bridging strategy, providing immediate relief and assisting a consumer
transition to a different debt relief option.
1. You anticipate your income will increase dramatically sometime in the next 12 to 36 months
Some Canadians experiencing debt problems will see their incomes or their net household income rise
dramatically in the next 12 to 36 months. This situation could arise under several different scenarios:
o

Person anticipates obtaining a good paying job in the near future

Improving financial situation arising from impending marriage or cohabitation

Person anticipates receiving payments arising from a lawsuit

Person anticipates receiving sizable inheritance in the near future

For these consumers credit counselling might be an attractive short-term strategy. This would provide
the consumer with some protection from creditors and a reduction in the consumers monthly
payments. Once a consumers income undergoes a dramatic increase then the consumer could drop
out of their Debt Management Plan (or cease making payments in accordance with a consolidation
order) and have the option of paying his outstanding debt in full at his earliest opportunity.
2. You want to eliminate your student loan indebtedness by declaring bankruptcy but you ceased
attending school less than seven years ago
You might have outstanding student loans in circumstances where your creditor refuses to negotiate a
discounted one-time lump sum payment for less than one hundred percent of the current outstanding
balance. In this scenario, you have two options for eliminating your student loan debt in which you do
not pay 100 percent of your outstanding balance:
o

You make a consumer proposal in which case you will likely pay approximately 35 cents
on the dollar with respect to your student loan indebtedness

You file for personal bankruptcy in which case your student loan indebtedness will be
forgiven on the condition that at the time of your bankruptcy you have ceased attending
school for seven years

Some people with outstanding student loans wanting to file for bankruptcy stopped attending school
less than seven years agoin which case their student loan debt would not be discharged, or forgiven,
in a bankruptcy. Debtors in this position might find it very helpful to enrol in a Debt Management
Plan with a credit counselling agency (or possibly obtain a consolidation order) solely for the purposes
of (1) obtaining protection from creditors, and (2) reducing their monthly debt payments, during the
period while they wait for this seven-year mark to arrive! Once a consumer has reached the point

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1-888-823-8239 or Bankruptcy-Canada.ca

where he has ceased attending school for seven years he can then file for personal bankruptcy and
discharge his student loan indebtedness!
For those consumers with outstanding student loans living in Alberta, Saskatchewan, or Nova Scotia
waiting for the seven year mark to file for personal bankruptcy to discharge their student loans
obtaining a consolidation order might be more attractive than enrolling in a Debt Management Plan
with a credit counselling agency. Under a consolidation order you would be entitled to lower monthly
payments with respect to your outstanding student loans. In contrast, under a Debt Management
Plan you would not be entitled to any reduction in your monthly student loan payments because
student loans cannot be included in a Debt Management Plan.
To learn more about eliminating your debt please contact a Trustee for a free confidential consultation.

Please contact a professional bankruptcy trustee to help guide you through your options.
1-888-823-8239 or Bankruptcy-Canada.ca