Consumer Proposal versus Debt Settlement

What is Debt Settlement?

Debt settlement is a situation where a person make an informal offer to his or her creditors. This offer is to pay a portion of the debt owing and to consider the debt paid in full after this payment has been made. In this situation, an individual or a Debt Settlement company (such as contacts each individual creditor and negotiates with them in order to get them to approve of the deal you are proposing.

Comparing a Consumer Proposal with a Debt Settlement

Legal Enforceability

  • A Barrie consumer proposal is a legal agreement. In a consumer proposal, all creditors are bound by the terms of the agreement if the majority of them ( 50% plus one) chose to accept the proposal.
  • With a debt settlement, each creditor decides individually whether or not they choose to accept the offer.

Outstanding Legal Action

  • All legal actions (including wage garnishment and writs of execution) stop when a consumer proposal is filed. Once a proposal is accepted by the majority of creditors, no creditor can take legal action to collect their debt
  • A Debt Settlement does not provide protection against legal actions. In a debt settlement scenario, an individual will need to negotiate the end of any existing legal with each creditor separately.  Any creditors that do not agree to these terms can still begin legal action.

Paying Creditors

  • Typically, a debt settlement company collects the funds from you and then disburses them to your creditors. Since this is true, it is important to research the reputation of the firm you are working with and that you only deal with debt settlement companies that are trustworthy and reliable.
  • With a consumer proposal, the Proposal Administrator is licensed by the government. This means that you can trust that your payments will go to your creditors.

Fees for Services

  • Most Debt Settlement companies charge a fee for the initial consultation
  • Most Proposal Administrators offer the initial consultation at no charge.  Also, the Administrator’s fees are determined by the federal government. They also come directly from your consumer proposal payments which means your creditors pay the Administrator’s fees. There are no additional fees associated with the consumer proposal process.


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