Consumer Proposal vs Debt Settlement

Learning the difference
Consumer Proposal vs Debt Settlement
Article Overview

Are you in debt and looking for ways to get back on track? Consumer proposals and debt settlement are two popular debt relief options. In this article, we’ll look at each option and see how they stack up against one another. So grab a snack and let’s get started!

What is Consumer Proposal?

A consumer proposal is a legally binding agreement between you and your creditors that allows you to settle your debts for less than the full amount owed. This option is only available to people who live in Canada and must be set up through a licensed insolvency trustee.

When you put in a consumer proposal, your trustee will work with you to come up with a way to pay back your debts that you can afford and that your creditors will accept. This could mean paying off part of your debt over time or extending the time you have to pay back your debts to make payments easier to handle.

One of the best things about a consumer proposal is that it can help you avoid bankruptcy while still getting rid of your debt. It also allows you to keep your assets, such as your home or car, which would be impossible to do if you declared bankruptcy.

What is Debt Settlement?

Debt settlement is the process of negotiating with creditors to settle your debts for less than you owe. This choice is open to both Americans and Canadians, and you can do it on your own or with the help of a debt settlement company.

When you begin the debt settlement process, you will stop paying your creditors and instead deposit funds into a special account that will be used to negotiate a settlement. Your debt settlement firm or lawyer will negotiate with your creditors to settle your debts for a lower amount than you owe.

One of the best things about debt settlement is that it could save you a lot of money by lowering the total amount of debt you have to pay. It can hurt your credit score, though, and it’s not a sure thing that it will work.

Consumer Proposal vs Debt Settlement

So, how do consumer proposals and debt settlement stack up against one another? Both options are meant to help you deal with your debt, but each has its own pros and cons to think about.

One of the biggest differences between debt settlement and consumer proposals is that a consumer proposal is a legally binding agreement with your creditors, while debt settlement is a process of negotiating. A consumer proposal is a more formal process that requires the help of a licensed insolvency trustee. Debt settlement, on the other hand, can be done on your own or with the help of a company that helps people settle their debts.

Another significant distinction is the effect on your credit score. A consumer proposal can stay on your credit report for up to three years. This could make it harder for you to get credit in the future. Debt settlement, on the other hand, can have a greater negative impact on your credit score because it requires you to stop making payments to your creditors.

With a consumer proposal, you usually pay back a portion of your debts over time, while with a debt settlement, you pay back your debts for less than what you owe. If you are unable to repay your debts in full, debt settlement may be a more appealing option.

Finally, the costs associated with each option must be considered. Fees for a consumer proposal will be charged by the licensed insolvency trustee, whereas fees for debt settlement may be charged by the debt settlement company or lawyer. To find the most affordable option for you, it is important to do research and compare prices.

Finally, both consumer proposals and debt settlement can be effective debt-management strategies. Think about your personal finances, goals, and preferences to figure out which option is best for you. Taking the time to research and compare your options will help you make a smart choice and work toward a debt-free future.


It is determined by your financial situation. A consumer proposal can help you get out of debt, whereas debt consolidation combines several debts into one payment. Both options have advantages and disadvantages, so consult with a financial professional to determine which is best for you.

The downside of a consumer proposal is it can remain on your credit report for up to three years after it has been paid off, affecting your ability to obtain credit in the future. Furthermore, not all creditors may agree to the proposal, and you will be required to make regular payments to your licensed insolvency trustee.

Debt settlement can lower your credit score because it usually means paying less than the full amount owed on a debt. Working with a reputable debt settlement company is essential, as is understanding the potential consequences.

The Canada Revenue Agency (CRA) may accept a consumer proposal, but only under certain conditions. In general, the CRA is more likely to accept a proposal that pays off a larger portion of the tax debt. It is best to consult with a licensed insolvency trustee for advice on your specific situation.

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Written by:

Jim Pan, CFP, MFA-P

Jim is a dedicated, fee and advice only independent Certified Financial Planner with a focus on supporting healthcare business owners during their crucial growth phase. His expertise lies in offering comprehensive solutions to minimize taxes while embracing a holistic approach. With a career spanning back to 2010, Jim has established a strong presence in the financial industry. He proudly holds a range of designations, including Certified Financial Planner (CFP), and Master Financial Advisor - Philanthropy (MFA-P). He is currently pursuing additional designations and qualifications to better serve his clients and community. Beyond his qualifications, Jim is a member and an esteemed participant in the Million Dollar Round Table (MDRT), an exclusive global association comprising the top 1% of financial advisors. Jim's commitment extends to the community, where he spearheads numerous charitable fundraising events and plays an active role in enhancing the well-being of others. Additionally, he has contributed significantly by serving on the board of the Canadian Mental Health Association in Vancouver. Currently, he volunteers with Junior Achievement of British Columbia (JABC) to present personal finance topics to youths.

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