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Consumer Proposal, Bankruptcy, Debt Settlement, or Consolidation. What do I do?

If you Google anything to do with debt and what to do when you are over your head, you will find one of these "helpers" available and worded as such;

Debt Settlement, Debt Relief, Debt Consolidation, Consumer Proposal or Bankruptcy.

They sound very scary and daunting...and they should. No one wants to be in this position!

Pick the wrong one with no exit strategy and you will wish had kept your debts.

From my own experience, I can tell you that finding a debt consolidation person who just "band-aids" your current money problems, vs taking a long-term, practical, financial approach to your next 5 years is real.

These companies may have a solution in your desperate times, but many lack follow-up to ensure once you have done your debt relief program that you are set up for success. They RELY on your desperation.

YOU'RE not thinking straight - you're scared, you're frustrated, you have no idea which avenue to go down.

There is a feeling of shame, embarrassment, "I will fix it" mentality. That is NORMAL.

Everyone is unique in their situation.

  • A bankruptcy for one person might be better than a consumer proposal for another.

  • Getting a 2nd mortgage, might just be hiding a deeper spending issue but could solve a problem.

  • Debt relief via one of the "non-regulated companies" might cost you more in the long term.

  • Do not take advice from your friends and online communities. Always ask a licensed professional.

I have counseled hundreds of folks in the decision. I was bankrupt at 28 years old, so I do understand what it is like to make this decision.

Remember, your credit is screwed regardless of which program you end up with.

Why you need credit and when... should be your bigger question.

Here are the 4 main "debt helper" programs you have:

  1. Debt Settlement / Counselling Programs

  2. Consumer Proposal

  3. Debt Consolidation via Bank

  4. Bankruptcy

There is a variety of debt helper programs in Canada available today. MANY unlicensed companies offer different types of "debt helper" programs and it is very difficult to find a company that offers genuine guidance for people heavily burdened by debt.

The four main types of debt programs in Canada are:

1. Debt settlement programs/counseling:

These programs (Debt Relief or counseling programs) aim to help you reach a negotiated agreement between you and your creditors to decrease the amount of debt you must repay. Every creditor must be contacted individually to settle separate agreements. They are UNREGULATED.


Debt settlement companies "do not make regularly scheduled payments on the Client's behalf to creditors."


In a typical debt settlement plan you pay a FEE UPFRONT and then are required to accumulate a lump sum of money, which is then used for the settlement - LATER. It's expected that it will take 36 months, or three years, for the client to accumulate enough money that the creditors are likely to accept the settlement.

In the meantime....

You have a huge mess sitting on your credit for 3 years before it says "settled". YOU PAY A HUGE FEE UPFRONT for this, about $5,000!!! These companies make their money upfront...knowing you will likely FAIL AND WORSE...

  • There is NO guarantee that the creditors will accept your proposal in the future, AND does not prevent them from calling you, garnishments of wages and bank accounts, and killing your credit and you could be paying for years before the debt settlement companies make the offer; hence putting you years behind before getting that "fresh start" and accruing interest with no guarantees. So really putting the "onus" on you to save the money first to offer the creditors with hopes they accept.

  • CRA won't accept debt settlements for less than the full amount owing, but they will accept consumer proposals for less than the full amount owing. OWE CRA - Debt settlement companies don't allow for this.

  • In BC, Debt settlement companies are not regulated or licensed trustees...and can charge hefty upfront fees regardless if you complete it or not. = $5,000 upfront fees!

  • Your credit is going to register as R7's or R9's for along time regardless of what route you take, and if you are looking for a mortgage or credit in the future it will be at least TWO years from settlement paid off until you can qualify. This puts you back sometimes 5-7 years!

  • Mortgage lenders view debt settlement and consumer proposals/Bankruptcy in the same way. You're looking at your 1st credit card in 4 years with an unlicensed program.

  • You can't get ANY credit cards at ALL while in this program!!! So no rebuilding for at least 3 years...YIKES

My personal opinion - RUN from these. You have a debt problem and SHAME is getting in the way of making the WISER choice. Let go of the ego and're in debt, so pull that bandaid off and do it RIGHT.

2. Consumer Proposal:

This GOVERNMENT Program negotiates with a majority of the creditors to accept a partial repayment of the debts you owe them. In accordance with the Bankruptcy and Insolvency Act (in the courts), if a majority of the creditors on the proposal accept the agreement, then the other remaining creditors will are bound to accept this offer.

The repayment of debt is calculated based on your income and assets.

  • You don't lose your house (depending on equity)

  • You don't lose your car (depending on value)

  • Fees are regulated and built INTO your proposal, so no upfront fees are required.

  • Your credit is an R7 or R9 - the same as Debt Settlement companies

  • You have a fixed payment for 3-5 years starting right away.

  • You can pay it off whenever you like.

  • This can include CRA debts! Owe CRA lots of money?

  • Secured loans against vehicles. Sometimes banks will decide to be a part of the consumer proposal over repossessing your vehicle. Depends on the age and value of your vehicle.

  • Will revoke all credit cards, but you CAN get a secured credit card to start re-building credit right away.

3. Debt Consolidation via Banks:

  • It is a process by which Banks or other Loan Companies try to combine your debts into one payment with an unsecured loan or a secured loan against an asset, such as a boat, RV, car or home. This reduces the overall interest cost on the payments and reduces the total payment you have to make.

  • If you are just at that point that you are not late on payments, but finding to much debt, then this is a good option.

  • If you know that you have money coming in to pay it off, then good option.

  • If it takes you longer than 3-5 years to pay the entire debt off...look at the consumer proposal. At least then you're paying only 30-70% of your debts, but it does mess with your credit, but at least you can get a credit card!

  • Most people think they have a plan to pay off massive debts in 3 years...90% fail.

4. Bankruptcy:

A Bankruptcy (GOVERNMENT PROGRAM) officially declares that you are unable to pay your debts. A bankruptcy may not be suitable for everyone as it comes with its consequences, just like Consumer Proposals. They are both filed in the court system, protecting you. No creditors calling you, or issues with being sued. Lenders for mortgages look at a Bankruptcy and Consumer Proposal the SAME. You are an R7 or R9 and are in default.

Bankruptcy releases you of MOST debt at the date of filing, some forms of debt remain to be paid by you. A secured loan, criminal or legal debts, alimony, and child support payments are such debts are not removed after bankruptcy.

You are either in a 9 month porgram or 24 month program depending on your income.

STOP LOOKING FOR THE EASY WAY OUT. There is none. You're over your head. Life happens. Make the RIGHT choice so you can get back on your feet faster!

There are private financing options to help you if it fits you as well...



You may need to see a Bankruptcy / Consumer Proposal Trustee such as Sands and Associates to define the best option for your situation. I used them and they are amazing.

Not sure where to start, give me a call. I can give you my opinions and suggestions.

Just send an email to for your free consultation appointment.



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