Avoiding bankruptcy – Debt Management Plan & Consumer Proposals

I am often asked what is the best debt counselling service available to someone  who wishes to get out of debt without going bankrupt. The answer to this question depends […]

I am often asked what is the best debt counselling service available to someone  who wishes to get out of debt without going bankrupt.

The answer to this question depends on the severity of the debtor’s situation:

  • If one is able to repay all debts in full given: (1) a reduction or elimination of the interest on debts; and (2) more time to pay,  one should consider working with a Credit Counselling Agency to repay one’s debts through a Debt Management Plan (DMP)
  • If one is unable to pay off all debts in full, but can repay some of the debts, then one should consider working with a Trustee in Bankruptcy to make a settlement with creditors through a Consumer Proposal.

The following table summarizes these two options through some frequently asked questions:

DEBT MANAGEMENT PLAN FAQS

Question Answer
What companies perform this service? Non-profit credit counselling agency
Who accredits these companies? Ontario Association of Credit Counselling Services (OACCS), Canadian Association of Credit Counselling Services (CACCS) or Credit Counselling Canada (CCC)
What are the repayment requirements? All debts must be 100% paid in full
What type of debts can be included? Banking debts such as credit cards, lines of credit, overdrafts, loans, etc.
How can I be eligible to participate? A credit counsellor will review your budget, and it must demonstrate that you have the ability to repay debts in full over a period no longer than 60 months
What type of relief can this provide? Lower or eliminated interest rates, waived late fees. Also, creditor harrassment will stop if they agree to the DMP.
What’s the impact on my credit rating? R7 until paid in full. The R7 is purged from your credit file 2 years after the completion date.
What’s the maximum length of payment? 60 months
To whom do I make my payments once the plan is accepted by my creditors? To the credit counselling agency, which deposits your payments into a trust account. The funds are held in trust for your creditors.
How are fees paid? Although this will vary slightly from agency to agency, there is usually a fee of 10% of the monthly payment amount. The agencies are also funded directly by financial companies such as banks and credit card companies.
Examples of companies that perform Debt Management Plans Credit Canada; Consolidated Credit Canada; Incharge Canada

CONSUMER PROPOSAL FAQS

Question Answer
What companies perform this service? Federally licensed trustee in bankruptcy
Who accredits these companies? Office of the Superintendent of Bankruptcy of Canada
What are the repayment requirements? Repayment can range from 25% – 50% of debts owed. However, this will vary from situation to situation.
What type of debts can be included? Almost any type of debt so long it’s unsecured (i.e., the debt isn’t secured by an asset like a car or a home). This would include debt owing to the government such as income taxes.
How can I be eligible to participate? Must be insolvent. This means that the value of your debts must be greater than the value of your assets
What type of relief can this provide? As soon as a proposal is filed, your creditors are legally prohibited from commencing or continuing legal action against you. Once the proposal is accepted by your creditors, you receive the following benefits: (i) eliminated interest; (ii) significant reduction in debt that must be repaid.
What’s the impact on my credit rating? R7 or R9 until paid in full (this depends on the debtor’s province of residency). This is purged from your credit file 2 years (Trans Union) or 3 years (Equifax) after the completion date.
What’s the maximum length of payment? 60 months
To whom do I make my payments once the plan is accepted by my creditors? To the Licensed Insolvency Trustee, which deposits your payments into a trust account. The funds are held in trust for your creditors.
How are fees paid? The trustees fees are paid according to a government tariff and the fees are paid out of the proposal funds the trustee holds in trust for your creditors. To put it simply, the trustee’s fees are paid by your creditors.
Examples of companies that perform the Consumer Proposals Fong and Partners Inc.

If you feel that a Debt Management Plan may be a viable option for you, here are some reputable credit counselling agencies operating in the Greater Toronto Area:

Credit Canada

This company has been around for decades (since the 1960s) and I have personally referred people to them. They are very reputable and are involved in the Toronto community providing educational seminars on personal finance.

Head office: 45 Sheppard Avenue East, Suite 810, Toronto, Ontario M2N 5W9

Website: www.creditcanada.com

Incharge Canada

This is an American company which started operating in Canada in about 2008. InCharge Debt Solutions was established as a Nevada nonprofit credit counseling organization in 1997. In 2000 the corporate headquarters were moved to Orlando, Florida.

Canadian head office: 809-200 Consumers Rd., Toronto, Ontario M2J 4R4

Website: www.inchargecanada.ca

Consolidated Credit Canada

Yet another American company, this one is based in Florida and has been operating since the early 1990s. They started their Canadian operations a few years ago.

Canadian head office: 210-716 Gordon Baker Rd., Toronto, Ontario M2H 3B4

Website: www.consolidatedcredit.ca

This post should not be interpreted as legal advice or a legal opinion. Please consult your Fong and Partners Inc. advisor to review your own particular circumstances.

© Copyright Fong and Partners Inc 2011.

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