What is a debt management plan ?
A debt management plan is a service or program offered by a credit counseling firm to help people pay off their debts. It's a strategy for paying off your obligations in full over a five-year period.
In a debt management plan, a non-profit credit counseling organization "pools" your unsecured debts so that you just have to make one monthly payment (to the not-for-profit agency). After that, the agency divides your payment among your creditors, with the larger creditors receiving a larger share of the payment.
What a debt management strategy can help you with
Debt management programs are for people who can afford to pay off all of their debts in full but don't qualify for a debt consolidation loan and would benefit from a set payment schedule.
Benefits of a Debt Management Strategy:
- Put an end to the collection calls.
- A single monthly payment; reduced or even zero interest costs; and it's a voluntary approach – you choose to begin.
A Debt Management Plan's Drawbacks
- For everyone, a debt management plan is not the best way to get out of debt. Here are a few reasons why you may want to look into other debt reduction options.
- You must settle all of your debts in full.
- Creditors are not legally bound by a debt management plan.
- It is unable to handle all debts.
- Your credit report will include a remark.
A debt management plan will not help you get out of debt. You must pay off all of your debts in full. If you need to get out of debt, a consumer proposal is a good option.
A consumer proposal allows you to settle your debts for less than you owe, but a debt management plan requires you to return 100% of your debts. A consumer proposal may be significantly more inexpensive because it allows you to settle your debts for less than you owe.
A debt management plan is a voluntary arrangement between you and your creditors, not a formal procedure. As a result, it may not contain all of your creditors, and no creditors are bound by it. A debt management plan cannot automatically stop a garnishment order; the creditor must agree to the garnishment being lifted.
Debt management strategies are designed to address a small number of modest, unsecured obligations. While a debt management plan may be beneficial if you have a few small credit card debts, a small bank loan, or some outstanding invoices, DMPs are unable to resolve complex obligations such as tax debts or educational loans. Furthermore, most payday lenders will not accept a DMP and will only be bound by a plan filed with a Licensed Insolvency Trustee.
Your credit report and your debt management plan
An R7 note that you have gone into a debt payback program will appear on your record for 2 to 3 years from the date the program was satisfied or six years after you defaulted on the loan, whichever comes first, when you file a debt management plan.
Many consumers are startled to learn that a debt management plan affects their credit report in the same way that a consumer proposal does. A consumer proposal, on the other hand, offers one significant advantage over a DMP: your monthly payments will be far cheaper. This means that if you file a consumer proposal, you will be able to recover sooner because you will be able to save more money.
Is it possible for a Trustee to create a Debt Management Plan?
Yes, we can in some ways. This is referred to as a "100% consumer proposal." Many of the consumers we encounter prefer this kind of debt consolidation to a debt management plan. Why? Because they have enough assets or income to repay their debts (such as some home equity), but they are unable to keep up with high monthly payments and high interest rates and want creditor protection, student loan relief, or tax debt relief.
Consumer Proposal vs. Debt Management Plan
A consumer proposal and a debt management plan are two of the most prominent debt management programs used as alternatives to bankruptcy. While they both have benefits and drawbacks, they are two very different debt management services. Understanding the fundamental distinctions between a debt management plan and a consumer proposal might assist you in determining which choice is best for you.
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