Debt Management Plan

What is a debt management plan

A debt management plan is a debt repayment program or service offered through a credit counselling agency. It is a plan to repay your debts, in full, over a period of up to 5 years.

In a debt management plan, the non-profit credit counselling agency “pools” your unsecured debts together so that you are only required to make a single monthly payment (to the not-for-profit agency). The agency then divides your payment amongst each of your creditors, with the larger creditors getting a bigger share of payment.

What a debt management plan can do for you

Debt management plans are designed for people who can afford to repay all their debt in full but are unable to qualify for a debt consolidation loan and would benefit from a fixed payment schedule.

Advantages of a Debt Management Plan:

  • Stop collection calls
  • A single monthly payment;
  • Reduced and sometimes zero interest charges; and
  • It’s a voluntary procedure – you decide to start the process.

Disadvantages of a Debt Management Plan

A debt management plan isn’t the right solution to eliminate debt for everyone. Here are some reasons why you might want to consider alternative debt relief solutions.

  • You must repay 100% of your debts
  • A debt management plan is not legally binding on creditors
  • It cannot deal with all debts
  • A note will appear on your credit report

A debt management plan does not provide you with debt relief. You must repay your debts in full. If you need debt relief you would be better to consider a consumer proposal.

In a debt management plan you must repay 100% of your debts, but in a consumer proposal you may only be required to repay as little as a third of your debts, so a consumer proposal may be much more affordable because it allows you to settle your debts for less than you owe.

A debt management plan is not a legal procedure – it is a voluntary agreement between you and your creditors. As such, it may not include all of your creditors, nor is it binding on any creditors. A debt management plan does not have the ability to automatically stop a garnishment order – the creditor must agree to lift the garnishment.

Debt management plans are meant to deal with a few, simple, small, unsecured debts. While a debt management plan can help if you have a few small credit card debts, a small bank loan or some unpaid bills, DMPs cannot settle complex debts including tax debts and student loans. In addition, most payday loan companies will not accept a DMP and can only be bound by a program filed with a Licensed Insolvency Trustee.

Debt Management Plan and your credit report

When you file a debt management plan, an R7 note that you have entered into a debt repayment program will appear on your report for 2 to 3 years from the date the program was satisfied or six years after you defaulted on the loan, whichever comes first.

Many people are surprised to hear that a debt management plan has the same impact on their credit report as a consumer proposal. However, a consumer proposal has one big advantage over a DMP – your monthly payments are much lower. This means that you can recover sooner after filing a consumer proposal because you are able to save more money with a proposal.

Can a Trustee do a Debt Management Plan?

In a way, yes we can. This would be called a 100% consumer proposal. Many people we meet choose this route to consolidate their debts over a debt management plan.  Why? Because they have sufficient assets or income to cover their debts (like some home equity) but cannot keep up with high monthly payments and high interest charges and need creditor protection, need student loan relief or have tax debt to deal with.

Debt Management Plan vs Consumer Proposal

Two of the most popular debt management programs used as an alternative to bankruptcy are a consumer proposal and a debt management plan. While each have advantages and disadvantages, they are two drastically different debt management services. Understanding the key differences between a debt management plan and a consumer proposal can help you choose the right option for you.

Debt Management Programs: Consumer Proposal Debt Management Plan
Who Files A Consumer Proposal can only be filed through a federally licensed Trustee. An accredited credit counselling agency.
Debt Reduction Generally up to 85% of your debts. None. You are required to repay your debts in full.
Interest Freeze Yes Usually
Debts Eliminated Almost all unsecured debts including credit cards, payday loans, bank loans and tax debts. Generally only credit card debt and bank loans. CRA will not reduce your debt through a credit counselling agency.
Binding on all creditors Yes, once a proposal has been accepted all creditors are bound by the terms of the proposal. No, you can pick and choose which debts to include but your creditors can also opt out of the debt management plan.
Keep Assets Yes Yes
Creditor Protection Yes Not automatic; only if creditors agree.
Stop Wage Garnishments Yes Not automatic, only if creditors agree.
Deal With CRA Yes No
Credit Rating An R7 rating remains on your report for a maximum of 6 years from the date of filing or default. An R7 rating remains on your report for a maximum of 6 years from the date of default.

We also provide a comparison of bankruptcy vs credit counselling to help you understand the differences so you can make the right choice.

Get a Free Debt Assessment

In most situations, your payment under a consumer proposal will be significantly less than they would be under a debt management plan.

In order to help determine which option is best for you, we recommend you talk to one of our experts about a free, no-obligation debt assessment. During this process we will ask you:

  • What type of creditors you owe money to
  • How much you owe each creditor
  • What your monthly budget looks like.

With this information we can help you determine whether a consumer proposal or a debt management plan is your best choice given your unique financial situation.

Simply contact us to get started on your debt free plan.

Hoyes Michalos & Associates provides debt help and debt management solutions the following locations

Other service areas

We offer the convenience of phone and video-conferencing only services for the following additional areas. Many people find it advantageous to begin the initial consultation and debt assessment over the phone or by video. If you decide to file, you can sign and complete your paperwork electronically. Credit counselling sessions can also be completed through video conferencing, which eliminates the need to miss work or schedule a time to attend the office.

Find an Office Near You

Offices throughout Toronto and Ontario

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