Debt Settlement vs. Consumer Proposal vs. Bankruptcy: What’s the Difference?

If you’re overwhelmed with debt and unsure what path to take, you’re not alone. Many Manitobans are confused about the differences between debt settlement, consumer proposals, and bankruptcy. Each offers a path to relief—but they work very differently.

Let’s break it down:

1. Debt Settlement

This is an informal agreement with your creditors to settle your debt for less than what you owe. It’s usually arranged directly with your creditors and not regulated under federal law.

Pros:

• Flexible negotiations
• Could pay less overall
• Avoid formal insolvency

Cons:

• No legal protection from creditors
• Creditors can still pursue collections
• Risk of scams or hidden fees

2. Consumer Proposal

A legally binding agreement filed with a Licensed Insolvency Trustee (LIT) where you repay a portion of your unsecured debt over up to five years.

Pros:

• Legal protection from creditors
• Keep your assets
• Stops a wage garnishment
• One affordable monthly payment
• Interest stops immediately

Cons:

• Impacts credit (R7 rating)
• Requires creditor approval

3. Bankruptcy

A legal process to eliminate most debts when you can’t repay what you owe. Assets may be sold to repay creditors.

Pros:

• Complete debt elimination
• Fastest route to a fresh start
• Stops collections and wage garnishment

Cons:

• Loss of non-exempt assets
• Significant credit impact (R9 rating)
• May affect employment or professional status

Comparison at a Glance:

Option	Legal Protection	Credit Impact	Asset Loss Risk	Monthly Payments
Debt Settlement	No	Varies	Low	Negotiated
Consumer Proposal	Yes	Moderate (R7)	Low	Fixed, affordable
Bankruptcy	Yes	High (R9)	Moderate to high	Income-based

Real-Life Manitoba Example:

A couple in Dauphin with $50,000 in credit card debt and wage garnishments attempted debt settlement but faced relentless collections. With Lazer Grant’s help, they filed a consumer proposal, stopped the garnishments and collection calls, and reduced their total debt by 60%.

Final Thoughts:

Each debt relief solution has its pros and cons. Understanding your financial situation—and your goals—is the key to choosing the best path forward. Lazer Grant’s Winnipeg-based team can walk you through your options and help you decide what’s right for you.

Get expert advice today. Book a free consultation and take the first step toward financial freedom.