What Are My Options?

When you have debt problems there are a number of options available, bankruptcy is only one of them and is always the last solution. The option you choose is ultimately  up to you, but the decision should be made based on professional advice from a  Licensed Insolvency Trustee who is qualified, knowledgeable and can explain the consequences of each. There is no easy way to decide  which is the best option or solution for you. As with any other major decision in your life, do the research, weigh the  pros and the cons, speak to the professionals and then decide what is best for you and your family for the long term.

Do Nothing

This is the easiest thing to do, however, it will not resolve the issue. Some people hope that by ignoring the problem, it will go away.

Unfortunately, this is not true and the result will likely be a garnishment, suspension of credit privileges, eviction for non-payment of rent, or some other similar event. Rather than maintain the status quo, there is a need to be proactive and deal with the problem now.

Reduce Expenses, Increase Income

This may sound simple; get a second job, take in a boarder, or sell some assets but it is usually not that easy. From our experience, we have found that most people are stretched as thin as possible already. Between commitments at work and at home and raising a family, there is precious little time for another job and not everyone has a spare room to rent or has non-essential assets to sell that will raise significant cash to eliminate debt.

You have probably already made changes to your household budget and trimmed all the extras you can.

Getting rid of the debt may be the only option left.

Consolidation Loan

If your credit rating is still okay, and that is a big “IF”, this may be an option. You can ask your bank or financial institution for a consolidation loan to combine all of your debts into one loan.

Advantages:

  • Avoids Bankruptcy
  • May reflect more positively on your credit rating.
  • More manageable repayment terms.
  • Should result in a lower interest rate as compared to the existing credit cards.
  • Can still file for bankruptcy or do a Proposal at a later date.

Disadvantages:

  • No potential to re-negotiate the terms if you are unable to manage the payments.
  • Many banks will only give you a consolidation loan to consolidate what you owe them and may not include other debts.
  • You have no protection from creditors who are not paid out as part of the loan.
  • You may have to pledge your assets or have a co-signer, which puts your assets or co-signer at risk should you default.

 

Orderly Payment of Debts (OPD)

This is a government sponsored program offered in 4 provinces, including Alberta. The basic criteria is that you are required to repay 100% of your unsecured debts plus pay 5% interest per year.

The Orderly Payment Of Debt program expects that you will be able to repay your debt within a 3 to 4 year period and is subject to creditor approval. If the creditors accept the plan of arrangement, the Court issues a Consolidation Order and you are protected.

The more debt you have the larger the monthly payments are. If your debts are substantial, this may not be an option for you unless you can afford a large payment every month. If you default on the program, the creditors can garnishee you immediately as it is considered to be a default judgment.

The benefit of the Orderly Payment Of Debt program is that you make one monthly payment to the third party who pays your creditors in an orderly fashion, similar to a Proposal.

The drawback is that the credit bureaus rate your credit as R-9 during the repayment period and upon successful completion, your rating improves to R-7. Lenders and credit granters consider this to be similar to a Bankruptcy and you will find that rebuilding your credit is similar to those people that chose bankruptcy.

If you are looking to settlle your debts without filing for Bankruptcy, a Consumer Proposal can provide you with a discounted settlement plan with no interest payable or additional fees.

Proposals

A Proposal is similar to a Consolidation Loan or Orderly Payment of Debt in that you are making a monthly payment to one organization to repay your debts. The biggest difference is that there is NO interest applied to the debt AND you are able to settle your debts for much less than you owe. The median average that our clients pay back is 57% of their debt.

Proposals are administered by a Trustee in Insolvency pursuant to the Bankruptcy and Insolvency Act.

An Insolvency Trustee can develop a Proposal based on your ability to pay, that protects you from your creditors and enables you to support your family while reorganizing your budget.

If there is little or no money to dedicate to paying your debt, then this may not be a good option for you. If you do have an ability to pay and feel an obligation to do so, this may the right option for you.

A Proposal must provide the creditors with a greater recovery as compared to a Bankruptcy. In other words, there must be some financial incentive for them to accept the terms of the Proposal, otherwise, creditors will refuse to accept it.

There are two different types of Proposal and the type of Proposal you can apply for is usually determined by the amount you owe. Once again, the Trustee will advise you on this. You must include all unsecured debts. You can not pick and choose.

Advantages:

  • Protects you from the actions of your unsecured creditors.
  • Can stop most garnishees.
  • Creditors can not seize assets, unless they are “secured” and you have defaulted on payments.
  •  Stops harassment from creditors.
  • Once accepted by the majority of creditors, it is binding on all creditors, including the ones who may have voted against it.
  • Gives you up to 5 years to pay with no interest, and in some cases allow for a longer repayment time.
  • Can legally settle your debts for a reduced amount.
  • No further interest accrues or is added to the debt.
  • Does not affect your assets unless you offer them to the creditors.
  • Can include income tax debt to Canada Revenue Agency.
  • Can be amended if your personal situation changes.
  • You will receive financial counseling during the process in order to learn from the experience.
  • The Trustee is paid from the Proposal and does not charge an additional fee to administer the Proposal so there are NO additional costs to you.
  •  Once completed you are considered to be “relieved” of your debts and no creditor can pursue you for a debt that was included. Some rare exceptions do apply.
  • The legislation protects you from job loss, eviction and utility disconnections. This means that you can not be fired or evicted just because you filed a Proposal.
  • If you want to surrender a leased or purchased vehicle without having to pay for the shortfall or deficiency, you may accomplish this by filing a Proposal. The only other method is by filing for Bankruptcy.
  • In the long term, it has a slightly better effect on your credit rating than Bankruptcy.

Disadvantages:

  • Student Loans are an exception to the rule. If you have not been out of school for more than 7 years, a Student Finance debt still has to be repaid in full. They can be included in the Proposal and you can be relieved of their payments during the Proposal, however, you are liable to pay the accruing interest and any residual debt, after the Proposal.
  • Some debts that can not be included in a Proposal are, Child and Spousal Support, Court Fines, debts involving fraud or misrepresentation, civil judgments arising from bodily harm intentionally inflicted, or sexual assault and wrongful death, etc.
  • It usually takes longer to complete a Proposal than a Bankruptcy, so it takes longer for a “fresh or new start”.
  • Must be accepted by the majority of your creditors and approved by the Court. If it is rejected by your creditors you can not file another Proposal without a Court Order or you may end up in Bankruptcy. As there are exceptions to this rule, it is recommended that you speak with a Trustee for information.
  • Proposal’s do cost the debtor more money as compared to a bankruptcy.
Personal Bankruptcy

This is a legal process that relieves you of most of your debts. It allows an honest person who has fallen on hard times, the ability to get a fresh start. The biggest misconception about Bankruptcy is that you lose everything. THIS IS SIMPLY NOT TRUE!

The second misconception of Bankruptcy is that someone else is paying off your debts. THIS IS ALSO NOT TRUE!  The creditors are writing off your debt. Creditors charge high interest rates for credit cards and unsecured lines of credit to help them absorb this and other types of losses.

Bankruptcy is administered by an Insolvency Trustee, who is licensed by the Office of the Superintendent of Bankruptcy, an agency of Industry Canada, a department of the Federal Government. The Superintendent monitors the actions of the Trustee to ensure the process is being administered properly.

Bankruptcy is usually the last resort and for some it is the only choice left. It is a voluntary process 99% of the time. Once you realize that you are insolvent (you have more debt than you can pay as they become due or lack the assets to cover this may be your only option.

If you are concerned about your debt situation, a free confidential consultation with a us will outline the available options. Although you may be under a lot of pressure from creditors, the Trustee’s primary focus is to educate and inform you of the different processes. Once you have learned about the options, you will decide which one is best for you and your family. A Trustee should not pressure you into making a decision on the spot as careful thought and consideration is required. If you are feeling pressured by a Trustee, perhaps you need to meet with another Trustee for a second opinion or a different approach.

Once the decision is made to go Bankrupt, there is a tremendous sense of relief as you can move forward and start rebuilding your finances and your life.

If this is the first time you have filed for bankruptcy the duration of the process is a minimum nine months, however it may be 21 months in duration if you have surplus income, as determined by the Superintendent of Bankruptcy. You are entitled to a discharge from bankruptcy at the end of the process provided you have complied with your duites as set out in the Act.

If this is your second bankruptcy, the length of the bankruptcy is 24 months minimum and will be 36 months, if you have surplus income. If this is a third or fourth bankruptcy, you will be required to attend Court for a discharge hearing.

Bankruptcy is not a selective process, therefore, you must include all unsecured debts. You can not pick and choose.

Advantages:

  • Protects you from your unsecured creditors.
  • Relieves stress and anxiety.
  • Is the least expensive option.
  • You will receive credit counseling in order to learn from the experience.
  • Stops most garnishees and collection proceedings including Canada Revenue Agency (The exception once again is secured creditors; if you failed to make those payments they can still repossess the collateral pledged ie: your vehicle.)
  • Gives you immediate relief from collectors.
  • If your utilities are being disconnected, they can be restored once you have filed for bankruptcy.
  • You are required to record your income and expenses during the period as part of the learning and budgeting process.
  • If your situation improves, the Bankruptcy can be converted to a Proposal during the process and remove the Bankruptcy from your record.
  • Allows you to surrender a leased or purchased vehicle without paying for the remainder of the contract (the shortfall).
  • You will stop paying all of the unsecured creditors so that you feel immediate financial relief.
  • Gives you a fresh start.

Disadvantages:

  • It will hurt your credit rating but in most cases the damage is already done.
  • All credit cards must be surrendered.
  • You may be required to obtain a new bank account.
  • You cannot be the director of a corporation.
  • There are some restrictions on self employed people.
  • It will remain on your credit report for 6 years after your discharge in a first time bankruptcy and 14 years after discharge for second and subsequent filings.
  • You can not change your mind or cancel a bankruptcy. Once you sign the papers and they are submitted to the government for registration you become bankrupt and you must comply with the Act to receive your discharge from bankruptcy.

Which Debt Repayment Solution Fits Best For You?

Start typing and press Enter to search