Get out of Debt Without Going Bankrupt

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One of the smartest things you can do to get out of debt without going bankrupt is to do a budget.

Download a free excel spreadsheet on personal budgeting.

Speak to a Bankruptcy Trustee about your rights and options by calling a Licensed Bankruptcy Canada Trustee at 1-877-879-4770 or by sending your details through our confidential evaluation form.

Get out of Debt Without Going Bankrupt1) Use your Assets

If you have assets with some significant equity, such as a home or a car you may be able to use these to get control of your debt. For example, you could get a loan on your home sufficient to pay off your debts. You could be saving a considerable amount of money on interest if you pay off high interest credit card debt in return for lower cost debt.

If you have a car, consider selling it, paying off your debts and buying a cheaper car. Be careful though! You don’t want a “cheaper” car that will cost you a fortune in repair costs.

2) Get a Second Job

Use the money from this job to only pay off your debts. List your debts noting the interest rates. Pay off the debts with the highest rates first and work your way down the list.

3) Put your Credit Cards on Hold

One of the best steps you can take to get out of debt is to immediately stop using credit cards. At the very least destroy all your cards keeping just one card for emergencies.

4) Set up a Repayment Plan

Cut back on your expenses and/or use freed up cash to pay down your debts. Pay off the debts with the highest rates first and work your way down the list.

5) Get a Consolidation Loan

A consolidation loan can make lots of sense. Get a loan to pay off all your many debts and have just one payment to make. The new loan usually has a smaller payment and a lower interest rate.

6) Use the Services of a Credit Counsellor

For how long should you pay? Most trustees in bankruptcy feel that the term should be three to four years. Under the Bankruptcy and Insolvency Act, a proposal must last for no longer than 5 years. Terms longer than this have a very high failure rate, because people cannot see a “light at the end of the tunnel”.

7) Informal Proposal

In some cases you can make a proposal to your creditors to set up a payment plan that will allow you to pay your creditors in an orderly way and thus help preserve your credit rating. This operates similar to a debt consolidation loan except you do not borrow the money to pay off your creditors.

You may be able to pay less than 100 cents on the dollar. For example, a relative may be willing to pay a lump sum to the creditor of say 50% of the amount owed in order for the balance of the debt to be written off.

This works best when there are very few creditors.

8) Use your Province’s Orderly Payment of Debts System

Residents of some provinces such as Alberta, Saskatchewan, PEI and Nova Scotia can apply for a Consolidation Order. This provision of the Bankruptcy and Insolvency Act allows you to pay off your debts, usually over a three year period, and clears you from credit harassment and wage garnishment.

9) Consumer Proposals under the Bankruptcy and Insolvency Act

Under the Bankruptcy and Insolvency Act, a trustee files a Consumer Proposal or an arrangement between you and your creditors to have you pay off only a portion of your debts, extend the time you have to pay off the debt, or provide some combination of both. To be acceptable, your creditors must be better off under a Proposal than if you go bankrupt.

Proposals have a number of advantages for the debtor under a great deal of pressure from his creditors:

  • Stay of Proceedings. No actions can be taken by creditors such as wage garnishments.  If a wage garnishments is in place it will be removed.
  • Proposals offer a “win-win” situation. A proposal is good for the creditors because they get more than if the person goes into bankruptcy.  It is good for the debtor as he avoids bankruptcy and has his credit bureau report “cleaned” three years after the proposal is satisfied.
  • Proposal are almost always accepted by the creditors because they know if they do not accept the proposal the person will file bankruptcy and the creditors will lose more money than if they had accepted the consumer proposal.
  • Proposals have a very high acceptance rate.

For more information on how consumer proposals work please refer to this page.

Locate a trustee in your area for a confidential evaluation by phone or to set up a FREE confidential consultation.

10) Bankruptcy

If these alternatives will not work for you, bankruptcy may be the only way for you to get a fresh start. Bankruptcy offers a quick solution to getting out of debt. First time bankrupts are eligible to get out of bankruptcy (and have all debts written off, with some exceptions) in 9 months. More and more people in Canada are going bankrupt.

For more information on how bankruptcy works please refer to this page.

Locate a local trustee in bankruptcy to schedule a confidential insolvency consultation by phone.

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– Anon, Ontario