Overcoming Financial Dilemmas: Four Strategies a Licensed Insolvency Trustee Can Offer
In today’s uncertain economic climate, managing debts can be a challenging endeavor. But fret not, as a Licensed Insolvency Trustee (LIT) can be your financial ally, providing you with four ways to help you resolve your debt and regain control over your financial health. Let’s delve deeper into these solutions, their processes, and how they can help you overcome your financial dilemmas.
Understanding the Role of a Licensed Insolvency Trustee
Before we delve into these strategies, it’s crucial to comprehend the role of an LIT. They serve as a financial advisor who guides individuals grappling with debt dilemmas. The first step towards resolving your financial issues is to seek an LIT for a free, confidential consultation. They can assess your financial status, explain all possible alternatives, and direct you to appropriate resources to attain your financial objectives.
Strategy 1: Bankruptcy
Bankruptcy can be a feasible solution for those owing $1,000 or above and unable to meet their due debts. This process can offer a fresh financial start.
The Bankruptcy Process
Upon filing for bankruptcy, you must disclose your outstanding debts, income sources, and assets to the LIT. They utilize this data to determine what assets and income you need to surrender for the benefit of your creditors.
The LIT then files your bankruptcy application with the government, putting an automatic stay of proceedings into effect. This prevents your creditors from contacting you, and all wage garnishments and legal judgments against you get lifted.
During your bankruptcy, you must submit monthly income and expense reports. This information helps the LIT calculate any increase in your income that requires you to make payments into your bankruptcy. Additionally, you must attend two compulsory financial counselling sessions.
The duration of the bankruptcy process depends on whether it’s your first bankruptcy and if you have surplus income payments. The bankruptcy reflects on your credit report for six years after your discharge.
Strategy 2: Consumer Proposal
If your debts range between $1,000 and $250,000 (excluding mortgage on your principal residence) and you can’t afford repayment, an LIT may suggest a Consumer Proposal as an alternative to bankruptcy.
The Consumer Proposal Process
In this process, your LIT reviews your unsecured debts, income, and monthly expenses. They then propose a favorable settlement offer to your creditors, which may reduce your total debt, extend your repayment timeline, or both.
A majority of your unsecured creditors (in terms of dollar value) must approve the Consumer Proposal. Once accepted, it becomes legally binding on all your unsecured creditors, barring them from contacting you, and lifting any existing collection actions against you.
You can repay your Consumer Proposal through a monthly payment to the LIT over a period of up to five years or a single lump sum payment. Like bankruptcy, a Consumer Proposal requires you to attend two mandatory financial counselling sessions. It registers as R7 on your credit report for three years after your final proposal payment.
Strategy 3: Debt Management Program
If you don’t qualify for a Bankruptcy or Consumer Proposal, a Debt Management Program might be another option for you. Although LITs don’t directly offer this option, they can connect you with a reputable non-profit credit counselor who can manage the process on your behalf.
The Debt Management Program Process
A non-profit credit counselor negotiates with your creditors to reduce or eliminate the interest owing on your unsecured debts. You make a single monthly payment to the credit counselor for up to five years, which they distribute to your creditors on your behalf.
This agreement continues until you have repaid your debts in full. However, it’s not legally binding, and creditors may choose not to participate or stop participating at any time. This program does not prevent creditors from contacting you or pursuing other collection actions. It registers as R7 on your credit report.
Strategy 4: Consolidation
If you recognize your debt problems early, a consolidation loan might be a good option. Your LIT can help determine your eligibility for a consolidation loan after a free confidential consultation.
The Consolidation Process
First, you list all your unsecured debts along with the total amount outstanding and the interest rate. Then you visit a lender to fill out a consolidation loan application. The lender reviews your credit history, and if approved, offers a consolidation loan equal to your total unsecured debt with a lower interest rate.
You can use this loan to pay off all your debts, simplifying your repayments into a single monthly payment. Be cautious about canceling any credit cards you pay off with your consolidation loan and avoid paying off any debts with a lower interest rate than the consolidation loan.
A consolidation loan does not reflect negatively on your credit report; however, missed or late payments will.
Budgeting Assistance and Advice
For some individuals, the issue isn’t affordability, but a lack of a solid financial plan. Regular and consistent budgeting can be life-changing. LITs can provide you with resources to build your budgeting skills and refer you to budgeting coaches for comprehensive guidance.
Conclusion: There’s Always a Solution
No matter the severity of your debt problem, there’s always a solution and an opportunity for a financial fresh start. A Licensed Insolvency Trustee is here to help you understand your options and guide you in the right direction to resolve your debt.
