If you are struggling with insurmountable levels of debt, you might think that bankruptcy is the only way out for you.
It’s understandable why you might assume this because that’s typically the option that most people discuss.
However, it’s important to be aware that bankruptcy should always be treated as a last resort rather than the first option available to you.
One possibility that you should consider before bankruptcy is an informal debt settlement.
What does this entail?
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Informal Debt Settlements Explained
As suggested by the name, this is an informal agreement that you make with your creditors on your own behalf.
The aim will always be to reduce the amount of debt that you need to pay back and establish a payment plan that is going to be beneficial to you.
To access this option, you will need to contact your creditors directly and inform them that you are unable to pay the full amount that is owed.
The creditors may then choose to provide support in the form of debt relief.
They could either reduce the amount that you need to pay back or reduce the interest.
Either option could be beneficial to you if you are struggling with heavy levels of debt.
Issues With An Informal Debt Settlement
There are certainly issues with an informal debt settlement.
The first problem is that it’s not legally binding.
This means that your creditors are under no obligation to agree to your terms.
You might find that some creditors are willing to help you and others want the full amount they are owed.
Since it’s not legally binding, creditors can also change the terms with no warning or simply drop the plan completely.
This will likely be the case if your income improves substantially meaning that you could afford to pay a lot more back.
You will also need to make sure that you contact every creditor yourself and this can be an incredibly arduous process.
The alternative to an informal agreement would be to speak to a licensed insolvency trustee.
They can arrange the support you need and work out a debt plan with you.
They will then contact the creditors for you and present what is referred to as a consumer proposal.
Legally binding, if the majority of your creditors agree to the terms, then the proposal binds all creditors to abide by the conditions as long as you keep up with repayments.
We hope this helps you determine whether this debt relief option could be a suitable choice for you.
If you need more assistance with debt relief, then we are here to help.
Call a friendly member of our team today or fill out a free evaluation form and a professional will get back to you without delay.
We can discuss all the options with you and find the right path to help you break free from your debt.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?