Personal Bankruptcy or Credit Counselling? Which is Right For Me?
If you are struggling with debt there are numerous options for relief including bankruptcy and credit counselling.
In this article, you’ll find the strengths and weaknesses of these two plans.
Filing for bankruptcy is always going to be a major decision in your life.
This is not something that you can or indeed should, take lightly.
It will have dramatic ramifications on various aspects of your personal life and this is why many people do view it as the last step to take.
They will often try alternative ways to escape their debt first including credit counselling.
You might have found that a previous attempt at credit counselling was unsuccessful or you could be looking at this option for the first time.
So, what do you need to know about each of these choices and what will they ultimately mean for you?
Need Help Reviewing Your Financial Situation?
Contact a Licensed Trustee for a Free Debt Relief Evaluation
The Monthly Payment
The first step is to figure out how much you would need to pay back with each method.
This will be different depending on the path you take.
If you file for bankruptcy, then you will make payments based on the current income you have as well as the assets that are not exempt.
Typically, the minimum payment will be $200 per month for a total of 9 months.
In the case of credit counselling, there is no limit on how much of your income you will need to pay.
As well as this, payment terms are often high due to 100% of the debt needing to be repaid.
If you file for bankruptcy then you often won’t have to pay back to creditors.
Instead, the monthly payments cover administration costs.
What Are The Administration Costs?
Administration costs for bankruptcy will again depend on your personal situation including the size of your family as well as the income level.
The fees that are charged are heavily regulated by the government.
If you choose credit counselling, then there could be additional charges that could impact you.
As well as this, any fees that are charged will often be unregulated.
How Will These Plans Impact Credit Ratings?
Your credit rating will suffer a greater hit when you file for bankruptcy.
An R9 rating will remain for six years after discharge.
Although it is possible to obtain credit, you will likely need to take up to three years to rebuild your credit rating.
You will also find certain tools including a secured credit card immediately become available.
In the case of credit counselling, an R7 will only remain for two years after you have completed the process.
Who Will Be Helping You?
The expertise of the individuals supporting you in each of these cases will differ greatly.
If you choose to file for bankruptcy, then you will be supported by a licensed insolvency trustee who is licensed by the federal government.
They must comply with codes of ethics and maintain professional conduct.
They are also overseen by the Office of the Superintendant of Bankruptcy.
If you opt for credit counselling, there are no set qualifications for the individual supporting you.
There is also no regulatory body supporting you and no way to dispute the solutions that are provided for you.
How Long Will It Take?
The time for bankruptcy to be completed will be largely dependent on whether it is your first time.
However, it will usually take up to 21 months.
This is going to depend on your level of income.
Credit counseling is going to depend on the level of debt that you have and how much you are able to repay.
However, 5-year terms are quite common.
How Will Creditors Be Impacted?
If you file for bankruptcy, then the creditors will be severely restricted.
They won’t be able to prevent you from filing and as soon as you file their contact with you must stop.
They can also not restart wage garnishments or any other form of collection action and if you owe money to the Canada Revenue Agency, this can be erased.
In the case of credit counselling, there needs to be a complete agreement with your creditors otherwise you will need to make repayments to them.
There is also no way to settle tax for less than the 100% total that you owe.
A credit counsellor also does not have the power to stop collection actions.
Find Out More
If you are interested in learning more about the different options available to you, get in touch today.
We will help ensure that you find the right solution for your personal financial situation.
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?