What are the Best Alternatives to Bankruptcy in Canada?
Household debts are like campfires.
Keep them under control and they can be extremely useful in difficult circumstances.
But when you’re unable to manage them properly, they can quickly get out of control.
If you choose to bury your head in the sand and leave them unattended, they can wreak colossal damage.
In fact, the average Canadian household is over $20,000 in debt and paying a fortune in interest across multiple debts every month.
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If your debts have reached a point where you can no longer repay them, you could be forgiven for assuming that Personal Bankruptcy is your only available option.
However, there are many other options which may not only be viable, but more appropriate for your circumstances than filing for Bankruptcy.
Don’t let our name fool you.
We might be called Bankruptcy Canada, but since we first opened our doors in 1999, we’ve been helping insolvent Canadians in far more ways than helping them file for Bankruptcy.
Our focus is strongly on helping Canadians from all walks of life to make an informed choice on how to get debt-free for life, by showing them all of their available options.
In this post, we’ll take a look at 5 Alternatives to Bankruptcy in Canada which can help you to take control of your finances, clear your debts and live a better financial life that allows you to budget successfully, pay into your savings, enjoy disposable income and never have to rely on lines of credit again.
We hope so!
Read on to find out more…
There’s more than one way to get a fresh start
As any Licensed Insolvency Trustee will tell you, Bankruptcy is a serious arrangement that should not be entered into without serious thought and significant research.
While Bankruptcy may help you to get most, or even all of your debts forgiven, it comes with a variety of lasting consequences.
When you are made Bankrupt it will remain on your credit record for 6 years (15 years if you are ever made bankrupt again), and it will forever be a matter of permanent record that you were made Bankrupt.
There are a number of obligations you will be expected to meet within the first 18 months of filing, and if you do not meet them in full, your Bankruptcy may go to court and be subjected to great scrutiny by a Bankruptcy Judge and your creditors.
If you have substantial equity in your home, multiple personal vehicles or other non-exempt assets, these may also need to be surrendered to the benefit of your creditors.
Bankruptcy can give debtors a financial fresh start… but by no means is it the only way to get one.
And while it is the best solution for some, it’s not for everybody.
Let’s look at some alternatives.
Take control of your budget
Of course, this is easier said than done, but careful budgeting will always be the best way to manage your debts and take control of your personal finances.
Using a household budget template will allow you to identify areas of wasteful spending and better account for your income.
You will see that even small and seemingly inconsequential purchases quickly add up by month end.
By making small cuts and sacrifices in other areas, you may be able to dedicate more of your income to saving or paying down more of your principal (the total amount outstanding).
If you’re only making the minimum repayments on your credit cards, for instance, you may be spending far more on interest than you should.
Debt Consolidation Loans
As your debts grow more and more numerous, they can get much harder to control.
And as they place more and more strain on your household’s cash flow they can make saving and budgeting impossible.
Especially when every debt has a different rate of interest and repayments come out of your bank account on different days throughout the month.
Debt Consolidation Loans can make it significantly easier to manage your debts by combining all of your debts into a single, more manageable, monthly repayment.
Debt Consolidation Loans have far more favourable rates of interest than most credit cards and commercial loans.
For instance, most credit cards have rates of interest between 19% and 29%.
On the other hand, most Debt Consolidation Loans have interest rates of around 10% or even less.
This means that you can pay down your principal faster, stop wasting your hard-earned money on interest and get free of your debts much faster.
It can even improve your credit rating by replacing all of your debts with a single new one.
The only caveat is that these loans are commercial in nature.
As such, you will have to meet certain eligibility requirements to qualify for one.
If you have a poor credit rating and no collateral, you may be turned down for one of these loans.
Debt Management Plans
A Debt Management Plan involves a third party working on your behalf to negotiate better terms with your creditors and reduce your interest.
The third party is usually a non-profit Credit Counselling service, although some private companies offer this, too.
This is also a form of Debt Consolidation and can make your debts far easier to manage with a single repayment.
In some cases, a Debt Management Plan may enable you to eliminate interest altogether.
It’s important to remember that while you may waive interest with this option, you will still have to pay the principal in its entirety.
Most Debt Management Plans aim to pay down your debts within 5 years.
As such, if your current commitments are spread over a longer timeline, you may find that you pay more each month on debt repayments, yet you will get debt-free much faster.
There are some debts, like governments and CRA debts, for which Debt Management Plans cannot be used.
A plan will also have a detrimental effect on your credit rating.
It will remain on your credit report for 2 years after it has been settled.
Please note that these plans are entered into voluntarily by creditors and that they are not legally enforceable.
If your creditors can see that you’ve generally tried to make good on your debts, and they are fairly small and old, they may be amenable to a more informal agreement.
They may be willing to negotiate better interest rates or even reduce your principal.
You have nothing to lose by asking them.
Be wary, however, of private companies labelling themselves as Debt Consultants or Debt Settlement Companies who will charge you over the odds to negotiate this with your creditors on your behalf.
All they’ll do for their exorbitant fee is refer you to a Licensed Insolvency Trustee (which you can find here absolutely free of charge) who will help you to set up a Consumer Proposal.
Speaking of which…
A Consumer Proposal combines elements of a Debt Management Plan and Personal Bankruptcy to make your debts far more manageable.
You need a Licensed Insolvency Trustee to pursue this option.
They will act as your Proposal Administrator and take a close look at your personal circumstances, your assets and your finances to draft a proposal that will be put to your creditors.
This proposal will result in the freezing of all interest payments and any other fees that have become a debt.
What’s more, this is the only option that will allow you to significantly reduce your principal.
Indeed, you may be able to reduce the amount outstanding by as much as 70 or 80 per cent.
Once this has been put to your creditors, hey will vote on whether or not to accept the terms you have decided with the Trustee.
If more than 51% of your creditors vote in favour of your proposal, all of your creditors will be legally bound by its terms.
Even if they voted in opposition to them.
A Consumer Proposal may allow you to hold on to assets that may be lost if you file for Bankruptcy.
It can help you to get completely debt free within 5 years.
The Consumer Proposal will remain on your credit record for 3 years after it has been settled.
We can help you find the best solution for your needs
With so many alternatives to Bankruptcy in Canada, it can be difficult to choose which is the best option for you and your family.
That’s where we come in.
We can help you to see all of your available options, answer your questions and give you the support and guidance you need to make the right choice for your needs and circumstances.
Where necessary, we can also help you to find a Licensed Insolvency Trustee near you.
Want to know more about how our team can help you?
Call us today on (877)879-4770 to arrange a risk-free, zero-obligation callback with confidentiality assured.
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