Bankruptcy: other solutions exist

Bankruptcy is a last resort

Bankruptcy still has a certain stigma attached. Yet, when all else fails, it’s a handy lifeline for getting your life back under control. There is no shame in declaring bankruptcy to eliminate your debt and put a stop to the harassment you’re experiencing. And the process is easier than you might think.

Yet bankruptcy is a last-resort solution. Depending on your situation and level of debt, other options are available for solving your money problems.

Option 1: negotiate with your creditors

If you feel the need to reduce the payments you are making or if you think that extending them over a longer period would be helpful, you can try to come to an informal agreement, yourself, with each of your creditors.

The advantages

You can breathe while your finances are getting back on track. And by negotiating in advance with your creditors, you can avoid having them chase you down!

Is this the right option for me?

Possibly, provided you act quickly, i.e. as soon as you are no longer able to make your payments. Being proactive demonstrates that you are acting in good faith and gives you the best chances. But if your creditors are already hot on your heels, it may be too late.

That said, your creditors have no obligation to negotiate with you. It often comes down to trust and understanding.

If you manage to come to an agreement with one or more of your creditors, all the better! But you might not be completely out of the woods, because others may refuse, and pursue their claims against your assets or income. So, you may not be protected against all your creditors during your negotiations. You could still be vulnerable to the more stubborn of them.

Option 2: request debt consolidation

If your situation has worsened, and you’ve got overdue payments left and right, you could approach your financial institution for a special loan with which to repay all of your debts. This is called debt consolidation.

The advantages

You consolidate all of your debts in one place, with only one monthly payment to make. All at a lower interest rate than that of a credit card. What’s more, you’re sure to keep all your assets, and your credit rating remains intact.

Is this the right option for me?

If you have stable employment, have generally been a good payer, and your income allows you to make on-time payments, it’s a viable solution. Debt consolidation is aimed at consumers who have a good credit record and a debt ratio of less than 40%.

Option 3: file a consumer proposal

Has the harassment from your creditors become more than you can bear? Is it obvious to you that you won’t be able to reimburse all your debts? Then consider a consumer proposal.

The advantages

A consumer proposal allows you to repay only a portion of your debt, or to spread out the repayment over a longer period. Either way, your monthly payments will be smaller. Another advantage: it’s the counsellor in financial recovery and Licensed Insolvency Trustee who handle negotiating and communicating with your creditors. This takes a lot of pressure off you.

In addition, you enjoy general protection from all your creditors during negotiations.

Lastly, you don’t have to convince all of your creditors in order for your proposal to be approved. You only have to convince 50% (minimum) of them. Even if the others don’t agree, they are bound by your proposal.

Is this the right option for me?

To file a consumer proposal, you must not have accumulated more than $250,000 in debt (your mortgage on your principal residence is excluded from this amount). Realistically, it’s a beneficial solution if you want to avoid bankruptcy and make sure you keep all your assets.

Option 4: make a voluntary deposit

What if your repayments were taken directly off your pay? The voluntary deposit solution consists of paying a portion of your salary, from every pay, to the Court, until you have repaid all of your debts.

The advantages

You make one monthly payment only, and you repay your debts at an interest rate of 5%. The Court divides your payment among your creditors.

Is this the right option for me?

With a voluntary deposit, 30% of your salary is paid to the Court each month, until you have paid back 100% of your debts. So during that period, it’s as though your salary is reduced by a third. To be able to continue meeting your needs, you need sufficient manoeuvring room in your budget. Note that the voluntary deposit solution is only offered to salaried employees, independent workers and people receiving employment insurance.

It’s worth discussing your situation

If you have financial concerns, don’t wait for things to get worse. Ask a counsellor to evaluate your financial situation. It’s free and confidential. Together, you’ll be able to choose the best solution to allow you to start over with a clean slate.