Debt Crisis: Are you Overwhelmed?
The average Canadian owes more than $1.60 for every $1.00 of after-tax take home income. No wonder, we are all feeling stressed. A major cause of this is the high cost of living in major cities like Toronto or Vancouver in relation to other parts of Canada. If you are only making the minimum monthly payments on your debts or even taking cash advances from one creditor to make those payments to another creditor, consider meeting an experienced professional who has the experience to assess your situation and offer a plan of action that will result in getting out of debt. The options that should be considered are:
Credit Counselling
This is mainly a self-help approach although there are several for-profit and not-for-profit agencies that will assist you. You or the counsellor will contact each individual creditor to try to get them to waive some of their late fees, reduce their interest rate and set up a long-term payment plan. This is a long-term program that must be negotiated with each creditor individually. There is no court assistance or other court approval for this option. There is no requirement for any creditor to negotiate with you or the counsellor, although, creditors will often negotiate some settlement out of goodwill.
Debt Settlement
You or a debt settlement company hired by you at your expense approach each of your creditors to negotiate a reduction in the debt that you owe. No creditor is required to negotiate anything with you but they usually will negotiate a reduction in the total of your debt if you will tell them that the reduced amount will be paid in full over a specified short period of time. The cost of hiring a debt settlement company must be factored into your eventual saving of the debt owing. They normally charge a fee based on a percentage of what they save you but this is also subject to negotiation.
Consumer Proposal
A consumer proposal is administered by a Licensed Insolvency Trustee who will negotiate a reduction in the overall debt as well as the payment of the reduced amount over a period of time with no interest (usually 60 months or less).
The advantages of a Consumer Proposal are:
- You keep your house, car, RRSP, RESP, etc.
- You lose no assets unless you decide to sell the assets and pay the money into the proposal as a lump sum
- Once 51% of creditors agree to your proposal, the other 49% are bound to abide by the terms of the proposal
- All interest charges by creditors stop on the day your trustee files the proposal with the court
- All legal actions, wage garnishees, etc. stop on the day the trustee files the Consumer Proposal with the court
- The proposal once approved by the creditors and the court is a legal process that can be enforced against all creditors
Bankruptcy
When all else fails, bankruptcy is the final solution. As long as you are unable to meet your financial obligations as they come due and your debts exceed $1,000, you can legally file an Assignment in Bankruptcy using the services of a Licensed Insolvency Trustee. You will be placed under the protection of the court to prevent any creditor from suing you, garnisheeing your wages or bank account or taking any actions against you to collect their debt. If your situation is not complicated, you may be able to obtain your discharge from the bankruptcy process in as little as 9 months. Your trustee will still take much time after your discharge to complete the administration of your file. Your trustee will still continue to assist you in rebuilding your credit score even after your discharge.
The above are the four (4) main solutions to a person with debt problems. Please consider meeting with a Licensed Insolvency Trustee for a free initial consultation to determine which of the above or any other options are best for you.
Contact Rumanek & Company Ltd. for more information on bankruptcy and debt solutions. Or please fill out the free bankruptcy evaluation form. To learn more please visit our YouTube Channel. Rumanek & Company have been helping individuals and families overcome debt for more than 25 years.
