What are Some Personal Bankruptcy Alternatives?
If you are having financial difficulties and struggling to pay down debt, you are not alone. Household debt in Canada has reached record levels. The total amount of credit market debt has now reached 162.6% of disposal income. This includes mortgage debt, non-mortgage debt and consumer credit. That means that, for every dollar of disposal income that the average Canadian has, they owe approximately $1.63. As you can see, these debt levels are very high and many worry that such high amounts of debt are not sustainable.
People who are struggling with debt often see personal bankruptcy as their only option. This is likely because bankruptcy is the most well-known and most commonly-discussed option. However, it isn’t the only way that a person can deal with the burden of his or her debts. There are a number of debt management alternatives available to many people. If you are struggling financially and looking for help, you owe it to yourself to investigate and understand all of these options. Personal bankruptcy may not be the best choice for you. Even if it turns out that it is, it is still worth investigating the alternatives in order to understand your situation better.
Common Personal Bankruptcy Alternatives
One of the most common alternatives to personal bankruptcy is called a consumer proposal. A consumer proposal is a legal process where your debts are less than $250,000 excluding any mortages on your principal residence. It is a situation where a person, unable to pay their debts in full makes a formal offer to all of their creditors which will see them pay less than the overall amount that they owe. If the proposal is accepted by the majority of a person’s creditors, all creditors are bound by the terms of the proposal.
Under a consumer proposal, you make regular monthly payments to your trustee. These payments are then distributed to your creditors. At the conclusion of the process, as long as you have made all of the required payments, all outstanding debt is forgiven and you are considered paid in full.
There are a number of advantages to a consumer proposal. As you can see, the main one is that you end up paying less than you owe and still have your debts discharged. Another main advantage is that you are protected from your creditors once you file your proposal and it has been accepted. All communication with your creditors will be done by the trustee and all legal action and wage garnishments stop when you file. This can greatly reduce the amount of stress that you experience.
Another major advantage is that you are generally able to keep all of your assets like your house and car (as long as you keep your loan payments current) when you file a consumer proposal. If you have excess equity in your home over the amount of your mortgage then this excess will be taken into account when determining the amount you offer to pay your creditors. This is different from personal bankruptcy, where only some of your assets are considered exempt. In a bankruptcy, the rest will be turned over to your trustee who will sell or realize on them to pay back your creditors.
A consumer proposal can be paid off over a period of time not to exceed five years. You can structure the length of the proposal to make the payments more affordable for you. Having a regular monthly payment that does not change makes it easier to fit your proposal payments into your budget.
Once you have completed all of your payments and you are given a Certificate of Full Performance, meaning the proposal has been completed, a note will be placed on your credit report. This note will remain there for three years. While having a proposal noted on your report can make it more difficult for you to get a loan, keep in mind that a personal bankruptcy remains on your credit report for at least six years after you have been discharged and a minimum of fourteen years if you are filing bankruptcy for a second time.
Investigating Personal Bankruptcy Alternatives
In order to find out what options are available to you, it makes sense to speak with a trustee in bankruptcy. This is a person who is trained and licensed by the federal government to assist people who are having financial issues and to help them understand the different options that are available to them.
If you are considering filing for personal bankruptcy or consumer proposal, this process must be done by a trustee in bankruptcy. The good news is that trustees are regulated by the federal government and so are their rates and fees. In addition, trustees offer a free consultation where they will sit down with you, discuss your financial situation and help you recognize what debt relief options are possible.