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A Guide to Debt Relief

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    What is Debt Relief?

    Debt relief is any process designed to help people resolve their financial commitment pressures. If you are juggling more debt than you can handle, there are options available to improve your situation and streamline the management of your debt.

    If you are looking for debt help, the best debt relief firm is one which recognizes there is no “one size fits all” solution. Instead, you’ll want to find out as much as you can about all of the options available to you and determine what each solution could mean for your unique financial situation. Once you have this information in hand, you can zero in on which option might be the correct one for you and your family. That’s how debt relief works! Each financial situation is unique and, therefore, the best solutions are unique as well.

    Who Can Help Me Get Out of Debt?

    If you are searching for debt help, the task can seem overwhelming. Not only are there tons of options for debt relief available, but each solution is unique in its own way.  It’s important to remember that your financial situation is also unique, so an option that is perfect for one person may not be the best choice for you.

    Speaking with a Licensed Insolvency Trustee can help you understand all the available options. When you meet with a Trustee the first thing that occurs is a comprehensive, free review of your financial situation, as well as details on all options available to you.  The Trustee is also required to help you understand how debt relief works and will answer any questions you may have.  By the time the consultation is complete you will feel empowered with new information and strategies you can use to move forward with a debt management program.

    Debt Relief Definition

    The term “debt relief” refers to processes or measures taken to reduce debt or eliminate debt, or to refinance or adjust the terms of the debt to make it easier for a borrower to pay back the amounts owed over time. When it comes to how debt relief works, the answer is different for everyone. Finding the right debt relief option for your specific situation is the key to resolving your debt issues and improving your financial life. 

    Debt Relief Options

    As discussed above, there are several debt relief options available to you. If you’re looking for the best debt relief company, it’s important to note that there is no one “perfect” option that is right for everyone. For instance, a recent graduate looking for student loan debt relief may find an option that’s right for them, but this may not be the best choice for someone who has no student loans but owes a lot of credit card or payday loan debt.  In fact, even the size of your debt load can result in some options being more effective then others.

    The key to resolving financial issues is understanding all the different options and then figuring out which one is perfect for you.

    Depending on your situation, some of the debt relief options that may be available to you include:

    • Debt consolidation
      • Debt consolidation is designed to make it easier to repay your debts by combining them into a single monthly payment, usually in the form of a new loan that is then used to pay off your existing debts. This won’t reduce the overall amount you owe, but it could save you some interest over time (loan interest in usually much lower than credit card interest, for example).
      • Be aware that a Debt Consolidation loan could be difficult to obtain if you already carry a large debt load and might even require a co-signer (such as a spouse or family member) in order for you to be approved.  
    • Credit counselling
      • Credit counselling services provide details, tips, and guidance for dealing with debt pressures, help with creating a realistic budget, and tips on using credit wisely and in manageable amounts in the future.
      • A credit counsellor may also create a debt management plan, which is an informal offer to your creditors. This type of plan traditionally combines most of your debts into a single monthly payment. It can reduce the interest you pay, but you will likely still need to pay off the full amount of debt you owe, plus some form of interest.
      • Unfortunately, credit counselling services cannot help you with any sort of student loan debt (OSAP or National Student Loans) or with CRA income tax and GST/HST debt if you’re self-employed or have incurred some other form of tax hit that you owe the tax man.  
      • Most credit counselling firms belong to an umbrella organization that ensures they operate ethically and responsibly but anyone can offer credit counselling services and no formal licensing is required to do so.   
    • Debt settlement
      • A debt settlement company can attempt to negotiate with your creditors and offer each of them a lump sum that is usually lower than the full amount you may owe. However, creditors are not obligated to work with the company (i.e. some can opt out, either at the time the settlement offer is provided to them, or even a year or two later, forcing you to deal with them on your own). You may also be required to pay fees to the debt settlement company even if your debts are not resolved through this arrangement.
      • Debt Settlement firms are not licensed or regulated at this time.  Anyone can offer credit counselling services and no formal accreditation is required to do so.   
    • Consumer Proposal
      • A consumer proposal is a legal process that can only be administrated by a Licensed Insolvency Trustee. Through a formal proposal, a Trustee submits a settlement offer to all your unsecured creditors for the repayment of a portion of the debt you owe (often 25% to 40%). If the creditors owed the majority of your debt agree to the proposal, then all of your creditors are bound by the terms of the proposal, even creditors who choose to vote against it, or not vote at all.
    • Bankruptcy
      • Bankruptcy is also a legal process administrated by a Licensed Insolvency Trustee. It is often considered a “last resort” for debt relief, but that is often an unfair label that denies the power of the bankruptcy process.  If your income fluctuates a lot, or you’ve lost your job or are on EI, bankruptcy could be the right choice for you. Bankruptcy allows you to eliminate all your dischargeable debt and it’s usually a speedier way to start fresh financially then other options. 

    The best debt relief companies will explain the pros and cons of each of these possible options so you can choose the one that is right for you. 

    What is a Debt Relief Program?

    Debt relief programs are often marketed by debt settlement companies. These companies negotiate with creditors to develop an easier way for you to pay your debts. One common method of doing this is through debt consolidation. This is when the debt settlement company encourages your creditors to accept a lump sum amount as a settlement for all of the debt you owe.  In some cases, this amount is less than the total debt.

    If the creditors agree to this consolidation plan, you pay the debt settlement company and they pay your creditors. However, your creditors are under no obligation to work with the company and some may choose not to accept the terms of consolidation plan.

    While debt relief programs can potentially save you money, if your creditors do not agree, you are still required to pay them as per the terms of your original loan. If you do not, they can take legal action against you. 

    For instance, if you are looking for OSAP student loan debt relief and OSAP doesn’t agree to negotiate, you will still need to make your payments to them as outlined in the original loan agreement.  Plus, it’s important to understand that the debt settlement company can still charge you a fee for its services, even if they are unable to reach a satisfactory agreement with your creditors. 

    The best debt relief companies are the ones that are experienced in this area, have a solid reputation, and are open and honest about what they can and cannot do to help you.  It’s essential that you do some research about a firm before signing any contract or agreeing to pay the firm anything. 

     

    How Does Debt Relief Affect Your Credit?

    Questions surrounding debt relief and you credit score are common. Depending on the debt relief option you choose, it may negatively affect your credit score. For instance, with debt settlement, the company may ask you to stop paying your creditors during the negotiation period. This will result in missed debt payments that will negatively affect your credit. However, other forms of debt management (such as using a consolidation loan) may not affect your credit, as there would be no lapse in payments once you acquire the loan and pay off your debts.

    It’s also important to recognize that if you’re in a situation where you need debt relief you may have already negatively affected your credit score by missing payments, making late payments, or taking on more debt than you can handle. 

    The best debt relief company will help you understand your current credit situation through a proper review, explain how various debt relief options can affect your credit, and then help you learn strategies for rebuilding your credit once you have resolved your debt issues. When it comes to debt relief and your credit score, the more information you have, the better decision you can make for your financial future.

    What is a Debt Relief Order?

    A debt relief order is an insolvency measure that is often used as an alternative to bankruptcy in the United Kingdom and New Zealand. It is often used by those who have low incomes and who do not own many assets. You cannot use this type of debt relief in Canada. 

    How do Debt Relief Companies Work?

    There are many different debt relief programs that are available from many different debt relief companies. One of the most common is called a debt settlement. This is an informal arrangement that is made with your creditors where you promise to pay back a portion of your debt in one lump sum. However, your creditors are not obligated to participate in the debt settlement or negotiate with you. If they don’t approve of the plan you will need to continue paying them separately or face potential legal action from them.

    There are often high fees charged by debt settlement companies to make these types of arrangements for their clients.  And these fees are often payable whether the negotiations with your creditors are successful or not.

    Another common solution is a debt management plan. These plans are often arranged by credit counselling agencies. Under a debt management plan the agency presents an option to your creditors that would allow you to pay off your debts over a longer period of time (which will reduce the size of each payment), or pay down your debt at a reduced interest rate. You will likely still need to pay off your debts in full with a plan such as this, and since it’s an informal plan your creditors are not obligated to participate if they don’t like the terms of the plan. 

    Two legally binding options for debt relief are consumer proposals and personal bankruptcies. These processes can only be administered by Licensed Insolvency Trustees. These are individuals who have received specific training and who are licensed by the federal Office of the Superintendent of Bankruptcy. When you file a consumer proposal or a personal bankruptcy, you receive legal protection from your creditors.  Once the filing is made with the court, your creditors cannot take any further legal action against you to collect their debt, and any legal action already started would cease immediately.

    If you wish to know how debt relief works, speaking with a Licensed Insolvency Trustee may be a good idea. While a trustee won’t give you details on the best debt relief companies, they will provide you with information on all debt relief options that may be available to you.  This is because under the Bankruptcy and Insolvency Act, Trustees are required to provide you with information on all available options, not just those they can administer. Once you have had a proper review of all your options, it is then your decision as to how you would like to proceed.

    How Does Tax Debt Relief Work?

    Owing tax debt to the Canada Revenue Agency (CRA) can be a hard situation to deal with. The CRA will never agree to accept less from you than what is owed. However, the agency may be willing to accept a monthly payment arrangement if the conditions are right. In addition, the agency may be (in some cases, often with the intervention of a licensed tax lawyer or accountant assisting) willing to reduce or waive penalties and interest charges. However, this is typically only possible in situations where a taxpayer is unable to meet their tax obligations due to circumstances beyond their control or in situations of severe financial hardship.

    To reduce the stress and burden of a CRA tax debt (including GST/HST payments), the best way to resolve the debt is through a consumer proposal or a personal bankruptcy, and then only through a Licensed Insolvency Trustee.  The consumer proposal is a legal process through which a Licensed Insolvency Trustee submits a settlement offer to all of your unsecured creditors, including the Canada Revenue Agency. If the creditors owed the majority of the debt choose to accept the offer, then all your creditors are bound by the terms of the settlement. This could be the best way to repay a portion of your CRA tax debt and have the balance owing eliminated. Speaking with a Licensed Insolvency Trustee can help you determine out if this is the right path for you to take to deal with your CRA debt.

    Types of Debt Relief Programs

    There are many different debt relief programs and options out there for people who are dealing with debt. If you are looking for the best debt relief company, know that certain options will work better for certain people, depending on their situation. There is no “one size fits all” option that is perfect for everyone.

    Some types of debt relief options that can be available, depending on your situation, include:

    • Credit Counselling
    • Debt Settlement
    • Debt Consolidation
    • Consumer Proposal
    • Bankruptcy

    Regardless of the option you choose, the best debt relief companies will provide you with all the information you need before you sign any contracts or pay any fees. 

    Before working with any organization, it’s important to do some research. You’ll want to learn about the organization’s background and level of experience, how fees are charged, exactly what debt relief options will be possible, and as many other relevant details as you can find. 

    How to Get Debt Relief

    There are several options available if you are looking for debt relief. Depending on your situation, some options might be more effective than others. For instance, getting a debt consolidation loan can reduce the amount of interest you pay, but it doesn’t reduce the overall amount of debt you owe. For some people, in some situations, this can be helpful, but it may not be the right choice for everyone. 

    The same is true when it comes to debt relief and your credit score. Some debt relief options may affect your credit adversely, while others may not, whether this matters will depend on your current credit situation. If you have already missed payments or made late payments, or if you have borrowed much more credit than you can properly juggle, you may have already damaged your credit score. If this is the case, it may be a good idea to work to resolve your debt issue in the most effective way, even if your credit will be affected.

    Speaking with a Licensed Insolvency Trustee can help you learn about the options that are available to you and what these options may mean for your financial situation. It is then up to you to decide how you would like to proceed. 

    Tax/CRA Debt Relief

    Tax debt owed to the Canada Revenue Agency (CRA) can be very tough to deal with. Not only does the CRA have significant powers that other creditors do not, but the agency will rarely accept less than the full amount owing in a negotiation. While you may be successful when negotiating with other creditors (and potentially gain a reduction in the amount you owe), the CRA will rarely budge. It expects to receive all tax debt that is owed to it. The CRA may, however, be willing to accept monthly payments rather than a lump sum.

    If you’re struggling to pay your tax debt and looking for help to deal with this situation, know that tax debt can only be included in legal insolvency processes administered by a Licensed Insolvency Trustee. This includes consumer proposals and personal bankruptcy filings.

    In a consumer proposal, the Trustee submits a settlement offer to your creditors to repay a portion of your debt. If those creditors that are owed the majority of your debt vote to accept the proposal, then all are bound by its terms. This means you could end up paying back only a portion of the debt you owe -- even if the CRA does not vote to accept your offer.

    In a bankruptcy, your debts are all eliminated, and you are able to start your financial life anew. You may have to make monthly payments (depending on your income) and you may lose some assets (depending on the type of assets you have, for example TFSA funds), but you will also be able to eliminate your debts (including your CRA tax debt).

    Talking to a Licensed Insolvency Trustee can help you understand if either of these options are right for you.

    Debt Relief for Student Loans and Student Debt

    When it comes to student loan debt relief, the options are slightly more complicated. Student loan debt relief may be possible through consumer proposals or bankruptcies, but only if you have been out of school completely for a minimum of seven years.

    Other debt relief options (such as debt consolidation loans, for example) may be able to reduce the amount of interest you pay, but they usually do not reduce the overall amount you owe.

    Speaking with a Licensed Insolvency Trustee can help you determine if any of these options are right for you. 

    The Government of Canada has repayment assistance options as well. Contact the National Student Loans Service Centre (NSLSC) or your provincial or territorial student financial aid office (if you are looking for OSAP debt relief in Ontario, for example) for more information.

    You may also qualify for the government’s Repayment Assistance Plan (RAP). If you apply and are accepted, you may not be required to make payments that exceed your income by 20 percent – or any payment at all – depending on your income. You must reapply for this plan every six months.  You may already be taking advantage of this process under another name:  Interest-free assistance.

    It’s important to make sure you understand your student loan debt repayment options. This can help you repay it. For example, if you are looking for OSAP debt repayment, you actually make the loan payments to the National Student Loans Service Centre, not directly to OSAP. Understanding all details of your debt will make sure that you don’t miss any payments. 

    Most student loans are based on a nine-and-a-half-year payback-schedule (which is the average amount of time it takes to pay off a student loan). However, if you need more time, you may be able to have this period extended by up to 14 and a half years with permission from the National Student Loans Service Centre.

    How We Can Help

    Whether you are looking for student loan debt relief, OSAP debt relief, or any other debt assistance, we can give provide you with all the information and assistance you need. Our Licensed Insolvency Trustees will conduct a free consultation with you where they will review your financial situation in detail and provide you with their recommendations for the options that are available to you. Trustees are required to provide details on all possible options, not just those that they can administer. This means you’ll get a full picture of all your available options before you decide how to proceed.

    We are also available to answer any questions you might have, including those specifically dealing with debt relief and your credit score. Contact us today to arrange a free consultation.