Considering Debt Relief Options?
For someone who is in debt, considering different debt relief options can be stressful and confusing. You might be worried about how these options will affect your credit rating, how they will help you manage your debt and how long it will be until you are debt free.
The good news is that you don’t have to wonder about these questions alone. If you are struggling with debt and looking for help, it’s a good idea to speak to a licensed insolvency trustee Don’t let the name scare you. Just because you meet with a licensed insolvency trustee, it doesn’t mean that you have to end up filing for bankruptcy.
Instead, a trustee is available to people who are having financial issues and struggling with debt to help them understand the options that are available to them. Most trustees offer a free consultation where they will sit with you, review your financial situation and let you know what options are possible.
These options could include a consumer proposal or filing for personal bankruptcy.
A consumer proposal is a situation where you make an offer to all of your unsecured creditors that sees you pay them only a portion of what is owed. The amount of this offer is dependent on your specific factors which will include the value of your assets and your income A consumer proposal is generally paid off in between one and five years. During this time, you make regular monthly payments to your creditors. Once you have made all of the agreed upon payments and fulfilled your other duties, the remainder of your debt is discharged.
. Creditors often accept consumer proposals because they know that, if a person is filing one, that this person is in a difficult financial situation and is unlikely to be able to pay the full debt that they owe. If this person were to instead file for bankruptcy, the creditors would get even less than they would in a consumer proposal. Therefore, most consumer proposals are accepted. This makes a consumer proposal a good debt relief option for many people.
If you choose to file a consumer proposal, your licensed insolvency trustee will determine what a fair offer to your creditors would be and then he or she will submit this offer on your behalf. From this point on, you receive protection from your creditors. They are not able to contact you (all communication will be done through your trustee) and any legal action or wage garnishment against you will stop.
Bankruptcy is another debt relief option that also offers you protection from your creditors. Like a consumer proposal, bankruptcy is a legal process that gives those who are in need of debt relief an opportunity to be discharged from their debts. However, there are differences between a bankruptcy and a consumer proposal.
In a bankruptcy, your trustee will review your assets which are not secured against a loan and determine which of these assets are exempt. Exempt assets vary depending on your province of residence . All assets that are not exempt or secured will be turned over to the trustee and be used to satisfy your creditors. Depending on your situation, you may also need to make monthly payments because you have what is called “ surplus income”. This is the amount of your income over and above the amount determined by the government that you need to meet your reasonable monthly living expenses. Your trustee will inform you of your duties under bankruptcy.
In most cases, if it is your first bankruptcy, you will be automatically discharged after nine months.
With both bankruptcy and consumer proposal, you will need to attend financial counselling classes as part of your arrangement. These classes will teach you money management solutions so that you avoid getting into trouble and requiring debt relief in the future.
Other Debt Relief Options
Consumer Proposal and bankruptcy are not the only debt relief options available. However, these two options are legal processes that provide you with protection from all your unsecured creditors. Other debt relief options do not have these advantages.
However, if you are looking at other options, you may also want to consider a debt consolidation loan or debt settlement methods. While these situations are not legal processes, they can be successful in some situations.
With a debt consolidation loan, a person tries to obtain a loan that has a lower interest rate than the overall interest rate of their existing debts. If this is possible, it saves the person money in interest payments. However, the person will still be responsible for paying their debts in full. In addition, it can often be difficult to get a loan with a reasonable interest rate if you are having financial trouble and have a bad credit rating.
With informal debt settlement, you will need to speak with each creditor individually and negotiate a new payment schedule with them. While this can be effective, it does not offer the legal protection of a consumer proposal.
If you are looking for debt relief, it’s natural to feel confused and stressed. However, by fully understanding the options available to you, you will be significantly more likely to make the right choice for your financial situation.