Household debt in Canada is quite high. In general, households owe $1.63 for every dollar they make. This level of debt may be fine if all is going well in your life, but a job loss or a sudden emergency can leave you looking for debt solutions.
Unfortunately, high levels of debt do not give you many options for handling difficult times. You may be able to deal with your debt right now and make payments on time but, if you have a lot of debt, you may not have much money left over at the end of the month. This is the situation for many Canadians. There is a large percentage of people who spend all of their available income on expenses and debt repayment. Unfortunately, if an unexpected expense comes up (such as a sudden home or automobile repair bill) or if a job is lost, you will not have the money available to deal with this situation. This leads to you needing to borrow more money to afford the expense. This cycle can result in you eventually ending up with more debt than you can handle.
If you are unable to pay your debts as they become due, there are debt solutions available for you. Speaking with a licensed insolvency trustee (legally referred to as "licensed insolvency trustee") can help you understand which options could work for your particular situation. While the name “licensed insolvency trustee” makes it sound like this person can only help you file for bankruptcy, this is not true. An insolvency trustee is an individual who has been trained and is licensed by the federal government to review financial situations and inform people of possible debt solutions.
Most trustees offer the initial consultation for free. Once the trustee has reviewed your situation, he or she will let you know which debt solutions are available to you. A trustee does not just provide you with information on the services that he or she provides. Insolvency trustees are required by law to give you information on all debt solutions that could help you. It is then your decision as to how you wish to proceed.
Possible Debt Solutions
Every financial situation is different. Therefore, there is no single debt solution that works for absolutely everyone. However, here are some possible debt solutions that your trustee may mention.
- A consumer proposal is a legal process where you make an offer to all of your unsecured creditors that will see you pay them on terms that you can afford. In many cases, your offer will be to pay a portion of the amount you owe over a specific period of time. Once you have completed the payments and the proposal is complete, all remaining outstanding debt is forgiven.
- Only unsecured debts can be included in a consumer proposal. These are debts such as credit card debt, unsecured lines of credit, personal loans, etc.
- Once your proposal is created (by a licensed insolvency trustee who acts as a proposal administrator) it is sent to all of your unsecured creditors. They then vote on whether or not they will accept the proposal. If the majority of your creditors vote to accept the offer, then all are bound by the terms of the proposal.
- A consumer proposal can be a good option for those who are able to pay some of their debt, but not the full amount.
- A consumer proposal provides protection against creditors. Once the proposal is filed with the government, no creditors can contact you or take any action to collect their debts. All communication with creditors is done through the trustee.
- Bankruptcy is also a legal process. It provides those who are unable to pay their debts as they become due with a “fresh start” by eliminating unsecured debts and putting you in a position to rebuild your financial life.
- Only unsecured debts can be included in a bankruptcy.
- Bankruptcy also provides legal protection against creditors, much like a consumer proposal.
If you decide to proceed with either of these options, your trustee will work with you to ensure that all of the applicable paperwork is completed and filed. By working with a trustee on debt solutions, you can find the right option for your particular situation.