Many of us struggle financially at some point in our lives and may even consider filing for bankruptcy as a way to manage our debt. Most of the time, this extreme decision can be avoided in favour of an alternative that allows you to take charge of your debts without the drastic step of declaring bankruptcy.
One option before choosing to file for bankruptcy is to get a debt consolidation loan. You’re then able to use this money to repay your debts. You will now repay one consolidation loan, which typically has a lower interest rate than your other debts. This doesn't solve the entire problem – you still have debt. However, it does make the payment much more manageable since you would only be making one payment versus several different payments.
Credit counselling can also help you if you have a consistent income stream but are struggling to keep up with both interest and principal payments on your debts. A debt management plan, through a credit counsellor will allow you to repay your debts with a low interest rate and sometimes even with no interest. The problem is however, that these debts aren’t helpful if you are repaying income tax debts or any other type of government debt. In addition, you will still be required to repay your debts in full. While interest might stop, you cannot settle your debts for less than 100% of the outstanding balance you owe now.
If you've been struggling with your debt for quite some time and your debts are small and fairly old, you may be able to settle your debt on your own with your creditor for a lower amount than the one you're currently contracted to repay. You can sometimes repay around 50% of your overall debt and in some cases some companies will accept even less.
Another option that is becoming more common is a consumer proposal. A bankruptcy trustee, acting as an administrator, will negotiate on your behalf with creditors to come to some kind of agreement and settle your debts. The great thing about consumer proposals is that they can help you to negotiate an extremely low settlement. For example, if you owe $40,000 to different creditors, they may be able to negotiate for as little as 30% of the amount you owe. This can help tremendously, because your debt will be paid off faster. You will typically make one monthly payment over a period of up to 5 years and you can pay it off earlier if your financial situation improves.
Creditors will accept a deal offered through a consumer proposal administrator because they would rather receive some amount of money from you as opposed to less in a bankruptcy. Often times, when someone uses the services of a consumer proposal company, they are not too far away from having to declaring bankruptcy. Their creditors are looking for the best recovery for themselves and sometimes a that is a consumer proposal. As a result a proposal is a win-win for both the debtor and their creditors.
If you are considering filing for bankruptcy, talk to a debt expert first. There are other options available to you. To help you choose which option is best for your personal situation, contact Hoyes Michalos & Associates today. We’ll help you find relief from your debts.