Bankruptcy never seems like an ideal option, but if you’re inundated with calls from collection agents and are worried about your wages being garnished, then it does become a more appealing option. It’s still not your only option though, which is what we’re exploring with this article; comparing solutions and finding the right one for your debts.
The only perk to declaring bankruptcy is that you’re protected. Creditors and lawsuits really do seem to “just disappear”. The flipside, of course; you may end up losing your home or other assets and the bankruptcy is reflected in your credit rating for 6 years after being discharged. So, let’s take a look at those other options!
WHAT IS A CONSUMER PROPOSAL?
A consumer proposal is a debt settlement agreement that is legally binding. It is the only debt settlement agreement program sanctioned by the Canadian government. This is because you must work with a Licensed Insolvency Trustee such as Andrea Orr, here in Windsor. Your agreement will lay out what percentage of debt will be paid and how long you have to pay it (up to 5 years). Every debt proposal is different, but it’s likely that 50%-90% will be forgiven.
Consumer proposals are not designed for businesses, only individuals, whose debts are under $250,000. It’s important to note that mortgage debt, secured by your principal residence, is not included.
BENEFITS OF A CONSUMER PROPOSAL
– You can keep all your assets.
– Your debts are reduced by up to 97%.
– All debts are consolidated into one affordable monthly payment.
– As long as the majority of creditors agree, all creditors are automatically included.
– Your interest rates cannot go up.
– Collection agencies stop calling.
– Lawsuits are stopped.
– Your wages are no longer garnished.
To help determine if a consumer proposal is right for you, speak with a Licensed Insolvency Trustee. The LIT will review your financial situation and discuss the options available to you. If you decide to proceed with a proposal, the LIT will work with you and your creditors to build a proposal that meets both parties’ requirements.
WHAT IS A DEBT MANAGEMENT PLAN?
As a program designed to help manage smaller debts, this is a practical option for those owing less than $10,000. This is not a legal procedure like a consumer proposal. A debt management plan is a voluntary agreement between you and your creditors. The DMP is also not binding on your creditors, and doesn’t have the ability to stop a garnishment (unless the creditor agrees).
BENEFITS OF A DEBT MANAGEMENT PLAN
– You can merge the debts of those creditors who agree into one monthly payment.
– You may be granted relief on interest.
With a DMP, you won’t have access to any of your credit cards, nor are you able to apply for new credit while enrolled in the plan. Your DMP will also be noted in your credit report.
PAYING IT OFF SOLO
When you’re ready to start taking control of your debts, you may want to try paying it off without any formal plans first. That’s a great strategy and there are programs that can help you do it. A financial wellness coach such as Andrea Orr can work with you for free. You’ll be able to learn more about budgeting, credit scores, and planning major purchases such as a car or house. Resources and financial tools are available in office, as well as online to help get you started.
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