Debt Restructuring Myths vs Facts
Recently I have met a number of people who have been hesitant to file a consumer proposal because they have done their own research and are scared of the process. There is a plethora of information available on the internet however deciphering fact from fiction can be quite a significant challenge. A key element of my job is to help people separate and understand the facts from the fiction.
Myth #1:
My credit will be destroyed and take 8 years to repair.
Fact: With the proper guidance this is far from the truth. However, without guidance it can take this long but this is not the norm for any of my clients. 4 Pillars offers the industry leading credit rebuilding program and I can help you start re-establishing your credit within months of filing the proposal. I encourage every client to begin rebuilding their credit immediately upon filing a consumer proposal. This allows them to see their score start increasing despite the fact they are in a proposal. We even offer programs which can help people file and fulfill a proposal in as little as 60 days which means they have the potential to have their credit fully restored in as little as 2 years. Every situation is unique but 4 Pillars clients can restore their credit much more quickly and certainly in much less than 8 years.
Myth #2
I can lose my house and other assets if I file a proposal.
Fact: If you file a consumer proposal you will still own your house. Your other assets can be unaffected as well. There are certainly specifics to every situation but if you choose to keep your assets in a consumer proposal then that’s what happens, you keep your assets. There are also exemptions in the process that can benefit the debtor and protect their assets as well. Retaining assets may affect the amount you pay in your proposal and again will depend on the specifics of your unique situation.
Myth #3
If I go bankrupt I will lose my house.
Fact: This also is not necessarily true. In Ontario if you go bankrupt you are not allowed to have any equity in your home. So if you file for bankruptcy and there is no equity you can keep making your mortgage payments and keep your home. If there is equity you can still keep your home, you would have to make payments to your estate equal to the value of your home equity and if you do that you would retain the property. If there is substantial equity in the home then mathematically you may not even be in a position to go bankrupt. This is where you need honest advice so you don’t get put into a very compromising position.
Myth #4
It’s not worth damaging my credit to get rid of my debt.
Fact: This is certainly a very personal decision but sometimes you have to step back from the situation and look at it objectively. I recently met with a couple who had $141,000 of unsecured debt. They had a good income and some equity in their home. In their situation I could reduce the debt by about $90,000. If you look at this situation objectively the consumer proposal is a great solution. In 5 years or less their unsecured debt will be zero. They will have retained the equity in their home which will have grown. They would have saved around $25,000/yr in interest. So in only 5 years this couple would have combined savings of the proposal of $90,000, interest of $125,000 and a home equity increase estimated at $30,000 for total saving of $245,000! And, they are in a position to have a good credit rating when completing the proposal. I would say that it is worth a short term hit to the credit bureau for those savings. And remember, in this case they are debt free at year five, doing nothing they are $245,000 behind plus they are still carrying that unsecured debt of $141,000. That’s a swing of $376,000 in only 5 years! Not every situation is as extreme as this but if it is going to take you a significant portion of your lifetime to pay off your debt then maybe it’s time to consider dealing with it.
Myth #5
No one is looking out for my best interests.
Fact: This is a case where is it important to find a debt specialist like a 4 Pillars consultant who will look after your best interests. Trustees, by definition of their position as a trustee must represent the creditors. There are many excellent trustees out there but at the same time they have to ensure the creditors are taken care of no matter how friendly they may seem. An independent debt professional works on your behalf to ensure they get you the best settlement possible. Your debt professional should make sure you FULLY understand all of your options and make recommendations prior to making a decision on how to deal with your debt situation. The debt professional should also have an excellent relationship with a network of trustees to ensure they can do what they promise. I strongly encourage everyone with a debt problem to seek independent advice. You must be able to meet the person you are going to deal with face to face and trust them. If you can do this you will ultimately get the best possible solution for your unique situation.
Myth #6
I have a good credit score so I don’t need to do a proposal.
Fact: Credit scores can be misleading. If most of your available credit is maxed out but you are maintaining your payments your score is effectively artificially boosted. A simple test is to apply to your bank for a consolidation loan for your current debts. If they agree then your credit score really was good. If they will not lend you the money to deal with all of your debts then it is time to do something more drastic and your score was misleading. I call this type of artificially boosted credit score “irrelevant”. An irrelevant score really isn’t much better than a bad score so this is actually the ideal time to do a proposal.
Conclusion
Everything you see and read isn’t always true or accurate. In every industry there are experts to help you accomplish your goals. If you are not mechanically inclined would you attempt to repair your own car or take it to a mechanic? If you are in debt and do not understand the options and processes available to you please seek professional independent advice.
About the Author:
Trevor Glasser owns the 4 Pillars Consulting Oshawa, On Office helping people get out of debt every day. If you need a free consultation to understand your options please feel free to contact Trevor at 905-243-8765 or www.goodbyedebt.ca.
