Is Bankruptcy the Only Option?
In recent months and years our Canadian economy has taken a downward spiral. Just a few years ago it seemed that we had it made. There were more jobs than workers and the money was flowing in. It was easy to qualify to buy houses, trucks and toys and so we did. Now that the jobs are fewer and the money is not flowing like it once did, we are left with little to no work and all of the consumer debts we racked up. Now what can you do? Is bankruptcy the only option? It might be an option, but it definitely isn’t the only option. There are ways to dramatically reduce your debt without having to file for bankruptcy.
Bankruptcy should always be your last resort.
It may seem like the easy way out of your debts. Claim bankruptcy, get a clean slate and start over, but often that isn’t the case. Claiming bankruptcy is not always easy, it may not give you a fresh start like you think it will. Your bankruptcy payments are based on assets and income, the more you make, the more you pay and the longer it will take to receive a discharge from bankruptcy. Bankruptcy will also give you a negative rating on your credit score. Filing for bankruptcy will give you an R9 score on your credit rating, and if this is your first bankruptcy it will stay there for 6 years after you are discharged from your bankruptcy. If you have claimed bankruptcy before, then the R9 will stay on even longer. Also, there is work to be done when you file for bankruptcy. You have to disclose all assets, the trustee will determine which ones you keep and which he sells, you have to report your monthly income, provide your tax information, attend credit counselling and don’t forget about the monthly payments.
Consumer Proposals are a better option (in most cases).
Consumer proposals can be a better option if you would like to avoid bankruptcy. A consumer proposal is basically making an offer to pay less than you owe to your unsecured creditors but more than they would receive in a bankruptcy. You would usually then make fixed payments over a set period of time. In a consumer proposal the amount of your total unsecured debt can be significantly reduced and there is no interest charged.
On the flip side, there are some things to consider about consumer proposals. Your credit rating will also be impacted by a consumer proposal, but not to the same extent as in bankruptcy. You will have an R7 placed on your credit report for 3 years after your proposal is complete but you can begin rebuilding your credit as soon as the proposal has been accepted by your creditors unlike a bankruptcy were you need to wait until you are discharged.
Consolidation Loan
A consolidation loan is also an option if you have good credit and can afford the payment. You can often get lower interest rates by combining your debts into one large sum making only on monthly payment.
It’s up to you to decide what to do, bankruptcy, consumer proposal or even a consolidation loan. They all have their advantages and disadvantages. If you need help deciding which path to take, give us a call at our 4 Pillars office in Red Deer. Our team will set up a free consultation with you and provide you with our expertise to guide you in your decision.
