Bankruptcy isn’t the only way to handle overwhelming debt in Canada. Here are four alternative debt relief solutions that may better suit your situation:
Consumer proposal
A consumer proposal is a formal agreement between you and your creditors, arranged through a Licensed Insolvency Trustee (LIT). It allows you to make fixed monthly payments over a period of up to five years, usually for a reduced amount compared to what you owe.
One of the biggest advantages of a consumer proposal is that it allows people to protect all their assets, including home and car. Once accepted by creditors, it legally binds all parties and eliminates your remaining debts after successful completion. If you wish to discuss this type of solution, give us a call on (416) 224-4350.
Credit counselling
Credit counselling provides professional guidance from a credit counsellor who will assess your budget and help you understand your options.
Non-profit credit counselling agencies can set up structured payment plans through debt management programs. While this doesn’t reduce your principal balance, it can lead to more favorable payment terms and lower interest charges. These plans require full repayment of the debt and not all creditors have to accept the settlement (which they must in a consumer proposal where the majority of the creditors accept the offer the other creditors are forced into the plan by Federal law).
Debt consolidation
Debt consolidation loans combine multiple debts into one single payment, sometimes at a lower interest rate. It simplifies your finances and can reduce high interest rates, especially on credit card balances.
While this option can help save on interest charges, it usually requires a good credit score and stable income to qualify. Often they ask for a co-signer (which brings its own complications) Consolidation doesn’t reduce the amount you owe but may make budgeting and repayment more manageable.
Debt management plan
A debt management plan (DMP), typically arranged through a credit counselling agency, is a structured repayment plan that consolidates your unsecured debts into one monthly payment based on your monthly income.
This is best suited for people with regular income who can pay back their debts in full over time but need help coordinating payments and negotiating interest rates.
Debt settlement
Debt settlement involves negotiating directly with creditors to accept less than the full amount owed, often through a lump sum payment.
Debt settlement may be an option for people who can access funds upfront, though it can negatively impact your credit score, and may come with tax implications if the forgiven amount is a large sum. The agreements need to be legally enforceable (by you) so you may require the assistance of a lawyer.
You will need to negotiate with each creditor separately. Even if a relatively small creditor refuses to settle and takes legal action to collect, that can end your ability to honor settlement arrangements you negotiated with the other creditors.