We have all heard the term “bankruptcy.” What does it mean to you? Although bankruptcy is an effective insolvency solution, for some it is an embarrassing concept.
There are also many misconceptions about bankruptcy. Although we may imagine that a person who files for bankruptcy is left with absolutely nothing, this is far from true. Bankruptcy legislation in Canada ensures that bankruptcy is a practical insolvency solution that provides a fresh financial start. Bankruptcy in Canada is not designed to be punitive.
It may surprise you that 32,880 Canadian consumers filed for personal bankruptcy in 2020, and another 63,578 filed consumer proposals. Consumer debt problems are not rare!
Coming to Terms: Signs of Financial Crisis
Some people cope with increasingly serious consumer debt for years before they realize they need to take action. The earlier you realize that the problem will not solve itself, the more options you will have for dealing with your debt. Here are the top three warning signs that your debts may be getting ahead of you.
- Using credit cards for the essentials. Although many “store cards” tempt us with bonus points for everyday purchases, it can be a sign of financial stress if you use credit for essentials such as groceries and gas, and don’t pay off your balances each month. Those types of expenses will keep on coming – so your debt will keep on growing.
- Paying one credit source with another (robbing Peter to pay Paul). Have you ever taken a cash advance or funds transfer from one credit card in order to pay another credit card? If you do this regularly, it’s a recipe for skyrocketing debt. It’s also a sign that you are not able to keep up with your financial obligations – you may, in fact, already be insolvent.
- Making late payments. This point may seem obvious, but you may still be telling yourself, “it’s just this once.” If you habitually pay late, not only does it damage your credit rating, but it increases your stress.
Alternatives to Bankruptcy
Filing for bankruptcy is a big step, but it may be necessary if there is no other way to address your debts and make a new start. Personal bankruptcy help in Canada is available via a Licensed Insolvency Trustee, or LIT (the only professional authorized in Canada to file bankruptcies and consumer proposals). The LIT prepares the bankruptcy paperwork and files it on your behalf. Rest assured that the LIT will work with you for the best resolution – that’s his or her job!
The LIT will not suggest bankruptcy unless it is among the best options for you. At your first meeting (which is confidential and free of charge), the LIT will gather information from you and suggest the most suitable options. Here are two alternatives to bankruptcy that might come up in your discussion.
Consumer proposal is not bankruptcy, but it does clear most or all of your unsecured debts (e.g., credit cards, store cards, payday loans). Unlike bankruptcy, with a consumer proposal you make regular (usually monthly) payments for up to five years – so a consumer proposal is most suitable for debtors with a regular income. In most cases, you pay back only a portion of the money owed, but your unsecured debts are fully extinguished when you receive your Certificate of Completion.
A Licensed Insolvency Trustee works with you to present an attractive proposal to your creditors, taking into account your income and household expenses. Most consumer proposals are accepted by the creditors, as they receive more money with consumer proposals than they do if their customers file for bankruptcy.
Some banks offer their customers loans for the specific purpose of “consolidating” their debts. This means that you use the funds advanced in the loan to pay off all your credit accounts, and are left with just one monthly payment, probably at lower interest, to pay to the bank.
It can be challenging to qualify for a debt consolidation loan. If you’ve had late payments, your credit rating may already be damaged. Also, such an arrangement only “works” if you don’t run up the balances in your credit cards again. However, a debt consolidation loan can be very effective in simplifying your payment schedule.
In the United States, there is an option called debt settlement or debt negotiation. In this option, you bear some risk of creditors suing you for unpaid debt, so it’s important that you understand which creditors sue and which do not sue. You don’t get the legal protection that you get in bankruptcy. It can be challenging if you enter one of these programs, only to find out that you are getting sued by each one of your creditors at different times.
Learn More About How to Resolve Your Debt Problems Today (and Sleep Better Tonight)
For personal bankruptcy help in Canada and more information on bankruptcy alternatives, contact a Licensed Insolvency Trustee for a free initial consultation. The Trustee is an expert on debt resolution and will help you see your way forward to a better financial future. If you’re like most consumers who’ve spoken with a Trustee, you’ll ask yourself one thing: “why didn’t I do this sooner?”
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