What Is The Right Debt Solution For You?

When Canadians find themselves in financial trouble, they may wonder about their options and who might be able to help. While there are several organizations across the country who can provide advice, creditor arrangements and other debt reduction services to consumers, not all are equal in their scope or their ability to achieve meaningful long-term results.

If you are thinking about seeking help with your debt, you’ll want to be aware of what each service can and cannot do. You’ll want to understand the short and long-term consequences of the various debt solutions available, along with the potential costs and benefits of each. Only then can you make an informed decision about which option might be best for you. 

Credit Counselors & Debt Managers

Credit counselors and debt management organizations offer numerous services ranging from budgeting advice to informal agreements with creditors. While these organizations may be helpful in certain situations, it is important to note that only a few are part of a self-regulating body, such as Credit Counselling Canada or Canadian Association of Credit Counselling Services, most are not self-regulated nor are they bound to federal or provincial regulation. They often charge fees ranging from hundreds to thousands of dollars for an initial consultation – let alone continued services after a client has chosen to work with them – and cannot provide a guarantee of getting their clients out of debt. They are also limited to the creditors they can work with and are not qualified to initiate formal debt reduction solutions such as personal bankruptcies or consumer proposals on their clients’ behalf.

A Licensed Insolvency Trustee Can Help

Alternatively, Licensed Insolvency Trustees are regulated by the federal government and subject to the strict guidelines of Canada’s Bankruptcy and Insolvency Act. They must meet extremely lofty standards of professional conduct and are required to serve your best interests at all times. Most Licensed Insolvency Trustees offer a free initial consultation and their subsequent fees are limited to those prescribed by federal legislation. They are also qualified to help you with a much wider range of debts than credit counselors or debt managers and are the only professionals qualified to initiate consumer proposals and personal bankruptcies – providing you with the most comprehensive and effective debt-reduction solutions.

Consumer Proposal

A consumer proposal is a formal agreement with your creditors to settle your debts with fixed monthly payments over a set period – usually five years. This agreement is drafted and negotiated by a Licensed Insolvency Trustee and is intended to work within your financial capabilities while satisfying the creditors’ need to recoup what is owed to them. Often, the final amount your creditors receive will be less than what you currently owe and far less than what they would have received had interest costs accrued over the same timeframe. 

For a consumer proposal to move forward, a majority (by dollar value) of your creditors must accept the terms of the agreement. If more than 50% of your creditors accept the terms of the consumer proposal, those terms are legally binding on all of them. With few exceptions, none of your creditors can initiate collections proceedings or wage garnishments against you and interest charges stop accruing.

Personal Bankruptcy

An alternative to a consumer proposal is personal bankruptcy. There are several benefits to going this route, including a typically shorter timeframe to becoming debt-free and lower overall costs. Also, unlike a consumer proposal, personal bankruptcy does not require the approval of creditors to move forward.

However, this option does have several drawbacks. First, you will likely be required to surrender any non-exempt assets for repayment to your creditors – which could include your vehicle and even your home in some cases. If you choose to retain any non-exempt assets, you will be required to contribute fair value for them – which can significantly increase the final cost of your bankruptcy. You may also be required to surrender half of your surplus income if you earn above a designated threshold, predetermined by the federal government.

Finding the Best Fit

There are numerous benefits and drawbacks to both consumer proposals and personal bankruptcy. Both Life Changing Debt Solutions offer an opportunity to wipe the slate clean and get a financial fresh start. Choosing the one that works for you will depend on several factors and require an in-depth review of your unique situation. During a free, confidential consultation, a Licensed Insolvency Trustee can help you better understand these and other options so you can make an informed decision about what works best and how it will affect you in the near and long term.

The Government of Canada also offers an online resource for consumers searching for debt assistance. The tool provides several tips and advice to consider when selecting a debt management company including a helpful tool comparing informal debt management plans, consumer proposals and personal bankruptcy.