Filing for bankruptcy is often a last resort for those trying to take control of their finances. Depending on your financial situation, filing for bankruptcy may or may not help you. For instance, bankruptcy excludes secured debts like vehicles and mortgages. It also excludes student loans that are less than seven years old and any back alimony and child support. If you have credit card bills that you recently racked up, filing for bankruptcy may not help you get back on track.
After reading the worst case scenarios, you may be thinking that an alternative to filing for bankruptcy is the best option for you. The available alternatives depends on your financial situation. However, one or more of the alternatives may work for you.
Filing a Consumer Proposal
A consumer proposal is arranged by a trustee. You make your required monthly payments on the debts that you owe. Your creditors do have the option to disagree or agree with your proposal.
To settle your debt means that your creditors receive a lump sum of money. Typically, a credit counsellor will negotiate with the creditor on a specific amount for you to pay. Let’s say you owe a credit card company $1,300. Your credit counsellor would talk with the company’s representative and negotiate a lower payment such as $750 or $1,000. The lump sum amount is generally lower than the total amount you owed. Your counsellor would negotiate a debt settlement with each of your creditors.
Debt Consolidation Plan
A debt consolidation plan is actually a loan. All of your debts are added together. This is the amount you need to eliminate all of your debts. A bank lender will give you a loan for that amount. The new loan would pay off all your creditors. In exchange for the loan, you would make one payment each month to the lender.
Consolidated Debt Management Plan
Instead of taking out a loan and dealing with a new creditor, many people decide to pursue a debt management plan. This does not involve taking out a loan. All of your bills and other debts are added together, or consolidated. Creditors working with your crediting counselling organization will provide some discount. This may be waiving interest charges while you are making payments. It may also include lowering your interest rate to make it easier to continue your payments.
How to Decide Which Bankruptcy Alternative is Best for You
Of course the answer depends on your financial situation. Filing for bankruptcy or choosing a bankruptcy alternative requires the help of a credit counsellor. A counsellor will:
• Answer your questions and explain what you should know about filing for bankruptcy or dealing with debts.
• Look over debts and bills.
• Inform you of all of your bankruptcy alternatives.
• Show you how to avoid getting in an overwhelming financial situation by budgeting and managing your living costs.
• Refer you to bankruptcy if filing for bankruptcy is your best option.
You are ready for a financial fresh start. Sometimes filing for bankruptcy isn’t your best option. Like most Canadians you want to pay your creditors off. There are options available to help you do that. Contact Credit Counselling Services of Atlantic Canada for assistance with paying off your debts.