In my last two posts I’ve discussed the impact of making only the minimum payment on your credit cards and provided some suggestions to avoid issues with credit card debt before they start .  Sometimes; however, families are simply unable to manage the financial burden and may have to consider other options to find relief.  Some of these options may include:

1.  Review your budget.  Increase income, decrease expenses or do a combination of these two things.  Use the extra money to pay off your debt.

2.  Consolidation Loan.  This is achieved by obtaining a loan from a financial institution and using the funds to pay off your credit card debts.  Be sure to cancel your credit cards.  Now you have one payment, just to the bank, usually at a much lower interest rate than you were being charged on the credit cards.  This option requires that you have a good credit rating, secure employment and sufficient income.

3.  Informal Negotiation/Debt Settlement.  This option involves some form of compromise with your creditors.  The creditor may agree to reduce the interest rate, lower monthly payments or accept a  lump sum payment that is less than the full balance owing so they reduce the risk of you not paying in the future.   This type of agreement is not legally binding.  Also, be aware of debt settlement companies that charge up front fees and do not contact your creditors until you have saved up money for a settlement.  Often this takes months all the while your creditors can still call you and garnishee your wages.

4.  Credit Counselling.  This non profit agency can help you review your budget and make changes to help you pay down your debt.  They offer debt management programs where they will work with your creditors to lower interest rates and lower monthly payments.  With this option you need to have a meaningful amount of money left in your budget to offer your creditors after paying your basic necessities.  It is important to choose a credit counselling agency that is accredited by the Canadian Association of Credit Counselling Services.  A debt repayment program is not legally binding.

5.  Consumer Proposal.  If you can afford to repay a portion of what is owing to your creditors but you need more time and you need the creditors to stop adding interest this may be a good option.  Usually in a proposal you offer somewhere between 30-50% of what is owing to your unsecured creditors to satisfy the debt.  You can offer the amount in a lump sum or spread the payments out over a maximum period of five years.  The unsecured creditors vote on the terms you offer and if the majority of your creditors vote to accept the proposal it is legally binding on all parties.  With a proposal, you must have a meaningful amount of money left per month after paying your basic necessities to offer to your creditors.  You also need to be confident you can maintain the payment for the duration to which you agreed since a proposal will be deemed annulled if you miss too many payments.  Only a licensed Trustee in Bankruptcy can help you file a Consumer Proposal.

6.  Bankruptcy is a process in which you assign your assets to the trustee for the benefit of your creditors.  There are certain assets that are exempt and you are entitled to keep.  For someone who has never been bankrupt before, the process is essentially a nine or twenty-one month process which is generally shorter than a consumer proposal.  During the time you are in bankruptcy, you make a monthly payment that is usually based on your level of income.  For this reason, bankruptcy is a good option if you have insufficient or unstable income.  Unlike a proposal, the creditors do not vote on whether or not to accept your bankruptcy.  Only a licensed Trustee in Bankruptcy can help you file for bankruptcy.

If you’re not sure which option is best for you, contact us and a licensed Trustee in Bankruptcy will assist you in finding the right solution.  The trustee is required, by law, to discuss all of the options that may be relevant according to your particular situation.  If an option isn’t right for you the trustee will tell you outright and point you in the right direction.

By:  Brenda D.  Owens, Trustee in Bankruptcy


Brenda works for James R. Yanch, Trustee in Bankruptcy
215 Simcoe St. N.
Oshawa, Ontario
L1G 4T1
905-721-7506
www.jamesryanch.com