A prevalent myth about bankruptcy is that anyone who is knee-deep in unmanageable debt can file for it. However, statistics show that only 10 per cent of people who file for bankruptcy in Canada are approved for it. Details like a person’s annual income and financial history are thoroughly assessed and considered by a Licensed Insolvency Trustee (LIT) before anyone can declare bankruptcy.
If you find yourself in a situation where you’re unable to qualify for bankruptcy, familiarize yourself with these existing alternatives:
A consumer proposal is a legal document that reports on an individual’s financial situation. Presented to creditors as a game plan for paying back debt, it might contain a request to extend the amount of time you have for paying back money owed. Once a person has worked with an LIT to develop this proposal, it is sent to creditors to be evaluated.
Creditors have up to 45 days to either accept or decline the offer. If accepted, a person is responsible for making payments to their designated LIT, who will act as the financial middleman. Additionally, a person is required to adhere to all of the conditions in the proposal as well as attend credit-counseling sessions.
If creditors choose to disapprove a consumer proposal, statement changes in the document can be edited and re-submitted or a debt-management program might be a better option.
Debt Management Program
With the assistance of a credit counselor, debt management programs are designed to help a person pay off debt. A contract must be signed to ensure that payments are being consistently made to the credit counselor, who will facilitate how the money will be paid back to creditors. In some cases, the interest rate or fees on unsecured debt may be eliminated or reduced.
Before signing a contract, it’s important to research all programs available in your area to make sure that you’re choosing the one best suited for your financial situation.
Debt Consolidation Loan
A debt consolation loan is an allowance from a financial institution that is equivalent to a person’s unsecured debt. This loan grants a person a chance to repay all credit at once, and instead of being left with multiple late bills, there’s only one outstanding fee.
After taking out a debt consolidation loan, all unsecured debts are settled and in return, monthly payments are made to the financial institution instead of creditors. Additionally, debt consolidation loans typically have lower interest rates compared to what is charged by creditors, which is great for helping someone save extra money.
If you’ve been denied for financial aid, it’s important to realize the multitude of other options that are readily available in every province. In times of financial stress, there’s no harm in making an appointment with a professional for advice on what alternative is best for you. Whether it be an LIT or a financial advisor at your local bank, any step towards managing your debt is a step closer to living debt-free.