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Compare Your Debt Free Solutions

Do you worry that you may be on the road to bankruptcy? If your debts are becoming more than you can handle, there are several options available to help you.

Bankruptcy generally should be considered a last resort, although for some, depending on the circumstances, it may be the only solution.

Let’s examine the different debt solutions available to turn your finances around, and help choose which one will work best for you.

Please note, the debt solutions described below, including bankruptcy, do not apply to government student loans, support/alimony payments, or fees for fraudulent or illegal activities. While bankruptcy can absolve secured debt (car, house, boat etc.) by revoking assets, all other options deal only with unsecured debt (credit card debt, cash loans, lines of credit, etc.).

1. Make a Personal Budget and Debt Repayment Plan

Don’t underestimate the power of making and following a personal budget or spending plan in order to focus your money on paying off your debt.

Do a thorough inventory of your expenses and income to be sure your budget balances, and do what you can to create a surplus amount.

  • Can you cut back in certain areas, like reducing your cable package etc.?
  • Or can you bring in more money with extra work or selling some assets?
  • Could you get a part time job just until your financial situation improves?

Review where your debt is, how much it is and how much it costs (interest rate). Then set your priorities on paying down the most expensive debt (highest interest rate) first with the highest payment you can manage, while making minimum payments on the rest. Follow the process until, one by one, your debts are paid.

You could consider contacting your creditors (bank, credit card company, etc) to request lower interest rates – explain your situation and promise to make regular payments of a certain amount, then do it. A few phone calls could save you a lot of money.

2. See a Credit Counsellor

If you can’t get your budget to balance, would like some guidance or assistance with your debt, or feel that you are in debt way over your head, speak with a credit counsellor. Credit counsellors are there to help; from helping with your budget to many other debt solutions they will guide you to best choice for you.

A credit counsellor will help you create a personal budget that could set you on your way to victory with no further action required, or he or she can recommend other solutions based on your personal situation.

Credit counsellors can recommend a debt management program, a debt consolidation loan, debt settlement, consumer proposal or even bankruptcy depending on your specific circumstances. Credit counsellors can also perform some of these services for you, and they can refer you to other credit professionals if necessary.

3. Debt Management Program

A debt management program, often offered by a Licensed Credit Counselling Agency, is a debt repayment agreement that is made on your behalf by the Agency with your creditors.

The credit counsellor will review your ability to make payments, negotiate with your creditors to reduce interest and fees, and create a repayment schedule based on your ability to make payment for up to five years.

The credit counsellor collects your payments in a Trust Account and then distributes those funds to your creditors on your behalf.

4. Debt Consolidation Loan

A debt consolidation loan is a new loan into which you combine all of your current debts. This loan will often have a lower interest rate than your current debts, and will often reduce your many debt payments to one monthly payment.

To qualify for a consolidation loan, you will need sufficient income as well as possibly some collateral to secure the loan or even a co-signer. (We do not recommend that anyone co-sign a loan ever!)

A debt consolidation loan does not eradicate your debt, but is intended to make your debt payments more manageable.

5. Debt Settlement

Debt settlement is when you, or a professional on your behalf, offers a reduced debt repayment to your creditors, usually in the form of a lump sum of money. This option is best suited to someone who has funds available to them to make an offer.

This arrangement allows for the debt to be re-payed quickly and at a reduced amount than what is actually owed.

Be aware that some debt settlement plans may have you cease all payments to your creditors in order to build up a savings for a lump sum. There has been a great deal of discussion regarding this method of service and warnings have been issued by the Federal Government about some of these practices.

6. Consumer Proposal

A consumer proposal is a process somewhere between a debt management program and debt settlement, however it is a legally binding contract, serviced by a Bankruptcy Trustee.

Like debt settlement, a consumer proposal arranges for a partial repayment of your total unsecured debt owing. You’ll pay a portion of what you owe, and your creditors will agree to ignore the balance owing.

And like a debt repayment program, you will have a fixed payment schedule (no lump sum required) for up to a period of no more than five years.

7. Bankruptcy

Everyone has heard of bankruptcy and many people think it is the only answer to overwhelming debt. But in most cases bankruptcy is not the best solution.

In a bankruptcy, you pay a monthly payment that is determined by the government based on your income, to your creditors and your Bankruptcy Trustee. You are required to meet with the trustee and also complete monthly income reports during the bankruptcy. At the end of the bankruptcy, the remainder of the debt is forgiven.

Bankruptcy can be a quick solution if you have no surplus income (over and above your life expenses and the allowed amounts from the Superintendents Guidelines) no assets, and if it’s your first bankruptcy. This means that you may qualify to be discharged within nine months.

However the credit rating of R9 (the worst possible) will continue to restrict your ability to access credit for another 6 years from the date of your Discharge from Bankruptcy, or up to 14 years for a second or subsequent bankruptcy.

For most people, though, bankruptcy would take away their non-exempt assets, such as equity in a home (that’s over a certain amount) and Registered Education Savings Plan funds saved for the children’s education.

Bankruptcy will also lay claim to any surplus income for a minimum of 21 months.

This table provides a quick comparison of the best debt solutions, so you can weigh the pros and cons of each and consider which may be best for you:

Debt Management Program Debt Consolidation Loan Debt Settlement Consumer Proposal Bankruptcy
Who can claim A person who has sufficient income or cash flow to repay debt within 5 years A person who has sufficient income, as well as collateral (assets or cosigner) to qualify for the loan A person with a lump sum of money available to pay off a portion of the debt  A person with debt between $5000 – $250,000 (not mortgage), and has the ability to repay a portion of the debts. Creditors must receive more money from a Consumer Proposal than if the person filed for Bankruptcy. Any person who owes more than $1,000 in debt. Ideal candidates are those who need rapid financial relief 
What happens to the debt Debt is repayed in full Original debt is repayed in full and transferred to new debt Debt is reduced and repayed Debt is reduced and repayed If the Bankrupt has surplus income, the debt is partially repaid during the bankruptcy period, upon the Discharge being granted the remaining debt is absolved 
Interest on Debt Reduced or zero Reduced, depends on loan zero zero  zero 
Debt Payments Fixed minimum monthly payment, can be increased to finish program faster if desired Minimum monthly payment One time lump sum payment Fxed monthly payment Monthly payment varies based on your income, the more you earn, the more you will be required to pay and the longer you will be in Bankruptcy 
Monthly Reporting of Income and Finances Not required Not required  Not required Not required  You are required to complete a monthly report for all family income and expenses, as well as supply copies of your bank statements and pay stubs to your trustee. You are required to attend two counselling sessions with a Registered Insolvency Counsellor
Length of Repayment Maximum 5 years Depends on loan  Immediate Maximum 5 years Minimum 9 months, if you have surplus income minimum of 21 months. Subsequent Bankruptcies 36 months and longer
Assets  No asset loss Assets may be used to secure the loan, and could be repossessed if you default on the loan No asset loss, unless you are liquidating to acquire your lump sum money No asset loss however your non-exempt equity will have to be reflected in your offer to repay In order to be absolved of your debts, you are required to surrender all non-exempt assets, and you will lose all government tax refunds and/or credits which you are owed for the period of the Bankruptcy
Credit Rating R7 for 2 years Trans-Union, 3 years Equifax after repayment is completed No affect on current rating R9 for 6 years after settlement R7 for 2 years Trans-Union, 3 years Equifax after repayment is completed R9 for 6 years from the date of the Discharge. Subsequent Bankruptcies reporting is for 14 years at Equifax and Trans Union it will remain on your file permanently
Appearance in Court  No  No  No  No If a person has been bankrupt before, or if a Creditor, the Trustee or the Superintendent of Bankruptcy objects to the discharge, a court hearing will be set to investigate the circumstances and possible conduct of the Bankrupt. The result of this hearing can be an Absolute Discharge, a Conditional Discharge, a Suspended Discharge or even a Refusal to Discharge from Bankruptcy.
Name Published in Press  No  No No   No Newspapers publish a legal notice of an individual’s bankruptcy when the individual has non-exempt assets over a specific amount.

“R” Rating Note:


 Pays (or paid) within 30 days of payment due date or not over one payment past due.


 Making regular payments through a special arrangement to settle your debts.


 Repossession (voluntary or involuntary return of merchandise).


 Bad debt; placed for collection; moved without giving a new address; or bankruptcy.


Note: This article is a not a substitute for speaking with a credit counsellor, who can review your financial situation in detail, recommend solutions and help you take action. We hope you found this article to be informative on the debt options available, because we know that knowledge is power. When seeking the services of a debt professional, research different companies and their policies and fees. Be sure you know what to expect, and that you are working with a reputable professional.

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