Consumers often view bankruptcy as a last resort measure to get out of debt. And for some Canadians, bankruptcy is the best option. However, only 10 per cent of those who meet with a trustee are able to file for bankruptcy.
This means that most of those struggling with debt in Canada won't have the option to file for bankruptcy. Also, even consumers who are able to file are often forced to give up some of their property in order to pay creditors. But there are ways to get out of debt that don't involve filing for bankruptcy.
Consumer Proposal as an Alternative to Bankruptcy
A consumer proposal is a legal process that requires a debtor to pay back creditors part of what they owe. After a consumer proposal is filed, a repayment plan is arranged by a licensed bankruptcy trustee (LIT). The affected creditors must agree to the proposal, and if they do, the filer will have up to five years to complete the payments.
It costs about $1,500 to file for consumer proposal, and 20 per cent of all payments made will go to the trustee. The proposal will also become a matter of public record, and it will have a negative impact on a filer's credit rating. Therefore, the decision to enter this arrangement shouldn't be taken lightly.
Potential filers should also know that certain types of debt cannot be included in a consumer proposal. For example, student loans and secured debts such as car loans don't qualify. So it's a good idea for consumers to make sure that starting this process will actually be helpful before filing.
And once a commitment to a repayment plan has been made, it is unwise for a debtor to default. If three payments are missed, the consumer proposal will be dismissed. If this happens, another proposal may not be filed. Instead, the consumer will be forced to face their creditors, try to file for bankruptcy or look for another option.
Debt Management as an Alternative to Bankruptcy
When someone enters into a debt management program, they work with a credit counselor in order to determine what they can afford to pay each month. All of the consumer's qualifying debt is then combined into one monthly payment.
Usually, interest charges and late fees are either lowered or dismissed in a debt management program. Also, the credit counselor will help the debtor create a budgeting plan that will help them keep up with their payments. Those who sign up for this type of program must also sign a contract stating that they will make every payment.
Debt Consolidation as an Alternative to Bankruptcy
A debt consolidation loan also allows a consumer to combine debt into one monthly payment. However, this process doesn't require a credit counselor. In order to apply for this type of loan, a consumer can simply contact a bank that offers this service.
The only problem with this option is that if a person's credit score has been damaged, they may not be able to qualify. And even though some debtors will benefit from a consolidated loan with a lower interest rate, this solution isn't for everyone. If debts are too large, even a reduced monthly payment may still be too expensive. So whether or not someone should look for a consolidation loan depends on their income and the amount of their combined debt.
Debt Settlement as an Alternative to Filing for Bankruptcy
A consumer can either seek debt settlement on their own or with the assistance of a third party, such as a lawyer. Here, creditors are approached and asked to negotiate a settlement payment. This payment will be a lump sum that is less than a debtor's balance on a loan or credit line.
Some creditors are willing to negotiate and some are not. Also, because this arrangement typically requires a large payment, it isn't a good option for many who are struggling financially.
Auto Loan Assistance for Consumers with Poor Credit
If you're currently trying to get out of debt through bankruptcy or an alternative option and need to finance a car, Canada Auto Loan can help. Even if you have less than perfect credit, we can make the vehicle buying process faster and easier.
We can match you with a dealership in your area that can work with unique credit situations. This way, you won't waste time or have to deal with unnecessary frustration. And because our service is free of charge, you won't be asked to waste your money either.
There are no obligations attached, so you have nothing to lose. Go ahead and fill out our simple and secure auto loan request to get started today.