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Ontario|Debt and Bankruptcy
Debt and Personal Bankruptcy
250 Alternatives to bankruptcy: Loan consolidation, proposals to creditors, credit counselling
Although personal bankruptcy allows you to make a fresh start free of most of your debts, if you have a steady income and a satisfactory credit rating, you may want to consider four options with less serious consequences.
- Loan consolidation with bankFirst, you may be able to combine all of your debts into one consolidated loan with either your bank or another financial institution. A consolidation loan is always a good idea because your interest rate will be lower than the interest rate on your credit cards, and you will only have to make one payment on your loan each month instead of many different payments to each of your credit cards.
- Informal arrangement with creditorsSecond, you could try to make an informal arrangement with your creditors to pay a lesser amount or make your payments over a longer period of time. Often this is done with the help of credit counselling agencies. You may want to discover how your credit rating will be affected before agreeing to such arrangements. Sometimes creditors agree to reduce your debt or extend the repayment term, but still report you to the credit bureau.
- Consumer proposalA third option is a consumer proposal under the Bankruptcy and Insolvency Act. This is a legal process that allows you to make an offer to your creditors to change your payment schedule, or compromise your debts. For example, you may offer to pay less each month over a longer period of time. Or, you may offer to pay only a percentage of what you really owe. Your proposal must offer creditors at least what they would get if you filed for bankruptcy, and your plan must not extend beyond a five year period. If your creditors accept your proposal, you will be able to manage your financial situation without filing for bankruptcy.
- How to make a consumer proposalTo make a consumer proposal, you must find and meet with a licensed trustee in bankruptcy. You can find one on the Legal Line Guide or website, or in the Yellow pages. They will help you prepare your proposal, and they will present your proposal to your creditors. You are also required by law to have two financial counselling sessions with the trustee to discuss financial management and budgeting. You will have to pay a fee of $50 to the government for this service, as well as a fee to the trustees for their services. The amount of the fee to the trustee will depend on the complexity of your proposal.
Once you have filed your proposal, any legal action against you by your creditors is stopped. If your creditors accept your proposal, you make monthly payments to the trustee, rather than making payments to each creditor yourself. If your proposal is not accepted, you are not automatically forced into bankruptcy. However, your creditors can continue or begin legal action against you. The failure to attempt a proposal instead of choosing bankruptcy, can be held against you when you apply to be discharged from bankruptcy.
- Credit counsellingA fourth option is credit counselling. There are a number of credit counselling services in Ontario who will help you consolidate your loans. Before enrolling with a credit counselling service, make sure you inquire about their services and fees. Often credit counselling services are useful in helping you to decide whether bankruptcy is the right option for you.
There are many options to consider when you are in a situation of financial difficulty. Consult with a trustee in bankruptcy, a lawyer, or an accountant for more information.
DEBT AND BUSINESS BANKRUPTCY