Is Bankruptcy the Best Option for You?

Only a government licensed Trustee in Bankruptcy can file a bankruptcy on your behalf in Canada. As part of this process, your Trustee will first conduct a comprehensive assessment of your financial situation to determine if a bankruptcy is your best option and an appropriate course of action. The assessment, typically completed at no cost by most Trustees, involves a review of your unsecured and secured debts, identification of assets and their related values with consideration of property-related exemptions and an analysis of your monthly income and expenses.

If you are considering the possibility of bankruptcy while also trying to understand the many options available to resolve your debt problems, you need not do this alone, nor should you. Consider that most government licensed Trustees in Bankruptcy have also attained the designation of Chartered Insolvency and Restructuring Professional (CIRP), which means they are the most qualified individuals in Canada to provide impartial, expert advice tailored to your unique financial situation.

There is no universal solution that applies to every debt problem. While bankruptcy may be the most appropriate solution in some cases, there are many alternatives that should be considered.

Improve Your Money Management Skills

This is often easier said than done, however, creating a budget and visualizing your income and expenses can serve as a great starting point. By completing this basic exercise, people are often surprised at certain glaring expenses (e.g. eating out versus buying groceries). Consider meeting with a certified debt counselor, often the cost is minimal and even free in some instances. The goal is to free up income for the purpose of repaying your debts faster, thereby reducing interest charges and alleviating the pressure of harassing calls and other collection efforts.

Consolidate Your Debt

If your credit has not been tarnished by missed payments and collection actions, you may be able to consolidate your debt into a single loan with one monthly payment at a low rate of interest compared to your credit cards and / or other debts. If your credit rating is poor, you may require a co-signor or guarantor which is not always possible or desirable. Alternatively, if you have equity in an asset, you may be required to offer the asset as collateral against the loan. 

If you have equity in your home, you might consider refinancing your mortgage and using the funds to pay off your unsecured debt starting with the highest interest rate liabilities. A mortgage generally offers interest rates that are considerably lower than most other forms of debt. 

Consult a Credit Counselor

A credit counselor can help you improve your budgeting skills and in some cases, they may be able to establish a debt management plan or informal proposal that is agreeable to some or all of your creditors. Such a plan would typically involve a single monthly payment at a lower (or no) interest rate. One must use caution in seeking out a reputable organization, keeping in mind that most debt management plans are subject to very limited government regulation and oversight compared to formal, government legislated Consumer Proposals filed by Trustees in Bankruptcy.  In addition, debt management plans are not necessarily binding on all creditors and as a result, creditors opposed to your settlement offer may continue in their collection efforts outside of the process. 

Consumer Proposal

A consumer proposal is a formal, government regulated option that involves the consolidation of all unsecured debt into a single monthly payment. The debts do not continue to accumulate interest and there is a stay of proceeding that stops garnishments (excluding child support), harassing calls and other collection actions. Creditors have 45 days to vote as to whether or not they accept your proposal and it is binding on all unsecured creditors provided a majority based on value of debt accept the proposal. 

Most consumer proposals involve a settlement arrangement whereby creditors are prepared to accept repayment terms that exceed what they would get if you were to file for personal bankruptcy. A consumer proposal cannot exceed 60 months or 5 years and generally involves a monthly payment but is flexible enough to allow for lump sum payments, semi-annual payments or some other unique payment schedule that is appropriate in your situation.

Consumer proposals can include debts to the Canada Revenue Agency and their provincialcounterparts, whereas most debt management plans do not.

Only a government licensed Trustee in Bankruptcy can file a consumer proposal on your behalf.  For many people it is a desirable alternative to bankruptcy as it enables you to retain your assets, involves fewer duties / responsibilities than bankruptcy and generally does not affect your credit as harshly as bankruptcy. 

Consolidation Order / Orderly Payment of Debt

If you live in Alberta, Saskatchewan, or Nova Scotia you may consider applying for a Consolidation Order. Your unsecured debts will be consolidated into one payment with the objective of paying the total amount owing plus 5% interest within three years. The court will establish the payment schedule and distribute the payments. If a creditor has already taken legal action against you, a Consolidation Order may not stop creditors from seizing your assets. 

Quebec has a similar program referred to as a Voluntary Deposit Scheme.

If you would like to further discuss the options available to your unique financial situation, contact your local Trustee for a free, no-obligation consultation. Life-changing debt solutions are available and achievable.

Bradley Milne is a Bankruptcy Trustee within our Brandon location. To learn more about how MNP Debt can help you, contact any our local office at 204.767.0661.