True Debt Solutions Are Something To Be Thankful For

2016-10-10   minute read

Debt Solutions

Alternatives to Bankruptcy

Trying to manage debt can be a highly stressful matter for anyone to handle, especially during the holiday season. The good news is, there are a number of options available, each one suited to a particular individual’s financial situation.

One option, is to contact your creditor(s) yourself. In many cases, this may be the least costly in regards to fees. You contact each creditor, negotiate a settlement and then proceed to make the agreed upon payments. In this scenario, there are no outside consultant fees. There are a few negatives to this option. For instance, creditors are not obligated to settle a reduced payment, you will likely have different arrangements for each creditor and depending on the number of creditors you will have multiple payments to make each month. Another danger behind negotiating payments on your own behalf is that, unless there is an executed legal document, a creditor may change the terms at any time.


A second option available, is to use the services of a debt management company. There are two types of debt management companies, for profit and not-for-profit.

For Profit

For profit companies charge a fee for the services they perform, which are similar to what you could do yourself. They negotiate a settlement with your creditors, collect the payment from you and then they make the payments to the creditors. The payment you make to the debt management company will include a fee. In certain provinces such as Ontario, Alberta, Manitoba and Nova Scotia, the way fees are charged are regulated, but in the other provinces there are no regulations, so it is buyer beware in regards to the amount of fees they charge and how they collect them. In many instances these fees are paid before any amounts are paid to the creditors.


As an alternative, there are not-for-profit organizations. These organizations offer similar services and most are accredited members of Credit Counselling Canada. Not-for-profit organizations have already made arrangements with most credit card companies to allow an interest free repayment plan for their clients. The fees that they collect are a small percentage of the total amount you pay and they only get paid as the creditors are paid. Though they are able to get interest charges stopped, the full amount owed will have to be paid and certain types of creditors cannot be included.

Licenced Insolvency Trustees

Finally, there are the options Licenced Insolvency Trustees (“LIT”) can offer. LIT’s are licenced by the federal government and all creditors and debtors are subject to the rules and regulations of federal insolvency legislation. Only LIT’s can file a Consumer Proposal or personal bankruptcy on your behalf.

A Consumer Proposal is a method of compromising or repaying only a portion of your total debt. A LIT will review your unique financial situation and discuss a manageable repayment plan that meets your financial needs. The Consumer Proposal is then registered with the federal government and presented to the creditors and if a majority of creditors, in dollar value, agree to accept the Consumer Proposal, then all creditors must abide by it by law.

The LIT’s fees in a Consumer Proposal and personal bankruptcy are regulated by federal law and they are paid as set out in federal regulations.

A personal bankruptcy is a process where you do not repay your creditors any amounts. You will need to meet with a LIT who will prepare the necessary documents for you to sign and file them with the federal government. You will not have to repay any amounts you owe to the creditors, but will be subject to the surplus income regulation and will have to surrender any non-secured assets that are not exempt pursuant to provincial laws. As a result, in most cases, personal bankruptcy suits individuals with low income who only have secured assets and /or non-secured assets that are classified as exempt assets. Individuals who have higher income and have unsecured non-exempt assets usually elect to file for a Consumer Proposal.

It is highly recommended that you review all of your options with a LIT who will be able to fully explain the pros and cons of filing a Consumer Proposal or personal bankruptcy so you can make a fully informed decision surrounding which route is best for you as you work towards a strong financial future.

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