When to Pursue Debt Relief

Consider bankruptcy, debt management, or debt settlement If any of the following situations apply

• Despite major spending cuts, you cannot pay off unsecured debt (credit cards, medical bills, personal loans) within five years.
• Your total outstanding unsecured debt is greater than 50% of your gross income.

Alternatively, If you have the ability to pay off your unsecured debts within 5 years then consider a self-managed plan, which can involve debt consolidation, creditor negotiations, and a strict budget.

Beware of Debt Relief Risks and Scams

The debt relief includes fraudulent individuals who intent to take advantage of you. Additionally , many people who sign up for debt relief programs fail to complete them, leaving them with even more debt.

However, debt relief does gives you a chance to fresh start and achieve financial relief.

Before entering into any agreements, be certain you completely understand and confirm:

• Qualification requirements
• Fees to be paid
• Creditors being paid and their payment amounts
• Proper debt agency for debts in collections
• Tax consequence

Before looking into debt relief options like debt settlement or debt management, you should consult with a bankruptcy attorney first if you are unable to pay even a smaller monthly payment.  Initial consultations are usually free, and this will give you a better idea of weather it is suitable to pursue bankruptcy.

​

An individual can dismiss the majority of their debts through the legal process of bankruptcy. Voluntary assignment, involuntary assignment, and presumed bankruptcy are the three methods of declaring bankruptcy.

• Voluntary assignment: the debtor transfers property and their assets to the advantage of the creditors.
• Involuntary assignment: A creditor asks a judge to order the debtor's assets to be taken.
• Deemed bankruptcy: When a debtor neglects to submit a necessary bankruptcy proposal or adhere to its provisions. 

​

The Insolvency Intake Centers must receive the court-issued assignment, bankruptcy notice, or first meeting of creditors paperwork. The bankrupt client's business number will normally be closed after discharge.

​

​

You can pay off your unsecured debts, which are often credit cards, in full through a debt management plan, frequently at a lower interest rate or with waived costs. Each month, you give a single payment to a credit counselling organisation, and they divide it up among your creditors. In order to assist debt management clients, credit counsellors and credit card issuers have long-standing partnerships in place.

Your credit card accounts will be cancelled, and until you finish the plan, you'll likely have to go without credit cards. (Many people fail to finish them.)

Your credit ratings are unaffected by debt management methods in and of themselves, but cancelling accounts can lower them. You can reapply for credit after you've finished the plan.

Missing payments, however, may result in termination from the plan. Additionally, it's crucial to choose a company that has been approved by the Financial Counseling Association of America or the National Foundation for Credit Counseling. Even so, be sure you are aware of the costs and any available debt-reduction options.

Want to read more tips like this?

Join my newsletter to keep updated on all my newest hints and tricks.

Terms of Service

Privacy Policy

Bankruptcy as a Debt Relief Option

Debt Management Plan as a Solution for Debt Relief

Debt Settlement as a Path to Financial Relief

Consumer proposal 

Under the Bankruptcy and Insolvency Act, a consumer proposal is a legal procedure that enables people with unpaid debt to negotiate with their creditors for a lower payment. This less drastic option to declaring bankruptcy is a formal offer to settle unsecured debts for less money than is owed.

In a consumer proposal, the debtor collaborates with an authorised insolvency trustee to develop a plan that will be presented to the creditors. The proposal specifies the repayment amount and timetable as well as the amount the borrower can afford. The proposal is put to a vote among creditors, and if the majority of creditors approve, it becomes legally binding on all creditors. The debtor then gives money to the trustee, who subsequently gives it to the creditors in accordance with the contract.

A consumer proposal, which can lower the amount owing and offer a sustainable payment plan, can significantly relieve the burden of debt for people who are struggling with it. Additionally, it halts creditors' legal actions and can prevent the seizure of assets like a home or car. It can be a better alternative for credit restoration than bankruptcy, but it does stay on a person's credit report for three years after the filing date.

Debt Consolidation

You must apply for a consolidation loan in order to consolidate your debt. When applying for a debt consolidation loan, you must provide your lender with information about your income and monthly expenses to demonstrate your ability to repay the full loan amount throughout the new period (often 36 or 48 months).

To get approved for a debt consolidation loan, you might also need to offer more collateral. This could be a co-signer or extra security. Your home, vehicle, or other priceless possessions you own may be considered collateral assets.

When evaluating your loan application, your lender will take into account your financial circumstances by examining your credit score, debt service ratio, and job scenario.

You should be able to provide your most recent income tax assessment, a pay stub, current debt statements, household bills, and any information on your collateral assets in order to make the process as straightforward as possible.

When faced with massive debt and are unable to file for bankruptcy or do not wish to do so, debt settlement is the last option.

Typically, debt settlement firms demand that you stop making payments to your creditors and instead deposit the money in an escrow account. As the money builds up in your account and you fall farther and further behind on payments, each creditor gets contacted. A lesser lump-sum offer and an agreement not to pursue you for the remaining amount may persuade the creditor to accept it out of fear of receiving nothing at all.

Collection calls, penalty penalties, and maybe legal action against you can all arise from unpaid bills. As long as you are still negotiating, debt settlement doesn't end any of it. The settlement offers may not start for several months. The procedure could take years, depending on how much you owe, and ongoing late payments lower your credit score.

Additionally, taxes on the amounts forgiven might be due (which the IRS counts as income). Wage garnishments and property liens may result from lawsuits.

You have two options: either try to settle the debt on your own, or employ a specialist. The Consumer Financial Protection Bureau, the National Consumer Law Center, and the Federal Trade Commission strongly advise customers to exercise caution because the debt settlement industry is rife with dishonest individuals.

Some of those businesses also market themselves as companies that consolidate debt. Not at all. You can consolidate your debt on your own, and it won't harm your credit.