Bankruptcy Alternatives When you can’t pay your bills If you can’t pay your bills, you are not alone. Almost everyone reaches this point at one time or another. Like most of them, you may think the only way out in Canada is bankruptcy. Alternatives are available, and this page outlines your options for you.
Non-payment is a non-option!
You may feel so overwhelmed enough that you just try to carry on without paying. This will only make matters worse: One payment missed: IF you have a good borrowing history, your creditors may simply send you a polite reminder letter.
Two payments missed: You will get a strongly worded letter, and possibly also a phone call, demanding payment.
Three payments missed: Each creditor will enlist a Collection Agency to press you for payment. Collection agencies will make your life unpleasant, using a variety of tactics to get the money, including threats.
If you still don’t pay, stronger methods can be used against you.
Your best bet to make things better is to act immediately. Let us help you choose your best solution. But I can’t pay my bills! Do I have any alternatives?
Yes! The good news is that, of several bankruptcy alternatives in Canada, at least one would probably be right for you. Imagine stopping those harassing calls and letters! Here are your main options, in order of priority: Learn better money management Create a budget, by listing all your monthly income and expenses. Analyze it to see if you can raise your income or lower your expenses. Use all the cash you free up to repay your debts. Realize that a lot of what you are buying is not necessary. Don’t waste your money by giving in to impulse buying. Get rid of most of your credit cards as soon as you can pay them off. Also, rebuild your credit rating, to get necessary credit more easily and at lower interest rates. You can get free help with budgeting and other money management skills, from a professional credit counsellor.
Get a Debt Consolidation loan
Replace your unsecured debts with a single debt consolidation loan, with one monthly payment, a lower interest rate, and possibly a longer payment period. If, like most people, you have much of your unsecured debt in high interest credit cards, the lower interest cost will make it much easier to get back in the black.
See a credit counsellor and consider a Debt Management Plan
A credit counsellor can help you build money management skills, and may negotiate with your creditors to set up a debt management plan, with a single monthly payment and lower interest costs, spread over up to four years. Filing Bankruptcy in Canada: Minimum Amount of Debt Needed According to the Bankruptcy & Insolvency Act, the federal legislation that governs the bankruptcy process in Canada, the minimum amount of debt needed for filing bankruptcy in Canada is $1,000 or greater. However, very few people with $1,001 in debts go bankrupt. In fact, a study done in 2005 states that an average person filing bankruptcy in Canada has unsecured debts of around $50,000. The answer to the question is simple: If your debts are more than you are able to repay in a reasonable period of time, you should consider consumer proposal or filing for personal bankruptcy in Canada. A person with a high income may be able to service $100,000 in debts without any problems. Another person with a lower income and higher expenses, perhaps due to a larger family, may have great difficulty servicing $10,000 in debts. The person with the lower debts may be a candidate for bankruptcy protection, while the person with higher debts may be able to service them on their own. If you are feeling a great deal of stress because of your debts, or if you are already receiving calls from collection agents at home and at work, it is time to take action.
Consumer Proposal vs. Bankruptcy: Why Choose Consumer Proposal Over Bankruptcy?
This is a great question: a personal bankruptcy would be over quicker, so why would anyone choose a consumer proposal over bankruptcy? The first reason is that many people don’t want to go bankrupt. They know they owe the money, and just want a plan to repay it. A consumer proposal provides peace of mind, and they avoid bankruptcy. Another reason is that a bankruptcy is not automatically over in nine months: If you have been bankrupt before, your bankruptcy will not end in nine months. Also, If you have significant surplus income, again, your bankruptcy will not end in nine months. The government each year determines how much you are allowed to earn while bankrupt (depending on the size of your family and some other factors). If you have significant surplus income, it is likely that your bankruptcy will be extended for another year and perhaps even longer. Further, there is a difference between a consumer proposal and bankruptcy in the way your income increase is treated: each month during the bankruptcy you are required to report your income to your trustee. If your income goes up in that time period (perhaps because you got a new job, a raise, or more overtime at work) the amount you are obliged to pay will also increase. With a proposal though, if your income increases after the deal is done your payments stay the same; so, if you are an optimist, you will probably want to file a proposal. Finally, in a bankruptcy you may lose certain properties (such as valuable cars, houses, certain RRSPs), whereas in a proposal you can retain your assets. For example, if you own a car (that you would, possibly, lose in a bankruptcy), and need it to get to work, a proposal may be the logical option for you. Bankruptcy Canada: Orderly Payment of Debts What is Orderly Payment of Debts? Orderly Payment of Debts (OPD) is a debt payment alternative to bankruptcy in Canada, offered under the Bankruptcy and Insolvency Act OPD is available only in Alberta, Saskatchewan, Prince Edward Island, and Nova Scotia. If you live in one of these provinces, an OPD program (also known as a “consolidation order”) may be a suitable solution to your debt problems. (Manitoba and British Columbia had OPD programs, but have cancelled them.) OPD is similar to consumer proposals, but considered to be a less drastic solution. It extends the time (up to three years) to pay off your debts, and is legally binding on your creditors. However, it differs from proposals in that you cannot freeze the interest or negotiate a reduction to the principal. Features of Orderly Payment of Debts Creditors are contacted on your behalf
Consolidates all your unsecured debts
One monthly payment, based on what you can afford to pay
Repays your debts in full in three years or less
Interest rate reduction of 5%
Legally binding on your creditors
Protects you from legal actions (such as garnishment) and credit harassment
You keep your assets, such as your house and car.
You have help from a counsellor
You are strongly encouraged to learn budgeting and credit skills at free workshops
You can learn how to rebuild a good credit rating
Avoids more extreme solutions, namely consumer proposals and bankruptcy Second Time Bankruptcy and Bankruptcy Discharge Bankruptcy is a legal process. A difference between first and second time bankruptcy is that in a case of second-time bankruptcy you are not eligible for an automatic bankruptcy discharge in as little as nine months - as is the case when personal bankruptcy is filed for first time. Under new rules passed by the government in 2005, set to become law in mid 2006, a second-time bankrupt is eligible for an automatic discharge in 24 months, provided he/she has no surplus income. If there is surplus income, the debtor will be eligible for an automatic bankruptcy discharge in 36 months. Surplus income is defined as the amount of money you earn over the government threshold in one month time period. If a creditor opposes your bankruptcy discharge, your second time bankruptcy could last longer than the minimums set out above. In some cases a consumer proposal is a better option than a second bankruptcy, since by filing a proposal you have certainty over what you will be required to contribute during the process.
Bankruptcy After Retirement: Do Retirees Need To Go Bankrupt?
Unfortunately it is possible for people of all ages to get into financial trouble, and retirees in Canada are no exception. Once you retire your income goes down but expenses like rent, groceries and utilities may not, which can leave you in a financial bind. As a result, seniors may resort to credit cards and other forms of borrowing to maintain their lifestyle. This debt can cause problems. If you get behind on your debt payments, the creditors start calling, which is a serious nuisance for someone who is home most of the day. Therefore, yes, some seniors do file for bankruptcy after retirement, but do retirees need to go bankrupt? Should you consider bankruptcy? It is important to realize that bankruptcy eliminates most of your debts, but that is not the reason most people file for bankruptcy in Canada. For most people, personal bankruptcy is a way to get protection from their creditors (which is why it is often called bankruptcy protection). Protection from creditors means preventing creditors from garnisheeing wages or seizing assets. Since most people in financial trouble do not have many assets, the most common reason for filing bankruptcy is to prevent a wage garnishment. If you are retired, you do not have wages, and therefore you do not have wages that can be garnisheed. It is very difficult, if not impossible, for a creditor to garnishee a pension. Therefore, the answer to the question "do retirees need to go bankrupt" is no - most seniors do not need to file bankruptcy after retirement because usually they don't need that kind of protection. Our advice for retired people in financial difficulty is as follows: First, consider talking to a non-profit credit counselor for impartial advice. Second, if you are still considering bankruptcy, talk to a licensed bankruptcy trustee near you. Third, if you decide to try to avoid bankruptcy, we recommend that you open a new bank account, with a new bank, so that your existing creditors cannot access your account. Have your pension and other income deposited to your new account, and pay your rent and other monthly bills (phone, utilities) from the new account, but do not make any payments on your debts from this new bank account. Finally, when the creditors phone, simply tell them you are on a pension and can’t afford to pay, and hang up. Eventually they will stop calling. If that is too stressful, you could change your phone number to a new, unlisted phone number so they can’t contact you.
Should You File a Consumer Proposal or Opt for a Debt Management Plan?
Consumer proposal & debt management plan: similarities
1. Both consumer proposal and debt management plan involve you making payments to your creditors over a period of time.
2. They both combine your unsecured creditors so you only make one payment each month, instead of trying to make payments to many different creditors each month.
3. They both have an equal impact on your credit report. Consumer proposal & debt management plan: differences
1. Debt management plan is administered by a credit counselor while a consumer proposal is administered by an Administrator, typically a licensed trustee in bankruptcy.
2. In a debt management plan you are required to repay all of your debts in full; all future interest is forgiven. In a consumer proposal you may not necessarily be asked to repay your debts in full. You will make payments based on what you can afford, which may not be the full amount you owe.
3. Filing a consumer proposal is a legal process, and it stops wage garnishments and other collection action. Garnishments only stop in a debt management plan if the creditor agrees to stop them.
4. In a consumer proposal debts to Canada Revenue Agency can be included. It is difficult, although not impossible, to include tax debts in a debt management plan. Why Is It Important to Prepare a Personal Budget Before Filing Bankruptcy?
A personal budget is a list of what you earn in a month, and what you spend. On your income list you will show your paycheques, and any other income you receive, such as child support, pensions, unemployment insurance, and child tax credits. Common expenses will include rent or mortgage payments, groceries and food, hydro and gas for your home, and car expenses such as car payments, gas, insurance, and repairs and maintenance. It is important that you prepare a personal budget before filing bankruptcy for a number of reasons: First, you need to know where your money goes to decide if bankruptcy is even necessary. You are considering personal bankruptcy in Canada because of your debts. Perhaps by making a personal budget and determining where you can cut expenses, you may be able to repay your debts on your own, without needing to go bankrupt. Second, if you prepare a budget before filing bankruptcy, you might realize that you that you can afford a consumer proposal, and therefore a bankruptcy may not be necessary. In a typical consumer proposal you make one payment each month that is distributed to your creditors. Your budget will show you whether or not you can afford that kind of payment. Finally, in a bankruptcy you are required to make a payment to your creditors based on your surplus income. The higher your earnings, the more you are required to pay. Creating a budget before you file for bankruptcy will help your trustee determine the cost of your bankruptcy in advance. In addition, don't forget: once the bankruptcy is over, you will need a personal budget to help you manage your money and avoid financial problems in the future. What Bankruptcy Alternatives Are Available to Me? You can’t pay your bills, and solutions you have considered include money management skills, a debt consolidation loan, and credit counselling with a debt management plan. Here are some more alternatives to bankruptcy in Canada. 4. Orderly Payment of Debts
An Orderly Payment of Debts program can be arranged with your creditors, with a single monthly payment geared to what you can pay, lower interest costs, protection from legal actions, and extensive help to learn financial skills (available only in Alberta, Saskatchewan, PEI, and Nova Scotia). 5. Make a Consumer Proposal to your creditors
A bankruptcy trustee can make a consumer proposal to your creditors, in which you make set payments you can afford for up to five years, which are distributed to your creditors. It may be a great bankruptcy alternative if you have more debts than you can handle, but a stable source of income. As soon as the proposal is filed, your creditors are prevented from taking you to court or garnisheeing your wages. They have 45 days to accept your proposal. Once accepted, a proposal is legally binding on all your creditors and stops all legal actions against you. In most proposals you end up paying no further interest on your debts, and you pay less than the full amount owing, because your creditors would rather accept a deal where they get something, than have you file for personal bankruptcy where they will get less. A proposal is better than bankruptcy for you too. You get to keep your house and other assets. At the end of the proposal period, your debts are discharged, and your credit is not as badly affected as in a bankruptcy.
6. File for bankruptcy.
Bankruptcy in Canada is your final option. If you cannot pay even a significant fraction of what you owe, you can file for bankruptcy, through a bankruptcy trustee. Referred from: (http://www.bankruptcy-canada.ca) |