For anyone overwhelmed with financial problems, it is easy to become discouraged. You owe it to yourself to take the first step to get your financial affairs back under control. Contact a professional to discuss the options for dealing with your debts and start the process to regain your financial health.
Take No Action and Let the Creditors Sort It Out
Financial problems often arise due to circumstances that are out of your control. You may be dealing with the stress of these circumstances as well as your money problems. Your first impulse may be to ignore the problem and hope it will go away. Don’t miss the sense of relief you can experience in meeting with a professional and learning what options are available to deal with your debt problems. Unfortunately, if you decide to take no action, your creditors will continue to make demands for payment and may eventually institute court actions for judgments and garnishees. This only increases the stress that you may be feeling.
Contact Your Creditors
It is important to maintain communications with your creditors. Your creditors may be willing to work with you on a payment plan, and even accept lower payments if you explain the difficulties you are experiencing. This may be one of the best options where your financial circumstances are short term, you have only a few creditors and your financial situation is expected to improve.
Contact Your Bank
You may be eligible for a loan from your bank or other financial institution to consolidate your debts. The single monthly payment to your bank, often at a lower interest rate, may be all you need to get back on track.
Contact Your Employer
You may have an employee assistance program available for credit counselling and/or employee financial assistance.
Meet with a Licensed Credit Counsellor
All credit counsellors in BC must be licensed by the Consumer Protection Agency of BC if they are offering debt management programs or other forms of settlement. It is recommended that you search to verify the licensing prior to entering any agreement with a credit counsellor. Other provinces have similar provincial organizations.
When you have a steady income and are able to make regular payments to your creditors but need relief from the numerous minimum payment requirements for each creditor, credit counselling may be a viable option. Credit counsellors can assist you with budgeting, credit and debt related workshops or, in some circumstances, may be able to offer a debt management program. They may be able to negotiate with most creditors on your behalf. Similar to a consolidation loan, you avoid bankruptcy and are able to make a single monthly payment, generally at a lower interest rate. You should contact a Licensed Insolvency Trustee in bankruptcy in your local area to discuss whether this may be a viable option for you.
File a Proposal with a Licensed Insolvency Trustee
When you have a steady income but are struggling to pay your debt, or you have no current income but are anticipating funds or a higher income in the future, it may be possible to settle your debt under The Bankruptcy and Insolvency Act (the “Act”). You may be able to file a proposal with your creditors.
A proposal is essentially a contract between the debtor and creditors that is binding on all creditors providing that a majority in number and value of the creditors vote to accept your proposal. Immediately upon the filing of the consumer proposal, unsecured creditors are stayed from taking any action to collect their accounts. This means any garnishees are stopped and you no longer have to deal with collection calls from your creditors. There are two proposal options available, the first designated for consumer debtors as defined below and the second for other debtors.
Consumer Debtors: Consumer debtors are defined as those individuals owing less than $250,000, excluding the mortgage on their personal residence. This type of proposal under Division II of the Act may set out any payment terms but the length of the proposal cannot extend beyond five years. Once all the terms of the consumer proposal have been met, the debtor will receive a Certificate of Full Performance of Consumer Proposal which means you no longer legally owe the debts in your proposal. In the event that the creditors do not accept your proposal or your consumer proposal fails because you do not meet your payment terms, the Administrator of the proposal must notify the creditors, and you return to the same position as you were prior to filing your proposal. The creditors will then be able to take action to collect their debts from you less any amounts received under your proposal.
All Other Debtors: For those individuals whose debts exceed $250,000, there is a more formal proposal process under Division I of the Act. You should meet with a Licensed Insolvency Trustee to discuss the requirements for this type of proposal.
File an Assignment in Bankruptcy under the Bankruptcy and Insolvency Act
You can file a voluntary assignment in bankruptcy if you owe at least $1,000 and are unable to meet your debts as they become due, have ceased making payments to your creditors, or the realizable value of your assets is not sufficient to meet all your obligations. An assignment in bankruptcy must be filed with a licensed trustee in bankruptcy. Upon filing the assignment in bankruptcy, you receive an immediate stay against your creditors, which halts any garnishees and collection calls from your creditors.
Although it is your decision on whether to file a bankruptcy, if, in the opinion of the trustee, you had sufficient income during your bankruptcy to make a viable proposal to creditors, the trustee is unable to recommend your discharge without first requesting mediation with the Office of the Superintendent of Bankruptcy. The purpose of the mediation is to extend the payment terms in your bankruptcy.