Personal Debt Solutions Canada - Plans for Managing Debt
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Debt Pooling and Debt Management Plans
More and more Canadians are finding themselves unable to pay all their bills every month, leading some to think that bankruptcy is their only option; this is not true as there are other options.
Are you among the Canadians who stuggle to pay their bills every month?
If you find that you are sinking further into debt each month even after your best efforts to get ahead, there are several options available to you in Canada to help you reach your financial goals and these options can be categorized as "Credit Counselling". Under this umbrella term, you can also find Debt Pooling or Debt Management Plans. These are all "informal or unregulated plans" where and agency that is generally unregulated will approach your creditors on your behalf to see if your creditor will accept less interest or lower payments. It is important to remember that anyone can call themselves a Credit Counsellor.
Remember not all Credit Counsellors are created equally!
The Credit Counselling agencies advise your creditors that you are having financial trouble and will now be making monthly payments directly to the agency, not to the creditor. Usually the creditors will close your account and may reduce the rate of interest they are charging you. As you continue to make your payments to the credit counselling agency, the agency will pay back the full amount or 100% of the debt that you owe each creditor. Some agencies will charge you fees on top of your payments for their service and some also receive donations from the Banks and credit card companies.
The advantage to the creditors is that although it takes longer, eventually they collect all of their money. It is in the creditor's best interest that you avoid bankruptcy, where they would generally get significantly less, if anything. The big advantage to you is that you are able to decrease your total monthly payments to your creditors to a single, affordable payment you make directly to the credit counselling agency.
Although there is some negative affect to your credit rating, the bigger disadvantage is that the agreement has no legal standing as it is not legally binding on your creditors. This means that your creditors can change their minds and you could find yourself in a situation where you continue to receive garnishments and collections proceedings
Separate yet somewhat similar to "Credit Counselling" or "Debt Management Plans" is a Consumer Proposal. This is a formal process where all parties, including you and your creditors know exactly the outcome of the process and how much if any fees you will pay and will bind all your creditors under law to any accepted plans. An amendment to the Bankruptcy and Insolvency Act brought this alternative to debtors about 15 years ago, so many Canadians are unaware of its existence and how it can benefit them. Consumer Proposal must be administered by Trustees in Bankruptcy, due in part to their extensive training, education and oversight..
A Consumer Proposal has some similar attributes to Credit Counselling or Debt Management Plan in that you will be making a single reduced payment, however, the most significant difference is that you will not have to pay back the full amount you owe to creditors. Your trustee, who will help you administer the Consumer Proposal, will help you negotiate with your creditors to find a lower amount that you are to pay which could be anywhere from 40% to 90% LESS than the original debt. Unlike a Debt Management Plan, a Consumer Proposal provides you with a Stay of Proceedings which is your protection from legal actions against you such as garnishments, phone calls and seizure of assets by the unsecured creditors.
Find out what where your financial situation is currently
To find out if your personal situation is right for a Consumer Proposal you should meet with a Trustee in Bankruptcy for a Free Consultation. A Trustee in Bankruptcy is the only one in Canada licensed to act as an Administrator under a Consumer Proposal. A Canadian Trustee will sit down with you and analyze you personal situation to find out if a Consumer Proposal is the right option for you. A detailed analysis of your family's monthly budget will help you and the Trustee decide how much, if any, to offer to pay to your creditors on a monthly basis. The repayment offer that you make to your creditors will be based on an estimate of your ongoing ability to make these payments without going further into debt.
If you are struggling financially and looking for information to understand the different options available to a consumer debtor in Canada, , the sooner you visit a licensed trustees in bankruptcy, the better off you will be. Trustees are the most highly trained and educated Debt Consultants in Canada and will give you information and advice to help you sort through and find a debt solution option that is right for you.
Contact a Trustee in your area today for your free consultation by filling out our "Get Started" information.
To help you calculate the cost for each of your options, go to our Debt Calculator.