Debt solutions explained
Another demand for payment has fallen in your lap – the second this week. You shake your head, with one thought: “I can’t pay my bills.” This is a familiar issue today. If the problem is caused by a short-term cash flow glitch, you may be able to ride it out. You may need to decide who is going to get paid this week. You may need to juggle your bills. But soon you’ll be back on track.
However, if it is an issue that has been going on for some time, you may have some tough choices. Often, the best option will be to make a Consumer Proposal or declare bankruptcy. Here’s why.
What happens if I can’t pay my bills?
If you don’t pay your bills, your creditors will start sending reminder letters. Then those letters become demands for payment. If you still don’t pay your bills, the debts are likely to be sent to a collection agency. Things get messier from here. You’ll now deal directly with debt collectors. They may try to bully you into paying more than you can afford. This will make your debt problem worse.
For many people in this situation, bankruptcy will be the best solution. Alternatively, a Consumer Proposal could be the best route out of debt. We’ll examine why in a moment. First, let’s look at the alternatives.
If I can’t pay my bills, should I just ignore them?
Ignoring your debts won’t make them go away. They will just mount up. Eventually, you’ll be faced with a mountain to climb and debt collectors on your back as you do so.
Avoiding the issue of your debt like this only works in two cases:
- If you genuinely own nothing of value that can be taken to settle your debts and have no income
- If you are on a pension and own nothing of value, you may be protected under Canadian law
These two cases apply to very few people. If you have a job, your creditors are likely to use wage garnishment to take their payment before you get your wages. This is going to make paying other debts harder. It’s going to make living harder. You may find your assets are grabbed, too.
In short, don’t ignore your debt. Acknowledging “I can’t pay my bills” is the first step to a genuine solution.
If I can’t pay my bills, should I consolidate my debts?
Another possible solution is debt consolidation. You borrow to repay what you have borrowed.
On the face of it, debt consolidation is a viable solution. You replace a multitude of debt payments with one easily managed payment per month. Instead of paying extortionate interest rates (like those on your credit cards and store cards), the interest rate is much lower. Thus, your monthly payments will be lower.
However, there are downsides to debt consolidation. For example:
- You still owe the money
- You will probably be making debt payments for longer
- Many people who use this method find they start spending on their credit cards again, and their debt problems escalate
Debt consolidation loans can also be difficult to obtain. Many lenders will only consolidate their own lending, so you may have several consolidation loans.
Borrowing money to repay borrowed money. It’s a little like using a naked flame as first aid treatment to a burn.
Should I consider a Consumer Proposal if I can’t pay my bills?
If you are shaking your head, thinking, “I can’t pay my bills”, a Consumer Proposal may be the ideal solution. Here is how a Consumer Proposal works:
- A Licensed Insolvency Trustee negotiates with your creditors.
- They arrange a manageable payment for you to make each month.
- This payment is based on what is affordable for you to pay, and how much your creditors may receive if you filed for bankruptcy. Your debt could be reduced by as much as 90%
- You make these payments for a maximum of five years.
- No further interest is added to your debt.
- At the end of your payment period, your total debt is declared paid in full.
A Consumer Proposal that is agreed to by more than 50% of your creditors is binding on all your creditors. While in force, your assets are protected. This means you get to keep your home and live your life, free from the debt stress.
Should I consider bankruptcy if I can’t pay my bills?
Bankruptcy has a reputation for being the option of last resort. However, for many, it is the most sensible option. If you file for bankruptcy:
- Wage garnishments cease immediately
- You no longer need to deal with collection agencies
- You could be debt free in as little as nine months
In a bankruptcy, depending on the province in which you live, most, if not of your assets, will be exempt from seizure. The Trustee will go through this in detail with you, in case there are any non-essential assets that might be liquidated for the benefit of our creditors.
Whether looking at a Consumer Proposal or bankruptcy, there are a few debts that do not get discharged by the process. Statutory debts like alimony and student loans less than 7 years old are not discharged in either a proposal or bankruptcy.
In this podcast, Leigh Taylor talks about getting help with your debt sooner rather than later – where and when to reach out.
“I can’t pay my bills. Where do I turn to for help?”
If you are battling against debt, contact LCTaylor today. As Licensed Insolvency Trustees, we are the only ones able to advise on and arrange Consumer Proposals and bankruptcy. We’ll talk to you in confidence. Together, we’ll ensure that you take the best course of action for your personal financial situation.
Make that call. Use our online contact form.
Jillian Taylor-Mancusi, LIT
