It’s easy to fall behind on bills, but sometimes you get so far behind it seems like there’s no way to catch up. If you’re buried in debt, don’t panic. Take a look at these options for debt forgiveness and regain your financial peace of mind.
Negotiating With Creditors
It’s important to keep the lines of communication open between you and your lender. If you are having trouble making timely payments, consider discussing your difficulties with your creditors. Most lenders are willing to discuss changes that make it possible for you to make on-time payments and pay off your debt.
If you have a regular income, you may be able to negotiate a partial debt forgiveness by requesting
- a lower interest rate,
- a longer time to repay your debt,
- forgiveness of over-limit and late fees, or
- a reduction in the amount you owe.
Creditors are often willing to listen to a well-prepared plan that works for both of you. By negotiating with you, your lender avoids losses due to a bankruptcy or proposal. In return, you get an affordable repayment plan. It’s important to honor each aspect of the negotiated plan; one late payment can cause a cancellation of the agreement. Once an agreement is reached, it is important to get it in writing. That will prevent the creditor from changing terms without consultation.
Negotiating like this generally only works one creditor at a time. If you have several creditors, it may not be the solution.
Consumer Proposal
If you have unsecured debts with several creditors, or if the creditor refuses to negotiate with you, or even if the thought of negotiating on your own is overwhelming then a Consumer Proposal may be the best thing for you. A Consumer Proposal is a legal option that allows you to settle with your creditors for less than you owe. It also stops all collection efforts such as annoying calls, garnishments, and liens. A Consumer Proposal can only be filed through a Licensed Insolvency Trustee (LIT).
A Licensed Insolvency Trustee will meet with you and help you determine if a proposal is a good solution to your debt problems. The trustee’s help is required by law. Your trustee will explain how a proposal will affect you, now and in the future, and work with you to determine how much you can afford to pay, and for how long. (Proposals cannot last more than 5 years.) If you decide to file a proposal, the trustee will draw it up and once you have reviewed and signed it, they will send it to your creditors and file all the necessary paperwork.
Your creditors are given the opportunity to vote for or against the proposal. If your proposal is accepted, you can make either a lump-sum payment or regular monthly payments to your trustee. The LIT distributes the payments to your creditors. You will be required to attend two financial counselling sessions during the duration of the proposal.
Bankruptcy
If you do not have a secure income that can support payments under a Consumer Proposal, or if you need to be out of debt quickly, then a bankruptcy may be your best legal option. Again, a Licensed Insolvency Trustee is the only professional who can file bankruptcies in Canada. The LIT will explain the process and help you determine if a Bankruptcy would be your best option.
During an initial consultation, your trustee will review your financial situation and help you understand how bankruptcy will affect you now and in the future. Once you have signed the documents, you are considered bankrupt and will have specific duties required of you during the bankruptcy. Like a proposal, there are two mandatory financial counselling sessions. As well, you will be required to report your income and expenses each month during the bankruptcy to your trustee.
Payments under a bankruptcy are based on guidelines published annually by the Government of Canada. The guidelines indicate how much income is required for families of various sizes. If your income is over the guidelines, you will be required to pay 50% of the extra to the Trustee for the benefit of your creditors. If your income is below the guidelines, you will be paying a simple monthly minimum to the Trustee to cover costs.
In Manitoba, many of your assets are exempt from seizure, so you will be able to keep your household furniture and personal effects, tools of your trade, including a vehicle (within value limits) and, if you can keep up your mortgage payments, and there is not a significant amount of equity in your home, you should be able to keep that as well. Registered pensions and RRSP’s are also exempt, so you should not lose those. If you have any assets that are not essential — for example, a vacation home or motorboat — they will be sold for the benefit of your creditors.
If this is your first filing, and you have no surplus income, your bankruptcy can be discharged after 9 months. If you are required to make surplus income payments, you will likely be in bankruptcy for 21 months.
If your debts are out of control, a meeting with a Licensed Insolvency Trustee can help you find out your options for debt forgiveness. Give us a call at 204-925-6400, or send an email to questions@lctaylor.net. We will help you to explore your options.
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Jillian Taylor-Mancusi, LIT
