Coping with Financial Difficulty By Declaring Bankruptcy in Canada

Declaring Bankruptcy in CanadaThere are few things any of us face in life as stressful as the monthly ritual of staring at a stack of bills and a checking account balance that doesn’t quite match up to the task.  Although economic conditions in Canada are improving, there are still thousands of citizens in desperate need of whatever means they can find for coping with their financial difficulties.

Some turn to personal budgeting in an attempt to reduce expenses enough to allow more income to go towards reducing their total debt.  In the short term, any positive action one can take towards debt reduction reduces stress.  In the long term, there is the added stress of the prolonged period of personal sacrifice required to pay down that debt.

Other Canadians turn to debt consolidation loans for relief from the burden of their total monthly debt repayments.  While this approach does not reduce the total owed, it does significantly reduce the total income going towards repayment each month.  However, qualifying for this kind of debt help is beyond the means of many Canadians.  You must have good credit, a stable source of income and collateral like the equity in your home.

Beyond those two solutions, there are approaches that involve hiring professional help to negotiate changes in the way you are repaying your unsecured creditors directly with the creditors.

For Canadians with moderate levels of debt, there are debt management plans and an orderly payment of debts where you repay the full amount you owe over a period of not more than 3 years.  A professional credit counselor works with you to determine a monthly amount you could afford to make towards debt repayment.  Creditors reduce the interest rates they charge and agree to accept a lower monthly payment stretched over a longer period.  Your credit accounts are closed.  Debt management plans do not protect you from legal action from your creditors.  An orderly payment of debts, which is only available through approved credit counselors in Alberta, Saskatchewan, or Nova Scotia, is a legal proceeding that affords protection from Canadian courts.

For Canadians with high levels of debt, there are debt settlement plans and consumer proposals.  Both involve a lower monthly payment, but the plan provider negotiates reductions in the total you owe.  Debt settlement plans have no legal standing while consumer proposals have legal protection.

The last option most Canadians think of for coping with their financial difficulties is declaring personal bankruptcy.  However, the truth is bankruptcy is the only option that eliminates both the total unsecured debt and all payments towards the debt.  As opposed to the alternative solutions where you still contribute a substantial portion of your monthly income towards debt repayment, in a bankruptcy filing you are no longer responsible for any of your unsecured debt repayments.

While some higher income filers do contribute some of their monthly income towards debt repayment in bankruptcy, it is far less than the monthly payment they would make under any other plan. 

There are negative consequences to bankruptcy you definitely need to consider.  Our laws protect all Canadians from losing all they own in a bankruptcy, but they are different across provinces and depend on the current value of what you own.  To get an accurate and detailed picture of how declaring personal bankruptcy in Canada could help you cope with your financial difficulties, schedule a free initial consultation with a bankruptcy trustee licensed in your province at your earliest convenience.

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David Smith

About David Smith

David was initially drawn to accountancy because he was 'good with numbers'.
He has been an insolvency professional since 1993.   Soon after he began to work with debt issues he discovered that the most satisfying part of his role was the ability to make a positive difference in other people's lives.   It is the person, not the numbers that continues to guide his approach toward helping others deal with debt issues.

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