Understanding the facts about debt relief options
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By Bromwich+Smith Staff | 1513 words | Reading Time: 7 minutes | Date: 2023/07/06
There is a common misconception and stigma surrounding the word debt. People shy away from talking about it let alone acknowledging the debt they carry. The truth is nearly 75% of Canadians live with debt and 30% report that they struggle with the amount of debt they carry. The national average is over $21,000 of unsecured debt which can include loans and credit card debt. The good news is there are options to help relieve your debt, and chances are there is a debt relief program that could help you.
Debt Consolidation
Debt consolidation is one of the most common methods of debt relief. Simply put, it is a single loan which combines multiple debts into a single, more manageable payment. This eliminates additional interest, and makes the repayment process simple as you will only have one outstanding debt with one monthly payment to make. By consolidating various high-interest debts, such as credit cards or personal loans, into one loan with a lower interest rate you can focus on repaying the debt faster. This is a great option for those who have a steady income, and the means to pay off their debt in full but just need a little more time to do so. One disadvantage, is that with your unsecured credit paid off, some will fall into the same cycles as before and find their credit yet again maxed out, with the additional loan payment and are now in a worse situation than before.
Consumer Proposal
A Consumer Proposal can be a strong option for individuals struggling with substantial amounts of debt. This method involves working with a licensed insolvency trustee like Bromwich+Smith, to negotiate with your creditors to reduce the total amount owed. The amount that your debt can be reduced will vary depending on your creditor but it is not uncommon to see a reduction between 60-85%. Once a payment plan has been accepted by your creditors, you will enter into a 5 year program making a monthly payment. One disadvantage to a proposal is that there will be an impact to your credit score during and for a set time frame after your proposal. You will have the ability to rebuild your credit during, and will be able to obtain credit for credit cards, or large purchases although it may be with additional terms or higher interest during your proposal. Not all debts are able to be included in a Consumer proposal, including student debt loans under 7 years, alimony, child support payments and some tax debt. Your trustee will be able to provide you a list of which debt will be included and which debts you will be responsible for paying.
Bankruptcy
Bankruptcy is a legal process designed to provide individuals with a redo button, when they are overwhelmed by debt and it is viewed as a last resort. For some individuals, it really is the best option to eliminate debt and to have the opportunity to start over. Not all debts qualify for bankruptcy. Debts that can’t be wiped out are unsecured debts that include student loans that are less than seven years old, court fines, penalties, and child support. Debts that can be wiped out in bankruptcy include credit card debt, personal loans, lawsuit judgments and obligations from leases or contracts.
When you file for bankruptcy, you receive an automatic stay of proceedings, which is a legal order that creditors need to abide by. This order gives you immediate creditor protection, meaning your creditors will no longer be able to contact you for collection of debt or take any legal action against you including wage garnishment.
The downside to a bankruptcy include the need to liquidate your assets. The truth is that you can keep many of your assets through bankruptcy. Some non-exempt assets include RESPs and any contributions you made to your RRSP in the last 12 months. To keep your home after filing a bankruptcy, you would need to pay out the amount of home equity you have—minus any provincial exemptions.
Your credit will have a short term impact just like with a consumer proposal. Again you have the ability to rebuild and it is the goal that over the course of your bankruptcy ( 9 months), and the years following you will walk out having better credit than before.
Finally, there are fees to filing a bankruptcy. These fees are set by the Office of the Superintendent of Bankruptcy and are also based on your income. The office of the superintendent of bankruptcy sets thresholds that determine the various income levels and required payments.
You may have heard the term Insolvent, or insolvencies in the media or online. In order to file for a Consumer Proposal or Bankruptcy, you must first be Insolvent- meaning you are unable to pay your bills. Many Canadians at one point or another will fall into this category, and again there is no shame in needing help. If you find yourself in an overwhelming situation, we hope that you feel confident in your debt relief choice and reach out for help.
At Bromwich+Smith, we have a thoughtful, knowledgeable, and helpful team that is here to support and create a fresh start for you. We offer an initial free, no obligation, confidential consultation by phone 1.855.884.9243 or video. You can also request a call back at our contact us page. Our team of Debt Relief Specialists are here to assist you with unbiased and nonjudgmental support, ensuring you find the right solution that will help you conquer your debt and rebuild your worth today.
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FAQs
1. What is the national average of unsecured debt in Canada?
The national average of unsecured debt in Canada is over $21,000, which includes loans and credit card debt.
2. What is debt consolidation?
Debt consolidation is a method of debt relief that combines multiple debts into a single loan with a lower interest rate. This allows individuals to make one monthly payment, simplifying the repayment process.
3. How does a Consumer Proposal work?
A Consumer Proposal involves working with a licensed insolvency trustee to negotiate with creditors to reduce the total amount owed. Once a payment plan is accepted, individuals enter into a 5-year program making monthly payments. Certain debts may not be included in a Consumer Proposal, such as student debt loans under 7 years, alimony, child support payments, and some tax debt.
4. What is bankruptcy?
Bankruptcy is a legal process that provides individuals overwhelmed by debt with a fresh start. It eliminates certain debts but not all. Unsecured debts that can be wiped out in bankruptcy include credit card debt, personal loans, lawsuit judgments, and obligations from leases or contracts. Debts that cannot be wiped out include student loans less than seven years old, court fines, penalties, and child support.
5. What is the impact of debt consolidation on credit?
Debt consolidation can have a positive impact on credit if managed responsibly. By paying off multiple high-interest debts and focusing on a single loan with lower interest, individuals can improve their credit score over time. However, it's important to avoid falling into the same cycles of maxing out credit again, as it can lead to a worse situation than before.
6. How does a Consumer Proposal affect credit score?
A Consumer Proposal can have a temporary negative impact on credit score. During the proposal and for a set time frame after, there will be an impact on credit. However, individuals can work on rebuilding their credit during this period and may be able to obtain credit cards or make large purchases, although it might come with additional terms or higher interest rates. Not all debts are eligible for inclusion in a Consumer Proposal, so it's important to consult with a trustee to determine which debts are included.
7. What are the disadvantages of bankruptcy?
Bankruptcy has several disadvantages. One major downside is the requirement to liquidate assets, although many assets can be retained depending on provincial exemptions. There is also a short-term impact on credit, similar to a Consumer Proposal. Additionally, there are fees associated with filing for bankruptcy, which are determined by the Office of the Superintendent of Bankruptcy and based on income.
8. How long does bankruptcy typically last?
Bankruptcy typically lasts for a period of 9 months. During this time, individuals receive immediate creditor protection through an automatic stay of proceedings, which prevents creditors from contacting or taking legal action against them, including wage garnishment. The goal is to rebuild credit during the bankruptcy and have improved credit afterward.
9. What does it mean to be insolvent?
Being insolvent means that an individual is unable to pay their bills. In order to file for a Consumer Proposal or Bankruptcy, one must first be insolvent. Many Canadians experience situations of financial overwhelm and seeking help is a reasonable and understandable choice.
10. How can Bromwich+Smith assist with debt relief?
Bromwich+Smith offers a team of knowledgeable and helpful Debt Relief Specialists who are dedicated to providing support and creating a fresh start for individuals. They provide a free, no-obligation, confidential consultation by phone or video. By offering unbiased and nonjudgmental assistance, they help individuals find the right debt relief solution tailored to their needs, allowing them to conquer their debt and rebuild their financial worth.