If your debt feels out of control and you’re struggling to pay your bills, you may be wondering what debt relief solutions are available in BC and which ones are right for you?
A Licensed Insolvency Trustee (LIT) can help you compare debt relief options and help you decide on the best solution for your situation.
Here’s an overview of the debt relief options in BC offered by a LIT.
Consumer Proposal
Despite some companies or websites claiming to provide government debt relief solutions, a Consumer Proposal is the only government-supported debt relief program in Canada. A LIT is the only professional in Canada who’s able to offer a Proposal.
In a Proposal, you work with a LIT to develop an offer to:
- Repay your creditors a percentage of what you owe
- Extend the time you have to pay
- Or both
The amount you have to pay in a proposal is based on your financial situation and what your creditors are willing to accept.
If your proposal is accepted and you complete all of the terms, you’re legally released from the debts included in your proposal.
Will a Consumer Proposal affect your credit score?
The Office of the Superintendent of Bankruptcy (OSB) reports all Consumer Proposal filings to Canada’s credit reporting agencies, Equifax and TransUnion.
A Consumer Proposal can stay on your credit report for:
- Three years after you pay off the debts included in your proposal or
- Six years after you sign the proposal, whichever is sooner
Personal Bankruptcy
No one wants to file for Bankruptcy. However, if you are drowning in debt and can’t pay your bills, it might be your best option to get you back on your feet. While Bankruptcy can seem scary, it’s not meant as a punishment. Instead, Bankruptcy is designed to help honest Candians get a fresh financial start.
Like in a Consumer Proposal, a LIT is the only professional in Canada who can administer a Bankruptcy filing. During Bankruptcy, your LIT will sell off many of your assets to raise money to pay back your creditors. In BC, certain items are exempt from sale.
Some examples include:
- Unsecured furniture and household appliances up to $4,000
- Clothing
- Food
- Medical and dental aids
- Work tools up to $10,000
If your income exceeds the amount a family needs to maintain a “reasonable standard of living” as defined by the OSB, you may have to make surplus income payments.
A first time Bankruptcy with no surplus income payments takes about nine months. If you have to make surplus income payments, it will take 21 months. When your Bankruptcy is over, you’re released from most of your unsecured debts.
Will personal Bankruptcy affect your credit score?
Similar to a Proposal, the OSB will report all Bankruptcy filings to the credit reporting agencies.
A Bankruptcy can stay on your credit report for up to seven years after you’re discharged if it’s your first Bankruptcy. A subsequent 2nd Bankruptcy will stay on your credit report for 14 years after you’re discharged.
Debt consolidation
Debt consolidation involves rolling up multiple debts into one monthly payment. You can do this by taking out a debt consolidation loan or a balance transfer credit card and using it to pay off multiple smaller debts.
The goal is to find a loan that offers a lower interest rate so you can lower your monthly payments and put the extra money towards your debt.
To get a debt consolidation loan or balance transfer credit card that offers a lower interest rate, you’ll need a solid credit score. If you’re struggling with debt and your credit score has suffered, this may not be an option.
Will debt consolidation affect your credit score?
Any time you take on a new loan that requires a hard credit check, this can impact your credit score. However, if you can get a consolidation loan with a lower interest rate than you’re currently paying, this can help you pay off your debt faster. If you’re able to make all of your payments on time, this can help your credit score.
Credit counselling
A credit counsellor can help you navigate your debt situation and teach you financial skills such as how to make a budget or manage credit.
In Canada, there are both for-profit and not-for-profit credit counselling services. Before you choose a counsellor, make sure you research the agency’s reputation.
In addition to providing financial education, a good credit counsellor can also offer Debt Management Plans (DMPs).
Debt Management Program (DMP)
A debt management plan is an informal proposal made by your credit counsellor to your creditors on your behalf. Your counsellor contacts your creditors to see if they’re willing to reduce or eliminate your interest payments or fees, or if they’ll extend the time you have to repay your debts.
A DMP is not a legal process and your creditors do not need to agree to your counselors request.
If your creditors accept, you’ll have to make regular monthly payments to your credit counsellor, and they will pay your creditors. You still have to pay back your entire debt, you just might save on interest or fees. Once you satisfy the terms of your DMP, you’re released from those debts.
Before signing up for a DMP, make sure you understand how much it will cost. Some examples of the fees to look out for include:
- Initial set-up fee
- Administration fee
- Membership fee
- Fee for each creditor
While it’s possible for your credit counsellor to reduce or eliminate your interest rate in a DMP, there’s no guarantee. If your creditors don’t want to negotiate, it’s possible you’ll end up spending money on the DMP and you could end up in a worse financial position than when you started.
Will a debt management plan affect your credit score?
Yes, a DMP will stay on your credit report for two years after you complete the program.
Comparing Debt Relief Options: Which One is Right For You?
With an overview of the different debt help solutions available in Canada, which one is right for you? If you have questions or want help comparing debt relief options, speak to a LIT at Allan Marshall & Associates Inc.. No matter how much debt you owe, we can help you find the solution.
For a free debt relief consultation give us a call at 1-888-371-8900 or complete our online contact form.
