Whether you’ve been laid off or you’re dealing with a serious health issue, many scenarios may prevent you from paying your debt on time. In these situations, you can reach out to your creditors to see if they’re willing to reduce your payments or even forgive your debts.
In this article, we discuss how you can write a debt release letter to try to find debt forgiveness for compassionate reasons. We also highlight other debt solutions you can consider if you’re dealing with tough financial times.
Debt Release and Debt Forgiveness : What Does it Mean?
When you’re released from your debts, this means you legally don’t have to repay your debt, in part or in full. Formal debt release happens when you participate in debt relief solutions, including a Consumer Proposal or Bankruptcy.
There are also several voluntary debt solutions that may help you find some debt forgiveness. In the next section, we discuss some of the voluntary and formal debt solutions.
How to Reduce Your Debt
If you’re unable to pay your bills on time and feel like you’re losing control of your finances, there are several methods you can consider when looking for debt help.
Debt Forgiveness letter
If you’ve encountered hard times, you can write a letter to your creditors requesting debt forgiveness for compassionate reasons. This is known as a hardship or forgiveness letter.
In a hardship letter, you explain to your creditors what circumstances have prevented you from keeping up with your debt payments.
For instance, if you have a serious medical issue that prevents you from being able to work and pay your bills. You can write a hardship letter to your creditors explaining why you’re unable to make your payments, and asking for forgiveness or a reduced debt repayment plan.
If you write a letter and your creditors still refuse to reduce or forgive you from your debt, it’s time to reach out to a Licensed Insolvency Trustee (LIT). A LIT is a debt professional with the widest access to debt relief solutions.
Credit counselling
Licensed Insolvency Trustees help you understand the root cause of your debt issues and how to move forward. If you want to try to send a hardship letter to your creditors, a LIT can help you write it.
If your creditors don’t offer any debt forgiveness or aren’t willing to negotiate a reduced payment plan, you may need to consider a more formal debt solution that a LIT can offer.
Debt management plan
In a DMP, your counsellor writes to your creditors on your behalf, asking to consolidate your debts into one affordable payment. In most cases, you’ll have to pay 100% of your debts, but your counsellor may be able to reduce or eliminate your interest rate or fees, or help you extend the time in which you have to pay.
If your creditors accept your offer, you make payments to your credit counsellor, and they pay your creditors according to your agreement.
A DMP is a voluntary program. Your creditors do not need to participate. If they don’t, you still may need to pay fees to your credit counsellor. This can leave you in a worse financial position than when you started.
Debt settlement
Some credit counsellors offer debt settlement services. In debt settlement, your counsellor will negotiate with your creditors and offer them a lump sum of money in exchange for eliminating some of your debt. If your creditors agree, you have to pay the debt settlement company, and they’ll pay your creditors.
While you might reduce your debt, you’ll also have to pay the debt settlement company a fee. If your creditors don’t agree, you could be left in a worse financial position, similar to a DMP.
Consumer Proposal
A Consumer Proposal is a legal debt relief process that can only be administered by a LIT. In a Proposal, you work with your LIT to create a formal offer to your creditors to pay a percentage of your debt, extend the time you have to pay, or both.
Once your Proposal is filed, you can stop making payments to your unsecured creditors, offering immediate relief. When you file, your creditors must stop all legal actions against you, including collection company calls and wage garnishment.
If your creditors accept your Proposal, you’re responsible for making lump sum payments to your LIT. As long as you keep making your payments, you can keep all of your assets. You are also required to attend two financial counselling sessions. If you meet all the conditions of your Proposal, you will be legally released from the debts included in your Proposal.
If your Proposal is not accepted, you can make changes and resubmit it. You can also consider other debt solutions, like Bankruptcy.
Bankruptcy
Bankruptcy is a legal process designed to help honest debtors get a fresh financial start. It’s usually the last resort for debtors who can no longer manage their payments.
To file for Bankruptcy, you’ll have to work with a LIT. Once you’ve filed, you’ll receive protection against any further action by your creditors, including wage garnishment or lawsuits against you.
In Bankruptcy, your LIT will sell your assets in an effort to repay your creditors. Like a Proposal, you will have to attend two financial counselling sessions. Depending on how much money you make, you may need to make surplus income payments.
In exchange, you will be discharged from most of your unsecured debts.
When you’re discharged from Bankruptcy, you are released from your legal obligation to repay your debts that existed on the day you filed.
But there are some debts that aren’t included in Bankruptcy, including:
- Spousal and child support
- Fines or penalties imposed by the Court
- Debt arising from fraud
- Student loans (if less than seven years have passed since you were a full or part-time student)
Find Debt Help: Speak to a Licensed Insolvency Trustee
Debt discharge from a formal debt solution like a Consumer Proposal or Bankruptcy can eliminate many of your unsecured debts. Once you’re discharged, you are no longer legally required to pay your debt.
If you’re not ready to pursue a formal debt solution, you have other options. You can consider writing a debt release letter for forgiveness or working with a credit counsellor on a DMP or debt settlement.
Debt forgiveness is a formal communication sent by a debtor to a creditor requesting partial or total forgiveness of a debt, often citing reasons such as unemployment, illness, divorce, or other financial hardship. Depending on the amount of debt owing and number of creditors, this can be a first step at reducing your debt.
To find the debt program that’s right for you, speak with a LIT. A Licensed Insolvency Trustee is the only debt professional in Canada who can administer formal debt solutions to stop creditors by filing a Consumer Proposal or Bankruptcy.
For a free, no-obligation consultation, contact Allan Marshall & Associates at 1-888-371-8900 or complete our online contact form. You don’t have to deal with your debt alone. We can help!
