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One of the common misconceptions debtors have is that declaring bankruptcy is the only way to get a new financial start. However, even though bankruptcy is a safe, regulated process that can help Canadian debtors, there are several bankruptcy alternatives to choose from.
If you’re struggling to repay your loans or to pay your bills, and you’re worried that bankruptcy isn’t the best option for you, keep reading. By the end of this article, you’ll be familiar with all the alternative options to bankruptcy and how to determine which is the best bankruptcy alternative for your situation.
7 Alternatives to Bankruptcy
1. Liquidate Personal Assets
One of the easiest ways to repay your debts without declaring bankruptcy is liquidating some of your personal assets. Selling some of your assets may enable you to pay off some or all of your debts, giving you a breath of fresh air.
However, this approach has several downsides. First, you would need to own some personal assets that are not essential to your livelihood, such as the home you’re living in or the car you use to get to work.
Second, selling your assets quickly might affect your ability to get full value for them.
And last, but not least, liquidating your assets might help you pay off some debts, but it can also have a negative effect on your financial future.
2. Personal Budgeting & Self Money Management
Getting out of debt is not easy, but it’s doable. You may be able to pay off your debt if you learn how to better manage your money. Personal budgeting requires dedication and discipline, but it’s a financial recovery solution that doesn’t involve selling your stuff or applying for new loans. In addition, personal budgeting doesn’t affect your credit score and it can be an effective debt repayment solution.
The first step in self money management is calculating your monthly expenses. Be as thorough as possible, and make sure you include all the small expenses, such as your daily coffee or parking. Then, take a good look at what your expenses are and think about how to lower them. Could you buy off-brand goods that serve the same purpose? Would using public transport be cheaper than going by car at work? Make a list of all the expenses you could cut or reduce and do so.
With dedication and discipline, your budgeting efforts will start yielding results after as little as a few days.
3. Debt Restructuring
Debt restructuring is a process you can use to negotiate better interest rates with your creditors. This process involves making a proposal to your creditors, offering to repay your debt on different, more beneficial terms than what you originally agreed upon.
Unlike other bankruptcy alternatives that made this list, restructuring your debt may not reduce the amount you owe, but it may make it easier to repay because it can reduce the interest rates on loans or extend their due dates.
Debt restructuring is more common for companies than individuals, and the process may include a debt-for-equity swap, meaning that the creditors agree to cancel a part of the debt in exchange for equity in the business.
4. Debt Consolidation
Debt consolidation means bringing multiple debts under a single payment. This process does not reduce your existing debt, but it can lower the interest rate you pay on your debts by a significant margin.
Payment consolidation is helpful because it makes it easier to track your payments and it also extends your debt’s due date.
Even though debt consolidation is a helpful bankruptcy alternative, one of the problems people face when trying to consolidate their debts is not qualifying for a new loan that’s large enough to cover all of their debts.
And if you’ve been struggling with debt for a long time, your credit score may be too low to qualify for a low-interest loan, which lowers the effectiveness of a debt consolidation plan.
5. Debt Management Plans
Debt management plans enable you to repay what you owe over a period of up to five years. This alternative to bankruptcy does not reduce the total amount you owe, but it makes repayment easier to manage. This option is especially useful if you owe money to multiple creditors.
Debt management plans can help Canadians who do not qualify for debt consolidation loans repay what they owe in a single monthly payment over a period of up to five years.
However, this alternative is not perfect for everyone because you still have to repay everything you owe, it’s not a legally binding process, and it shows up on your credit report.
6. Informal Debt Settlement
An informal debt settlement is a bankruptcy alternative process that enables you to negotiate a payout with each of your creditors. This can be a helpful process if you can afford to pay off some of your debt at once.
Informal debt settlements usually involve negotiating with your creditors to pay off less than what you actually owe as a lump-sum. After reviewing your financial situation, your creditors might see accepting a lesser amount of money better than you declaring bankruptcy.
However, you should keep in mind that your creditors don’t have to settle for a lesser amount. They may feel that they could obtain more if you declare bankruptcy. This is also an informal process, so you may end up paying more than you ought to if you don’t know what you’re doing.
We recommend talking to a Licensed Insolvency Trustee before entering into an informal negotiation.
7. Consumer Proposal
Consumer proposals are legal agreements between you and your creditors. When you file a consumer proposal, you gain immediate relief from collection efforts. In addition, when your creditors accept your consumer proposal, they agree to forgive part of your debt, so you’ll end up repaying the remaining balance.
Consumer proposals consolidate your debt into a single monthly payment. They can reduce your total debt by up to 75%, and they’re legal settlements, which means that your creditors are obliged to respect them.
Filing a consumer proposal can legally settle all your unsecured debts, including the debts held by the CRA.
Filing a Consumer Proposal to your creditors can only be done through a Licensed Insolvency Trustee like Remolino & Associates.
The Best Bankruptcy Alternative
For many Canadian debtors, the best bankruptcy alternative is filing a consumer proposal. A consumer proposal can lower your debt by a significant margin, it does not affect your credit report as long as a bankruptcy, and it allows you to retain valuable assets such as real estate or motor vehicles.
A consumer proposal provides creditor protection, so all the collection calls and wage garnishments will stop when you file one.
Consumer proposals are legal settlements negotiated between you and your creditors based on your monthly income. They have a fixed payment plan that doesn’t increase. The consumer proposal repayment plan can last for up to 60 months, but it can be as short as a single payment, depending on your financial situation.
Consumer proposals are some of the safest bankruptcy alternatives available. They can lead to significant savings so they help you overcome debt faster than a bankruptcy and with less damage to your credit report.
Why Bankruptcy Might Be the Best Solution
Even though bankruptcy is often seen as a bad thing, it can sometimes be the best solution to eliminate debt and help you get a fresh financial start. Not everyone qualifies for a consumer proposal, so bankruptcy may be the only viable debt relief option.
When you claim bankruptcy, you gain immediate protection from collection efforts and legal actions your creditors can take against you. Your Licensed Insolvency Trustee also notifies your employer, creditors and the court to stop the wage garnishment.
Bankruptcy is a legal process designed to assist and protect Canadian citizens who are struggling with debt. Bankruptcies are governed by the Canadian Bankruptcy and Insolvency Act, and they can eliminate your unsecured debts, such as credit card debt, student loan debt, or CRA debt.
How to Find the Best Bankruptcy Alternative for You
Wondering which of the bankruptcy alternatives we presented is the best for your particular situation? Remolino & Associates can help. Our Licensed Insolvency Trustees are financial experts who can review your financial information and help you identify the right solution for your debt problems.
Contact one of our team members and get tailored advice on how to deal with your money problems.
Book your free, confidential, no-obligation consultation and discover the easiest way to repay your debt. Our Licensed Insolvency Trustees can help you solve your debt problems.