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Alternatives to Bankruptcy in BC
When you are in financial trouble and you are looking for a solution, it is important to explore all of your options. There are many alternatives to bankruptcy out there that may be more suited to your situation. Bankruptcy tends to be an option of last resort so it is important to explore alternatives first.
A common alternative to bankruptcy is a debt consolidation loan. Consolidation loans are used to pay off a number of high interest rate debts. They are generally a higher interest rate than normal loans, but much lower than credit cards, so you end up with one monthly payment, lower than the sum of your previous payments. They are available through most banks and credit unions. Consolidation loans can only cover unsecured debt, so mortgages and car loans cannot be included. One major benefit of this option is that is will have no negative effect on your credit rating.
A second alternative to bankruptcy is a Debt Management Plan. A credit counselling agency will work with you to create a budget and see what you can afford to pay each month. They will then negotiate with your creditors to try to get a lower interest rate and a payment schedule you can keep up with. If your creditors agree to the plan they will stop trying to collect from you.
Under this option, as in the above, you fully repay your debts, but here you do it over time through an intermediary. Credit counselors do not have any power to bind a creditor to a plan, so any creditors that do not agree can continue to attempt to collect from you. A DMP will be noted on your credit report and will damage your credit score.
It is important to be aware that there is no central licensing system for credit counselors and in most provinces the fees they charge for their services are not regulated. Many credit counselling agency advertise as being not-for-profit. These agencies are often funded by banks and credit card companies, so be mindful of whether you are being presented with the best options for you.
The third alternative to bankruptcy is a Consumer Proposal. This shares a lot of features with a debt management plan; it is negotiated and paid via an intermediary and results in monthly paying down of your debt. Unlike a DMP a Consumer Proposal will be binding on all of your creditors if more than half of them agree to it. Consumer Proposals are filed by a Trustee in Bankruptcy, which is a highly regulated and fully licensed profession. A Trustee can also negotiate so that you only pay a portion of your unsecured debt, not all of it as under a DMP. A proposal can last up to 5 years, though 3 years is the norm, and it will appear on your credit report for all of that time and three years afterwards.