Resources for Debtors
Alternatives to bankruptcy
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Steps you can take today
If you feel that your financial situation is out of control, there are four steps towards financial stability that you can take today. You may find that you are able to resolve the situation yourself through a little (or a lot) of hard work, or you may find that the best course of action is to seek the advice of a professional.
- Rework your budget — Take some time to sit down and figure out how much money is coming in versus how much is going out. Set a realistic budget and stick to it. By following your budget and paying for essentials before anything else, you will find it easier to control your spending. You should slowly find that you have more money available, and the more of that extra money you put towards paying down your debts, the faster you will find yourself on track to financial well-being.
Learn more about budgeting
- Consolidate your debts — Some financial institutions offer debt-consolidation loans. A debt-consolidation loan is a single loan that allows you to pay off most or all of your creditors at the same time, leaving you with only one outstanding loan. This type of loan may also offer you an interest rate that is lower than what you are paying to your creditors, thereby saving you money in interest charges.
- Call your creditors — Draw up a list of your creditors and then contact some or all of them with a proposal for a reduction in your payments, an extended deferral of your debts or a reduced rate of interest. If you find the idea of contacting creditors daunting, a budget or credit counsellor can assist you.
Learn more about contacting your creditors
- If you have student loan debt, apply for repayment assistance — The federal government’s Repayment Assistance Plan is available to borrowers who are having difficulty paying back their student loan debt. The Plan helps borrowers manage student loan debt by paying back what they can reasonably afford. If you have a provincial or territorial government student loan, contact your provincial/territorial student financial assistance office to find out about their repayment assistance programs.
- Use your assets — If you own something of significant value, such as high-end electronic equipment, a car or even a house, you may want to consider selling it. Be sure to think through any related expenses, however. For example, if your car needs repairs, those will need to be done before you can sell it.
Formal alternatives to bankruptcy
If you find that you are unable to get your financial situation under control through informal measures, such as budgeting and consolidation loans, there are formal steps that you can take to avoid bankruptcy.
Consolidation Order / Voluntary Deposit Service
If you are a resident of Alberta, Saskatchewan or Nova Scotia, you can voluntarily seek out a legal proceeding called a Consolidation Order (also known as an Orderly Payment of Debt program) to help you make your payments. A Consolidation Order is an order from the provincial Court that combines all your debts into one and determines the amount that you must pay to the Court on a periodic basis. The Court will then take care of ensuring that payments are made to your creditors on your behalf.
If you are a resident of Quebec, you can participate in the Justice Québec's Voluntary Deposit Service (better known as the "Lacombe Law"), which is usually available at the local courthouse. Similar to a Consolidation Order, the Voluntary Deposit Service allows you to deposit money with the Court monthly, with payments based on your income and number of dependents. The Court then distributes the money to your creditors.
A consumer proposal is a formal procedure governed by the Bankruptcy and Insolvency Act and is available to individuals whose total debts do not exceed $250 000, not including debts secured by their principal residence. With a consumer proposal, you work with a trustee in bankruptcy to put together an offer to pay your creditors a percentage of what you owe them over a specific period of time, extend the time you have to pay off the debt or a combination of both. Payments are made through the trustee, and the trustee uses that money to pay each of your creditors. Compared with the Division I proposal (see below), a consumer proposal is a simplified process and is available to individuals only.
The advantages of a consumer proposal are that you retain all of your assets, actions against you by unsecured creditors, such as wage garnishments, will be stayed (stopped) and you can solve your money problems without having to declare bankruptcy.
Division I Proposal
A Division I proposal is a formal procedure governed by the Bankruptcy and Insolvency Act and is available to businesses and individuals — there is no limit with respect to how much money is owed. With a Division I proposal, you work with a trustee in bankruptcy to put together an offer to pay your creditors a percentage of what you owe them over a specific period of time, extend the time you have to pay off the debt or a combination of both. Payments are made through the trustee, and the trustee uses that money to pay each of your creditors.
The advantages of a Division I proposal are that you retain all of your assets, actions against you by unsecured creditors, such as wage garnishments, will be stayed (stopped) and you can solve your money problems without having to declare bankruptcy.
The Companies' Creditors Arrangement Act
The Companies' Creditors Arrangement Act (CCAA) is a federal law allowing insolvent corporations that owe their creditors in excess of $5 million to restructure their business and financial affairs. Under the CCAA, corporations ask the Court for protection while they prepare an offer to creditors for some form of payment (called a Plan of Compromise or a Plan of Arrangement). CCAA proceedings are carried out under the supervision of the Court.
The benefit of this option is that debtor companies are able to continue operating and receive protection from creditors while the Plan of Arrangement is being prepared. Creditors then have the opportunity to vote on whether or not to accept the offer.
If you are unable to resolve your financial troubles through any combination of formal and informal steps, you may decide to consider bankruptcy. Bankruptcy is a formal procedure governed by the Bankruptcy and Insolvency Act. With bankruptcy, you sign all of your assets, except those exempt by law, over to a trustee in bankruptcy who will sell or use them (e.g. swap, exchange) in order to pay your creditors. Once you are bankrupt, actions against you by unsecured creditors, such as wage garnishments, will be stayed (stopped). Lean more about declaring bankruptcy