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.

1. 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.

2. 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.

3. 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.

4. 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. To learn more…

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.

Consumer Proposals

A consumer proposal is a formal procedure governed by the Bankruptcy and Insolvency Act and is available to individuals owing less than $75,000, not including the mortgage on 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 simplifed 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. To learn more…

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. To learn more…

Bankruptcy

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). To learn more…