Which way to go?

December 19th, 2009 by Questions

We currently owe approximately $37,000.00 to unsecured debt (credit card/line of credit consolidation), I was wondering if debt settlement would be the right route for us to take? We are currently having difficulties making monthly payments (when all bills paid no money for food). I left my job because I wasn`t being paid and have been struggling to get back of my feet since. My husband cannot make all the payments on his income alone. As well we are getting a divorce. We would really rather not claim bankruptcy as both the car loan and consolidation loan are in both names, and we don`t want to lose my vehicle or anything else. We never missed a loan payment, only once have ever defer 1 car payment, nor have I missed paying a month of rent. Please let me know if this is an option for me or what else could be suggested.

Posted from: British Columbia

Questions

One Response to “Which way to go?”


December 21, 2009 at 8:58 am, Barton Goth - Goth & Company Inc. -Trustee in Bankruptcy said:

In terms of options, we suggest everyone consider the following options when they are experiencing financial difficulty include:

1. Negotiate with your creditors. Explain why you have fallen behind in payments. Outline your financial situation and expectations for the future. Suggest a payment plan that is realistic and reasonable for both you and your creditors. As this is an informal process make sure that if you come to an agreement get written conformation. .
2. Apply for a consolidation loan. Take out a loan to pay off all of your debts. This can potentially lower your interest rate, total monthly and sometimes the total length of the contracts. With consolidation loans it is important that you examine your current spending habits and stop using your so you do not continue to fall further behind.
3. Make an application to Credit Counseling. This is a voluntary program where your debts are pooled together (they aren’t actually paid off) so that you are only required to make a single monthly payment to a non-profit counseling agency. As you make your payments the agency forwards funds to each of your creditors in proportion to your total debt. The advantage of this procedure is that usually the interest on your unsecured debts is reduced to prime or even eliminated. You are required to repay 100% of what you owe, but because of the reduced interest your monthly payment is much lower than all of your minimum payments would have been without the plan.
4. Make a proposal to your creditors under the Bankruptcy and Insolvency Act. This solution is used by people who cannot afford (or get approval for) a consolidation loan or a credit counseling plan, but don’t want to file bankruptcy. In a proposal you offer to repay a portion (perhaps 100%) of the debt that you owe. Proposals are an excellent alternative to bankruptcy, but they are not well known so I suggest you contact a local trustee and ask them about proposals if you are interested in this solution.
5. File for bankruptcy. If none of the other procedures listed is appropriate for you then bankruptcy may be correct solution. The concept behind bankruptcy is that you cannot afford to repay even a portion of your debts. To file bankruptcy you must meet with a licensed trustee.

Certain provinces have an additional option for their residents called an Orderly Payment of Debts. When you speak to a trustee they will advise you whether or not this solution is available where you live and makes sense for you.

The biggest trick when looking at your options is monthly cash flow. The more monthly cash flow you have, the more likely a consolidation loan or a debt management plan will work for you. Although, I would recommend you be cautions with your cash flow, when looking at splitting a household this will stretch that cashflow further than expected and will likley reduce the money available and in turn may make some of these options more difficult to qualify for.

Please post a follow up comment below:

(Note: comments are reviewed by moderators and then posted after approval. In addition, due to high volume some of the comments might not be posted.)