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Bankruptcy and Credit Counselling to Help you Deal with Debt

Yesterday we took a look at three resources that can help you deal with your debt. And while mortgage brokers and real estate agents, bankers, and debt settlement companies are all great resources, sometimes they’re just not enough. Sometimes your debt situation has gotten so bad that you need an extreme debt solution. In cases like these, you can turn to a bankruptcy trustee or a credit counselling service. But be forewarned that these services should only be used as a last resource.

Bankruptcy trustees can help you either file for bankruptcy, or file a consumer proposal. Consumer proposals are very similar to filing for bankruptcy but are also slightly different as well. One of the biggest differences is that you must be a property owner to file a consumer proposal. Bankruptcy on the other hand, is typically the last option for those who don’t have very many assets at all, but still have accumulated a great deal of debt.

With bankruptcy you might lose most or all of the little assets you do own; while with a consumer proposal you may only lose these assets if you miss a payment owed to the creditor. With both options however, it’s important to know that your credit score can be significantly damaged, and that it can take up to seven years to repair. It’s mainly for this reason that bankruptcy and consumer proposals should only be considered as a last resort.

Credit counselling services should still be used as a last resort, and they’re only a good option for a few select individuals. These services will set up payment arrangements with creditors for the money to be paid back in its entirety, although this doesn’t necessarily need to be done right away. In fact, often it can take years upon years before the debt is paid off, which can often lead to debt fatigue on the part of the individual. It’s because of this that those seeking credit counselling often end up backing out of the agreement before it’s up.

While involved in a consumer proposal however, any interest or fees accumulating on that debt are frozen, so the debt load does not increase while the consumer is trying to pay it off. It’s important to know though, that those interest fees will most likely be reapplied to the total amount of debt should the individual back out of the agreement at any time. That person’s credit is also frozen, and so their credit situation will not begin to improve until they are finished with the agreement.

Credit counselling and bankruptcy trustees are both good options for those left with little to no options. Know going into these arrangements though, that you’ll be taking the very long route to becoming debt-free. And also know that taking the long way is sometimes better than skimping with short cuts, and not being able to achieve your financial goals now, or any time in the future.

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