Recognizing that you may not be able to get out of debt on your own is an important step in your journey toward debt freedom. It can take a long time for people to realize that their debt has grown out of control and that practices like strict budgeting or even getting a second job aren’t enough to keep up with your debt payments or pay back everything you owe in a reasonable amount of time.
There may come a point where you just can’t manage your debt obligations. If things are starting to feel overwhelming, seek debt help before it becomes impossible. The longer you wait, the more likely it is that bankruptcy may become your only option.
If you do need to get bankruptcy help, it can be a good option for some, especially if other debt relief options are no longer practical. However, there are alternatives that can make it easier to recover your financial situation and protect your assets.
Why You Should Avoid Bankruptcy
Personal bankruptcy is a last resort for people who cannot afford to pay back their unsecured debts and have fallen deeply behind. They may be facing collection actions, such as wage garnishment or legal proceedings from your creditors to collect, or they may simply not have enough money to meet their debt obligations each month.
Bankruptcy can discharge you from debt that you cannot afford to pay, but it comes at a cost. These are some of the downsides of bankruptcy:
- Bankruptcy will remain on your credit report for 6 to 7 years. This can make it very difficult to qualify for a mortgage, car loan, or even a credit card.
- You may need to use assets to satisfy as much of the debt that you owe as possible. Those assets can even include your home. While there is an exemption for some equity in your primary residence, anything beyond that limit can be collected by creditors.
Bankruptcy can alleviate overwhelming debt, but it is intended as a last resort.
Alternatives for Managing Overwhelming Debt
The sooner you take your debt seriously, the more likely it is that you can find a more favorable alternative. One of the better options available to you is a consumer proposal. This is a powerful solution for regaining control over your finances.
A consumer proposal can reduce most types of unsecured credit, including credit card debt, utilities, payday loans, student debt once it reaches a certain age, and even tax debt. You do not have to give up any of your assets either. Instead, you agree to a reduced monthly payment that is disbursed to all of your unsecured creditors. These payments can last up to five years and should be considerably more affordable than most other options, especially trying to pay it all back on your own.
A consumer proposal will also appear on your credit report, but that information should be removed three years after you have finished paying it off or six years after filing, whichever is shorter.
Another option you can pursue is credit counselling. Credit counselling is a service that starts with assessing your financial situation and creating a plan to move forward. It may involve getting a credit card consolidation loan, approaching your creditors to discuss a reduced debt payment, improving your budgeting and spending habits, learning more about credit use, creating a debt management plan, or filing a consumer proposal.
There are ways out of debt other than bankruptcy. Don’t let debt get out of control. The worse the problem gets, the fewer options you may have available to you when you decide it’s finally time to take back control. Talk to a Licensed Insolvency Trustee about how you can start managing your debt today.