When to See a Licensed Insolvency Trustee About Your DebtDec 21, 2016
Dealing with debt can be a scary process, but it doesn’t have to be. If you’d like to tackle your debt in 2017, working with a Licensed Insolvency Trustee (LIT) can make the process less intimidating.
Informal debt solutions
Many informal solutions can be self-directed, and you can learn about them on your own. If you have follow up questions or would like some feedback on your plan, you can meet with a professional.
Seeking help from a professional doesn’t have to be a last resort — it can be a part of your proactive planning to reduce and eliminate debt. A financial professional like a LIT is qualified to provide feedback about your finances and explain an array of debt options to you that will help you meet your repayment requirements, and plan for the future.
Sometimes, debt can be reduced efficiently by employing informal solutions. This includes strategies like:
- Budgeting, or adjusting your budget to work for your debt repayment plan more effectively;
- Structuring your debt payments to be automated, or setting up payment dates to remember to make payments and eliminate your debt quicker;
- Reducing your use of credit cards, high-interest loans, or credit lines as a primary source of funding. Learning about your borrowing options and how they affect your finances;
- Developing a plan to build up an emergency savings fund and other savings so that you can rely on cash;
- Trimming and downsizing — your property/house, vehicle, or add-on packages like cable, cell plans, and non-essentials that can free up money for debt repayment;
- Selling some of your assets and directing profits to your debt.
Formal debt solutions
Formal debt solutions are those that require the assistance of a qualified financial professional like a LIT. If you’re finding it difficult to cover your living costs and make your debt payments, a formal debt solution might be appropriate. Many Canadians are facing financial hardship in the wake of job loss, increasing utility and living costs, or unforeseen changes to their circumstances, like divorce or disability.
While many informal solutions can be initiated by yourself, a formal solution will require a LIT to prepare and submit official paperwork on your behalf. Here are some facts about formal solutions, and how a Licensed Insolvency Trustee can assist you:
- Formal debt solutions help to eliminate unsecured debt, such as credit card debt, loans and lines of credit, and taxes owed. In some special cases, student loan debt can be included. Secured debt, like mortgages or vehicles, are not included;
- A consumer proposal is suitable if you have less than $250,000 in debt, but you are able to manage some amount of debt repayment to your creditors. A consumer proposal, by definition, requires a LIT to write a proposal to your creditors to negotiate a smaller repayment amount. If accepted, you will repay the agreed upon amount of debt over no more than five years. There will be no interest charges, no wage garnishments, and no collection calls or legal action against you. (See these consumer proposal FAQs for more information.)
- Bankruptcy can be claimed if you have a minimum of $1000 in debt, and there is no maximum. If you are unable to meet payment requirements, have had legal action taken against you from creditors, are experiencing wage garnishments or calls from creditors, filing for bankruptcy will stop it. You will not have to repay any amount of debt, but you may lose some (but not all) of your assets;
- A formal debt solution will affect your credit rating, for up to nine years in the case of a bankruptcy filing. But you can rebuild your credit, and eliminate that rating over time.
A Licenced Insolvency Trustee can support you at any stage in your debt repayment plan. The sooner you start planning your repayment strategy the easier it will be to achieve your goal of eliminating your debt.
Have you decided to tackle your debt in the year ahead? Tell us about it on Twitter. #BDOdebtrelief #LetsTalkDebt