Being in debt can feel like you’re carrying around a boulder on your back. It weighs on your mind and the constant stress anytime you receive a new bill in the mail can affect your personal and professional life. If you don’t have the resources to pay your existing bills, it can be difficult to see how you can get out of debt.
If the debt is growing faster than you can repay it and you’re worried about how you can stop the cycle, the sooner you take action the better.
Recognize Financial Danger Signs
Before you become insolvent and qualify for a consumer proposal in Ontario, you will likely run into some of these financial danger signs:
- You have no savings set aside for an emergency, such as a personal injury or unexpected home repairs
- You can only make the minimum payments on debts like credit card bills, with interest rates quickly raising your balance
- You’ve recently taken out a payday loan to cover other bills or necessary expenses; these are high-interest debt traps that can have you wind up paying predatory interest rates far above what you initially borrowed
Knowing When You’re Insolvent
Insolvency means that you owe more money than you have equity in your assets. If you were to sell off all of your assets, you still wouldn’t be able to pay back your unsecured creditors. It’s a stressful place to be, but it means that new debt relief options open up to you, such as a consumer proposal and bankruptcy.
As soon as you recognize the financial danger signs, you should head to a trustee in bankruptcy, or as they are now known, a Licensed Insolvency Trustee. They will let you know when to consider a consumer proposal and when you are insolvent. Only a trustee in bankruptcy can file a consumer proposal in Ontario. But trustees in bankruptcy like Mississauga’s David Sklar & Associates will also discuss any financial option available to you. Even if you’re not insolvent, a trustee in bankruptcy should be willing to discuss your plans to become debt free.
Your Options: Consumer Proposal vs. Bankruptcy
A consumer proposal in Ontario differs from a bankruptcy. A consumer proposal will not affect your assets, whereas a bankruptcy requires you to settle equity in many of your assets to resolve your debt. That’s why trustees in bankruptcy like David Sklar & Associates often encourage their clients to get a consumer proposal before considering bankruptcy.
A trustee in bankruptcy will look at your finances, expenses, and unsecured debts and find a monthly amount you can afford to pay. They will propose this to your unsecured creditors who then take a vote on it. If the majority of your creditors accept the proposal, all of them will be legally bound to it.
Then pay back the debt in small monthly payments disbursed by the trustee in bankruptcy for a period of up to five years. Typically, the final amount of debt you wind up paying is much smaller than what is owed. Plus, a consumer proposal stops interest from growing on this debt, saving even further.
When you’re in debt, you do have options. Talk to a trustee in bankruptcy about what you can do about growing debt.