Several other options may be available
Inez Dyer
Province
One of the hardest decisions is whether to declare personal bankruptcy.
There’s not only the emotional toll but also the long-term damage it does to one’s credit rating. While the bankruptcy is discharged in as little as nine months, the hit to your credit lasts seven agonizing years.
During that time, no bank, credit-card or finance company will be willing to extend you credit. If you happen to find a lender, your interest rate could reach 25 per cent or more.
If you have no savings and are behind on your monthly obligations, using credit to pay for basic needs and receiving frequent calls from collection agencies, declaring personal bankruptcy is only one of the choices available to you.
– One possibility is an orderly payment of debts, a formal arrangement made through credit-counselling services. Your creditors are contacted and, if they agree, your interest stops accruing on that date.
Once accepted, you must pay 100 per cent of what you owe plus five-per-cent interest over the next 48 months. Your credit rating immediately drops to an “R7” (the lowest possible rating) until your obligations are met in full.
– With help from a credit-counselling service or on your own, you can try to negotiate a settlement offer with creditors. By outlining the reasons for your financial disarray and proposing a one-time payment to settle your debt — based on a reasonable percentage of the amount owing — creditors may be willing to take it and cut their losses.
Of course, your credit rating will reflect the writeoff.
– With a consumer proposal, which is organized through a bankruptcy trustee, your unsecured creditors are contacted and you make a proposal to repay a certain percentage of your total debt. It may be as little as 20 per cent.
If your creditors agree, the interest stops accruing on that date and you must pay the agreed amount over a maximum of five years. Again, your credit rating becomes an R7 and the consumer proposal will stay on your credit history for the five years you’re making payments plus an additional three years.
A consumer proposal has advantages over a bankruptcy. It allows you to repay only a percentage of your total unsecured debts without interest and retain all your personal belongings.
During the time you are in a consumer proposal, you are protected from legal proceedings, including wage garnishments and seizure of assets. You are also provided with free budget counselling.
– If you are at least 18 years old, owe $1,000 or more, are unable to meet your required payments and don’t own enough property to pay all your unsecured debts, you can declare personal bankruptcy. It must be done through a bankruptcy trustee for a flat fee of $1,800.
You are still responsible for paying alimony, child support, maintenance, fines, debts arising from fraud and all student loans less than 10 years old. You will also be required to continue paying all secured loans, such as your mortgage.
And if someone has co-signed a loan with you prior to your bankruptcy, then that person will be responsible for the repayment of that debt.
All of your unsecured creditors are contacted. Once your assets are seized and sold, you will no longer be responsible for any repayment of your unsecured debt.
You remain in bankruptcy for nine months, after which you receive a court document called a “discharge of bankruptcy” that must be filed with both national credit agencies (Equifax and Transunion). Your credit rating will once again become R7 and the bankruptcy will remain on your file for seven years.
© The Vancouver Province 2006