1. Consumer Proposals
Consumer proposals help settle unsecured debt through a legal process, so you can start fresh. Creditor-accepted proposals allow you to avoid bankruptcy and keep your assets while getting the same protection from your creditors that you would receive in a bankruptcy. Interest stops accruing on money owed and arrangements can be made with creditors to reduce monthly payments and/or lengthen the payment period. You can also prepay your proposal at any time without penalty. Some other major advantages:
Proposals are binding. A proposal approved by the majority of creditors applies to all of them — even the ones who vote against the proposal or opt out of the process.
Proposals offer more money — therefore more incentive — to creditors to bankruptcy and vote for the proposal. It’s in the creditors’ best interests to vote for this solution.
Proposals offer fewer reporting requirements. There are no standard reporting obligations required during the term of the proposal unless you decide to deliberately include them.
Proposals are predictable. You’re able to determine how much you can pay monthly within the restrictions of your budget — and additional new income is not subject to increased creditor payments unless you choose to pay down your proposal quickly, shortening the term of the proposal.
Proposals only affect your credit bureau for 3 years after completion and we work with you on understanding how to repair your credit rating so you can have an improved rating in less time than that.
Upon successfully making all payments and attending 2 counseling sessions your debts will be legally written off — subject to a few restrictions — letting you build your financial future once again.
When trying to identify whether you are dealing with a licensed professional who can provide these services check the Government of Canada's website to see that they are listed.
2. Orderly Payment of Debts
Orderly Payment of Debts (OPD) works best for people who can still afford to pay their debts in full, but have trouble managing finances due to other issues such as high interest rates or short-term payment requirements (for example, a payday loan). Here’s how an OPD works:
An application to court is made to freeze your debts as well as the interest rates charged by your creditors.
Arrangements are made for monthly payments over a term up to 3 years, which includes administration fees equalling 5 percent of the debt. This is much lower than rates charged by many creditors, and lets you pay off debt more quickly.
The program is mandated by the provincial government and run by Money Mentors, a not-for-profit organization. For more information, check out their website here.
3. Consolidation Loans
Servicing multiple payments can be hard to manage, but a consolidation loan —combining all your debt into one loan with one payment — can help you simplify payments and streamline your budget. Consider applying for a consolidation loan if you’ve rarely missed a payment, as your credit is likely still good, and apply at major banking institutions (RBC or Scotiabank, for example) as they will offer much lower interest rates than second tier and third tier institutions (such as Citifinancial and Cash Canada). Be careful you’re not simply swapping multiple high-interest rate loans for one combined loan with the same high rate!
Understanding the cost of borrowing (the amount of money you will pay in interest over the term of the loan) as well as the time investment (the length of time it will take to repay the loan) is key to understanding whether a debt consolidation loan will work for you. Just looking at the monthly payment will only tell you part of the story. It’s also important to look at how long it will take to pay off the loan. A monthly payment of $300 sounds reasonable until you find out it will take you 10 years to pay off!
4. Informal Settlements
There are two ways to informally settle debts: by personally contacting creditors and offering a settlement, or hiring a credit or debt counselling company to settle the debts for you.
Arranging The Settlement Yourself
An informal settlement involves contacting creditors directly and offering them a lesser amount to settle the total outstanding debt. This can work when you have just one or two creditors and you have the money to pay them immediately. Challenges can include:
• finding the initial sum of money to pay down the debts
• getting all creditors to agree to the settlement
Credit Counselling Companies
Debt settlement companies recognize that people have a strong desire to avoid bankruptcy, so they offer services such as contacting your creditors and negotiating a settlement. These companies charge a fee for these services which they usually take upfront.
Credit counseling companies do not have advertising restrictions and are not regulated by standards of conduct in Alberta. Customer service standards can vary significantly from company to company, and these companies have no legal authority to require creditors to alter their payment terms.
Make sure you ask about and thoroughly understand:
• what specific services will be provided
• how much will be charged for these services, and when
• the limitations of their authority to stop your creditors from collecting
• how long will it be before the creditors will be paid
The settlement agreement with your creditors must be in writing for it to be binding.
While the goal at Frederick & Company is to help avoid bankruptcy, there are timeswhen it is the most appropriate option for a given financial situation. Bankruptcy is a legal process that helps you get out from underneath the burden of your debt while providing you with relief from collection by your creditors. While it’s a comparatively inexpensive option for resolving inancial difficulties, it comes with additional obligations.
Unlike a consumer proposal:
There is a minimum amount of time you will be required to spend in bankruptcy — 9, 21, 24, or 36 months — which is determined based on your income and whether this is your first time filing.
There are additional obligations required during the bankruptcy term, such as providing income and expense statements and tax information to your trustee, attending 2 counseling sessions and always making your monthly payment.
Your income is monitored and if it fluctuates, it impacts the total amount you are required to pay — making repayment amounts and discharge times more unpredictable.
Assets vest with your Trustee until you’re discharged from bankruptcy.
Your credit bureau is impacted for 6 years — 14 years for second time bankrupt — after your discharge from bankruptcy.