If you have fallen a couple of months behind on your minimum monthly payments, your creditors have likely sent your debt to a collection agency. The collection agency will make every attempt to get you to pay the debt, with multiple telephone calls trying to convince you to get the money from family or a loan from another source.
Collection agencies get paid if they collect money from you, so they may be relentless and sometimes a little harsh in their calls. They also may be willing to settle the debt at a lower amount to at least recover some funds.
You may receive a letter offering to settle a $5,000.00 debt for $2,000.00.
This sounds like a good deal, but the issue is they will want the funds in a lump sum amount immediately. If you are able to come up with a lump sum amount, you will want to make sure that you have proper documentation that they are accepting the lump sum payment in full and final satisfaction of their debt.
You could deal with each of your creditors individually to try and get them to accept a settlement, but if one refuses, you may find yourself struggling again.
There is no protection from your creditors taking legal action while you are attempting to negotiate with them.
Filing a Consumer Proposal
A consumer proposal is a formal filing under the Bankruptcy and Insolvency Act and will provide you immediate protection from all unsecured creditors taking any legal action. A proposal can offer monthly payments over a maximum of 5 years, and you only need 50.1% of the creditors that vote on the proposal to accept the terms. If a majority of your creditors agree with the offer or a negotiated amount, then all of your unsecured creditors are bound by the terms.
A Licensed Insolvency Trustee will work with you to determine a reasonable amount to offer your creditors at a monthly amount that you can afford.
Five years may seem like a long time to be debt free, but the proposal payments are interest free and include the trustee’s fees. Once the proposal is paid and you have completed two counselling sessions, the trustee will issue a Certificate of Full Performance and the proposal will stay on your credit rating as an R7 for 3 years from completion.
Reach out to a Licensed Insolvency Trustee today for a free assessment to see if a consumer proposal can provide you a 5 year plan to be debt free.
By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
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