Debt Relief in Canada Blog Series Part 4 – The Reality of Making a Debt Settlement
You may have heard about debt relief in Canada being offered by debt reduction companies or some of the government reports warning consumers about the risks associated with debt reduction companies.
The debt reduction companies that the government has been speaking out against are those who offer debt relief in Canada without a bankruptcy or consumer proposal. These debt reduction companies will offer you a program whereby you pay them on a monthly basis over a period of time with a promise at the end that they will settle your debts.
The reality of making a debt settlement with your creditors is that generally a creditor will not make a debt settlement unless you have the funds to forward them the full settlement amount at the time the debt settlement is made. In almost all cases, your creditors and their collection agencies will not accept monthly payments when they approve a debt settlement, unless it is part of a consumer proposal. For example, if you owed $1,000 and the creditor agreed to accept $600 as a full and final debt settlement, they would want to be paid $600 at once, not paid in monthly instalments.
Direct debt settlements are often made with creditors when an individual owes a small amount of debt (less than $8,000 in total).
So, making a debt settlement with your creditors is a real possibility and is something to be considered, but only if you are in a position to pay the settlements in full if they are accepted. Where debt reduction companies are concerned however, and in almost all cases, money is collected from you monthly and a full and final settlement with your creditors is not made until all of the money has been collected to satisfy any settlements that the debt reduction companies were considering offering.
In the absence of the ability to make a debt settlement, you can look at a consumer proposal, which is another viable option for achieving debt relief in Canada. The benefits to a consumer proposal are:
You can usually reduce the amount of debt that you owe
- It is a legal process that can, in most cases, stop collection action
- It will result in a single monthly payment which is typically less than what you have to pay your creditors now
- Your money is administered by a trustee who is an official appointed by the superintendent in bankruptcy and not a private debt reduction company (who may or may not be in business when the time comes to make a debt settlement)
- You can re-build credit quickly because the consumer proposal is removed from your credit report 3 years from the date it is paid in full
- Because a consumer proposal is negotiated, once accepted the balance can be paid off at any time should your financial situation improve
The best thing to do if you need options for debt relief in Canada is to work with a Canadian provider of financial or debt consultation services that is not a trustee or a debt reduction company who administers debt reduction plans. A debt consultant will be able to assist you in establishing a plan that will help you achieve your financial goals, will be able to align you with the right professionals to achieve them, and will represent you through the process.
For more information about debt relief in Canada or if you would like to discuss making a debt settlement please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.