What are Bankruptcy Alternatives?

Many people in financial trouble fear the possibility of bankruptcy so much they fail to look into other options. Bankruptcy is only one of several available options for dealing with debt issues. Here are some alternatives to bankruptcy that might work for you:

1. Go it Alone with Informal Creditor Proposals.
2. Debt Consolidation Loans through a Lending Institution.
3. Debt Repayment Plans through a Credit Counselor.
4. Orderly Payment of Debts through a Licensed Credit Service.
5. Formal Creditor Consumer Proposals through a Licensed Bankruptcy Trustee.

Regardless of which solution you go for, you’re going to have to first determine your current financial picture --how much you owe, how much you own, how much you earn, and how much you pay out each month. To get out of debt, one of these conditions is going to have to change.

There is a way you can you can reduce what you pay each month on unsecured debt, like credit cards. These companies want their money and in today’s troubled times they are often willing to listen to informal proposals from their customers. Usually in exchange for closing the account, they are willing to reduce the interest rate and freeze a lower monthly payment on the account. These are categorized as informal arrangements, since they have no legal protection.

If you have equity in your home, car, or other assets, you might be able to get a loan to pay off your unsecured debt. This reduces both your monthly payment and the total amount you will pay back over time, since the interest rate on a secured loan is far less than credit card interest.

Another alternative is to work with a credit counselor to set up a debt repayment plan which will reduce your monthly payments on unsecured debt. The counselor determines a monthly payment you can afford and then makes arrangements with your creditors to accept payments directly from them instead of from you. In most cases the debt management plan negotiated will require you to pay the total of what you owe over time; but another repayment option – debt settlement – can reduce the total you owe. One of the major problems with these debt repayment options is they offer no legal protection. Some creditors might still harass you with collection calls, threaten wage garnishment, and even sue you for repayment.

If you live in Alberta, Saskatchewan, Prince Edward Island, or Nova Scotia, you have another option – OPD (Orderly Payment of Debts). In essence, OPD is a debt management plan that is legally binding on your creditors. Once established, you can no longer be threatened by your creditors in any way.

Formal consumer proposals are arranged by licensed bankruptcy trustees and have the advantages of reduced interest rates and principal amount on unsecured debt, coupled with legal protection.