Why is there so much credit card debt
We live in what is called a “Consumer Society” this means that products are bought on credit, so you have it now and pay for it later with interest this is called unsecured debt. It is easy to stay on top of your debt if you pay it off monthly. Everyone has good intentions of doing this but then along comes unexpected expenses and before you know it your debt is too big to pay off. Many people comment that based on the payments they are making it should just about be paid off but when you look at the balance all those payments have not made a dent in it.
The debt trap
Just paying the minimum payment is not enough, it’s the “never never” plan! Once you are on this treadmill it is very difficult to get off, the creditors keep raising your credit limits and life keeps happening and the next thing you know most of your income is paying the minimum payments and the balances never go down. This is exactly where the banks want you to be! Do you want to spend the rest of your life like this or do you want to do something about it.
What is debt restructuring
This is where a solid debt restructuring plan comes in, there are several tools available relative to the needs of the individual and what kind of debt they might have. Often consumers can file a consumer proposal to the creditors – through a licensed Trustee in Bankruptcy, by paying back less than what is owed but more than what they would be paid in a bankruptcy. This reduces the debt very significantly, reduces the monthly payments and no interest is paid on the remaining debt. This is considered taking the “high road” in dealing with your debt. This option provides the opportunity for you to be debt free in five years or less, be protected from any harassment from creditors and is binding on them.
Sounds too good to be true
So what’s the catch you say? Well, for starters consumers need to know that Trustees in bankruptcy work for your creditors so it means they are looking out for the benefit of all the people you owe money too. This is where 4 Pillars can play a key role to ensure your long term financial goals are in sync with the debt restructuring plan and your interests are represented in the plan.
Generally, debt restructuring has 3 basic categories.
Consumer Proposal
This is formal offer made to your unsecured creditors under the bankruptcy and Insolvency Act through a licensed Trustee in bankruptcy. Licensed Trustees in bankruptcy are officers of the court and represent your creditors.
A standard proposal is monthly payment, over a term up to 60 months but the proposal can be structured in many ways and you are only restricted by the creativity of the company structuring the proposal for you. How the proposal is structured can have a big impact on your ability to successfully complete the terms of the proposal and how long it will report on your credit report.
Once the proposal is submitted the creditors have 45 days to vote on whether or not to accept the offer. There is zero interest paid and the proposal can be paid out as quickly as you like with no penalties. All filings under the Bankruptcy and Insolvency Act are filed with a trustee, the trustee is a person licensed by the Superintendent of Bankruptcy to administer proposals and bankruptcies.
The trustee represents your creditors and is an officer of the court. All trustees view things differently and this can have a dramatic impact on how a proposal is structured and your likelihood to successfully complete the proposal, if the proposal fails then you are back in the same position you were prior to filing and usually most consumers end up filing a bankruptcy. This is the most severe form of restructuring and normally something that consumers like to avoid for obvious reasons.
Unless you have a very comprehensive understanding of the Bankruptcy and Insolvency act we would always advise you obtain you own professional representation through the process.
Bankruptcy
This is the most drastic option for most debtors. A first bankruptcy would stay on your credit report for up to 8 years, and a second bankruptcy for 14 years. Bankruptcy means your income and assets are constantly monitored during the period you are in bankruptcy and this determines how much you pay back and how long you are in bankruptcy. At the time of filing bankruptcy all non-exempt assets become property of the trustee.
Negotiating directly with your creditors to settle debt
There are times when doing a formal restructuring (consumer proposal or bankruptcy) may not work because your home equity or income might be too high to qualify for certain debt restructuring plans. That is when we look at doing informal processes. This may include getting a consolidation loan to settle your debts to get you out of debt.
Whatever the option is that works best for you and your particular situation restructuring is about you and making your life better! Make sure you are fully educated on all your options before proceeding.
About the Author:
Robert Osborne is located in the East and West Kootenays of BC. Robert helps consumers deal with money problems and other complex financial problems by finding creative solutions for them to get out of debt fast. To learn more visit his website or call him directly at 250 – 365 – 8070
