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What is debt restructuring?

By Gurinder Dhaliwal

With the current record levels of consumer debt in Canada there is much talk and discussion about debt restructuring. But what is really meant by this term?

Before talking about debt restructuring we need to understand what type of debt it is first. Getting out of debt is not easy.

What type of debts do you have

There are many different types of debt such as credit cards, lines of credit, overdrafts and mortgages.  Each type of debt has its own terms and conditions as well such as interest rates, repayment period, installment amounts, security agreements and delinquency terms.

What type of debt consolidation plan do you need

A customized debt restructuring plan can only be put together once the entire financial picture can be gathered by looking at all the debt as a portfolio. For example an individual may have a debt structure made up of $50,000 in credit cards, a  $20,000 line of credit and $5,000 in pay day loans.

Debt restructuring can also be used for delinquent debts where consumers are finding it difficult to even make the minimum payments. The ultimate goal is to improve their cash flow, reduce personal stress and allow them to carry on with everyday life.

Because debt restructuring adversely affects consumers` credit scores once payments are missed or the consumer files a Bankruptcy or Consumer Proposal it is very important that all debt restructuring programs include our 4 Pillars comprehensive credit rebuilding plan.

Debt restructuring should not be confused with “refinancing” which involves replacing old debt, where payments have not been missed, with new debt. An example would be using a line of credit to pay of a credit card where no payments have been missed.

So what are some examples of debt restructuring? A very brief summary is given below of some of the debt restructuring procedures employed by 4 Pillars:

  • Consumer Proposal: this is a formal procedure under the Bankruptcy and Insolvency Act where an offer is made to pay off the debt interest free over a period of up to 5 years and usually the principal amount owing is also reduced. The debtor`s assets are fully protected from the creditors and no legal action can be taken for recovery of the monies owing. Only Trustees can file a Consumer Proposal and they are officers of the court and represent your creditors.
  • Informal Proposal: this is an informal procedure whereby the debts are reduced by negotiating directly with your creditors outside the Bankruptcy and Insolvency Act. The agreed payment is paid as a lump sum rather than through monthly installments. Unlike the consumer proposal no legal protection is afforded to the debtor during negotiations
  •  Bankruptcy: this is usually the very last option whereby the consumer debts are extinguished through the filing of a bankruptcy. When consumers file for bankruptcy all their assets are vested with a trustee in bankruptcy (subject to exemptions) who then sells them and pays the proceeds to the creditors who are owed money. As well as liquidating assets the trustee will also garnish a portion of the debtor`s income to pay to the creditors. Only Trustees can file a bankruptcy and they are officers of the court and represent your creditors.

If you live in Burnaby, Coquitlam or Westminster and want to know more about debt settlement options please contact Gurinder Dhaliwal by visiting my Burnaby website or calling me directly at 778-340-4002 to arrange for a free consultation to review your options.

 


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