Debt Settlement in Canada
In Canada, there are a few forms of debt settlement – some more informal, and another that is legally enforced. The more informal variety of debt settlement is where a debt settlement company or a debt consultant may attempt to negotiate with your creditors on your behalf for a fee.
There are also debt management plans which are typically prepared for you through credit counselling, combining your debts into a repayment plan usually with a reduced interest rate. The only legal form of debt settlement in Canada is a consumer proposal, which offers a substantial reduction in debt while allowing you to keep your assets and protecting you from creditors.
What is debt settlement?
A debt settlement is a negotiation that is made with your creditors. It typically involves offering creditors either a lump sum or agreeing on a repayment plan in order to clear your debts. Typically, the repayment equates to less than the value of your total debt. When carried out informally, a debt settlement does not guarantee debt relief and incurs fees. A debt settlement can be carried out either by yourself, a debt settlement company, a credit counselling agency, a debt consultant, or a Licensed Insolvency Trustee can mediate the process for you. Trustees are the only professionals able to file a consumer proposal, the only legal form of debt settlement.
Which types of debt settlement are there?
There are two primary forms of debt settlement – namely a debt settlement program, and a consumer proposal. A debt settlement program or a consumer proposal are typically for those with over $10,000 worth of debt – with anything less, credit counselling or a debt consolidation loan may be more appropriate. Here is how each form of debt settlement works:
Debt settlement program
A debt settlement program is usually mediated by a debt settlement company or a debt consultant to negotiate with your creditors. The intention is to come to an agreement that both you and your creditors are happy with – paying off some of your debt, while aiming to reduce it and cut the interest rate. It can be perceived by creditors as being much easier than going through a formal negotiation to reclaim the full debts they are owed. It is important to note that with a debt settlement program, you must be able to make the monthly payments agreed within a three year timeframe, there are upfront fees, and there is no guarantee that creditors will agree to it. Debt settlement programs can also negatively affect your credit report.
A consumer proposal
A consumer proposal is the only legally backed form of debt settlement in Canada. Requiring a Licensed Insolvency Trustee in order to administer a consumer proposal, it is often considered the cheapest and safest form of debt relief. By working with an experienced trustee, they can help to negotiate with your creditors to secure an affordable monthly payment for you. Typically, you can reduce your debts by up to 80% with a consumer proposal. At Spergel, unlike other debt relief firms, you will be assigned your own trustee to walk you through each and every step of the process. Learn more about the advantages of a consumer proposal.
Which types of debt can a debt settlement program help with?
A debt settlement program can be used to cover the following types of personal debt, including all unsecured loans:
- Credit card debt
- Retail and store card debt
- Payday loans
- Cell phone bills
- Utility bills
- Medical bills
- Non-government student loans
- Unsecured lines of credit
Advantages of debt settlement
Debt settlements can offer a number of advantages if they are agreed and fulfilled in a successful manner, including the following:
- Reduce monthly payments owed to your creditors
- Save on interest rates
- Have a single monthly payment
- Avoid bankruptcy
- Ease the pressure from creditors
- Save time and begin to rebuild credit sooner
Who is eligible for a debt settlement program?
To be eligible for a debt settlement program, you must ensure you meet the following criteria:
- Demonstrate that you are able to save
- Show evidence that you have an income to cover the payments
- Agree to cover the payments with creditors within three years
For a formal debt settlement program, find out if you are eligible to file a consumer proposal.
What should I look for in a debt settlement program?
It is important to remember that when you are looking for a debt settlement program and struggling with unmanageable debts, you are vulnerable. It is at this point that you need to be cautious of debt settlement companies making unrealistic promises or pressuring you into a debt settlement. Walk away from any pressurized situation, and do your research. Remember no debt settlement agency can guarantee to reduce your debt, protect you from creditors, stop wage garnishment, or make your creditors agree to a debt settlement. On the contrary, as a legal form of debt settlement, a consumer proposal can deliver all of these promises in a safe manner.
Book a free consultation
If you want to learn more about debt settlement or are confused as to the various different forms of debt relief, book a free consultation with one of our experienced Licensed Insolvency Trustees. We have helped over 100,000 Canadians gain debt relief, and can help guide you onto the most suitable pathway for a fresh financial future.