If you are dealing with overwhelming debt, bankruptcy may not be the only solution available to you. Discover informal and formal bankruptcy alternatives.
Bankruptcy alternative: Contact your creditors to manage your debt
Explain why you cannot make your payments and suggest an arrangement that could work for both of you. You may be surprised that many creditors will cooperate when presented with a plan and a payment schedule.
Bankruptcy alternative: Consolidate your debts into a single loan with a low interest rate
You can approach a bank or credit union about combining, or consolidating, your debts into one loan. The bank or credit union issuing this new loan then pays off all your debts and, in return, you make a monthly payment to them. Make sure you shop around—interest rates vary. Be sure you close the accounts for the old debts so there is no chance you can use them again! Avoid further credit purchases, as this could make your debt load too great for you to handle.
Proposals as a bankruptcy alternative
Under the Bankruptcy and Insolvency Act, a trustee or an administrator files a proposal, which is an arrangement between you and your creditors for you to pay off only a portion of your debts, extend the time you have to pay off the debt, or provide some combination of both. To be acceptable, your creditors must be better off under a proposal than if you go bankrupt. Each of your creditors then has the opportunity to accept or reject what you are offering.
There are two types of Proposals an individual can file:
- Consumer Proposals
A person is eligible if their aggregate debts, excluding debts secured by a principal residence, do not exceed $250,000. The payments that you would make in the consumer proposal cannot be for more than five years. If the creditors do not accept the proposal you are not automatically bankrupt. You must attend two mandatory counselling sessions.
- Other Proposals
There is no restriction on the amount a person owes and payments are not restricted to a five-year period. If the creditors do not accept the proposal, you are automatically bankrupt as of the date that the proposal was originally filed.
To learn more about the potential advantages and disadvantages of filing a proposal, visit the Consumer proposals page.