What is Credit Counseling in Canada
What is Credit Counseling?
It is a plan of action that is set up for you to help you gain control of your financial situation.
Credit Counseling will get creditors off your back and help you to start paying down your debt in a way that is more manageable for your monthly budget. If you are trying to carry a large amount of debt you can find yourself in an awful position. When you only pay the minimum payment on credit cards and other high interest loans you could soon find youself overcome with interest charges.
Stretching your budget to thin trying to pay debtors can cause bad side effects on your entire life. It can effect how you feel about yourself and your loved ones. The stress that goes along with an overly tight budget can be very harmful to your health and general well being.
We all make mistakes in life and it is very easy now adays to make bad credit choices. Credit Counseling in Canada is in place to help us fix those unfortunate financial mistakes.
Orderly Payment of Debts
Credit Counselling can vary from province to province. One option that is available to Alberta, Saskatchewan, PEI and Nova Scotia is Orderly Payment of Debts(OPD), with the help of a credti counsellor you may apply for a Consolidation Order.
How does this work? The OPD program is a program run by non profit organizations that allows you to pay your debts back entirely over a period of time. There are advantages to using the OPD program in your province. Interest rates can be dropped to 5% on all unsecured debts that you include in your OPD,
Advantages to the Orderly Payment of Debt Program
- Interest rates on unsecured debt included in the OPD may be dropped to 5%.
- Creditors no longer contact you. Instead you direct them to your credit counsellor for information.
- A legal stay of proceedings is put in to action. This will basically stop creditors from sueing you.
- You will have one payment to make and the credit counsellor will divide this monthly payment amongst all your creditors.
The OPD program is best suited for people that are able to complete it in 3 years or less. If you are not able to repay you rdebt in this amount of time you may do more damage then good. When considering whether the OPD program is a good option for you keep in mind that you will be makin ghtese payments for at least the next 3 years. You do not want the OPD payments make your budget to tight or you may run in to problems. The penalties for defaulting on an OPD can be very severe.
When considering your options it is best to consult with a credit counsellor such as Credit Counselling Canada and speak with a bankruptcy trustee in your area. By talking to both you will be informed of all disadvantages and advantages to each program.
Consumer proposal is a step away from bankruptcy. It gives you the opportunity to partially pay back your debts. In order for a consumer proposal to be accepted it must put your creditors in a better position than what bankruptcy would. When you file a consumer proposal it is similar to filing bankruptcy, most of the paperwork will be the same. This gives your creditors a chance to make a comparison of the benefits to them if you were to file a consumer proposal instead of filing bankruptcy.
Advantages to Filing a Consumer Proposal
- It allows you to pay your creditors back more then they would get if you filed bankruptcy.
- It is a little easier on your credit.
- A stay of proceedings is put in place from the day you file. This stops your creditors from actively pursueing the debt you owe them.
- Interest rates may be dropped to 0%.
To get started with a consumer proposal you will file a statement that explains your financial situation in detail and tells them what you can reasonably afford to pay back.
If this option is right for you, the process starts by filing a statement of affairs with a trustee. The statement of affairs tells the creditors exactly what your finances are like at this particular time and shows them what you can reasonably afford to pay them back.
Your creditors will then have a chance to vote in favor or against your consumer proposal and request court approval. If your creditor vote against your proposal you will then have 2 options. You can walk away from the whole proposal or you can make changes to it that will help the creditors to vote for it.
When choosing which financial options are best for you it is important to get all the proper information. Talk to a credit counsellor such as the people at Credit Counseling Canada
Personal Bankruptcy in Canada
Bankruptcy is an extreme way to deal with your debts. Before considering bankruptcy be very sure you have researched all other options. Such as OPD and Consumer Proposals.
In order to file for personal bankruptcy in Canada you must owe more then $1000 and be unable to pay your bills when they are due.
To start bankruptcy you must sign all of your assests over to a trustee. There are exemptions such as clothing and personal effects, one vehicle, household furniture and appliances along with other exemptions that you can discuss with a trustee. To begin this process you must make an assignment into bankruptcy. At this time you are assigning all of your assets over to a trustee for liquidation to the general benefit of your creditors. It will be your responsibility to deliver all items that are not exempt to the trustee. You will also need to provide tax information from the beginning of your bankruptcy through to discharge. Any refund amount you may get from your taxes will go to your trustee.
You will also be required to go to 2 counselling sessions before the nine months is over. These sessions are designed to help you build your budgeting skills and to help you better care for your finances. Throughout the bankruptcy you will have to file monthly statement of income and expenses. This is designed to help you keep track of your money and your expense habits. There are fees involved in a bankruptcy such as the trustees fees and excess income fees. The excess income fee applies if you are other the guidelines for what your family is alowed to make. The trustee will disuss these guidelines with you. When you are over the guideline you will need to give half of the excess amount to the trustee to go to your creditors.
Advantages to a Bankruptcy
- A legal stay of action is put into effect from the day you file. This will stop creditors from pursueing the debt you owe.
- You are discharged after nine months.
- Once you are discharged all debts are leagally forgiven. There are a few exceptions to which debts are not included.
- You may begin to rebuild your credit after you are discharged.
Bankruptcy is not the only option you have but it may the best option for your situation. Do not let bankruptcy get you down. We all need a do over at some point in life and sometimes that do over just happens to be with our finances.