You Have Options for Getting Out of Debt

What should you do if you have money problems?

First assess your overall financial situation. List your monthly expenses for food, rent, clothing, transportation, medical and dental fees, and all regularly occurring expenses which you pay (for example, music lessons, if your child takes these). Remember to include a monthly amount for annual expenses like car repairs and insurance. Also include an amount for emergencies that could arise – like the need to replace the family car, the TV, your computer or the house furnace. Total this up, and then subtract it from your income. The amount left over is what you have available to pay towards your debts.

Do you have to pay more on your debts each month than you can afford? If so, you’re getting further into debt and should consider one of the options which follow. Not all will work for you, but somewhere in the list is a solution that can be tailored to fit your specific situation.

What are your options?

You can:

1. solve the problem yourself,
2. use a debt management program,
3. consolidate your debts,
4. apply for a consolidation order under the Bankruptcy and Insolvency Act,
5. make a consumer proposal under the Bankruptcy and Insolvency Act,
6. declare bankruptcy, or
7. take no action at all.

One, solve the problem yourself

Sometimes, you can cut back on non-essential monthly expenses so you have more money to pay off debts. You can also try to increase your income enough to make all your monthly payments. Maybe you can get a second or part-time job. Or your spouse or family may be able to help with a gift or loan. Meanwhile, stop using credit cards – they charge very high interest rates. If you need to borrow, get a loan from a conventional lending institution like a bank or credit union.

Another thing you can do is contact your creditors, outline your situation, and ask them to suggest ways to help solve your problem. They may agree to a better deal that still lets you pay your debts, for example, by charging a lower interest rate, writing off interest or giving you more time to pay. Be careful about agreeing to repayment schedules that may be too difficult. And make sure you’re not borrowing more money or putting off other creditors – and getting charged more interest – just to satisfy the creditors taking action against you.

Two, use a debt management program

A debt management program involves a written agreement between you and the lender, with the help of an agency such as the Credit Counselling Society of BC (their contact information is given at the end of this script). Typically your debts are consolidated, or combined, into one affordable monthly payment so you can repay them in a reasonable time. Creditors usually support people who enter into debt management programs by reducing or eliminating interest charges.

Three, consolidate your debts

You may be able to get a consolidation loan through a bank or consumer finance company, which consolidates all your debts. You make just one payment each month. Be aware that the finance company will charge you a fee, and the interest may be higher. Also, you may have to use your personal possessions and household items as security for the loan.

Four, apply for a consolidation order under the Bankruptcy and Insolvency Act

If you have money available after your monthly budget costs, you could apply for a consolidation order under the orderly payment of debts provisions of the Bankruptcy and Insolvency Act. This involves a consolidation of your debts into one payment per month, determined according to your ability to pay. Certain restrictions apply, and certain debts are excluded. The advantage is that creditors cannot take legal action against you unless you default on your monthly payments. However, they may still be able to seize any property you used to secure the debt. A credit counselling agency or bankruptcy trustee can explain this process to you.

Five, make a proposal under the Bankruptcy and Insolvency Act

If you receive a regular income and can make meaningful payments over time, you can obtain the help of a bankruptcy trustee to make a formal “proposal” to your creditors under the Bankruptcy and Insolvency Act. You can design the proposal to suit your circumstances and income. You may agree to pay in full, or you may agree to pay in some smaller amount that creditors are willing to accept. The repayment schedule can be as long as five years.

The advantage of a formal proposal over a debt management program or debt consolidation is that there’s an immediate “stay of proceedings” when you make the proposal. This means your creditors cannot start or continue any collection action against you. As long as the proposal is accepted – meaning that more than 50% of the unsecured creditors approve it – and you make your payments on time, the “stay” continues. Also, once you’ve successfully completed your proposal, none of the affected creditors have any remaining claims against you – even if they voted against the proposal.

Six, as a last resort, you could declare personal bankruptcy

Sometimes, this is the only viable solution. Again, for this option, you need a trustee in bankruptcy. When you declare bankruptcy, you have to “assign” or give your assets to the trustee, with some exemptions. As well, bankruptcy stays on your credit rating and can affect your ability to obtain credit for six years.

In some very limited cases, no action may be needed

If you have no income or possessions, your creditors may not be able to collect any money from you to repay your debts. Or if your debts are more than six years old, or if you haven’t made any payments or admitted your debts in writing in the last six years, and creditors haven’t taken any legal action, they may have lost the right to sue you. But you should speak to a lawyer first before doing nothing.

How do you decide what to do?

• Start by getting free advice and counselling: The Credit Counselling Society of BC is a non-profit debt counselling service. In addition to offering counselling about possible solutions to your financial problems and free debt management workshops, they can help you set up a personal budget to regain control of your finances. They can also set up a debt management or debt settlement program for you. The Society has offices in Vancouver, Delta, New Westminster, Surrey, Abbotsford, Nanaimo, Kelowna and Victoria. Generally, there’s no cost for their services. Their toll free phone number is 1.888.527.8999 and their website is www.nomoredebts.org.

• You can also get professional help: A reputable, licensed credit counsellor or bankruptcy trustee can help. To find a credit counsellor, look in the Yellow Pages of your phone book under “credit and debt counselling.” For a bankruptcy trustee, look under “bankruptcy trustee.” Or go to the website of the Canadian Association of Insolvency and Restructuring Professionals at www.cairp.ca or phone them at 416.204.3242. Most bankruptcy trustees will give a free initial consultation to assess your financial situation and explain your choices and their consequences.

Where can you find more information?

• Excellent information is given in the brochure “Dealing With Debt: A Consumer’s Guide”, published by the Office of the Superintendent of Bankruptcy Canada (found on Industry Canada’s website at www.ic.gc.ca (search under “All Topics” then “Bankruptcy” then “You Owe Money” and then “Guides”. Or you can call the Office at 604.666.5007 and ask for a copy of the brochure, or pick up a brochure from your local government agent office. You’ll also find other publications and information on the bankruptcy process, consumer debt and consumer proposals on this website.

• See the manual Consumer Law and Credit/Debt Law published by the Legal Services Society and available for free on their website at www.legalaid.bc.ca. To find it, click “Publications” then under “I want to find a publication by subject,” click “Debt”. This manual is for paralegals, legal information counsellors, and lawyers with clients who have consumer/debt problems.

[updated February 2013]

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In law, to formally deliver documents to a person in a manner that complies with the rules of court. Service may be ordinary (mailed or delivered to a litigant's address for service), personal (hand-delivered to a person), or substituted (performed in a way other than the rules normally require). See "address for delivery," "ordinary service," "personal service" and "substituted service."

To determine the proper value or worth of something. A lawyer's bill may be assessed by a registrar to determine the actual amount the client should pay. See "appraisal."

A person who is younger than the legal age of majority, 19 in British Columbia. See "age of majority."

A sum of money or an obligation owed by one person to another. A "debtor" is a person responsible for paying a debt; a "creditor" is the person to whom the debt is owed.

A mandatory direction of the court that is binding and enforceable upon the parties to a court proceeding. An "interim order" is a temporary order made following the hearing of an interim application. A "final order" is a permanent order, made following the trial of the court proceeding or the parties' settlement, following which the only recourse open to a dissatisfied party is to appeal. Failing to abide by the terms of an order may constitute contempt of court. See "appeal," "consent order," "contempt of court," "decision" and "declaration."

A court proceeding in which one party sues another for a specific remedy or relief, also called a "lawsuit" or a "case." An action for divorce, for example, is a court proceeding in which the claimant sues the respondent for the relief of a divorce order.

Under the Divorce Act, either of two people who are married to one another, whether of the same or opposite genders. Under the Family Law Act, spouse includes married spouses, unmarried parties who have lived together in a marriage-like relationship for at least two years, and, for all purposes of the act other than the division of property or debt, unmarried parties who have lived together for less than two years and have had a child together. See "marriage" and "marriage-like relationship."

A voluntary transfer of property from one person to another, without expectation of payment or reward. Gifts to one spouse do not usually qualify as family property, and are excluded from the pool of property to be divided. See "donee," "donor," "excluded property" and "family property."

Under the Family Law Act, a term that describes the time a person who is not a guardian of a child, including a parent who is not a guardian, has with that child. Under the Divorce Act, a term that describes the time a person who is not a married spouse has with a child. See "guardian" and "parental responsibilities."

In law, a calculation of the allowable legal expenses of a party to a court proceeding, as determined by the Supreme Court Family Rules. The party who is most successful in a court proceeding is usually awarded their "costs" of the proceeding. See "account," "bill of costs," "Certificate of Costs or Expenses" and "lawyer's fees."

In law, failing to do something which is either optional or mandatory, such as failing to respond to an application or to a claim within the time limits set out in the rules of court. See "default judgment."

Something which can be owned. See "chattels" and "real property."

A person who holds property in trust for the benefit of another person. See "trust."

(1) In law, a court proceeding, a lawsuit, a legal action, a case, or (2) a claimant's claim against a respondent. (3) In fashion, menswear designed to inflict maximum discomfort at maximum cost. See "action."

In law, to transfer an interest or right in something to someone else. People who go on welfare, for example, are required to assign their rights to apply for child support and spousal support to the provincial government.

A person licensed to practice law in a particular jurisdiction by that jurisdiction's law society. See "barrister and solicitor."

A resolution of one or more issues in a court proceeding or legal dispute with the agreement of the parties to the proceeding or dispute, usually recorded in a written agreement or in an order that all parties agree the court should make. A court proceeding can be settled at any time before the conclusion of trial. See "action," "consent order," "family law agreements" and "offer."

In law, someone acting on behalf of someone else, with that person's express permission and normally at their express direction.