If you have already begun searching the Internet for an alternative to bankruptcy you may be dazed and confused trying to sort through the options to determine which is the best for you. To help get through the maze let's begin by separating those alternatives to bankruptcy you're read about that provide legal protection from those that don't.
Alternatives with No Legal Protection
First, there are debt consolidation loans where you borrow new money to pay back old money. In almost all cases these loans are backed by the equity in your home. Some Canadians who wipe out $20,000 in credit card debt by borrowing $20,000 against their home cannot resist the temptation to continue to use those cards, resulting over time in new credit card debt plus the cost of the consolidation loan. If you fall into that trap and can't make the payments you have no legal protection against losing your home.
Second there are the debt management plans and debt settlement plans offered by for profit companies billing themselves as debt solution companies or credit counseling agencies or debt management consultants. If you enroll in any of their plans acceptance into the plan is at the discretion of your creditors. What's more there is nothing to stop them from refusing to honor the plan at any time in the future.
Alternatives with Legal Protection
Unfortunately, there are only two, and one of them - an Orderly Payment of Debts - is only available in the Provinces of Alberta, Saskatchewan, Prince Edward Island, and Nova Scotia. You will need to work with a not for profit counseling center to apply for one.
A legally binding alternative to bankruptcy available to all Canadians is the Consumer Proposal. To see if you qualify for this alternative you would need to work with a Licensed Bankruptcy Trustee. This option, along with an OPD, will stop any and all collection activity against you dead in its tracks. Creditors are ordered by the courts to stop any activity in progress - such as wage garnishments, bank account attachments, and property liens - as well as prohibiting them from initiating any activity or even communicating with you as long as you are successfully completing the repayment plan you are in.
As you probably already know there are variations in these plans but the issue of legal protection is one that is often overlooked in favor of the debt solution options advertised on television, which typically have no legal standing at all.
How important is it to be legally protected? To answer that question we have to examine the relationship between three critical aspects of your financial situation - how much you make, how much you owe, and how much you own.
Income, Assets, and Total Debt
If your total debt is low - many experts advise $5,000 or less - and your income is high enough to work out some consolidation of payments that will allow you to repay the total in 3 years or less, the chances are high your creditors will honor the plan without taking action.
Once you get into the stratosphere of total debt -- $20,000 or more - and you have significant income and assets, you could be in trouble. Your creditors could choose to garnish your income and get liens on your assets.
The best way to get specific advice about an alternative to bankruptcy for your situation is not the Internet; rather it is a face to face meeting with either a reputable Credit Counselor in your area or a Licensed Bankruptcy Trustee, or both.
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