Debt Consolidation vs Personal Bankruptcy – Which Option is Right for You?

When deciding what course of action to take to manage your debt, it can certainly help to seek professional advice from a licensed insolvency trustee (“LIT”) in Edmonton. Two of the most common and effective solutions are obtaining a debt consolidation loan or filing for personal bankruptcy. Considering that these are vastly different options, it is important to fully understand each and weigh their pros and cons before acting.

Debt Consolidation

A debt consolidation involves amalgamating various loans, ultimately paying one financial institution one payment instead of paying smaller amounts to your individual creditors. If you can offer collateral—particularly your home—you will have the best chance of securing this scenario. This is even more likely if you obtain the debt consolidation through a credit union or bank, rather than a third-party lender who faces a greater risk by loaning to you.

1. Pros

A debt consolidation may work well for you if the most unmanageable aspect of your debt is organizing your finances to pay each creditor each month by the due date. You can set up for automatic payments from your chequing account and secure a line of credit to that account.

Essentially, this debt solution offers a simpler way to organize your outstanding loans and bills, and may reduce your interest rates in the process and increase the length of time you have to pay back the money. It could alternatively enable you to pay off your debt faster due to the potentially lower interest rate you could secure with the lender. Provided your credit rating is relatively good, your creditors will likely favour this debt solution because they can get paid more consistently.

2. Cons

The most significant downside to debt consolidation is that you may simply ignore or overlook any financial mismanagement and not budget sufficiently to handle your financial future. Since debt consolidation can be a quick fix solution, any problem of overspending can easily go unresolved. This debt solution may result in further payments if you open a new credit card or line of credit.

Personal Bankruptcy

Personal bankruptcy is an option if you owe a minimum of $1,000 and cannot pay it off. The process is legally governed by the Bankruptcy and Insolvency Act (the “BIA”) and administered by a LIT. In Edmonton, a LIT charges only regulated fees stipulated by the Office of the Superintendent of Bankruptcy, which are considerably moderate in terms of expenses. Many unsecured debts, such as credit cards and income taxes, are expunged and creditors are legally obligated to stop trying to collect fees or garnish wages. Student loans under seven years old, spousal or child support, fraud-related debt, and secured debts (such as a mortgage or car loan) are not dissolved.

If you file for personal bankruptcy in Edmonton for the first time, you will usually be discharged after nine months, or up to 21 months. A longer period before discharge will occur if you are filing for a second time. You may not be discharged if you are filing for personal bankruptcy a third time.

A bankruptcy remains on your record and may affect your credit for six to seven years or potentially longer. If you have any significant assets not deemed exempted by regulations, they can be liquidated to help pay your creditors.

1. Pros

There are various advantages to filing for personal bankruptcy. For starters, creditors must immediately stop calling to collect money from you, which are often harassing and disruptive. Any wages that your creditors may be garnishing will also cease upon choosing personal bankruptcy as your debt solution, as licensed insolvency trustees are responsible for alerting your creditors at the onset. Naturally, another reason to file for bankruptcy is to have many of your debts essentially wiped clean. Bankruptcy takes care of many minute details on your behalf and helps you start somewhat fresh.

2. Cons

Many people tend to look at personal bankruptcy as either the definitive end to a stable financial present and future, or the end-all and be-all problem solver to significant debt. However, neither of these opinions is particularly considerate of the reality of what filing for personal bankruptcy truly means. Bankruptcy is not the answer for completely wiping out all the debt that an individual has accumulated; there are particular exemptions that occur and payments that you many need to made.

If you file for bankruptcy, you will also need to report your monthly income and income tax, attend mandatory credit counselling, give up assets such as quads, boats, not to mention your home equity beyond the exempt amount. You will also need to sacrifice any recent tax refunds and endure a poor credit rating for at least six years. A LIT may help you determine a better course of action if you essentially earn too high of an income to make bankruptcy worthwhile.

Which Option to Choose?

If the better debt solution for your particular financial situation remains unclear, a LIT at our firm can review personal bankruptcy in Edmonton vs. debt consolidation with you in detail to help with your decision. No matter which option you choose, it is important to note that many others have successfully overcome debt and it is certainly possible to get a clean slate.

Contact Fox-Miles & Associates Inc. Licensed Insolvency Trustee for Debt Consolidation in Edmonton or Personal Bankruptcy

For help today, call Fox-Miles Associates Inc. Licensed Insolvency Trustee at 780-444-3939. We can provide tailored solutions to help you overcome your debt.

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