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Unpaid Debt

Many times, and for various reasons, a debtor cannot make their payments. People lose their jobs, debt loads become too high and other emergencies come up that use extra funds. If you are in a situation where you cannot make the required payments on your debts, it is important to know what options you have.

Talk to the Creditor

You can let the creditor know when you are unable or may be unable to make a scheduled payment. The creditor and you may be able to work out a plan to make a partial payment. If the problem is temporary, a creditor may let you miss a payment and make it up later. In some circumstances, the creditor may be willing to accept lower payments for a few months. It is a good idea to contact the creditor before missing any payments.

Consolidation Loans

If you have several debts and cannot make the required payments you may want to consider consolidating your debts. To consolidate means to get one new loan from a financial institution to pay all your debts. You can discuss a consolidation loan with a lending institution such as a bank, credit union or trust company. The consolidation loan is used to pay off your existing debts, leaving you with only one monthly payment on the new loan. This single monthly payment is often less than the total monthly payments of all the old debts. Creditors may require security for a consolidation loan.

Debt Management Programs

A debt management program is an informal, voluntary arrangement to pay off your unsecured debts in full. These programs can give you more time to pay off these debts and reduce the interest rate. They allow you to make one monthly payment based on your individual circumstances. Payments are then passed on to your creditors. A counsellor can work with you to prepare a budget and discuss repayment plans with your creditors. These programs deal with personal debts, but not business debts. To qualify you must...

  • have the agreement of your creditors
  • be unable to meet financial obligations to creditors
  • not be bankrupt
  • be able to pay off the debts in full within a three to five year period, unless the creditors agree to a longer period or accept a settlement

A credit counsellor can help you determine if this type of program is right for your situation. The programs are available for a fee from both for-profit businesses and non-profit organizations. Businesses will typically charge more for their services than non-profit organizations. For more information visit Credit Counselling Canada, a national association of not-for-profit credit counselling agencies and Orderly Payment of Debt programs.

Consumer Proposals

A consumer proposal is an offer you make to your creditors to modify your payments. The process is administered by a bankruptcy trustee. Creditors must generally be offered more than they would receive if you declared bankruptcy. You may propose to lower your monthly payments over a longer period of time, or to pay a percentage of the debt in full satisfaction of the entire debt. If the proposal is accepted it is legally binding, and unsecured creditors cannot use a judgment to take legal steps, such as seizing property or garnisheeing wages, to recover the debt.

To make a consumer proposal, you must not have debts greater than $250,000, excluding a home mortgage, and must be unable to meet the debt obligations as they become due. The term of the proposal cannot exceed five years. Consumer proposals by bankrupts must be approved and the bankrupt must have a trustee who will administer the consumer proposal. Other debtors must also have a trustee, who may be a bankruptcy trustee or someone appointed by the Superintendent of Bankruptcy. Debtors must pay a filing fee, as well as the trustee's fees.

The trustee will...

  • assess the debtor's financial situation
  • look at the underlying causes of the debtor's financial problems
  • determine the need for counselling
  • provide for financial counselling, which may include learning how to budget or cope with substance abuse or gambling addictions
  • prepare the consumer proposal and have the debtor sign the required forms

The trustee will file the proposal with the Office of the Superintendent of Bankruptcy and submit it to your creditors. Creditors are asked to accept or reject the proposal. Creditors will have up to 45 days to consider the proposal or call a meeting. If enough creditors accept the proposal, the proposal becomes binding on the debtor and creditors. If the proposal is fully performed, the administrator will give the debtor a certificate, and the debtor will be relieved of the debts covered in the proposal.

If the proposal is rejected, creditors will be able to take legal steps to recover the debt. If the proposal was accepted, but the debtor failed to make all payments required under the proposal, it may be annulled. The creditors can then take legal actions to recover the entire original debt, minus any amount paid to them under the proposal.

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