According to the Money Problems website, credit cards are the leading cause of personal debt and one of the main reasons why people file for bankruptcy in Canada. This statement is hard to mistrust because we have all seen people who carry several credit card balances. They must take cash advances from one account to settle the minimum payment for another. It is indeed a messy situation for such people, but what if this happens to you, and you find yourself in a position where you can no longer pay your credit card debts? What is the proper way to act in such a financial cul-de-sac? Well, there are four things you can do if credit card debts have overwhelmed you:
- Raise your income by starting a second job, working regularly overtime, asking for a raise, getting a promotion, etc. and pay off your credit debt completely. The same goes for your spouse or partner.
- Approach a credit counselor and prepare a debt management plan. As a part of this plan, you will have to pay the counselor a fixed sum every month and he or she will divide it among your creditors. A typical debt management plan does not last beyond five years; so, if you realize you will not be able to pay all your obligations by the fourth year, you should try the other options instead.
- Make a consumer proposal to the credit institutions with the help of a government trustee. If they accept the consumer proposal, you will be obliged to make payments to the trustee who will distribute them to the credit card companies. If you have exhausted all three options, you have a fourth one – unfortunately.
- File for bankruptcy.
Many Canadians today are forced to choose the latter alternative and declare bankruptcy. This is a dire situation, no doubt about it, as you won’t be able to apply for loans for a long, long time. However, it is very important that – should you come to bankruptcy – you deal with it in a proper manner.
The best way to file for and manage bankruptcy is to contact a bankruptcy trustee, a specially trained official with license by the Office of the Superintendent of Bankruptcy, who will give you the best advice on your situation and will administer the bankruptcy process. At present, there are about 1,000 licensed bankruptcy trustees in the country, and you can easily find their contact details via search engines like Google and Bing.
Many people are not really certain what the concept of bankruptcy actually entails. In Canada, it is not very complicated: when you go bankrupt, the majority, if not all, of your debts are cleared, but you have to surrender all your possessions, bar those which are subject to bankruptcy exemption. Which possessions you will be able to keep depends on the province where you live and on the current legislation in force. The best way to check what items you can retain is to take a list of all your possessions (including car and house appraisals) to your first meeting with the bankruptcy trustee and discuss them together. In general, unless you have a lot of equity on your house or apartment, it will not be taken away from you. As for your car, and again this is the general rule, if you hold the title to it, have not pledged it as collateral, and its worth exceeds $5,650, it will probably be seized to settle your debt (source: Money Problems).
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