Expenses and debts can pile up quickly, and you’ll have no choice but to file for bankruptcy before you know it.
Unemployment, medical expenses, and divorce are among the top causes of bankruptcy, all of them capable of breaking down a solid financial base.
When it comes to dealing with debt, you have several options to choose from. Bankruptcy is viewed as the worst-case scenario whereas credit counselling is seen as a less extreme solution.
While both solutions share the same end goal, they have entirely different methods of getting there. It’s vital to learn the differences between bankruptcy and credit counselling. It’ll help you make an informed decision that is most suitable for your situation.
How Does Bankruptcy Work & When Is It a Good Choice?
When your debt becomes unmanageable and cannot be paid when due, you become insolvent. This makes you eligible to file for bankruptcy.
If you decide to file for bankruptcy, the first step is to set up a meeting with a Licensed Insolvency Trustee who will complete a debt assessment for you. Questions about what your salary is, how much money you owe, who you owe money to, and what assets are under your name will be asked.
Although declaring bankruptcy will help relieve you of your debts, it has some drawbacks that should be considered. Not only will bankruptcy remain on your credit report for 7 to 10 years, but obtaining a credit card, mortgage, or loan in the future will be challenging.
Bankruptcy is worth exploring when you have several thousand dollars in consumer debt. This includes student loans, credit card debt, and high-interest installment loans. Individuals with smaller debts are not encouraged to file for bankruptcy as it can have long-term ramifications.
What is Credit Counselling?
For smaller, more manageable debts, receiving credit card counselling may be a better alternative to filing for bankruptcy.
Similar to bankruptcy, credit counselling begins with a financial assessment. Your income, expenses, and debts are looked at to see if you can afford to pay back your debts. You don’t need to be insolvent to qualify for a debt management plan. However, you must be capable of paying back what you owe in five years.
In a debt management plan, you can combine your unsecured debt and loans into monthly payments to the credit counselling company. The creditors you include in the plan have the choice of whether they agree to the terms or not. They are not required to participate or lower their interest rates.
If the creditor does not agree to the plan, you must continue to make debt repayments to them. Credit counselling is only a good option when you have a couple of overdue bills. Otherwise, the monthly payments will become unaffordable.
Get a Fresh Start with Lazard & Associates
It can be easy to become overwhelmed with the amount of debt you owe and lose hope of living a debt-free life.
Our experts at Lazard & Associates are here to help you explore your options and work towards paying off your debts. We will work closely with you to devise a plan tailored to your unique financial situation that’ll help you get out of debt and back to living a financially stable life.
Reach out to us to learn more about credit counselling and book your consultation today.
Surplus income Frequently Asked Questions
What You Need to Know
The following questions are some of the common questions we get
asked about surplus income and consumer proposals.
Personal bankruptcies are quite complex and seen as a last resort when you owe a lot of money. Bankruptcy destroys your credit completely, but it gives you the opportunity to pay down some of your debt and even have some of it eliminated entirely over time. For more info on bankruptcy, contact us.
A credit counsellor analyzes your credit history, credit rating and budgets to determine ways to help you repair your credit. This can include managing your debt, helping you with budgeting, and guiding you to better use of your credit cards. If you are struggling to repair your credit, get in touch with us today.
