Debt settlement programs, including a debt management plan, completed through a reputable credit counselling agency, can be an effective way for you to pay off your debts but unfortunately sometimes they just don’t work out. If they don’t you can be left with more debts than before and your creditors start calling all over again. So what can you do?
Two common reasons that debt settlement programs fail:
- Creditors will not go along with the program – certain creditors will refuse to go along with any debt settlement programs or their settlement rates just aren’t attractive. For example payday loan companies do not like to participate in any form of debt settlement and neither will the government. Other creditors may continue to charge you interest although perhaps at a reduce rate. A creditor can still pursue legal action including filing a lawsuit or sending your account to collections. In any of these cases, your only option for eliminating your debt would be to file either a consumer proposal or a bankruptcy.
- Lack of communication with your creditors – some debt settlement companies will send out cease and desist letters to try to stop all the harassing phone calls, then they will tell you to stop paying your creditors and put all of the money that you would be paying your creditors into a separate bank account. Once you have enough money they will contact your creditors and try to make settlements on your debts. Unfortunately creditors want to be in the loop. If they have no way to contact you they may send your debt for collection to their legal department and you could get sued, which could lead to wage garnishments. If this happens, your only option would again be to file either a consumer proposal or a bankruptcy.
If your debt settlement program isn’t working or if it has failed I want you to know that it is not the end of the world and you do have other options available to you.
Alternatives When Debt Settlement Fails
One solution is a consumer proposal, which is a legally binding settlement that is negotiated by a consumer proposal administrator on your behalf to pay a portion of your debt over a period of up to five years and the rest of your debt is forgiven. In a typical consumer proposal you would pay one affordable monthly payment over a period of three to five years.
Another option would be to file a bankruptcy. The length of the bankruptcy and the amount that you would pay in a bankruptcy depends on a couple of things:
- If you have surplus income – in a bankruptcy the government sets out a limit of what you can make while you’re bankrupt. If your income is over the government threshold you are required to pay 50% of the amount that you are over the limit and your bankruptcy is extended.
- If you have been bankrupt before – 1st time bankruptcy would last either 9 or 21 months, a 2nd bankruptcy would last 24 months with no surplus income and 36 months with surplus income.
If your debt settlement program doesn’t work and you are looking at exploring other options, it is very important to sit down with a professional. Your first step should be to contact Hoyes Michalos and Associates and book a free consultation with one of our professionals in the GTA so we can go over all of the different options that are available to you. You can either send us an email or give us a call at 310-PLAN (no area code is required).