3 Ways to Achieve Debt Forgiveness in Canada
As prices for everyday essentials rise and inflation soars, many of us are spending less and reducing our budgets.
When facing financial instability, repaying your debts takes a back seat to more pressing needs like rent, groceries, and bills.
If you have outstanding debts you cannot repay, you may want to explore the possibility of debt forgiveness to write off debt you cannot afford.
Here are three ways to achieve debt forgiveness in Canada.
- Negotiate with your creditors
Try negotiating with creditors yourself for a debt reduction or lower interest rate.
While not all creditors will agree, debt collection agencies are often willing to accept a lower amount to settle the debt, but you must pay a lump sum upfront.
Be aware that there are many debt settlement scams. Debt settlement companies are unregulated and should be avoided. There is no guarantee that creditors will negotiate with a debt settlement company or that you will receive debt forgiveness.
- File a consumer proposal
A consumer proposal is one of two legal Canadian debt forgiveness programs.
With the help of a Licensed Insolvency Trustee, you make a legal agreement with creditors to pay some of your debt, with the remaining amount forgiven.
If you have trouble making regular payments, this is a safe and affordable solution to deal with your debts. Most unsecured debts, like payday loans, lines of credit and credit card debt, can be included.
Most people choose to make a single monthly debt repayment over an agreed timeframe, but you can also make lump-sum payments. You are debt free once you complete these payments.
If you file a consumer proposal, your interest on debts will be frozen, debt collection agencies will stop calling, and wage garnishments will be lifted. You’ll also be able to keep all your assets.
While your credit score is affected, you can eliminate your debt faster, allowing you to rebuild your credit faster than you are currently able to.
- Declare personal bankruptcy
Filing for bankruptcy can be a good option if you’re in a precarious financial situation and struggling to pay your debts.
In exchange for help with your debts, you give up some of your assets, and your credit takes a hit. However, once you finish, all your unsecured debts are forgiven within 9 to 21 months, and you can start repairing your credit.
Bankruptcy is a legal process under the Bankruptcy and Insolvency Act that can write off debt you cannot afford. It must be carried out by a Licensed Insolvency Trustee.
If you file for bankruptcy, your unsecured creditors cannot take legal action against you. Collection calls and wage garnishments stop.
Are there other debt solutions available?
There are many debt relief options available, but each program has pros and cons, and some don’t offer debt forgiveness.
Credit counselling services often recommend a debt management plan to solve debt problems, but you cannot write off any debt through this program.
A debt consolidation loan can help lower your interest rate and make your payments affordable, but your debt will not be forgiven.
Debt forgiveness programs can help
If you are having trouble making the minimum payments on your debts, debt forgiveness can help.
Bankruptcies and consumer proposals are regulated by the Canadian government, which can only be administered by a Licensed Insolvency Trustee.
Be aware of unregulated companies promoting government debt forgiveness. It is a good idea to get free advice from a Licensed Insolvency Trustee to avoid being scammed.
*This is a collaborative post.