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However, he notes that debt management programs mean you will pay 100 per cent of your debt along with a fee charged by the credit counselling agency.
If it’s unlikely you will ever be able to repay the full amount, another possibility is a consumer proposal, said Jones. “It’s an alternative to bankruptcy that offers your creditors a payment plan for up to a five-year period.”
You must consult with a Licensed Insolvency Trustee (LIT) and get a majority of your creditors to agree to the consumer proposal. But once approved, you will not have pay back 100 cents on the dollar and there are no interests or penalties under federal law.
While the word is a scary one, Jones says bankruptcy is just another solution to debt. If you’re someone who doesn’t have any assets to go towards a consumer proposal, this is the option for you. “It allows them to get a full fresh start once they’re out of debt,” he said.
An LIT is also necessary for the process of filing for bankruptcy.
Mike Comrie, assistant vice-president of BDO Canada, says that even while dealing with extreme debt, it’s important to have savings available for an emergency fund. “What we often see is somebody, after they pay for their basic living expenses, might have only just enough to make their minimum payments. The problem with that is, when that emergency hits, they don’t have any savings, and because they don’t have any savings they have to borrow.”