If you are faced with tough financial decisions, bankruptcy can seem like the option that will reduce the burden of debt.

As Bankruptcy Canada puts it, in simplest terms, in personal bankruptcy, you assign everything you own to a Licensed Insolvency Trustee in exchange for the elimination of your debts.

While many individuals and companies file for bankruptcies, particularly during financial crises, bankruptcies come with their own challenges.

To begin with, bankruptcy is expensive and can have personal implications if the debt carries director’s liability – such as unpaid source deductions and GST/HST liabilities.

Also, when you file for bankruptcy, the trustee involved does not represent you. The trustee is an impartial court appointed officer, who has to look out for both your and your creditors’ interests. So, it is always recommended to work with a debt consultant, who can support you through the process.

Lastly, bankruptcies are likely to cause your credit score to drop to the lowest possible rating at most Canadian credit bureaus.

This is why it is important to evaluate other options available to you as well.

Some of these options can not only help you retain your assets but also save your credit rating.

Mortgage refinancing, for instance, is a popular way to get out of debt.

When you’re looking to reduce your debt load, having equity can be incredibly beneficial. If you own a home, you can use available equity to consolidate your debts into one payment. This is an effective way to quickly deal with high-interest debt while managing your budget and minimizing the negative impact on your credit score.

When you have to make one fixed payment on a fixed schedule, it is easier to keep track of what you owe.

Additionally, given the all-time low interest rates, you could save money on your monthly mortgage payments if you bought your home at a time when interest rates were higher.

If you do not have home equity, consumer proposals can be a viable option especially when you are facing collection action and have unsecured, non-mortgage debts between $8,000 to $250,000.

It is a proposal made to your creditors, where your creditors agree to accept a single payment representing a percentage of your overall debt, that you repay monthly, normally over a term of 5 years.

This helps in consolidating your debt, preventing collection action, and protecting your assets.

While your credit score does take a hit after you file for a consumer proposal, this is usually temporary. Two years after your proposal is paid in full, your credit score can bounce back.

Deciding what works for you depends on the level of debt you need to pay off, the worth of your assets, and your current financial standing.

At DebtCare, we review all these aspects and propose a plan of action that helps you eliminate your debt on terms that are favourable for you. So, if you’re facing insolvency, contact us today for a free consultation on 1-888-890-0888 or visit www.debtcare.ca.