A lot of people who are drowning in debt wake up one day to realize their situation is completely unmanageable. It might have started with a couple small emergencies that you put on your credit card. Then Christmas came and some presents got tossed on their as well. You realized how great the “rewards” were, so you started putting more and more on your card.
One month, you couldn’t pay off the entire balance, but you paid off most of it and figured a small hit in interest was fine given how convenient the card was to use. Add a couple more emergencies and some more purchases, and you’re stuck in full-fledged revolving credit hell.
At some point, your minimum payments will catch up with you and you’ll start falling further and further behind. With high minimum payments, you won’t have the option to buy things with cash, so even more goes on the card.
You’re now getting desperate and start thinking about bankruptcy.
It sounds like such a great idea. Wipe the slate clean and get a do-over. Fortunately (or unfortunately depending on your point of view), it’s not that simple. Bankruptcy requires a lot of negotiation, and depending on how it’s structured, you may still end up owing money. Some things, like student loans, aren’t covered in a bankruptcy, so you’ll still have to pay them.
On top of that, your credit will be completely shot, all but eliminating your ability to secure financing for a house or even a car.
Exploring Other Options
You got into this mess, and you should at least TRY to get out of it. If a collection agency forces you into bankruptcy, at least it was forced and not you tossing in the towel.
Most people don’t know about the wide range of options between debt repayment and bankruptcy. When it comes to debt settlement Ontario has some great options.
With debt settlement you can lower your interest rate charges, and avoid dealing with creditors. A professional will negotiate on your behalf and have some or all of your debts lowered and structured with a more comfortable payback plan.
Debt consolidation can also help. Pay off all your debts with a loan and then focus solely on paying that loan back. A single monthly payment, often with a lower interest rate can really help make debt repayment manageable.
Credit counseling will help you by taking a close look at your debt and financial situation and coming up with a long-term payoff plan. This may include negotiating with creditors, and is a great first option when you seek professional help.
Lastly, a Consumer Proposal may also be an option. The name is misleadingly ‘soft’, as this is essentially a step away from bankruptcy. It involves negotiating with creditors through a bankruptcy trustee and structuring a payback plan.
Learn more about all these options at http://debt.ca and stop assuming bankruptcy is your only option.
Have any of you ever filed for Bankruptcy? How was your experience?
I am thankful to never have had that experience, already thinking a month can be a bit stretched financially prevents me to sleep, I think I would do the impossible at the perspective of bankruptcy to avoid it. Consolidation would be the first thing in my mind.
Sean, thanks for the great, and truthful article. So often companies make bankruptcy seem like the easy way out. Thanks for showing us what it’s really like, and what some viable alternatives are. http://www.thefrugalfarmer.net
Nice article….a good reminder of the ways that people fall into the debt trap at the beginning of the article. Thanks for the info.
I feel lucky that I never was that far in debt. It’s always morbidly funny when I see people talk about bankruptcy like it’s an easy path to debt freedom. These people find out too late.