Debt settlement in Canada
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What is debt settlement?
The debt settlement process is where you hire a company to negotiate a debt with a creditor on your behalf. You pay a fee and the debt settlement company will work to lower your overall debt and propose a lump-sum payment.
The key aim of a debt settlement plan is to eliminate debt in a manageable way that helps a person, or company, avoid more drastic measures, such as bankruptcy. In a lot of cases, the amount of debt paid back through debt settlement is significantly lower than the initial debt itself.
How does debt settlement work?
If you’re struggling to pay existing or growing debts, you can hire the services of a debt settlement company to help you manage those debts and create a plan to settle them over a period of time.
Debt settlement companies will negotiate with creditors on your behalf to reach a final settlement that’s agreeable to all parties.
Creditors aren’t obliged to negotiate or settle for a lower debt repayment, but often will because they will get more in return than if the person or company goes bankrupt.
A debt settlement company can handle all forms of communications with creditors and negotiate entirely on your behalf. This helps clients avoid calls and pressure from creditors, and in-turn the stress and anxiety that can come with it.
If you want to know more about debt settlement, you can call us today for a free consultation at 1-800-268-8093.
Debt settlement pros and cons
There are advantages and disadvantages to using a debt settlement plan to remove your outstanding debts and debt obligations.
Debt settlement advantages
- Manageable monthly payments
- Can cut the debt you pay back by up to 80%
- Stop annoying calls
- Avoid bankruptcy and keep personal assets
Debt settlement disadvantages
- Can negatively impact credit rating
- No guarantees creditors will agree to payment terms
- You will face additional fees for the set-up of a debt settlement program
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Alternatives to debt settlement
There are alternatives to debt settlement programs that you may want to consider before making a decision.
1. Consumer proposal – A consumer proposal is an agreement with creditors, outlining the percentage of the debt you owe them and allowing you to extend the amount of time you can pay back this debt.
The payments are made through the Licensed Insolvency Trust (LIT) which will pay the creditors on your behalf. This is typically the safest and most effective way to pay down debt.
Find out more about consumer proposals
2. Debt management – a credit expert will review your circumstances and help you determine a repayment plan that works for you (how much and how often you will pay creditors).
3. Debt consolidation – you consolidate various debts under one loan to pay back to creditors. This approach can help you save on interest over time.
4. Declare Chapter 7 bankruptcy – In this instance, your credit rating will take a big hit for a number of years, but you can start your financial recovery almost instantly. Though bankruptcy is widely considered as a last resort for most people or organisations.
Frequently asked questions
Can I buy a house during debt settlement?
Yes you can. But it’s important to be aware that, in order to buy a house or apply for a mortgage, you usually need a strong credit rating to have a successful application and get favourable rates. Debt settlement programs can have an initial impact on your credit score, but in most cases less of an impact than other debt relief solutions, such as bankruptcy.
What is the difference between debt settlement and bankruptcy?
Both debt settlement and bankruptcy are designed for those who are struggling to repay the full amount of debt they owe.
Debt settlement programs are arranged on behalf of debtors by a debt settlement company. They are negotiated and actioned on their behalf with creditors in order to reach an agreement on a payment plan to pay all, or a percentage, of the debt they owe.
Bankruptcy, on the other hand, is a legal process that involves debtors surrendering assets to pay-off the debt.
How does debt settlement affect your credit score?
Debt settlement, like many debt relief programs, will in the vast majority of cases negatively affect your credit score.
A debt settlement program can affect your credit rating for 6+ years. However, each individual circumstance is different and the amount of debt, value of assets, length of repayment program and maintenance of payments can all have an affect on how much your credit score is impacted.
Get in touch with Harris and Partners
Speaking with a licensed insolvency trustee can help you make the appropriate decision that is best for you and your personal finances.
At Harris & Partners Inc., our Licensed Insolvency Trustees have extensive experience with debt settlement programs.
If you need help from those who specialize in solving debt problems, contact us at Harris & Partners Inc. Licensed Insolvency Trustee. In Canada, our federally Licensed Insolvency Trustees can help you achieve long-lasting financial solutions.
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Contact information
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- Phone number
- 1-800-268-8093
- hello@harrispartners.ca