Consolidating debt: A bankruptcy alternative
To have some amount of debt is a normal part of anyone’s financial journey. Proving to financial institutions that you can repay your credit obligation regularly lets you build your creditworthiness, but sometimes unexpected emergencies and events occur.
When the amount of debt gets overwhelming, one of the first options that people think of is bankruptcy. However, filing for bankruptcy should be a last resort to deal with debt. To save your credit and have financial flexibility again, other options like debt consolidation or credit counselling are more favourable.
The truth about bankruptcy
The first thing that people have to understand about bankruptcy is that it is a legal process, which means it’s not just a change in financial status. It can also be applied on both a business or a personal level. The process can be lengthy and costly. For those who decide that bankruptcy is their best solution, they will have most of their debts dismissed.
Many believe that bankruptcy is equivalent to paying off debt completely, but bankruptcy is mainly targeted towards consumer and unsecured debt such as credit card debt, bank loans, or payday loans. Mortgages, student loans, or alimony cannot be dissolved by filing for bankruptcy.
Filing for bankruptcy may be appropriate when creditors and collection agencies constantly contact you and when you have exhausted all the other options to meet debt obligations. It can also be when your consumer debt is equal to or greater than half of your income or if you know it’ll take more than 5 years for you to pay everything in full. Bankruptcy can be a reasonable solution for these situations, but you have other ways to save your credit if you haven’t hit a certain point in your debt.
What happens after bankruptcy
Canadians who file for bankruptcy have certain rights, such as the ability to continue working. However, upon a successful process and declaration, debtors will have some limits to what they can do financially.
Credit reports and score
Regardless of any financial habits and credit score prior to bankruptcy, debtors’ credit scores could drop at least 200 points. Bankruptcy can stay on record for up to 10 years upon declaring it, but it usually stays on record around 6-7 years for Canadians. As a result, applying for credit cards and personal loans may become difficult because you’ll have to take additional steps to prove that you have the ability to repay them.
Getting a house
In Canada, houses are bought with a mortgage loan. Because of bankruptcy’s effect on credit scores, the chances of getting a mortgage are much lower. However, this doesn’t mean it will be impossible to get a house, but it requires more patience and discipline. First, a bankruptcy discharge (which can either be in 9 or 21 months), which certifies that you no longer owe certain creditors, must occur. In addition, you will have to demonstrate a record of your ability to meet your debt obligations which may take five or more years.
Alternate options to bankruptcy
Difficult financial situations can be resolved before it hits the point where only declaring bankruptcy can provide relief. Consider the following options before placing your final decision on filing for bankruptcy. No financial situation is beyond saving and the solution may be simpler than you imagine.
For those who do not want to take out another loan to fix their existing debts, credit counselling is a service that helps people come up with a financial plan to fix their debts. Like bankruptcy, the debts that counselling services will assist you with only include consumer debt. The debtors themselves must be the ones to personally take care of other debts.
One of their greatest advantages is that some counselling sources may even be free since many are non-profit agencies. Counsellors will understand your financial situation to the best of their ability, usually putting you on a debt management or settlement plan. Credit counselling will offer you strategies based on what’s best for you.
A common solution that many Canadians select is a consumer proposal. It acts similarly to declaring bankruptcy, but it doesn’t stay on your credit record as long as bankruptcy does. You’ll also be permitted to keep more of your assets than you would in bankruptcy. Not only that, proposals aren’t as limited as credit counselling or bankruptcy.
At its simplest level, a consumer proposal is an agreement that states that you’ll pay some or all of your debt. The amount that you’ll be required to pay back must be under $250,000. The agreement will also protect you interest rates and collectors who are constantly contacting you.
Debt consolidation loans
Finally, you can receive a lump sum to consolidate your debt into one monthly payment. These kinds of loans come in various forms can be obtained from banks and alternative lenders like Alpine Credits. At the bank, the amount of the loan is usually dependent on a borrower’s income and credit score. One type of debt consolidation loan is a home equity loan, a secured loan that utilizes your house’s equity.
Debt consolidation through home equity loans is one of the more beneficial options for a number of reasons. Unlike consumer proposals and credit counselling, it’s not a negotiation nor is it a change of strategy. Instead, you will have the opportunity to relieve all of your debts in one go, regardless of what type of debt it is.
Home equity loans are also able to cover the types of loans that bankruptcies don’t, making them the option that provides the most flexibility. Debtors can potentially pay some if not all of their student loans and secondary mortgages. Ultimately, debt consolidation reduces all your payments into one, making it more manageable.
Get a home equity loan with Alpine Credits
As previously mentioned, consolidating debt is a commonly preferred solution because of its relative lower interest rates and its manageable payment schedule. A more optimal type of consolidation loan is one that comes from home equity. A home equity loan is similar to any loan, but instead of borrowing from the bank, you access the equity value in your property.
Specifically, home equity is the value of the difference between your house’s value and how much of the mortgage is still ongoing. The more valuable and the more of the mortgage you have paid, the larger your loan can be. Homeowners who have paid at least 25% of their mortgage may be eligible to obtain some of their home equity for a debt consolidation loan.
With Alpine Credits, you can be approved for a debt consolidation loan through your home equity in as little as 24 hours. Unlike at other financial institutions, your credit history, credit score, or income will not be examined. Contact our team of Financial Solutions Specialists who can answer any of your questions regarding home equity and debt consolidation loans. As a homeowner, you have solutions other than bankruptcy, and that solution may be your home equity.