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No Equity To Refinance? Struggling With Debt?

No Equity to Refinance? Struggling with Debt?

The Debt Article:

It seems like the common consumer trend these days is to refinance their property to utilize the equity present in their homes to pay off some of their higher interest debt. Credit cards, for example, at substantially lower interest rates. Refinancing a mortgage is one debt consolidation option that everyone must consider before considering more invasive options that often come with an impact on the credit rating. For an in-depth guide Debt Consolidation in Canada, see 4 Pillars’. (Debt Consolidation 101 Article)

Despite popular belief, a good portion of Canadians who consider more invasive options such as Bankruptcy or Consumer Proposal do so not because they were bad with money. In fact job loss, reduction in income, illnesses, failed business and separations account for a good portion of insolvencies. Many will look to reach out and take advantage of their home equity; equity can usually only be accessible up to an 80% valuation of your home. With the housing market these days, this may be less than last year.

So what solutions exist that allow for you to get a handle on your finances after you have exhausted all of the traditional routes?

1. Credit Counseling

Credit Counsellors offer debt management programs. The process involves the credit counselors asking your creditors to stop or reduce the interest. They consolidate your payments into one payment, which they then distribute to your creditors.

While these plans can help consolidate your payment and put you on the right path to pay off your debt. The payment plans can be high and still unmanageable and have a negative impact on your credit rating as you are not paying the debt back on the original terms and conditions. In today’s low-interest rate environment, a better option may be to obtain a consolation loan if income and credit score aren’t an obstacle to qualify

2. Informal Settlements / Informal Proposals

An informal settlement, otherwise known as an informal proposal is where you or a company you contract would contact your creditors one-by-one. And, attempt to negotiate a deal with them directly outside of any legal processes.

Informal settlements can be a complex process with varied results depending on the creditors. These can not include CRA debt and usually requires a one-time payment to reach a settlement. For those that are already or soon to be delinquent on payments and with a access to funds to settle their debts; this can be a good option.

3. Consumer proposals

A consumer proposal is a formal negotiation process between you and your creditors. It is a legal process governed by the Bankruptcy and Insolvency Act that must be filed by a Licensed Insolvency Trustee. (Formally Bankruptcy Trustee). It’s legally binding and comes with protection against most garnishments, and judgments. It also prevents creditors from attempting to collect on any of the debt so those aggressive collection calls would stop.

The dual role of the trustee is to investigate the debtor’s financial situation and to ensure that the debtor’s rights will not suffer abuse; also protecting the rights of my creditors. For consumers that have a strong understanding of the Bankruptcy and Insolvency Act and are not requiring comprehensive financial rehabilitation programs to reduce the impact on their credit rating working directly with a trustee can be a good option. For those requiring their own independent advocate, additional support, and compassion, extended financial education/rehabilitation working with an intermediary can be an excellent option

4. Bankruptcy

A Bankruptcy is an option for consumers who have no other options and when their debts have become unmanageable. The Bankruptcy process is by far the most severe form when dealing with debt. And, is filed under the Bankruptcy and Insolvency Act through a Licensed Insolvency Trustee.

A first-time Bankruptcy lasts for up to 21 months assuming that all of the Bankrupt’s obligations and duties are fulfilled. Your present and future income will affect the overall cost of your bankruptcy. Your assets will be taken into consideration as well and could be seized by the Trustee and sold for the benefit of the creditors.


So which option is right for you? This entirely depends on your situation. Every situation is unique so you must consult with a professional to understand how each option may affect your situation. And find out what option is right for you.

David MoffattThis article was written by David Moffatt. He is a Debt Relief Specialist with 4 Pillars Consulting Group. David has personally helped clients in Nova Scotia, PEI, New Brunswick, and Newfoundland. He has plans to restructure millions of dollars in consumer debt and provide comprehensive credit rebuilding and financial rehabilitation.

David Moffatt


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