When it comes to resolving personal debt, Bankruptcy is not usually the preferred option, but at times, it may be the most prudent. It offers relief from unmanageable debt that may have been growing for years, allowing you a chance to wipe the slate clean and start fresh.
Unfortunately, there are many “quick-fix” solutions that some may attempt in order to avoid Bankruptcy. Ultimately, however, these actions often make the situation worse, by drawing out the inevitable, or perhaps even costing you more in the long run, compared to simply filing for Bankruptcy.
Here are 4 traps to avoid, before filing for personal Bankruptcy:
1. Putting Out Fire with Fire
Many pay off debts they can’t afford with more loans they can’t afford. Taking out an additional line of credit, mortgage, loan, or credit card to pay off interest on the debt you already have will only worsen your credit score and sink you further into debt.
With a little planning, your Licensed Insolvency Trustee can work with you to identify potential opportunities for debt consolidation and advise you on how to work with financial institutions to find more manageable rates and payment plans.
2. Sacrificing Secured Debts to Pay Off Unsecured Debts
‘Secured Debts’ are debts that are ‘borrowed against’ an asset that you own, such as a house or a car. Failing to pay off a secured debt can result in foreclosure and seizure of the property, even if that property would otherwise be protected under your Bankruptcy exemptions.
Before securing a debt against your property, be sure that you can maintain the payment schedule. If you are unable to do so, then you may be better off pursuing another option.
Regardless, before you make a decision, it’s always a wise idea to consult a Licensed Insolvency Trustee to explore the debt management solutions available to you.
3. Letting Creditors Take You to Court
If your creditors pursue you for too long, and for too much, they could take the matter to court to force you to repay.
Court ordered settlements could include mandatory payments, garnished wages, or even a lien on your property, all of which could further compromise your ability to meet your financial obligations.
Before your outstanding debt reaches the point of court action, we strongly recommend speaking with one of our Licensed Insolvency Trustees about your options.
4. Cashing Out your Retirement
Your retirement savings is extremely important. It represents your future livelihood, and is meant to keep you financially secure when you are no longer able to work and earn an income.
Your registered pension and retirement savings plans (that have been funded prior to the 12-month period before a formal insolvency proceeding is started) cannot be touched by creditors in a Bankruptcy. But voluntarily dipping into your retirement savings in an attempt to avoid Bankruptcy will only hurt you in the long run. You may be forced to delay your retirement, or you may have to make ends meet with less savings than you need during your retirement years.
If you find yourself saddled with debt, do not cash out your retirement savings. Speak with a Licensed Insolvency Trustee to discuss alternatives for becoming debt free.
Don’t Get Caught in These Debt-Relief Traps.
These debt relief options are most often temporary, and only serve to prolong your debt and hurt your financial well-being. Before you consider any of them, contact us for a free consultation with one of our experienced Licensed Insolvency Trustees. Together, we’ll explore debt solutions including credit counselling, debt consolidation, Consumer Proposals, and Bankruptcy.
With offices in Toronto and Hamilton, the Fuller Landau Debt Solutions team can help you get a fresh start. After all, a debt-free life is a FULLER life. We also invite you to follow us on Facebook, LinkedIn, or Google+ to learn more about debt management solutions.