When that debt becomes too much to handle, a lot of Canadians turn to bankruptcy. But there are some alternatives. Here are some options to pursue before filing for bankruptcy in Canada.

Nobody wants to file for bankruptcy, but many people believe there are no other options available to them. In part one of our series, we examined bankruptcy and provided some basic facts to help you decide if bankruptcy was the best option for you.

In part two of our series on bankruptcy, we will explore some alternatives to bankruptcy. If you’re in need of debt relief, but hope to avoid bankruptcy, keep reading to find out if any of the options below are right for you.

Pay It off on Your Own

If you only have a few small debts and can pay them off in a reasonable amount of time, you may be able to manage the debt yourself.

You can do this by developing and adhering to a budget, which can help you to prioritize your spending and calculate how much you can afford to pay toward your debt each month.

Debt Management Plan

If you need help budgeting and only have a few credit cards, a debt management plan may be a good option for you. Debt management plans allow you to repay your debts in full, with one monthly payment instead of keeping track of and paying each individual creditor.

A Consumer Proposal

Over half of Canada’s insolvency filings are consumer proposals, as more and more utilize this option to solve their debt problems. If you owe less than $250,000 (not counting your mortgage) and have a stable source of income, filing a consumer proposal might be the best option for you.

A consumer proposal is a legally binding agreement you enter into with your unsecured creditors. In accordance with the Bankruptcy and Insolvency Act, all consumer proposals must be filed by a Licensed Insolvency Trustee (LIT).

In a consumer proposal, you will pay a specified amount of money per month for a specified amount of time. The amount of your payment is determined after considering three things:

• The amount of your income
• The value of your assets
• A comparison of what your creditors will receive in the proposal to what they could receive if you filed for bankruptcy

When your consumer proposal is accepted, all further interest fees and legal actions (including wage garnishments) stop. Once you have satisfied the terms of your proposal, your outstanding debt is written off. Consumer proposals allow you to often settle your debt for as little as 35 percent of what you owe. Unlike bankruptcy, consumer proposals offer you a solution to your debt problems without having to sign over and sell assets like your house and car.

Keep it small and manageable

One ongoing strategy to avoid bankruptcy is to keep your debts small and manageable. Instead of continuously adding on to your credit card or line of credit, consider paying for unexpected bills or deficits quickly, over a controlled time interval. For instance, payday loans are repayable within a specific time frame. A payday loan is one way to stay accountable, keeping your balance from growing into a monster.

Read Part 1 of our series on bankruptcy in Canada here.

Read Part 3 of our series on bankruptcy in Canada here.

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