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As great of a city as Toronto is, living costs are among the most expensive in Canada, as a result, many residents struggle with financial issues. Problems arise when people in Toronto take on more debt than they can afford. While some debt can be good when handled responsibly, having too much can lead to severe consequences.
Unfortunately, when debt becomes unmanageable, being forced to declare bankruptcy might be one of those consequences. Although the process can be helpful in many ways, it can also negatively affect your financial health. Keep reading to learn more.
Looking for a bad credit loan in Toronto? Check this out.
Personal bankruptcy is a legal process that Toronto residents can opt for when they have at least $1,000 of consumer debt, but no viable way of paying it off. Essentially, you would file a legally binding document with a licensed insolvency trustee in Toronto, who will present it to the Court on your behalf. This process eliminates the majority of your unsecured debts and ends all collection efforts, wage garnishments, mounting penalties and interest that are piling up against you.
Not all debt types are eligible to be discharged. In fact, only unsecured debt, which has no collateral attached, can be included, such as:
Secured debts (backed by collateral), can’t be included. For instance:
For more information about secured and unsecured debt, click here.
The ultimate outcome here is that you should be left with a clean slate. However, a bankruptcy may result in even further consequences, such as:
Since a bankruptcy can have such a heavy impact on your finances in Toronto, it should only be chosen as a last resort. If you think you can avoid the process, it might be better to look into some of the following less drastic alternatives:
If you’ve built up home equity, which is done by paying down your mortgage and/or increasing the value of your property, you can apply for a home equity loan or a HELOC (home equity line of credit) in Toronto. You can then use your second mortgage to consolidate your outstanding debts and pay the funds back over time. That said, if you already have bad credit and financial health, this might not be the best option for you.
Want to know how to consolidate high-interest debt into your mortgage? Find out here.
Consolidation involves grouping all your unsecured debts together and paying them off in one go, leaving you with one payment and interest rate to deal with. This can be done in two different ways:
With a debt settlement, you would reach out to your lenders to broker a deal and have your outstanding balance reduced, rather than you paying back the full amount. This can be done on your own or with a debt settlement company. However, unlike a bankruptcy, a debt settlement is not a legally binding process. Therefore, your lenders don’t need to accept the deal or cease their collection efforts, even if they do accept.
If you’re not eligible for or you aren’t interested in any of the solutions above, but you’d still like to avoid bankruptcy, a consumer proposal may be the way to go. While the process is somewhat similar, it should still be placed ahead of bankruptcy when you’re considering debt management products in Toronto.
Do you know what the true cost of borrowing is? Learn more here.
As we said, your credit is going to take a significant negative impact after your bankruptcy. So, before you file, be sure that you’ll be able to get by in Toronto without credit during the 7 years that follow. Realistically, it may be difficult to repair your credit after the fact. However, it can be done if you’re willing to put forth the effort.
Secured credit cards are a good option when you don’t qualify for traditional cards in Toronto. To be approved, you would have to lay down a security deposit equal to your desired credit limit. You can then spend some time making responsible payments, which will gradually increase your credit score. Once the card expires and you’ve paid back your full balance, your deposit will be reimbursed. The goal here would be to repair your credit enough so that traditional cards are no longer out of reach.
One of the most important steps to improving your credit to never miss a payment date and always pay the full amount. This applies to your active credit products, as well as any other services you pay for, such as internet and utilities. Every payment you default on will result in credit damage.
While internet and utility companies in Toronto generally don’t report your activity to Canada’s credit bureaus (Equifax and TransUnion), they might if you continually miss payments. Nonetheless, if you don’t qualify for credit products after a bankruptcy, you can request that those companies do report your payments, thereby increasing your credit slowly.
Although the resulting credit damage from a bankruptcy is inevitable, reviewing your credit report on a regular basis afterward will help you monitor your progress. You can also do this to check for any errors, as well as signs of identity theft or fraud that may be causing additional harm to your credit score. If you find any such evidence, you can dispute it with the bureau in question. Just remember that Equifax and TransUnion carry a slightly different version of your credit report, so it helps to examine both copies and make sure everything lines up.
Read this to find out why you have more than one credit score.
If you’ve decided to file for bankruptcy in Toronto or you’re looking to avoid it at all costs, you can trust in Loans Canada to help. Contact us for more information about the process or to learn about other debt relief solutions available to you in Toronto.
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