7 Alternatives to Bankruptcy for Individuals


Should you file bankruptcy? In times of financial hardships or if you have more debt than you’re able to handle right now, you may be leaning towards bankruptcy protection. Fortunately, bankruptcy isn’t your only option. In Canada, bankruptcy alternatives can be more advantageous and protect you from the consequences of that come with declaring bankruptcy.

Here are some good alternatives to bankruptcy to help you get your footing.

1. Payment arrangements

The first thing a lot of people try is to make a payment arrangement with each creditor. This can be time-consuming however can help you avoid getting into your debt. If you believe you can pay off your debt in time and genuinely are committed to it, be honest with your creditors. See what they can suggest on their end to help reduce your interest rate or they may be able to provide an alternative means of paying off your debt.

2. Going to family

Family is not one of the best alternatives to bankruptcy, but it is a possible option. We typically don’t recommend this as it involves being transparent to family members about collections activity and you thinking about bankruptcy, in addition to the fact it’s going to mean owing family members debt which isn’t always something to repay. If there’s a parent, sibling, or another family member you are fine with taking a loan from, this might be one way to save on interest and get rid of all that credit which is eating away at your financial power.

3. Debt management

Debt management is through a non-profit credit counseling agency which consolidates your monthly debt payments. If you only have a few small debts that need to be cleared or if your credit rating is so bad that you don’t qualify for a low-interest debt consolidation loan, debt management might be your best bet. Through debt management, you repay all debts in full and there’s no debt relief strategy. It’s simply a way to maximize the use of your income stream to tackle unsecured debts in an affordable, sustainable way.

4. Debt consolidation loan

Loans are great bankruptcy alternatives. A debt consolidation loan is a loan to pay off your outstanding credit cards and any related banking loans. For those that qualify for a debt consolidation loan, this can be an excellent way to pay off your debts. This brings all your debt into a single place and usually with a lower interest rate. You should try getting a loan even if you have bad credit.

Of course, you still have debt. The advantages are that it clears out your credit cards which build your credit rating, minimizes what you’ll pay in interest and sometimes in a big way, and also allows you to manage your monthly debt payment much easier. You could end up paying $100s in credit interest on a credit card. Save that money and re-invest in your debt with debt consolidation.

5. Setting a strict personal budget

When facing debt, ask yourself an honest question. Can you afford to repay your debts on your own? Without intervention, some Canadians may find if they’re extremely strict with the money going out and/or if there’s a way to increase the money coming in, through a personal budget, they can begin to move beyond the debt. Something as simple as an Excel spreadsheet can provide a clear direction forward. Be honest about the time frame. If you can pay down debt within a few years, you may choose not to go with involving a bank, debt agency, or financial services company.

6. Income increase

Usually, when focused on a personal budget, we think of expenses and how to limit those. Of course, controlling expenses are key to saving as much money as you can and paying off debt. That said, if there’s a way to increase your income and it’s manageable in your schedule, you may want to consider it. Something like Uber, for example, can provide income you can make during off-hours and help you repay debt faster. Alternatively, finding a job with more attractive pay is another option. Even dedicating an extra five or six hours a week to something like Uber can provide significant income at the end of the year which you can put towards debt owing.

7. Informal debt settlement

If you’ve had debt to your name for a long time, you may be able to settle your debt with a creditor by offering them a lower amount than the one you’re being held to. Some creditors negotiate, while others don’t. Sometimes, you may be able to clear a debt by repaying 50 percent of it or in some cases, even less. If you’re working through a debt consultant or credit counseling agency however, beware. They sometimes charge ongoing fees which can add up and add more expense to your budget that you need.

8. Consumer proposal

A consumer proposal uses a licensed insolvency trustee to act on your behalf. They will negotiate with a creditor to come to some sort of agreement to settle your debt. A consumer proposal provides a way to pay less, possibly, and thereby pay off debt faster. Many creditors will accept a deal through a consumer proposal administrator because they would rather receive some money than none at all which would be the case if you file for bankruptcy. To a creditor, when they see you using a consumer proposal, it’s generally a sign you’re on the verge of bankruptcy which works in your favor.