When people get into trouble with their payments they will often look to credit counselling as an option to lower their payments. Other than credit counselling, there are other options including orderly payment of debts and bankruptcy that can be used to relieve your debt burden. Before entering into any of these arrangements it is important to research them fully. You must also be aware that all of these options will negatively impact your credit score and will inhibit you from borrowing money for lengthy periods of time depending on your situation.

Credit counselling is a process that is used to help individual debtors with debt settlement through education, budgeting and the use of a variety of tools with the goal to reduce and ultimately eliminate debt. Credit counselling is most often done by Credit counselling agencies that are empowered by contract to act on behalf of the debtor to negotiate with creditors to resolve debt that is beyond a debtor’s ability to pay. Some of the agencies are non-profits that charge no fee, while others can be for-profit and include high fees.

Orderly Payment of Debts (OPD), also known as a “consolidation order”, may be a suitable solution to your debt problems. OPD is similar to consumer proposals, but considered to be a less drastic solution. It extends the time (up to three years) to pay off your debts, and is legally binding on your creditors. However, it differs from proposals in that you cannot freeze the interest or negotiate a reduction to the principal.

Bankruptcy is a legal status of a person that cannot repay debts to creditors. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor. Bankruptcy is not the only legal status that an insolvent person may have, and the term bankruptcy is therefore not a synonym for insolvency. Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply cannot be paid, while offering creditors a chance to obtain some measure of repayment based on the individual’s or business’s assets available for liquidation. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.

As mentioned above, these are all options available to people if they are having issues making payments. In terms of borrowing money there are a few things to consider. Lenders will not lend you money while you are participating in any of these programs. Your credit score will be severely negatively impacted if you enter any of the above arrangements. Once you have completed these programs, most “A” lenders will not consider lending you a mortgage for at least 2 years after your completion. In addition you must have at least 2 pieces of credit re-established for 2 years. There are “B” and private lenders that will look at lending to you sooner than the 2 year period has expired but their rates are higher than your “A” lenders. All in all, entering into any of these arrangements should be taken seriously and given much consideration as to your future borrowing needs.

If you need more information regarding mortgages or if you need any advice on your personal situation please contact our office at 604-556-3893 or email at alex.kotai@ymscanada.ca.

For more information on our mortgage products and your preferred Abbotsford Mortgage Broker please visit our website at www.ymscanada.ca.