Debt Negotiation / Informal Debt Settlement
So you don't have enough money to pay all your bills. You understand how much you owe, and whether your debt is secured or unsecured. You can either deal with the creditors on your own and try to settle the debt or hire a professional.
What Is The Process
Whether you do it on your own or hire a professional here is what the process would look like. In this scenario we are only dealing with your unsecured debts.
1. Stop Paying
While this may seem contradictory to what you heard before, if you really want to force the lenders hand you need to stop paying them. They do not want to send you to a collection agent or sue you. Both cost them money. They want to have you pay the minimum payments and collect their interest. Remember their debt is unsecured.
Once you have gone 120 days without paying, the creditors will send your debt off to a collection agent. At this stage your credit rating is an R6. You want this to happen as the collection agent is the one who has the ability to negotiate. Typically the lender will sell your debt to a collector for 5 to 10 cents on the dollar.
2. Request to communicate in writing only
The collectors will be very ruthless on the phone, so you want to avoid this by sending them a letter to communicate to you in writing only. You can find a copy of a letter to do this at www.consumerprotectionbc.ca.
3. Supply them with a witnessed statement of your affairs
The creditor has no idea as to your situation. So you have to tell them what you are going through. They will not believe you over the phone so send them a statement telling them about the following:
4. Put a proposal together in writing
Now that you know what your assets are worth and what you can afford to reasonably repay per month, make the creditors an offer.
5. Get acceptance
Now the hard part. You have to get every creditor to agree to your plan. If they say yes, and you finish the payments, you have to make sure to get them to record the debt as paid in full on your credit bureau.
What are the pros and cons
1. No public record - if you file a settlement informally no one has to know about it. It's a deal you made with your creditors.
2. Minimal effect on your credit rating - because you did this on your own, the only poor effect on your credit is an R6 collections. Which will be erased in 6 years.
3. Cheaper - you will not have any expensive fees to pay to anyone.
1. No stay of proceedings - your creditors could say they accept the plan and then sue you anyway.
2. There is no majority rule - in a court bound proposal the deal is legally binding on all the creditors. Informally the creditors have no obligation to accept your proposal.
3. May need lump sum - the collection agent may not want to accept a payment plan.
We hope it is clear that the process has a lot of moving steps, and the process can be quite daunting. If it all seems to much to handle, then you may hire a professional to manage the process for you, or contact us to help you.