Many of us experience financial difficulties at one time or another. While most of us are strong enough to weather periodic financial storms and pay our bills, there are many who are not so fortunate. They become victims to long-time derogatory credit reporting, collection proceedings and judgments.
If you happen to belong to that hapless group, or should your fortunes turn for the worse in the future, here are some practical tips on how to mitigate your financial problems. If unable to return borrowed money due to extenuating circumstances -- such as job loss, business failure, health impairment, foreclosure, etc. -- you should at least attempt to settle your debts for an amount you can afford.
Most of us hear of credit counselling agencies offering services of debt consolidation, reducing your overall monthly payments. Your debts may be lumped together into one newly obtained loan, payable monthly at a lower interest rate. The problem with such an arrangement arises when you miss some of those monthly payments, finding yourself back at square one. Further defaults may escalate your money woes. Caught in a vicious circle, you may never swim out of the sea of debt.
After consulting and helping indebted clients for the past 20 years, I came to the conclusion that the most advantageous method of settling your debts is through an alternative, one-time payment settlement proposal.
One-time Payment Settlement Proposal
This is the least strenuous way of getting rid of your debts. By offering a creditor to settle for a fixed, one-time payment only, if and when accepted, you'd free yourself from being tied-down to "never-ending" monthly payments. The amount offered to settle may be small in comparison to the overall debt but nonetheless, if you don't own a major asset such as equity in a home, expensive car, boat, or other substantial valuables, creditors may well consider such a settlement seriously.
Taking you to court to obtain a judgment costs them money, without a guarantee they could realize on it. Therefore, for the sheer purpose of dissuading your creditors to commence a legal action leading to a judgment, you should present them with your one-time payment offer in a hardship letter, along with a financial statement of affairs showing your income, assets and liabilities. After reviewing your financial statement, they may rethink suing you. That can often pave the way to settle your debts for pennies on a dollar.
Don't be persuaded to vary the amount offered for a much higher amount just because creditors pressure you to do so. Should collection calls persist, write them a short letter stating that their calling presents harassment, and request they cease and desist their unfair practices. Send a copy of that letter to the collection agencies' regulator in the province where you reside.
Don't succumb to collection agents promising you peace and quiet if you make at least a minimum payment towards your debt. This is a common trick they often employ. Even a token payment towards your debt will automatically move forward the date by which they can report your bad credit to credit bureaus, usually six to seven years.
Regardless of whether your creditors accept your offer, most of your derogatory remarks with past due accounts will be deleted after that time, except for a few exceptions such as certain student loan obligations and notation of multiple bankruptcies.
Save for these exceptions, most of your debts may not be enforceable due to the expiry of the statute of limitations which kicks in two years from the date you made your last payment on a revolving loans (charge cards), or the date you are supposed to make the last payments on your instalment loans, such as car loan, etc.
Settlement After a Judgment
The very same formula applies for settlement under a judgment. You should follow the same steps as explained previously, except, you would direct your offer to settle to the creditor's lawyer that obtained a judgment against you.
Although judgments may be deleted from credit bureaus in six to seven years , if unpaid, they remain to be registered with court's sheriff's offices, and prevent you from obtaining a mortgage or other major purchases for a very long time. You may be forced to offer more money to settle a Judgment and in the worst scenario, pay the whole amount of it. That's why it is highly advisable to act on time and offer your creditors a one-time settlement offer before they take you to court and obtain a judgment.
This is the easiest way out but I don't recommend it, unless you are "forced" into it by a third party -- such as the CRA -- whose assessment you cannot pay off. Even though the discharge of Bankruptcy is purged from credit bureau files after six or seven years, it still leaves an "indelible" mark that may haunt you for "life." A perfect example is a job application that asks the question: "Have you ever declared bankruptcy?" You can't lie so by checking "yes," other applicants for the job will be favoured, leaving you with a lesser chance of getting hired.
In the end, I recommend you evaluate your ability to repay any loan before you obtain it. Limit yourself to only two credit cards and a bank's line of credit at the most favourable rates, making sure you'd be able to repay the outstanding balances when they become due.
Don't forget the old saying: "You are as good as your credit."
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