When consumers become overwhelmed with debt they're likely to consider bankruptcy, but consumer proposals are becoming a more popular option, according to Blair Mantin, a bankruptcy trustee at the Burnaby Sands and Associates office.
A consumer proposal is a deal made with a consumer's creditors, to repay a portion of debt owing with the rest written off.
In Burnaby in 2011, the bankruptcy rate went down 25 per cent while consumer proposals increased by 15 per cent, according to Mantin.
"Consumer proposals are growing like crazy," he said, adding his office is busier than previous years.
"Generally it picks up after Christmas but this year, it picked up in November," he said.
He takes this as a good sign that people are facing their money problems and dealing with their debt loads.
With the increased levels of debt throughout Canada, and the increased interest in managing and paying off debt, many private debt management companies are starting up as well, he said.
But Mantin warned that these companies can be unscrupulous, demanding fees upfront and making promises they can't keep.
Only a bankruptcy trustee can actually file consumer proposals, he added, and they offer free initial meetings.
Mantin meets with Burnaby consumers daily to discuss legal options, he said.
"Then we start building a plan to basically get back to zero, so they can get that fresh start," he said.
But consumers often come to him later than they should, as the word bankruptcy can be a frightening one, he said.
Consumers usually pay about 30 per cent of what they owe over three to four years with a consumer proposal, he said.
These debts can include student loans - so long as the consumer graduated seven or more years ago - and income taxes.
The proposals are dependent on a 50 per cent majority value approval to get accepted, with each creditor getting one vote for each dollar owed them.
"In my experience, proposals are almost always accepted," Mantin said, adding he hadn't had one fail in the Burnaby office for a number of months.
The consumer has to be capable of making the payments, he added, so they can't be required to pay $1,000 per month if they only make $2,000.
Payments for someone with $20,000 worth of debt would be about $200 to 300 per month for 36 months, he estimated.
But consumer proposals do affect a person's credit rating, usually resulting in a score of R7 (consumer has filed a consumer proposal, consolidation order or started a debt management plan) or R9 (a bad debt was sent to collection and/or is considered uncollectible, or bankruptcy) for the period of payment, and for three years afterwards.
Scott Hannah, president and CEO of the Credit Counselling Society, advises that consumers take time before making decisions that could affect their credit rating in the long term.
The society is a non-profit organization based in New Westminster, and was set up to help consumers with debt issues.
Hannah shared the story of a young man in his early 20s who he'd helped set up debt management plan.
The man called Hannah and said that he wanted to go bankrupt instead of sticking with the plan, and Hannah advised him to think of the future.
"What happens down the road when you're married and your spouse wants to get a home, and you don't qualify for a mortgage because of your bankruptcy?" Hannah told the man.
He then asked the man what he would advise when his own children came to him with money troubles.
Hannah said the man told him, "I feel like you just kicked me in the you know where" and Hannah said, "yes I did, on purpose."
The young man stuck with the plan and went on to get married and buy a home, according to Hannah.
"He's grateful for that direct conversation we had," he said.
Learning how to manage debt - paying off credit card balances on a monthly basis, planning a budget, and not borrowing more than you can pay back - is the most important step towards overcoming debt problems in the long term, according to Hannah.
Overuse of credit and not planning a budget are two of main causes of debt load, he added.
"We need to really take hold of our finances and become great money managers," he said.
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