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Exploring Your Options: Effective Strategies to Manage Debt Without Bankruptcy in Canada
In Canada, businesses that face financial difficulties have several alternatives available to declaring bankruptcy. These options are specifically designed to help businesses deal with their debts in a way that allows them to continue operating more gracefully than through bankruptcy.
This blog lists several alternatives to business bankruptcy and feasible debt settlement options to consider when trying to restore your financial position.
Alternatives to Consider Before Going Bankrupt
1. Debt Restructuring
Debt restructuring includes negotiating with creditors to modify the terms of your debt. This allows for extending payment periods, reducing interest rates, or even forgiving a portion of the debt. The goal is to make the debt more manageable for the business.
2. Proposal to Creditors (Division 1 Proposal)
Under the Bankruptcy and Insolvency Act, a business can file a Division 1 proposal. This is a formal process, more commonly known as a consumer proposal, where a business proposes a plan to pay creditors a portion of what is owed over a specific period or some other arrangement that is acceptable to the creditors.
This process is managed by a Licensed Insolvency Trustee (LIT), who helps negotiate terms that are suitable for the business and acceptable to the creditors. If this proposal is supported by your creditors and approved by the court, it helps avoid bankruptcy and allows the business to continue operating with revised terms.
3. Informal Proposal
An informal proposal, or workout agreement, is a plan negotiated directly with creditors, avoiding the formal process of a Division 1 proposal. While this approach offers flexibility and can be less costly, it needs more legal protection against creditors than a formal proposal provides.
This informal debt settlement plan can lower your interest rates or adjust repayment terms, which is supported by a realistic proposal that outlines a plan to meet your obligations.
4. Debt Consolidation Loan
A consolidation loan combines multiple debts into a single loan with a potentially lower interest rate and a longer repayment period. This simplifies debt management and reduces monthly installments, making it easier for a business to manage its cash flow and repay its debts.
5. Asset Liquidation
Selling off non-essential or underperforming assets provides funds to pay down your debt. This approach requires careful consideration to ensure that it doesn’t impair the business’s ability to operate.
These extra assets may include a second vehicle, recreational property, or investments that can generate cash to pay off debts. While not an ideal option, this can help avoid more drastic measures like bankruptcy or a consumer proposal.
6. Credit Counselling
Credit counselling services provide valuable advice on managing your finances and debts. While this is more commonly associated with personal debt, credit counselling can also offer valuable insights for small business owners.
A credit counsellor also helps you set up a debt management plan (DMP), where you make a single monthly payment to the counselling service, which then distributes payments to your creditors, often at lower interest rates.
7. Budgeting and Expense Reduction
Sometimes, the best strategy involves adjusting your budget and cutting expenses wherever possible. This will free up extra money to pay off your debts more quickly. Various online tools and apps can help you track spending, identify areas for savings, and structure your monthly budget.
Conclusion
Each of these alternatives to debt settlement has its advantages and challenges, and the best choice depends on the specific circumstances of your business. Business owners must seek professional advice from a Licensed Insolvency Trustee or financial advisor, like debtconsolidationbc in Canada, to explore these options thoroughly and make an informed decision based on their unique financial situation.