So far Debt Consolidation, Mortgage Refinancing, (equity take out), Liquidation of Assets were discussed in the last three issues of this paper. The fourth is called Debt Settlement.
Debt Settlement is simply to negotiate with your creditors to reduce your debts on the ground that you are in financial difficulties instead of filing bankruptcy that creditors do not like the most especially if your equity or asset is next to zero.
In a Debt Settlement, you cannot make a uniform offer to all your creditors like an offer to pay only 40% of your outstanding balance. Unlike in a formal consumer proposal where an offer to reduce your debts is uniform to all creditors as it is required for by law. That is, if you offer 40% of your outstanding debt to one creditor it should be same offer to all of your creditors.
Since Debt Settlement is not under the law that regulates formal consumer proposal, individual creditors have the right to enforce their own policy with regards to an offer for a settlement. Some may accept 40% or less, others may only accept settlement offers that are at least 50% of the outstanding debts.
A letter of offer to settle should include: financial information that shows your assets, liabilities, net worth, monthly income, monthly expenses, monthly disposable income (enough to pay your monthly payment in case your settlement offer is on installment payments, not a cash settlement), and a list creditors with your corresponding debts owing.
In your letter of settlement you should demonstrate that you are in financial crises supported by the financial information you provide (above mentioned) and bankruptcy is your only option should your offer to settle is rejected.
Generally, creditors would accept Debt Settlement offer because they can get at least a portion of their money rather than to allow you to go bankrupt where they couldn’t collect a single cent from you as you have practically zero asset or equity.
If Debt Settlement is not appropriate on your financial situation you may consider Debt Consolidation, Mortgage Refinancing (equity take out), Liquidation of Assets as discussed in previous issues. Furthermore, your other options are Credit Counseling, Consumer Proposal, and Bankruptcy that the writer will discuss in succeeding issues.