Orderly Payment of Debts
Canadians who are unsure about their financial future are doing what they can to protect themselves from personal bankruptcy.
Some are able to establish personal budgets allowing them to cut expenses and use the savings to pay down debt faster. For many others personal budgets are not enough. Their total monthly debt repayments are simply too high.
If you are in financial trouble and are considering personal bankruptcy in Canada as a way out, an Orderly Payment of Debts is an alternative option that might work for you.
What Exactly Is Orderly Payment of Debts (OPD)?
There is a provision in the Bankruptcy and Insolvency Act (BIA) — the law regulating commercial and personal bankruptcy filings in Canada — which lets qualifying individuals obtain a consolidation order from the court allowing for an “orderly payment of debts”.
Basically, an Orderly Payment of Debts involves consolidating the multiple monthly payments you are now making to your unsecured creditors into a single monthly payment. You make that payment to an approved Credit Counseling Agency, who in turn distributes the funds to the creditors. You are still responsible for paying back all you owe and will still be paying interest on the debt, although it is typically reduced significantly. The maximum allowable time period for the completion of an OPD is 4 years.
Will an Orderly Payment of Debts Work for Me?
Not all Canadian provinces offer OPD as an alternative option to personal bankruptcy. An OPD is only available in Alberta, Saskatchewan, and Nova Scotia. In Alberta, a government approved non-profit credit counseling agency – Money Mentors – handles OPDs. In Saskatchewan, residents must work through the Provincial Mediation Board. In Nova Scotia, the OPD is available through the Debtor Assistance Program.
The key to determining if an OPD will work for you is how much you owe and how much you earn. The total amount of your unsecured debt must be low enough to be able to be paid back within four years, given the amount of monthly payment you can afford to make given your income.
What are the Advantages and Disadvantages of an Orderly Payment of Debts?
First, you can get the interest rate on your debt reduced to as little as 5%. In addition, your consolidated monthly payment will invariably be lower than the combined multiple payments.
The most powerful reason to explore an OPD is the legal protection it affords you. If you qualify for and are approved for an OPD, your creditors can no longer take legal action against you to collect the debt. No more collection calls and threats of wage garnishment or lawsuits are significant benefits.
The disadvantages are two fold. First, you will still be paying back all that you owe. As you may be aware, there is another alternative to personal bankruptcy in Canada called the Consumer Proposal, where you can negotiate a reduction in the total amount you owe. However, with an OPD your debt is not reduced.
Another disadvantage is if you default on your OPD agreement, collection activities can start again.
Where Do I Go to Find Out if I Qualify?
The best place to go to determine your best course of action is a licensed bankruptcy trustee in your area. A trustee can help explore all of your options, provides a free consultation, and if needed, can refer you to a reputable counsellor in your area who can help you with an OPD.
What will happen to my credit?
While you are in the Orderly Payment of Debts program, each of your credit accounts is assigned an R7 rating. You cannot apply for credit while in the program, but once you successfully complete the terms of your agreement, you can begin to rebuild your credit rating.
If you are looking for help with debt that’s becoming unmanageable, you do have options. Contact a trustee in your area to learn what those options are – Orderly Payment of Debts, Consumer Proposals, even bankruptcy, are all solutions to overwhelming debt that provide you with protection from your creditors and peace of mind.