You just got a letter/phone call about an old debt that you owe. The first consideration is to determine if you owe the money. If you do not owe the debt, simply tell the collection company that you do not owe the money. Ask them to send you copies of any documentation that proves otherwise. When they say that they do not have to send you any papers or that they do not have to prove to you that you owe the money – be very clear – yes, they do have to prove that you owe the money and if they refuse to prove it, you will not pay them any money. In other words, you are not refusing to pay what you owe, but you are legally entitled to know what you owe and to whom you owe it to.
In Ontario, there is a law called The Limitations Act of Ontario which stops a creditor from suing you if your debt is over two (2) years old. The debt is still owing, of course, but the creditor cannot go to a court to collect the debt. You must be aware that if you acknowledge the debt in any way, the two-year period starts all over again. Also note that the credit bureau (Equifax Canada and Trans Union of Canada) will still list the delinquent account for six years as an R9 bad debt which will keep your credit score low. Certain debts are not subject to the two-year limitation period – these include income tax, government guaranteed student loans, child support arrears, etc.
Other provinces/territories have similar limitation periods. Ontario, Alberta, British Columbia and Saskatchewan are all two years. Quebec’s limitation is three years. The rest of Canada is six years.
When you file an Assignment in Bankruptcy, you are allowed to keep sufficient of your income to allow you to live a normal life. The trouble is that the definition of a “normal life” is based on a cross-Canada average that is calculated annually by the Office of Superintendent in Bankruptcy. It starts with your net after tax take-home pay and has an allowance for special non-discretionary expenses such as child and spousal support payments, child care expenses, expenses of a medical condition, court imposed fines or penalties that are being paid and any expenses related to your employment that are recognized by the Income Tax Act. Unfortunately, the average of high cost areas such as Toronto and Vancouver are merged with low cost areas. If you live in a high cost area, the average cost of living does not work – but you still have to abide by it.
Once surplus income is calculated, 50% of the surplus amount must be paid to your Licensed Insolvency Trustee who will divide the amount among your creditors. For the first time bankrupts, you must pay the surplus for 21 months, for 2nd time bankrupts, you must pay for 36 months. For a more detailed reading of Directive 11R2 – 2016, please go to Office of the Superintendent of Bankruptcy Canada (/eic/site/bsf-osb.nsf/eng/home)
You have graduated from University and have been unable to find a good paying job in your area of expertise. The periods of non-repayment and interest relief of your student loan debt have been maxed out. You are starting to get letters and/or phone calls from a collection agency. A friend tells you that he was in the same situation last year. He solved his problem by paying his student loan payments with his credit card. His logic was that the collection agency got off his back and he had no stress. If he got a good job, there would be enough money to pay everyone – even though he knew that the interest on the credit card was higher than the interest on the student loan. Plus, he got “points” on his credit card. The friends’ research pointed out that if he ever had to go bankrupt in the future, all of the credit cards debt should be included in the bankruptcy but student loans could not be included in the bankruptcy unless he was out of the school for more than seven years. He had the ultimate “win-win” situation.
Well, not quite. The interest rate on the average credit card is so high in relation to the interest on student loan debt, that any benefit from “points” is insignificant. If you do wind up filing an assignment in bankruptcy and your trustee (or the creditors) determine that you intentionally converted your student loan debt to credit card debt, be prepared for there to be an examination under oath before an Official Receiver (a representative of the Office of the Superintendent of Bankruptcy) who may recommend an opposition to your discharge from bankruptcy. At the very best, you will have to convince the licensed insolvency trustee/creditors/court that you had every intention of paying your debts and it was only a change in your financial circumstances that caused you to file the bankruptcy. As the worst, there will be a finding of an intent to commit fraud – a debt for fraud is not discharged in bankruptcy.
If the above is similar to your situation, please have a discussion about it with your trustee before signing any papers.
The most recent Statistics Canada Report covering the period 1999-2012 inclusive show that
family debt increased by 4% but the seniors debt (over 55 years old) increased by 16%. People generally are taking on more debt. We now owe $1.60 for every $1.00 we make. In 2013, 69,000 people filed for bankruptcy. Seniors currently make up one-third (and growing) of our population. So why are such a large amount of bankruptcies being filed by seniors? The answer is that their income (pensions from work, RRSP, Canada Pension, Old Age Security, etc.) do not keep up with inflation. The cost of housing, food, automobiles, demands from children and the ever increasing health costs are all rising faster than the available income to pay these expenses. The seniors turn to their homes for a home equity line of credit or a reverse mortgage or they use their credit cards to finance their day-to-day standard of living. They get the credit because their income is stable and seniors have lived their life being taught to “pay your debts.” What they must do before they exhaust all of their options is to sit down with a financial advisor, prepare a realistic budget and make whatever adjustments to their standard of living that are needed to have a long and financial stable life.