The average Canadian owes more than $1.60 for every $1.00 of after-tax take home income. No wonder, we are all feeling stressed. A major cause of this is the high cost of living in major cities like Toronto or Vancouver in relation to other parts of Canada. If you are only making the minimum monthly payments on your debts or even taking cash advances from one creditor to make those payments to another creditor, consider meeting an experienced professional who has the experience to assess your situation and offer a plan of action that will result in getting out of debt. The options that should be considered are:
This is mainly a self-help approach although there are several for-profit and not-for-profit agencies that will assist you. You or the counsellor will contact each individual creditor to try to get them to waive some of their late fees, reduce their interest rate and set up a long-term payment plan. This is a long-term program that must be negotiated with each creditor individually. There is no court assistance or other court approval for this option. There is no requirement for any creditor to negotiate with you or the counsellor, although, creditors will often negotiate some settlement out of goodwill.
You or a debt settlement company hired by you at your expense approach each of your creditors to negotiate a reduction in the debt that you owe. No creditor is required to negotiate anything with you but they usually will negotiate a reduction in the total of your debt if you will tell them that the reduced amount will be paid in full over a specified short period of time. The cost of hiring a debt settlement company must be factored into your eventual saving of the debt owing. They normally charge a fee based on a percentage of what they save you but this is also subject to negotiation.
A consumer proposal is administered by a Licensed Insolvency Trustee who will negotiate a reduction in the overall debt as well as the payment of the reduced amount over a period of time with no interest (usually 60 months or less).
The advantages of a Consumer Proposal are:
You keep your house, car, RRSP, RESP, etc.
You lose no assets unless you decide to sell the assets and pay the money into the proposal as a lump sum
Once 51% of creditors agree to your proposal, the other 49% are bound to abide by the terms of the proposal
All interest charges by creditors stop on the day your trustee files the proposal with the court
All legal actions, wage garnishees, etc. stop on the day the trustee files the Consumer Proposal with the court
The proposal once approved by the creditors and the court is a legal process that can be enforced against all creditors
When all else fails, bankruptcy is the final solution. As long as you are unable to meet your financial obligations as they come due and your debts exceed $1,000, you can legally file an Assignment in Bankruptcy using the services of a Licensed Insolvency Trustee. You will be placed under the protection of the court to prevent any creditor from suing you, garnisheeing your wages or bank account or taking any actions against you to collect their debt. If your situation is not complicated, you may be able to obtain your discharge from the bankruptcy process in as little as 9 months. Your trustee will still take much time after your discharge to complete the administration of your file. Your trustee will still continue to assist you in rebuilding your credit score even after your discharge.
The above are the four (4) main solutions to a person with debt problems. Please consider meeting with a Licensed Insolvency Trustee for a free initial consultation to determine which of the above or any other options are best for you.
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)
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.
You have decided to buy a house (mortgage), buy a car (car loan) or go into business (operating line of credit to finance inventory, accounts receivable, etc.). You go to your bank and they look at your credit score. The credit score is a number (from 300 to 850) that is based on a number of factors such as your payment history (35% of total), how much of your available credit have you already used (30% of the total), what type of credit you have and how long have you had the credit, as well as how many creditors that you have in total.
Before you start the loan application for that big purchase, consider ordering a copy of your credit report yourself. They are available free by regular mail from both Equifax Canada and Trans Union of Canada. Read the report carefully so that you know what the bank will be looking at. If you spot a mistake, notify the credit bureau immediately to correct their report. The notification is by filling out the Consumer Update Form that the credit bureau will send you with your credit report. It is always advisable to attach any proof or documents that you might have to prove what you are saying is correct. Unless the error is self-evident, please allow time for the credit bureau to investigate your report of the error and correct their records. Always ask the credit bureau to confirm to you that they have updated your credit report.