Tuesday, 28 June 2011

Seniors in Debt Turn to Bankruptcy and Consumer Proposals to Get Out of Debt

In 2010 over 90,000 Canadians made the difficult decision to file for bankruptcy while more than 40,000 Canadians decided to file a consumer proposal. Senior citizens made the majority of these filings.

While it is true that the economy in Canada is in better shape than many other countries, the Canadian government is routinely warning Canadians about their use of credit. They have even gone so far as to change some laws (like mortgage lending laws) to deter the trend toward over-borrowing/lending.

The Bank of Canada released a survey at the end of 2010 that revealed that household indebtedness rose during the recession. The report came with a warning; credit growth needs to slow down. This is just one of many reports that show that Canadians are carrying debt loads much larger than previous generations ever did. In today’s society, when a financial crisis occurs, such as a job loss, medical problem or divorce - it is easy to turn to credit to bridge the gap.

So why are seniors in financial crisis turning to bankruptcies and consumer proposals to get out of debt?

 The cost of living continues to rise dramatically

 Many seniors are retiring on fixed incomes that barely cover their rent

 The recent recession has allowed companies to easily layoff their older workers, those that have seniority and accrued pensions (union or not), and this is done with no recourse whatsoever

The issues above make it difficult for your average Canadian to save and prepare for retirement especially when many are relying on credit to maintain their standard of living, pre-retirement. If it was hard to make ends meet with more income “pre-retirement”, then just imagine how hard it would be to make ends meet on a low and fixed income. Now also consider retiring with no assets.

Picture yourself or your parents in this scenario. What would they do? What if you were not in a financial position to help them? If this is the case all is not lost; there are options that provide immediate debt relief to seniors struggling with debt. These options include bankruptcy and consumer proposals; they could also involve additional or other forms of financial counselling.

A senior’s choices will largely depend on whether or not they have assets, who they owe money to and the amount of debt that they owe. Their children will also impact their choices; specifically their children’s financial standing and their ability to contribute financially. The last thing a parent wants to do is leave a mountain of debt to their children. Some seniors file for bankruptcy in secrecy to protect their children in the event that they pass away, not wanting to leave their kids with a financial mess to clean up. This is a hard but noble and respectable choice.

For a senior citizen their credit score and credit report becomes less important post-retirement. The ability to borrow becomes impaired because of the senior’s “new” type of income and also because of their age (similar to how insurance companies’ behaviour and attitude changes with a client's age).

The truth of the matter is that a large percentage of bankruptcy and consumer proposal filers are seniors and it is largely due to the fact that these two options provide the fastest form of immediate debt relief. For more information about seniors in debt who are turning to bankruptcy and consumer proposals to relieve their financial burden, please visit www.debtcare.ca

Tuesday, 21 June 2011

Bankruptcy in Canada Declines While Consumer Proposal Filings Are on the Rise

The rate of bankruptcy claims in Canada has declined, but not because Canadian families are no longer struggling with debt. Instead it is directly connected to the range of options now available to Canadians, options other than bankruptcy.

The recent recession has subsided, however there are many individuals who lost jobs and accumulated debt during the recession and this debt has now become unmanageable. Tough financial circumstances lead to tough financial choices.

Having financial problems can be embarrassing, even if no one else knows. You may be ashamed to reach out for help; you may fear your employer, family or friends will find out. If you are struggling to pay your bills you will inevitably reach a breaking point.

Don’t wait until a collection agency calls you at work. Don’t wait for the worst-case scenario where the debt problem becomes so large in size that bankruptcy is the only option left. You have choices.

A consumer proposal is similar to a debt consolidation in that it enables you to make a low, single monthly payment. The differences are that they involve freezing the interest on your debts, settling your debts for much less then you owe and often include stopping collection action being taken by your creditors.

Consumer proposals have become an attractive option to Canadians that struggle with their debt for the following reasons:

- A consumer proposal offers a single monthly payment that is much lower than what you currently pay to your loans and credit cards.

- A consumer proposal can be paid off in full

- In a consumer proposal you do not have to report your monthly income to a bankruptcy trustee

- A consumer proposal is removed from your credit report three years from the date it is paid in full

Another reason that there has been an increase in consumer proposal filings is directly due to the fact that recent changes to the bankruptcy laws in Canada have made it much more difficult to file for bankruptcy.

From 2010 to 2011 the bankruptcy filings decreased by approx. 20% and consumer proposal filings increased by approx. 20%.

The 20% of folks who may have previously filed for bankruptcy but instead chose proposals were likely mid to higher income earners with stable employment. The changes in bankruptcy laws affected these people the most. The new bankruptcy laws have made it very expensive for someone who has a decent job and steady income to deal with compounded debt.

What the new laws fail to consider is that inflation is steadily on the rise and the cost of living has gone through the roof. Hard working Canadians with decent jobs are struggling just to pay their minimum living expenses – decent income or not. For more information about the declining rate of bankruptcy in Canada and the steady rise of consumer proposal filings, please visit www.debtcare.ca

Tuesday, 14 June 2011

Avoid Bankruptcy through Consumer Proposals

Many Canadians have learned that they can avoid bankruptcy through consumer proposals.

In the past it has been fairly easy to file a bankruptcy. A first time bankrupt used to be able to qualify for an automatic discharge from bankruptcy after nine months. Last year the bankruptcy laws changed and this has made bankruptcy a less attractive option to deal with debt.

The bankruptcy laws now state that if an individual is assessed to have “surplus income” (income that exceeds what is permitted in bankruptcy) they will not be discharged in nine months, instead they could remain undischarged for up to twenty-one months. If this occurs, the bankrupt will then have to report income to their trustee and make payments in bankruptcy for the full twenty-one months. They will also have to pay the trustee fifty cents on the dollar for each “surplus” dollar that they earn.

This is one of many changes that have changed the way Canadians feel about bankruptcy. To avoid bankruptcy, many are now choosing consumer proposals. This is reflected in the bankruptcy statistics, which show a sharp decline of bankruptcies in Canada thereby leading to an increase in consumer proposal filings.

In a consumer proposal, a settlement is presented to your creditors. Your creditors then have 40 days to accept or reject the consumer proposal. If the majority of creditors accept your consumer proposal, it is bound. Upon receiving the notice of the filing of the consumer proposal, creditors who do not respond will be considered to have accepted the proposed settlement. Once the consumer proposal is accepted, you will pay the trustee a monthly payment for 3, 4 or 5 years, until the amount of the consumer proposal is paid in full. Three years from the date that your consumer proposal is paid in full it will be removed from your credit report.

A bankruptcy trustee will assess what your consumer proposal payment is based on your assets and income. For example, if you owed $25,000 in debt and it is determined that you could afford to pay $400 per/month, a trustee may suggest a proposal paid over 5 years bringing the total you would pay $24,000. Another trustee may recommend that you present a proposal that involves making a monthly payment of $400 over 4 years. This one year difference is the equivalent of a $4,800 savings. The trustee’s objective is to present a proposal that you can afford to pay monthly and that satisfies your creditors. Your trustee will determine how aggressive they want to be.

Trying to negotiate with a trustee in bankruptcy on your own will prove to be fruitless. Most will suggest that the terms they are offering is what you HAVE to pay based on their assessment of your finances. This may lead you to believe that what the bankruptcy trustee proposes is your only option.

A good financial advisor who knows many trustees in bankruptcy can help you structure your financial information. They will work with you to determine what a fair and affordable proposal is before you even speak with a bankruptcy trustee. They can also guide you through the process, which includes being present at all of your meetings with the trustee. For more information about how you can avoid bankruptcy by choosing a consumer proposal visit www.debtcare.ca

Monday, 6 June 2011

Debt Settlement Pros and Cons – There are so Many Ways to Deal with Debt

There are many pros and cons when it comes to debt settlement. Different types of debt settlement will have different effects on your credit and budget. Only a seasoned financial consultant is qualified to review all of the different types of debt settlement and evaluate their pros and cons. This article will provide some insight into the different avenues available to you in regards to debt settlement.

Debt consolidation is one way to settle your debt; there are different types of debt consolidations and they will achieve different results. If you have good credit and lots of disposable income but have recently accumulated debt on multiple credit cards; a low rate line of credit is a good option. Use this low rate line of credit to consolidate small credit card debts that have started to compound. Pro: low interest and consolidates debt, Con: It is too easy to fall into making minimum payments. If you make this choice you should make a concentrated effort to pay down your line of credit as soon as possible.

You may have a small credit card debt or other bills that have gone to collections, thereby damaging your credit. Perhaps you owe $5,000 - $7,000 and no one will give you a debt consolidation because of your bad credit. In these scenarios you can make settlements directly with your creditors. A financial professional should be hired to help you negotiate; they will get you the best deal possible. In many cases you may settle your debt for much less than you owe.

If you have accumulated so much debt that it has become unmanageable, do not panic. Depending on your specific circumstances, including your assets, your income, your debt and your creditors; you may qualify for any number of programs that have been made available by the Federal Government.

These programs include bankruptcy and consumer proposal.

A bankruptcy dictates that you make monthly payments for a determined amount of time while satisfying other conditions like participating in credit counselling and reporting your income. Until you have satisfied your obligations under bankruptcy, you will be “undischarged”. Keep in mind, bankruptcy trustees are court appointed officers whose responsibility is to administer bankruptcies and proposals.

Bankruptcy trustees represent the interests of your creditors and while you are undischarged, they will review your assets and income to see if things have improved. Quite simply, they are looking to find out if you have any excess funds to give to your creditors. If you have earned more money or acquired an asset, your trustee may assess “surplus” income, demanding half of the extra income you worked so hard to earn. At this point the bankruptcy trustee, who put their arm around you when signing you up, starts sending you letters demanding more money and more personal financial disclosure. First time bankruptcy will remain on your credit report for 6 years from the date it is discharged.

A consumer proposal involves making a settlement proposal to all of your creditors at once. If and when the proposal is accepted, the settlement is final. There is no ongoing obligation to the bankruptcy trustee other than to make the minimum monthly payments. The key is negotiating a fair proposal from the get go. Bankruptcy trustees are compensated for their services proportionate to the size of your consumer proposal. The more money you agree to pay to your creditors in a proposal, the more money your trustee earns. This may result in you being pressured into a larger proposal than you can afford to pay.

These debt settlement options have their distinct pros and cons and the fact of the matter is that you will receive the best advice about them from a financial consultant. A financial consultant is hired by you to help guide you towards solid and effective financial plans. Firms like DebtCare help individuals with the toughest financial problems, providing access to a number of programs designed to provide immediate debt relief. For more information about debt settlement pros and cons visit http://www.debtcare.ca/