Monday, 27 April 2015

What is a Canadian Bankruptcy Trustee’s Role in a Consumer Proposal?

A Canadian Bankruptcy Trustee’s role in a consumer proposal can be very confusing for consumers largely because of the advertising done by Canadian Bankruptcy Trustees. These Trustees advertise a way out of debt and offer to help you out of your financial problems, almost as though they represent you and your best interests through the process.

Full stop. This is not the case at all.

Trustees need you in order to stay in business. No bankruptcies and consumer proposals = no need for the Trustee. In fact, while in a bankruptcy they are bound by pre-defined tariffs, in a consumer proposal they are compensated based on the amount of the consumer proposal. Bigger proposal = more fees for them. While they advertise the benefits of a bankruptcy or proposal and are the only ones who can administer one, they in no way represent you.

In order to be able to understand their role in the consumer proposal process, let’s look at what the duties of a Canadian Bankruptcy Trustee actually are.

Consumer proposals and bankruptcies are both very powerful tools you can deploy to put a stop to debt that has become unmanageable. Because the process to file both is legislated under the Bankruptcy and Insolvency Act (BIA), both must be administered by a Trustee appointed by the Superintendent of Bankruptcy. This Trustee is the Bankruptcy Trustee. Their role is to ensure that a consumer proposal or bankruptcy is administered fairly and in accordance with the BIA – to the benefit of you AND your creditors.

When you meet the Trustee in Bankruptcy you may see no harm in divulging personal information to them because you feel that you are with your representative. However, that information may be considered in whatever proposal scenario they put forward. Once you disclose information to the Bankruptcy Trustee, this information can now be relayed to your creditors.

Going to a Trustee in Bankruptcy directly would be the same as being charged with a crime and meeting with the prosecutor without a lawyer. Prior to making contact with a Trustee you should sit down with a trusted financial advisor who has experience with insolvency to work through different financial scenarios – one of which may be a proposal. Because this individual is your representative, you are able to openly discuss all of the issues and then they can advise you on which options are relevant to bring forward.

Earlier in the blog we mentioned that the Bankruptcy Trustee is the only professional who can administer a bankruptcy or consumer proposal, and this is true, but it is never wise to meet with one without your own representation.

Protect yourself and your financial assets - contact DebtCare before you go to a Trustee. Call us today at 1-888-890-0888.  

Monday, 20 April 2015

The Last Loan

We wanted to write this blog because we often see patterns regarding triggers for serious financial problems and clear points in time where different choices could have changed the course of the problem. Sure, there are instances where a sudden occurrence, such as a job loss or divorce, can cause abrupt and unexpected financial turmoil, but more often than not people build their financial problem over time.

This is evidenced by just about every news publication reporting that Canadians are carrying a dangerously high level of personal debt. Over time debt accumulates like a snowball.

Example scenario:

·         It only takes using those credit cards too much one month to push you into a situation where you can’t pay in full and so you make a smaller payment.
·         Eventually you have a few cards with small balances so you decide to get a line of credit to consolidate them – only you keep using the cards once you’ve paid them off.
·         Finally you decide that enough is enough - you get a consolidation loan at the bank to pay the line of credit and the credit cards.
·         You go a couple of months without using the cards but then your transmission goes. You think, well, you will only use the card once, but this means the cycle starts again…
·         A year later, you have the consolidation loan and a balance on the line of credit and a couple of credit cards.
·         You have accumulated some equity in your property, so you decide to get a second mortgage to pay off all the debt one final time. You are successful in doing so.
·         However, in the end, just like with the last consolidation loan, a few months later you begin using your cards again and a year later you find yourself making a slew of minimum payments on your credit cards.

Now you reach a pivotal point – another loan? We say no! Let your last loan be the last loan.

Just as Einstein said, the definition of insanity is doing the same thing over and over again and expecting different results. If you continue to refinance and restructure your debt year over year, each year owing more, you will be caught in a cycle that is not going to break unless you win the lottery or get a major raise at work (and how likely is either one of these?).

There comes a time when one must say “self, I need to get some professional help”. Just like you may go to a therapist for a personal problem or a lawyer for a legal problem, one who continues to struggle with accumulated debt also benefits from professional guidance.

Stop the insanity! Maybe there is a quick fix and some help with budgeting is the answer, or perhaps you have really dug yourself into a hole and need some major intervention. Either way, you are going to need to do something very different to break the financial cycle you are in.

If you would like to make your last loan your last loan and need financial guidance DebtCare Canada can help. Call us today 1-888-890-0888. 

Monday, 13 April 2015

Myth vs Fact: Consumer Proposal vs Bankruptcy

Consumer proposals and bankruptcy are often confused with one another because they both involve a Trustee in Bankruptcy. In Canada, the government introduced legislation to protect people who have reached a breaking point with their debt. Over time that legislation has been amended and re-worked to simplify processes and to make the process fair for both creditors and those who owe money.

The Superintendent of Bankruptcy is an entity of Industry Canada, and is the individual who administers the Bankruptcy and Insolvency Act through appointed officers. These officers are Trustees in Bankruptcy. The Trustee in Bankruptcy’s role is to administer a consumer proposal or bankruptcy on behalf of the creditors and the people who owe money.

A bankruptcy and a consumer proposal are both powerful in that, once filed, all collection and enforcement action being made by unsecured creditors stops, interest stops, and in many cases the overall amount of debt is reduced.

That being said, a consumer proposal bears less strings than bankruptcy and should always be considered as option number 1 - bankruptcy is generally a last resort measure.

In a consumer proposal, a proposal is made to your creditors – basically you are offering them a sum of money to be repaid through the Trustee over a term of, typically, 5 years.

·         Your creditors have a specified amount of time to accept or reject the proposal.
·         If no one responds, the proposal is accepted.
·         If the majority creditor(s) accepts, the proposal is accepted.
·         If a proposal is accepted you make a single monthly payment to the Trustee for the term proposed. You can pay off the proposal at any time. You have no ongoing income reporting requirements to your Trustee.

In a bankruptcy your creditors don’t get a choice to accept or reject.

·         You make a monthly payment to the Trustee in Bankruptcy over 9 or 21 months in a first time bankruptcy, depending on your income. There are maximum income thresholds set out and if your income exceeds those thresholds the term of your bankruptcy payment extends from 9 to 21 months.
·         During your bankruptcy you have to report your income and any changes to your financial circumstances to the Trustee.
·         If you come into any significant sums of money you may have to pay surplus income to the Trustee.

A consumer proposal is removed from your credit report 3 years from the date it is paid in full. A bankruptcy remains for 6 years from the date of discharge.

Since the Trustee doesn’t represent you, going to one directly is never recommended. Any financial information you divulge can’t be taken back. Prior to meeting a Trustee you are best served to work with a financial representative who specializes in bankruptcy and consumer proposals – one who will represent you – to review and help you structure your financial information to be presented to a Trustee. Some may even help you negotiate the terms of your proposal or bankruptcy with the Trustee.

Both of these options are viable when it comes to debt relief - just make sure that you are not putting your financial affairs at risk by attending a Trustee before seeking real help.

For more information or to protect yourself before going to a Trustee, please call DebtCare Canada today at 1-888-890-0888. 

Tuesday, 7 April 2015

Income Tax Time is Here - Preparing for the 2015 Tax Deadline

Canada’s income tax deadline for the 2014 tax year is right around the corner! While some anticipate refunds and are off to file with bells on, others are dreading this date and even considering not filing because of a tax debt that will follow.

First of all, if you think you will owe, not filing is not the answer. You may think it will buy you time, but really all it will buy is penalties, interest and a bad history with CRA. If you think you will owe, be realistic about what you will owe and your ability to repay.

Now, it is true that once you file CRA will ask you to pay the debt in full. With that said, CRA has been known to accept payment plans of up to 24 months on a tax debt. While there is no guarantee that this will happen for you, it has happened for others.

If you took the amount of your tax debt and divided it by 24 months, would you be able to afford to repay the debt?

If the answer is yes, the next steps you take are crucial.

Negotiating directly with CRA can be dangerous. Before agreeing to any monthly payment arrangement they will ask for full disclosure of your assets, income, income sources, debt and more…

The challenge here is that they may agree to payments over a 6 month period, based on a 24 month repayment, and then at the end of 6 months take the option to re-review your financial information. At this point they can reject renegotiating the monthly payments, demand payment in full and then use the information in your financial disclosure to take collection action against you.

Another common occurrence is that when you submit an honest budget which includes your minimum obligations to other creditors, the CRA may then reject those payments and say that any surplus funds which could be directed to other creditors need to be directed to CRA. Even with all of this said, you absolutely do need to do something.

If the answer was no…

If you know that repaying the debt monthly, even over 24 months, is highly unlikely, you need to get some financial assistance immediately. A professional experienced with financial restructuring may be able to come up with a solution where you can repay the debt over a longer term, say 5 years.

In either scenario…

In either case, professional help is a necessity. Negotiating with CRA is, to be frank, too dangerous financially. Financial professionals with knowledge regarding dealing with CRA know how to navigate the bureaucracy and protect your information.

Don’t ignore a tax debt in the hopes that it will magically disappear - it won’t. Call DebtCare Canada today: 1-888-890-0888.