Why do Debt Counsellors Charge a Fee for Debt Help in Ontario?

Debt counsellors are not “not for profit” credit counselling agencies and are actually a form of financial consultant. This often gets misconstrued because credit counselling agencies promote debt help in Ontario; what is not known is the fact that they are largely funded by the major banks and are often not the right choice if you are struggling with a financial problem.

Debt counsellors represent individuals and businesses that have problems managing their debt. They do charge a nominal fee for their services because they are not funded by anyone else. They represent you exclusively in whatever choice you make, as it relates to strategizing a way out of debt.

When you visit a debt counsellor to get debt help in Ontario, she will review all of your financial information. This includes your income, assets, liabilities and budget. She will provide you with many scenarios for you to choose from, all designed to help you deal with your debt. These scenarios could include a new budget, a debt consolidation, a debt settlement, consumer proposal or, where necessary, a bankruptcy.

Due to the fact that they do not administer bankruptcies and consumer proposals the way Bankruptcy Trustees do, they will not recommend bankruptcy or a consumer proposal as an option unless it is absolutely necessary. Bankruptcy Trustees only make money if you file a bankruptcy or consumer proposal. In the case of a bankruptcy, they are paid a tariff out of the proceeds of the bankruptcy. In the case of a consumer proposal, they are paid a percentage of the consumer proposal. If you qualify for a consumer proposal or bankruptcy, they will arrange it for you; however, that doesn’t necessarily mean it is the best choice for you. It means that it is the only choice they can offer you based on the tools they have available to them.

Debt counsellors charge a fee for debt help in Ontario because they will do a considerable amount of work while representing you and ensuring that you make the right choice for your situation. Bankruptcy Trustees do not represent you; they are officers appointed by the Superintendent of Bankruptcy to administer bankruptcies and consumer proposals. Their mandate is to administer a bankruptcy, ensuring that the creditor receives as much money as possible. While they may appear to represent you, because you sign your final paperwork with them and grant them legal status, they in fact are acting in the best interest of your creditors.

This brings us to the next reason that debt counsellors charge a fee for debt help in Ontario. If it happens that a consumer proposal is the best choice for you, there are two major reasons that you benefit from being represented by a debt counsellor:

1.       In the case of a consumer proposal, the Bankruptcy Trustee gets paid based on a percentage of the consumer proposal that they arrange for you. The more they can negotiate for you to repay your creditors, the more money they will earn. This means that you may not always end up with the best deal. A debt counsellor will help to negotiate lower consumer proposals in many cases. Lower than what you would have been offered had you gone to a Bankruptcy Trustee directly, which could save you thousands!

2.       A Bankruptcy Trustee will almost always try to get you to file a consumer proposal, even if you also qualify for bankruptcy. In a bankruptcy, your creditors receive much less money and so does the Trustee. If they present you with a consumer proposal as an option, as opposed to a bankruptcy, they make more money. The problem is that if in fact you are insolvent, you will inevitably end up having problems making the payments required by the consumer proposal. The payments will last for a much longer length of time when compared to a bankruptcy.

At the end of the day, if your debt has become unmanageable, it makes complete sense to obtain a financial opinion and even representation from an unbiased party. One who understands the world of finance in depth, thereby ensuring that you make responsible financial choices that protect your wallet.

If you would like more information about why debt counsellors charge a fee for debt help in Ontario or if you are struggling financially, please contact Michael Goldenberg at DebtCare Canada by calling 416-907-2582 or visit www.debtcare.ca

What is a Bankruptcy Trustee in Ontario and What is Their Role in a Debt Restructuring?

A Bankruptcy Trustee in Ontario plays an important role when it comes to debt restructuring. Bankruptcy Trustees across Canada are appointed by the Superintendent of Bankruptcy to oversee bankruptcy and consumer proposal filings in Ontario.

It is important to understand what a bankruptcy trustee in Ontario is and what his role is with regard to debt restructuring before going to see one directly. The most significant fact that you need to be aware of is that the trustee administers the estate of the debtor as its legal representative, but his financial incentive when a bankruptcy or consumer proposal is filed is to maximize the return to the creditors.

What does this mean to you? Well, when you go to see the Bankruptcy Trustee to make a full financial disclosure, it is no different than going to your creditor to make a financial disclosure. Keep in mind; the role of the Bankruptcy Trustee is to obtain the greatest possible amount of money from you, all to the benefit of your creditors.

Bankruptcy and consumer proposals have, to some extent, become an industry of their own in Ontario. The Bankruptcy Trustee is a court-appointed officer and is supposed to take a neutral role in your bankruptcy or consumer proposal filing; however, they are frequently advertising in the mainstream media as a safe place for you to go for counsel when struggling with debt. This could not be further from the truth.

The truth is, visiting a Bankruptcy Trustee is no different than speaking to the CRA directly about your tax problem without representation from an accountant or a tax lawyer.

In addition to all this, where a consumer proposal is concerned the Bankruptcy Trustee gets paid based on a percentage of the consumer proposal that you file. This makes a consumer proposal more attractive to him from a revenue standpoint, more so than a bankruptcy. We have seen many cases where consumers or business owners have filed consumer proposals as recommended by their respective Bankruptcy Trustees. They subsequently default because they could not afford the payments in the first place, at which point they end up having to file for bankruptcy. In Ontario, ethics have become a real issue in the bankruptcy and consumer proposal business for this very reason.

When you go to a Bankruptcy Trustee, he or she will ask for complete financial disclosure with regard to your income, assets and liabilities. They will try to find as much income and liquidity as possible to drive up the amount of your bankruptcy or consumer proposal, all to the benefit of your creditors. We surmise that in some cases, also to the benefit of their own fees.

Another challenge is that in many cases a consumer will unwittingly omit information when they file for bankruptcy. The Bankruptcy Trustee will often accept whatever information you provide based on your word. Once the bankruptcy or consumer proposal has been filed, the trustee will then engage in a rigorous and determined process to validate your disclosures. If the trustee finds additional income or assets, he or she will adjust the amount of money that you have to pay. In the case of a bankruptcy, what begins as a predetermined length of repayment may snowball into a seemingly endless repayment. You will not be able to get discharged until you have paid the Bankruptcy Trustee all of the money that the trustee believes you owe.

Just as there are accountants and tax lawyers who represent people when they have a tax problem, there are financial consultants who can represent you if you have a debt problem. They can prepare your information, educate you about your choices, administer your paperwork and hold your hand through the process of a bankruptcy or consumer proposal, ensuring that you get a fair deal that protects you.

For more information about Bankruptcy Trustees in Ontario, their role in a debt restructuring or to get representation in a bankruptcy or consumer proposal please contact Michael Goldenberg at DebtCare Canada by calling 416-907-2582 or visit www.debtcare.ca

Canada Revenue Agency Collections Policy has the Potential to Ruin Your Life

The Canada Revenue Agency has a very aggressive collection policy. Their mandate is to collect past due tax debts and they have what appears to be limitless authority to do so. This article will outline the top 4 tactics that the Canada Revenue Agency will deploy to collect from you when you have an outstanding tax debt.

1.       Wage Garnishments. The Canada Revenue Agency routinely places wage garnishments on taxpayers who have an outstanding income tax debt. A wage garnishment served upon an employer could result in a garnishment of your wages of up to 50%. Secondary income like pension income, insurance income, etc. can be garnished up to 100%. Once the Canada Revenue Agency serves your employer with instructions to garnish your wages, they must and will comply. Once a wage garnishment is attached it can be very difficult to remove.

2.       Property Liens. The Canada Revenue Agency will place a lien on your home, vehicle or equipment (in the case of a business), if they learn that you have an asset. Even if you have no equity in the asset and no ability to refinance it, they will still place a lien on it. If you cannot raise the money to pay your tax debt in full, they can force you to sell the asset and will take any proceeds (if any) to cover the tax debt.

3.       Requirements to Pay on Bank Accounts. If the Canada Revenue Agency sends your bank a requirement to pay, your bank account will be frozen. The bank will hold the money in your bank account for 30 days and then send it to the Canada Revenue Agency. Outside of the fact that you will lose all the money in your bank account, it will also alert your bank to the fact that you have a tax problem. In many cases this will permanently damage your relationship with your bank.

4.       Set-Off’s on Invoices. If you are a small business owner, the Canada Revenue Agency can send a set-off notice to your customers. This notice will direct your customers to forward the payment of your invoices to the Canada Revenue Agency. Not only can this put you out of business because you will have no business income coming in; in addition, your clients may be apprehensive about continuing to work with you under these circumstances.

Depending on the severity of your tax problem, the Canada Revenue Agency could take more than one of these collection actions, concurrently. You do not have to let things go this far; there are services available to help individuals and businesses that have an income tax debt. If your wages are already being garnished or your bank account has already been frozen, there are Federal Government programs available to help. Once you participate in one of these programs, the Canada Revenue Agency will immediately, and must by law, remove a wage garnishment and/or unfreeze your bank account.

For more information about the Canada Revenue Agencies collections policy or to see if you qualify for relief contact Michael Goldenberg at DebtCare Canada by calling 888-890-0888 or visit www.debtcare.ca

Canada Revenue Agency Income Tax Debt and You

Canada Revenue Agency income tax debt can be crippling when your payments fall behind. Interest and penalties accrue at an alarming rate, and what starts off as a small debt can grow into something a lot more difficult to pay.

Income tax debt is much more serious than other types of debt because the Canada Revenue Agency has many more resources to collect the money from you, as opposed to regular creditors such as banks and finance companies. Banks and finance companies must take you to court and obtain a judgment against you before they can take any legal enforcement action. The Canada Revenue Agency does not.

When income tax debt is owed, it is a demand debt and the Canada Revenue Agency will demand to be paid in full. Very seldom will the Canada Revenue Agency consider making a voluntary payment plan arrangement with a consumer or a small business. If they do, they will request full financial disclosure, including your banking and employment information. This is done to ensure that if you can’t honour the payments, they know where to go to attach a lien or garnishment.

The financial disclosure is also used to determine your cash flow. They will not consider monthly payments that you have to make to other creditors, such as credit card companies and loan providers. They will deduct your basic living expenses from your income and they will want to be paid what’s left. For most individuals, this is unrealistic and results in total destruction to the consumer’s credit rating.

Outside of the financial implications of a tax debt, other problems can arise. The stress associated with a tax debt can cause medical problems like depression and anxiety. In extreme cases, individuals have even contemplated suicide when the stress of having an income tax debt to the Canada Revenue Agency proved to be too much to handle.

Similar to dealing with other debt problems, an outstanding income tax debt can also cause a strain on relationships. When financial problems emerge they can cause otherwise happy couples to have major problems. Wage garnishments sent to employers by the Canada Revenue Agency can cause unbelievable embarrassment and are very difficult to stop once they are in place.

If you have an income tax debt, the most important thing to do is attack it; don’t ignore it. It will not go away by itself. Ignoring it will eventually result in the Canada Revenue Agency taking collection and enforcement action against you.

There are resources available to individuals and businesses that are struggling with a tax debt. These resources generally do not involve bankruptcy. There are Federal Government programs available to help individuals and businesses that have tax debt. Do not attempt to negotiate with the Canada Revenue Agency yourself, as this could have dangerous consequences. Instead, work with agencies that have access to Federal Government programs and experience negotiating with the Canada Revenue Agency. For more information about Canada Revenue Agency income tax debt and to see if you qualify for relief contact Michael Goldenberg at DebtCare Canada by calling 888-890-0888 or visit www.debtcare.ca 

Small Business HST and Past Due Tax Returns – What You Need to Know

HST has intensified the tax obligation of small business owners. Prior to the HST, many small business owners only had to collect and remit 5% GST. With the amount that must be collected and remitted increased to 13%, the stakes for those who fall behind in filing their HST returns is much higher.

The Canada Revenue Agency is much more aggressive when collecting past due HST as opposed to GST because the tax revenue for the government is now more than double. In conjunction with that, they are also more diligent in their reviews of HST tax returns and claim expenses.

Once tax returns (including GST returns) are more than 4 years past due, the Canada Revenue Agency will not permit the taxpayer to claim input tax credits. The interest and penalties on past due HST and GST returns are massive.

According to the Canada Revenue Agency website http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/bspsbch/rtrns/pnlts-eng.html, when GST/HST returns are filed late the following formula will apply to tabulate the penalty that will be applied to the tax debt:

a)      1% of the amount owing; plus

b)      the result of the following calculation:

A x B where A is 25% of the amount you calculated in (a) and B is the number of months the return is overdue (to a maximum of 12 months).

In addition, the Canada Revenue Agency will also charge interest on an overdue amount equal to the basic rate plus 4%. Late filing of a GST return is not the only way you can incur GST penalties. You can also be fined for non-compliance. If you receive a demand to file a return and fail to do so, a penalty of $250 will be charged.

This can cause a GST/HST tax debt to double or even triple in size. Facing this type of tax problem, especially where multiple past due returns are involved, can be paralyzing. It simply can’t be ignored because it will not go away on its own.

Fortunately, there are programs that are not offered through the Canada Revenue Agency but are Federal Government programs that will provide a small business owner tax relief as well as relief of interest and penalties. These programs do not involve bankruptcy, and not only will they eliminate interest and penalties but will also reduce the size of the overall tax debt.

It is best not to wait until the Canada Revenue Agency is pursuing enforcement and collection action. Act now and take the steps necessary to deal with a tax debt. If collection action has already begun, these Federal Government programs will stop all collection action including garnishments and frozen bank accounts. For more information about small business HST and past due tax returns please contact DebtCare at 888-890-0888 or visit www.debtcare.ca

Tax Relief and the Canada Revenue Agency Tax Payer Relief Program - Who Qualifies?

When an individual or business falls behind filing tax returns, it is imperative that they become tax compliant.  Filing tax returns and being up to date is very important. It is important because as long as tax returns remain in arrears the taxpayer will not only face massive interest and penalties, but could also face prosecution.

Usually financial problems are the primary reason cited for people falling behind in filing their tax returns. They don’t file because they know that once their tax returns are filed they will face the daunting task of paying their tax debt, in its entirety, to the Canada Revenue Agency.

The Canada Revenue Agency Tax Payer Relief program offers individuals and businesses the ability to request relief of interest and/or penalties. This is not tax relief; the Canada Revenue Agency will not reduce the actual tax debt and under this Tax Payer Relief Program, only interest and/or penalties can be forgiven.

Applicants who want to apply for taxpayer relief under the Canada Revenue Agency Tax Payer Relief Program will have to satisfy the Canada Revenue Agency (C.R.A.) that any one of four circumstances prevented them from filing their tax returns or from paying their tax debt. These circumstances include:

1.       Significant financial hardship.
2.       A serious medical problem.
3.       A natural disaster.
4.       An error on the part of the Canada Revenue Agency.

Very few applications for taxpayer relief are approved. Before one considers whether the cost of hiring a representative to make an application for interest and penalty relief under the Canada Revenue Agency Tax Payer Relief Program is worth his while, he should first consider if he even has the ability to pay his principal tax debt in full.

Once a tax debt is owed to the Canada Revenue Agency, they will demand to be paid in full. They will also proceed to collect their money. Collection action could include wage garnishments, property liens, freezing bank accounts and more. Business owners could face having their customers notified of their tax problem and have a set off placed on their receivables.

Directly attempting to negotiate with the Canada Revenue Agency is similar to playing Russian roulette. In most cases they will not make a voluntary payment plan with you unless you offer complete financial disclosure. Once they learn where you bank and what assets you have, you are in a very vulnerable position. Most voluntary payment plans that individuals self-negotiate are short term, so once the term is up and the taxpayer tries to negotiate another payment plan, they will refuse. This is simply due to the fact that they now have full financial disclosure, at which point they will proceed with further enforcement action ensuring that they collect all of their money.

The good news is that Federal Government programs do exist. Programs that do offer taxpayer tax relief will not only eliminate interest and penalties but will also reduce the size of a taxpayer’s tax debt significantly. To see if you qualify for tax relief, you must deal with an agency that can provide you with access to these programs. For more information about tax relief and the C.R.A. Tax Payer Relief Program please contact DebtCare Canada at 888-890-0888 or visit www.debtcare.ca   

Debt Consolidation Loan, is it a Good Idea before the Holiday Season? We Explore Canadian Debt Consolidation Options

As the holiday season approaches, you may be thinking that a debt consolidation loan is a good idea so that you don’t face the New Year with maxed out credit cards and a budget that is stretched to its limit. There are so many services out there that offer debt consolidation options, but what is most important is that you fully understand each option and what it means to your personal finances and your credit.

Understanding your options starts with understanding who is offering you the option, so this article will outline Canadian debt consolidation options and what they really mean to you.

Your first thought may be to approach your bank for a debt consolidation. If you qualify, banks will often recommend a personal line of credit or a large credit card to consolidate your debt. The interest could range anywhere from 7% to 25%. The problem with this type of debt consolidation loan is that your budget may only have room to manage the minimum payment. If you don’t have the income to make massive lump sum payments, this type of debt consolidation loan may prove to be very difficult to pay off. Banks will usually calculate your minimum payment based on 1% to 3% of your balance, which usually only covers interest. If you get into the habit of only making minimum monthly payments, you will see no end to your debt.

Bankruptcy trustees also offer Canadian debt consolidation options. The challenge is that trustees in bankruptcy represent your creditors. A debt consolidation option offered through a trustee in bankruptcy may offer you the debt relief you need. With that said, a consumer proposal or bankruptcy is not a debt consolidation loan. If you go directly to a trustee in bankruptcy, the consolidation that is arranged will often give preference to your creditor which ultimately means you pay more.

Credit counselling agencies that offer Canadian debt consolidation options may be not for profit, however, they obtain most of their financing from the banks. This is by far the least favourable debt consolidation option because it not only destroys your credit, but it also involves paying off your debt over a long period of time. Not for profit credit counselling is really the best option only for consumers who owe less than $6,000 in debt.

Mortgage Agents will often promote debt consolidation options that involve mortgage refinancing. After legal fees, appraisal fees, broker fees and administration fees, this can prove to be the most expensive type of debt consolidation loan.

At the end of the day, if you are drowning in debt, the only way out may be through a debt consolidation loan. The type of debt consolidation that is right for you will depend on your how much debt you are in, the type of debt, your income, income type and assets. You will secure the best deal that makes the most sense for you by working with a skilled Financial Advisor, one who can help you determine the type of debt consolidation loan that best suits your personal financial situation. For more information about debt consolidation loans and Canadian debt consolidation options please visit www.debtcare.ca or call 416 907- 2582.