Is Credit Counselling in Canada a Debt Consolidation?

We have all heard the commercials on the radio and television talking about debt consolidations and credit counselling. When you have a debt that is becoming increasingly difficult to pay, these may seem incredibly enticing – but it can be difficult to know what each one means, or if they are in fact even different. So, is credit counselling in Canada the same as debt consolidation, and if not, what is the difference?

Firstly, no, credit counselling is different from a debt consolidation. Many people confuse the two, but there are major differences. Both can represent significant debt relief, but each one requires a specific process that needs to be followed properly in order to be successful.

Credit counselling in Canada – credit counselling is usually not for profit and is usually funded by the bank or your creditors. With a credit counselling proposal, you are essentially going to your creditors and asking to have the interest on your debt frozen and for them to accept a reduced monthly payment based on your budget. If accepted, you make one payment to credit counselling and they disperse the money to your creditors. This means a single monthly payment for you, that you can afford, and drastically increases your creditors’ chances of being paid, on time, each month. 

Some things to keep in mind with credit counselling: it does not reduce your overall debt. Although your interest is frozen and your payments may be reduced, you are still on the hook for the entire amount. Additionally, with credit counselling in Canada, the damage to your overall credit rating is the same as in bankruptcy – all ratings turn into R7 and I7 for a period of 3 years from the date the proposal is paid in full.

Debt consolidation – A debt consolidation is when you are approved for a loan to cover the entirety of your debt. You then pay off your debt completely, and just pay that one loan on a monthly basis. With a debt consolidation, many of the same benefits are visible, such as one monthly payment and reduced interest, but without the damage to your credit.

When you have financial challenges and you want to consolidate debt into a single payment, you have a few options, including a debt consolidation loan or mortgage financing. Other options for debt relief may include a consumer proposal or bankruptcy. You viable options will depend on a number of things, including your credit, assets, budget and cash flow, and so it always helps to speak to a debt specialist to determine all of your options.

For more about debt consolidations and credit counselling in Canada, please contact DebtCare Canada today by calling 1-888-890-0888.

Wage Garnishment Blog Series Part 3 – Wages Garnished by Other Sources

In the first two blogs of our wage garnishment series we discussed how wage garnishments work when you owe money to the Canada Revenue Agency or to a creditor. While these are two very common forms of wage garnishments, there are other forms of wage garnishments that can quickly become severe financial burdens.

A very common ‘other’ form of wage garnishment is a wage garnishment related to unpaid child support. In Ontario, if you fail to pay child support, your wages can be garnished. The typical process is as follows: once your spouse has given you notice, their lawyer or the Family Responsibility Office will make an application to the court to garnish your wages, and once approved, your employer will receive notice and be legally required to do so. If there is back child support your wages can be garnished up to 50%.

Getting your wages garnished by Family Responsibility should never come as a surprise and you should always ensure that your child is financially cared for. When it comes to a wage garnishment from Family Responsibility, there is nothing you can do to reduce or stop this, other than going to court. These types of garnishments are unforgiving, and even if you are financially strapped and finding it incredibly difficult to pay, they will often throw you further into financial turmoil.

So, if you are having your wages garnished as a result of unpaid child support, are you then stuck between a rock and a hard place? Are there really no options to help you pull yourself out of a financial hole? No, you do have options, but these may mean looking at dealing with your other debts as quickly as possible to free up the cash to finally settle up those Family Responsibility payments.

What options are available? If you struggle with what seems like a mountain of debt, including debts for child support payments, a viable option may be a debt consolidation or a consumer proposal. Both of these may represent significant relief, as well as a single monthly payment. Just remember, if you are approved for a consumer proposal, payments to Family Responsibility cannot be included, but the proposal can free up potential monies to pay that debt and lift a wage garnishment.

If you are facing a wage garnishment of any kind, DebtCare Canada is here to help. For information about the many different options that may be available, please contact us today by calling 1-888-890-0888.

Wage Garnishment Blog Series Part 2: Wages Garnished by a Creditor

Many people run into financial problems and can’t pay their creditors. Often these debts end in a wage garnishment. Last week we looked at Canada Revenue Agency wage garnishments, so this week we thought we’d explore what it means when you are faced with having wages garnished by a creditor other than the CRA.

When you have a debt that you have continually had trouble paying down, failing to meet even the monthly minimum payments month in and month out, your creditors will quickly tire of this and will eventually take enforcement action in an attempt to get their money. Sure, if you can’t pay, you can’t pay – your creditors can’t draw blood from a stone – but that doesn’t mean they won’t try!

If your creditor has no security on your loan, they can do one of two things to try and get what they are owed:

•          Sue you in Small Claims Court

•          Send your file to a 3rd party collection agency for collection – they can in turn sue you in Small Claims Court.

Remember – aside from the CRA, a creditor cannot garnish your wages without a court order, so Small Claims Court is a necessary first step.

If you are sued in the Ontario Small Claims court, your creditor has to serve the papers on you. Once you have received the papers, you have 2 options as far as filing a Defense (and only 40 days to do so):

a.         If you file a Defense a date is scheduled for you to make a settlement and repayment terms with your creditor. If a settlement is reached, as long as you don’t breach the terms, the matter is settled. If you breach the terms the creditor can get a default judgment against you. If you don’t make a settlement the matter will proceed to trial; it should be said that most disputes are settled at the pre-trial settlement conference.

b.         If you don’t file a Defense, the creditor can obtain Default Judgment against you. Once they have this, they can file a Notice of Garnishment with the Ontario Small Claims Court and also send it to your employer. The maximum wage garnishment from the Ontario Small Claims Court is 20% of your earnings. Your employer must then begin remitting the specified percentage of your income to the court. The court holds the money for 30 days and then sends the money to your creditor.

If your wages are being garnished because of a Small Claims Court wage garnishment, and you can’t make ends meet, there are only 2 ways to reduce or stop a Small Claims Court wage garnishment.

1.      File a motion with the Ontario Small Claims Court – include and present your financial information and ask the judge to reduce the percentage of the garnishment or mediate a voluntary payment plan that you can afford with the other side. You may need a paralegal to do this as it will involve completing court forms and attending a court date.

2.      Speak to a financial restructuring professional – this could involve discussing options such as a consumer proposal, which will immediately stop a wage garnishment imposed through the Ontario Small Claims Court.

If your wages are being garnished and you don’t know what to do, DebtCare can help. We have the resources to help you pay off those debts and get you back on strong financial footing. Call us today at 1-888-890-0888.

Wage Garnishment Blog Series Part 1 – Wages Garnished by CRA

With the advent of May, the personal tax filing deadline is now well behind us, and for many, a sigh of relief can be had. For others however, the passing of the deadline brings with it a whole new set of issues. If, after filing your taxes, you find yourself with a tax debt that has led to wages being garnished by the Canada Revenue Agency (CRA), this first blog in our wage garnishment blog series might be a smart place to start as far as finding relief.

If you have yet to have your wages garnished by CRA, but are concerned that this might be a reality in the very near future, here are some things to think about:

·        If you are an employee on payroll with taxes deducted at the source, the CRA can garnish up to 50% of your wages. They simply need to send notice to your employer and your employer is legally required to submit a portion of your pay to them to pay off your tax debt.

·        If you are a sub-contractor, or receive a different form of income, such as a pension, the CRA can garnish up to 100%.

·        If you are self-employed, the CRA will send a notice to your customers to redirect your receivables directly to the CRA.

·        A court order is not required for wage garnishments initiated by the CRA.

·        If the person who receives the requirement to garnish your wages does not comply, the CRA can then pursue them (so don’t assume that just because your employer likes you that they will ignore a requirement to pay).

How does the CRA know where to turn to garnish your wages? There are a number of different sources, including the T4 filed by your employer, an audit done on a client or supplier, a call to the CRA tip line, or personal disclosure.

A garnishment can cause serious financial hardship, not to mention embarrassment or negative impacts to your personal business. Knowing this, what can you do to prepare yourself, or deal with a wage garnishment by CRA that is already in place? Remember that dealing directly with the CRA is never a good idea – unless you can pay the debt in full, your chances of getting an agent to even entertain a reasonable payment plan are slim to none.  And, if you attempt to deal with them directly, providing additional information in the hopes of reaching an amicable agreement, a frozen bank account or property lien may be the only result.

There are programs that offer immediate protection from wage garnishments by the CRA, as well as other enforcement action, and finding out about these is the best place to start.

If you are facing a tax debt or a CRA wage garnishment, DebtCare can help. Call us today at 1-888-890-0888.