Filing a Consumer Proposal in Canada – Does it Make the Most Sense for You?

The frequency with which Canadians are filing consumer proposals in order to get back on solid financial ground has increased significantly in the last few years. The reason is fairly obvious; the ability to stop collection action, halt interest, combine all payments into one, and often to negotiate for a smaller repayment amount, make filing a consumer proposals in Canada a very attractive debt relief option.

However, because a consumer proposal is a solution for dealing with financial problems, some assume that individuals on the lower end of the income scale with limited assets are the most likely candidates for a proposal. It is actually quite the opposite – often consumer proposals in Canada are filed by higher income earners.

Why? A major factor is the fact that, a few years ago, bankruptcy laws in Canada changed.

Higher income earners - Now there is an income and expense calculation (which is very low by the way) that looks at whether you earn more than a basic amount. If you do, 50% of any additional income is surplus income in a bankruptcy, so a higher income earner ends up having massive monthly payments. Also, if you have surplus income, you have to make monthly payments in bankruptcy for 20 months as opposed to 9 months (the limit if you are under the income/expense limit).

Homeowners - Believe it or not, in bankruptcy and in consumer proposals, many people are able to keep their homes! In a bankruptcy though, home equity is considered surplus income and so 50% of that equity has to be repaid. Instead, many homeowners opt for a proposal because it is a negotiated settlement so there is room to negotiate that less equity be repaid.

In a consumer proposal, you offer your creditors a sum that you will repay that covers all unsecured debt. As soon as a consumer proposal is filed, the creditors have a specified amount of time to accept or reject. Creditors who don’t answer are considered as accepting. As long as creditors representing 51% of the debt accept, the proposal goes through.

If accepted, the person has to make a minimum payment equal to the amount of the proposal divided over 48 or 60 months. That said, a consumer proposal can be paid in full at any time which also makes it more attractive to higher income earners, especially those who get large annual bonuses.

An additional reason for the attractiveness of a proposal is the impact it has on your credit rating. If paid off within 1 month to 3 years, a consumer proposal ends up being on your credit less time than a bankruptcy.

If you are struggling with debts and the threat of collection action, call DebtCare Canada today. Filing a consumer proposal may just make the most sense for you! 1-888-890-0888.

You Can Stop a Wage Garnishment in Ontario – Here Are Your Options!

Wage garnishments impact thousands of people every day - and can come as a most unpleasant surprise for those individuals.

No matter where you work - whether you are an employee in a large corporation or you own your own business, creditors, through the court, can still place a wage garnishment on your wages or your receivables. If you are an employee, your employer is served with a Notice of Garnishment and must comply. If you are self-employed, your clients are served and must submit any payments directly to the court. 

Beyond the financial implications, a wage garnishment in Ontario can have serious consequences in other areas of your life. For example, if you work for someone else, once that individual receives a Notice of Garnishment regarding the wage garnishment, they will be fully aware of your financial problem and thus may view you in a different light. Responsibility and reliability may be questioned, and any company that required a credit check upon hiring may take this new information into consideration.

If you work for yourself, especially with a small company, your reputation is important, but if your clients are receiving letters telling them to submit payment directly to the court, this could tarnish that reputation. The hassle may cause those clients to look elsewhere in the future.

Once a garnishment is in place, is paying it off the only option? Perhaps not.  A wage garnishment in Ontario can often be stopped but this largely depends on who issued it.

Here are a few of the most common types of wage garnishments in Ontario:

1.     Issued through the court – someone sued you, got a judgement and is enforcing it. Generally this can mean a loss of up to 20% of your earnings, and can only be stopped by paying the debt or making an arrangement with a creditor, by court motion, or by arranging a bankruptcy or consumer proposal with a debt counsellor.

2.     Issued by the CRA - the CRA does not need a court order, and can garnish up to 50% of your wages. If you are self-employed or on a pension this could be up to 100%. A CRA wage garnishment can only be stopped by: CRA’s consent or an arrangement, by arranging a bankruptcy or consumer proposal with a debt counsellor, or by taking CRA to tax court (the most expensive route). A CRA wage garnishment is particularly nasty….

3.     Issued by Family Responsibility – the only way to deal with one of these is to pay it in full or go back to court - there is no other option.

4.     Issued because of EI overpayment or by government after receiving money under false pretense – this can be complicated and these are instances where it is difficult to get protection. Like the CRA, this does not require a court order and if fraud is involved it can get tricky.

When you are facing a garnishment of your wages, no matter the source, your best bet is to speak with a debt counsellor. The solution to your financial problem will largely depend on your personal circumstances, but ignoring the garnishment should never be an option.

Avoid the embarrassment and financial hardship of a wage garnishment in Ontario by calling DebtCare Canada today at 1-888-890-0888.

Rebuilding Credit: Bad Credit Rating Doesn’t Always Just Disappear After a Few Years

It is a very common misconception that bad credit just “disappears” once debts are paid and your credit behaviour improves. However, past credit activity doesn’t just evaporate into thin air with a few months (even a few years) of good behaviour. Rebuilding credit takes some work.

For example, if you file for bankruptcy in January of year one, pay on time, every month, and are discharged in January of year 3, that bankruptcy will remain on your report for 6 years following the date of discharge (January of year 9) - not from the time that you declared.

When it comes to consumer proposals, these stay on for 3 years following payment in full, as does any credit counselling.

Periods of inactivity can also impact your credit rating. For example, if a lender assigns debt to collections, this results in activity, and negative activity at that. However, if you don’t have any activity, this is not necessarily a good thing either.

When it comes to activity, a tip is to continually use credit and to repay that credit on time, all the time. A secured credit card is a good way to do this without being tempted to start relying on credit again or getting back in over your head.

So, if you have bad credit and want to clean it up, here are a few steps you can take to get the process started:

·         Step 1 – Get your credit report and see what it says. These are available online from both Equifax and TransUnion. Some lenders use one, whereas some look at both.

·         Step 2 – Deal with the bad credit debt on your credit report by paying it off. Better yet, settle it for far less than you owe with a consumer proposal to stop interest and reduce overall amounts.

·         Step 3 – Document EVERYTHING. Any time you settle a debt, get a letter re: settlements and arrangements and copies of proof of your action. It can take some time for these payments to register, but keep on top of it.

·         Step 4 – Make sure the credit reporting agency knows these debts have been paid - don’t count on your lender to tell them. Send the above noted documents via registered mail to ensure they reach their intended destination.

·         Step 5 – Begin the process of rebuilding. Consider a secured credit card to show you are committed to maintaining positive history.

When it comes right down to it, the only way to improve a poor credit rating is to pay your debts and allow time to pass to show that your payment habits have improved.

For more information about how to rebuild your credit effectively, call DebtCare Canada today at 1-888-890-0888.

Small Business Alert: Are You Dealing with a CRA Frozen Bank Account?

The deadline for filing your business tax returns has passed - for many, this season is a stressful one, but if you filed on time and don’t owe, that stress if finally out of the way. However, if you do owe, or are still dealing with a debt following last year’s deadline, you may be facing the reality of a CRA frozen bank account.

In the past, the CRA tended to take at least a few months before issuing a notice to freeze a bank account. However, they are now freezing them far sooner, adding to the already existing mountain of stress when it comes to dealing with your small business finances.

Furthermore, not only are they freezing accounts far sooner than they used to, they are also freezing them for far less - amounts as low as $1000. This is causing a great deal of trouble for many businesses that get stuck in the CRA web. Not only is this an embarrassing situation to have to deal with, it can be ruinous for your business reputation - especially when payments can’t be made or cheques begin to bounce…

With most creditors, collection action, such as a frozen bank account, requires court approval, but one of the biggest problems with the CRA is that they don’t need a court order to freeze your account - and your bank must comply once they receive notice.

Wait - how does the CRA know where you bank? Often you’ve told them yourself. Any negotiations you enter into, cheques you send, etc., likely provide them with personal information that makes obtaining this information easy (if you haven’t provided the exact information yourself). Even without this information, a little extra legwork and a letter to the 5 major banks will often yield the same results. The reach of the CRA is long - once collection action has been decided upon, the ball is entirely in their court.

So, does this mean that once your account has been frozen that you are dead in your tracks? Of course not - you do have a few options, but the right solution will depend on your personal circumstances. There are programs offered by the government that have the ability to immediately unfreeze your account. Furthermore, if you invoke these programs very quickly, you may be able to get your account unfrozen before CRA removes the funds from your account.

At DebtCare Canada, we are experienced in dealing with various tax problems, including CRA frozen bank accounts. Call us today to discuss your options: 1-888-890-0888.