Getting Out of Debt Blog Series #2: Bankruptcy

There are thousands of Canadians facing a mountain of debt that can seem impossible to overcome. For many individuals, it can often seem as though there is nowhere to turn as far as getting out of debt – but there is hope. It never helps to ignore the problem or let the stress of high debt levels control your life. The second blog in our back-to-basics ‘getting out of debt blog series’ looks at bankruptcy, and can help you better understand if this might be the best solution for your financial woes.  

What is bankruptcy?

Bankruptcy in Canada is a legal process and is governed by federal law under the Bankruptcy and Insolvency Act. Like a consumer proposal, a bankruptcy must be conducted by a licensed trustee in bankruptcy – you cannot negotiate one on your own. The role of a trustee is to ensure that both you and your creditors are protected, so they will negotiate the terms of your bankruptcy and administer it accordingly.

When you file for bankruptcy all of your assets, which include investments, property and your income, become the property of your trustee while you are “undischarged.” This means that if you have equity in your assets, or your income exceeds what is the allowable minimum, you will be subject to surplus income. Surplus income means that 50% of any income you earn over the prescribed minimum and 50% of any equity in assets will have to be paid to your estate to be distributed to your creditors by your trustee. During the undischarged period you will have reporting obligations to your trustee which includes reporting your income.

In Canada, and in the case of a first time bankruptcy – if there is no surplus income you will only remain undischarged for 9 months (if you meet any additional terms in your bankruptcy); if you have surplus income you will remain undischarged for at least 21 months. If, at the end of 21 months, you have not re-paid your surplus income into your estate you will remain undischarged until you do.

While bankrupt, additional terms in your bankruptcy will include not only disclosing income but also reporting on living arrangements, family situation, etc. You will also be required to attend credit counselling sessions and report any monies borrowed (over $500). 

To qualify for bankruptcy in Canada you must meet certain conditions, the foremost of which is that you must be insolvent. To be insolvent means that you owe at least $1000 and that you are unable to pay the debts as they are due.

Will filing for bankruptcy affect your credit? Yes, since your credit report is the document which contains all of your borrowing activity and credit behaviour. When you file for bankruptcy your credit score will change from being a number to being an “R” reject score until you rebuild your credit. The bankruptcy will show on your credit report for 6 years following discharge. That being said, if you are seriously considering filing for bankruptcy your credit has most likely already suffered, and so cleaning it up will take time.

Also, you can often qualify for credit within 2 years of being discharged from bankruptcy with up to 2 years of solid re-established credit.

Contrary to popular belief you can file for bankruptcy and keep your home and vehicle. Because the trustee represents you and your creditor it is important to have your own representation through the bankruptcy process. Bankruptcy can be complicated and having an expert in your corner will ensure that you are prepared for all eventual outcomes and don’t go to the trustee without already having your plan in place.

For more information about getting out of debt or to find out if you qualify to file for bankruptcy in Canada, please contact DebtCare Canada at 1-800-890-0888.

Getting Out of Debt Blog Series #1: Consumer Proposal

With summer winding down and consumer debt levels remaining at all-time highs, we thought it was a good time for a back-to-basics ‘getting out of debt blog’ to help you ease into fall with less worries on your plate. This first blog in the series will talk about the consumer proposal, giving you the ins and outs to help you better understand your options for getting out of debt. Other blogs in this series will focus on debt consolidations, debt settlement and bankruptcy. 

What is a consumer proposal? In a nutshell, a consumer proposal is a proposal that is administered by a trustee where you offer your creditor(s) a sum of money to be repaid over a term of 5 years. This sum could be less than the total debt you owe. Also, a consumer proposal will stop legal action being taken against you by unsecured creditors who are included in the proposal, stop collection agency harassment and freeze the interest accumulating on your debt.    

A consumer proposal has to be conducted by a licensed trustee in bankruptcy – you cannot negotiate one on your own. A financial consultant can consult with you on your financial options and if a consumer proposal is the solution you elect, he or she can co-ordinate a fair deal for you with a trustee. 

Unlike bankruptcy, once a consumer proposal is in place you have no ongoing obligation to the trustee whatsoever – you simply have to make your monthly payment. Consumer proposals can be repaid in full at any time. This is a major plus for folks who want to rebuild their credit quickly. A consumer proposal will be completely removed from your credit report 3 years from the date it has been paid in full. Beginning with a secured credit card or RRSP loan, those who make consumer proposals have many options available to them for rebuilding credit.

With anything there are caveats. A consumer proposal must be accepted by your majority creditor. Because trustees represent you and your creditors it is important to understand how consumer proposals work and to have your own representation through the process. Negotiating a proposal that is accepted by your creditor(s) and that is the best deal for you is key. Having representation ensures that you have someone who has expertise in this area to ensure that you do get the best deal and that all aspects of your financial situation have been considered.

Filing a consumer proposal is, for many people, a smart solution for getting out of debt. That being said, it needs to be approached correctly, and you will need the help of a professional to carry it out.

For more information about consumer proposals or other ways of getting out of debt, please contact DebtCare Canada by calling 1-800-890-0888.

Summer Debt Relief: Tips to Reduce Your Debt

Over the summer many families find that debt rises with the temperatures; vacations, weekends away, daily outings, etc. can all leave the wallet feeling very light. If you entered the summer drowning in debt, the worst thing that you can do over the summer is add to that. Instead, use this time to make some financial changes and reduce you debt rather than continuing to build it up. Here are our summer debt relief tips to help you regain control of your finances.

Debt relief tip #1: Go over your finances and set a budget. Look at how much you spend every month on bills and see where you can save. And be realistic. Don’t deny yourself every luxury – you won’t be able to stick to it. For example, if you eat out 5 nights a week, don’t cut this out altogether, you are bound to cave in at some point. Instead try and limit these treats to once a week, or even once every 2 weeks.

Debt relief tip #2: Avoid making only minimum monthly payments. Most of your monthly payment is just interest, very little of the principle balance being paid off as a result. Check out your monthly statement – most will give you a timeline showing when your balance will be paid off if only monthly payments are made – this might shock you – and hopefully motivate you to reduce your debt!

Debt relief tip #3: Contact your creditors and see if they can offer a lower interest rate, especially if you have received offers from other companies offering an interest free period and free transfer (just be sure that you can pay off the balance before the interest free period is up). This option though is often only good for those with good credit – if your credit is less than stellar or if you routinely miss payments, there isn’t much motivation for your creditors to reward you with a lower interest rate.

Debt relief tip #4: Seek the help of a professional. Once you get deep into debt, it can seem impossible to climb back out. But it is possible. If you have tried to reduce your debt but just can’t seem to make any progress, it might be time to call in the professionals, ones with experience helping Canadians get debt relief. Debt consolidation, consumer proposals or bankruptcy are all viable options to reduce your debt, and can all end up significantly reducing the amount of debt you currently carry.

Don’t let summer spending get away from you. Instead, try to reduce your debt instead of increasing it with these tips and others. For more tips about debt relief and how to reduce your debt over the summer, please contact DebtCare by calling 1-800-890-0888 or visiting www.debtcare.ca.

The Globe and Mail Reports on Canadian Consumer Debt

The Globe and Mail recently reported on the status of Canadian consumer debt levels, stating that Canadian household debt continues to grow. With that said, individuals seem to be obtaining less credit and the Bank of Canada reports being less concerned about this debt than in years past. 

However, a report from Statistics Canada calculated the average household debt at $164.97 for every $100 of disposable income, slightly higher than the analysis from 3 months previous. And just because the head bank doesn’t seem too concerned, it does not mean that Canadian consumer debt levels are not at a record high – they are.

It has become quite common over the past several years to hear these reports about Canadian consumer debt levels no matter where you go. If you are not in debt often these updates seem irrelevant and are easily pushed aside. However, if you are in debt these updates can often leave you stressed about your own financial situation.

If you find yourself getting shaky or stressed out with each report like this one, it might be time to recognize that you need some help with reducing your debt. Instead of trying to ignore the signs that your debt is becoming unmanageable or hoping that if ignored the problem might go away (it won’t), why not consider working with a professional to get rid of your debt.

How can a professional debt consultant help? After an initial consultation which will involve assessing your debt, your re-payment behaviours, and your monthly income, a debt consultant will be able to discuss with you the various options which exist to help you get out of debt. They can also help you to establish a budget that is realistic while at the same time focusing heavily on repaying the money that you owe to your creditors.

Some options which may exist include debt consolidation, consumer proposal or making settlements with your creditors. All three of these solutions come with their own benefits and it pays to consult with a professional to best determine which option is the right one for you. Some might even offer the ability to settle what you owe with creditors at a much lower amount – saving you money.

If you find yourself constantly trying to avoid the reports on rising Canadian consumer debt levels, change your perspective and start looking at it as a motivator to get your own debt under control.

For more information about how you can reduce your debt, please contact the professionals at DebtCare Canada by calling 1-800-890-0888, or visit us online at www.debtcare.ca.

Collection Agency Harassment: How to Stop the Calls

Canadians have become so accustomed to carrying debt, and for some being in debt has become the norm. It is true that the vast majority of Canadians do have debt and when debt accumulates to the point where you are defaulting on monthly payments, the debt you have can be the source of considerable stress. This is especially true if your creditor has sent your debt to a collection company resulting in collection agency harassment!

Collection agency harassment comes in many forms, but the most common is phone calls demanding payment for uncollected funds. These calls can come during the day, in the evening, on the weekends – when you are at home and at work. If you have been receiving these calls, or are nervous that they may begin in the very near future, it is best not to avoid the issue. The calls are not going to stop just because you don’t answer the phone – if anything they will increase in frequency. The collection agency may also pursue other methods to make contact with you that can be the source of embarrassment.

In provinces like Ontario collection agencies are regulated by the appropriate ministry. In Ontario that ministry is the Ministry of Consumer Services (MCS). Reading your province’s legislation that deals with the regulation of collection agencies is your first step towards stopping collection agency harassment. If an agent called you at a time he or she wasn’t supposed to or disclosed information about you or your debt to a third party such as a family member or co-worker, you may file a complaint with the government to stop the collection agency harassment.

Formulate a plan to deal with the debt. It won’t go away by itself and as long as it sits in collections it will accumulate very high interest, can be damaging to your credit and the collection agency will continue to pursue you. Speak with a financial consultant who has experience stopping collection agency harassment for help and also to learn about programs that can help you deal with the root problem - the debt itself.

There are several very effective forms of debt relief in Canada, most common among them are debt settlements, consumer proposals, debt consolidation, mortgage refinancing and bankruptcy. All of these approaches have different benefits. While a consumer proposal can reduce your debt and freeze interest, it can also impact your credit in the short-run. While mortgage refinancing will enable you to rebuild credit faster, you will have to pay closing costs and interest to use your home equity to consolidate your debt. Only a skilled financial consultant can help you to review your options and help you choose the one that will best help you achieve your personal financial goals.

If you are facing collection agency harassment it might be time to get the ball rolling and seek out debt relief from a professional organization experienced in dealing with collection agencies and helping individuals get rid of their debt. Get control of your debt - don’t let your debt control you!

For more information about debt relief to stop collection agency harassment please contact DebtCare Canada today by calling 1-800-890-0888.

Canada Day: Are You Sticking to Your Debt Reduction Strategies?

Happy Canada Day everyone! July 1^st marks the half-way point of the year, and it is time to look back at the last six months and see how well you have managed thus far to stick to your New Year’s resolution. If you, like so many other Canadians, made a resolution involving your personal debt reduction but seem to be falling behind, you may not actually like this glance back. But don’t worry, according to a recent survey done by PricewaterhouseCoopers, you are not alone. 

An article on this survey released by CBC News reports that 63% of survey respondents said that their financial goals for 2013 included significant debt reduction. However, less than 25% of those had actually managed to achieve this goal, while 26% said that they had been completely unsuccessful.  Economists continue to report on the status of Canadian debt levels, trying to hammer home the importance of personal debt reduction and adopting debt reduction strategies, but it seems as though Canadians across the nation are having a much harder time actually making these strategies work for them. 

If you are reading this and find yourself in the 26% range, having had no significant victory over your current debt load over the first half of 2013, it might be time to think about an alternative debt reduction plan that will actually work.

A debt reduction company likely isn’t the answer. Debt reduction companies will often have you make a monthly payment to them over an extended period of time with a promise that when enough money is received they will settle your debts. One problem though - what happens if they go out of business? What security do you have that your money is secure? Also, a debt reduction company that offers a service will be motivated to push their product.

A financial consulting company, hired by you to represent you, can present you with all of your financial options. This could include debt reduction through settlements or through a consumer proposal. It could also mean a debt consolidation – your debt reduction solution will largely depend on your personal circumstances. Pay attention to marketing by debt reduction companies. A debt reduction company that says they ‘will’ reduce your debt by 80% for example is different from a financial consulting company who says that they ‘may’ be able to reduce your debt. No company can make a guarantee without knowing your individual circumstances.

What types of strategies exist? Well, as we mentioned, one is a consumer proposal. This is by no means the only approach. However, if you are drowning in debt and are only able to make your minimum monthly payments, or worse, not even these, this solution might be the best choice. Debt consolidation might be another solution to reduce your monthly payments by consolidating debt into a single monthly payment. Whatever your situation, exploring all of your options is the best way to reach a positive outcome.

If you want to actually achieve your New Year’s resolution and take control of your debt, you don’t have to do it alone. A good financial consultant can provide you with the help you need to get control of your finances.

For more information about debt reduction strategies that will actually help you reduce your debt, please contact DebtCare Canada by calling 1-800-890-0888 or visit www.debtcare.ca.

How to Get Your Bank Account Unfrozen

Having your bank account frozen is not fun. A frozen bank account will paralyze your ability to pay your bills because essentially money can go in but no money can go out. Depending on who the authority freezing your bank account was, you may or may not have an opportunity to get your account unfrozen and then get some or all of your money back.

Let’s begin by reviewing who can freeze your bank account and how they can do it.

A creditor can freeze your bank account if 1) they sue you; 2) they successfully obtain a judgement against you; and 3) they are approved by the court to take enforcement action against you. The creditor then takes the proof from the court that they have a judgement and can freeze your account and sends it to your bank. Your bank can accept the document and freeze the funds in your account for a period of time. In the Ontario small claims court for example, the bank would hold the funds in your account for 30 days. At the end of the time period the funds are sent to the court. The court then holds the money for an additional period of time and then it is released to the creditor.

In the case of a frozen bank account with respect to a tax debt to the Canada Revenue Agency, the CRA does not need a court order to freeze your bank account. The CRA will send a notice to your bank - this notice is called a ‘Requirement to Pay’. The bank then will freeze your account and again will hold the funds in your account for a period of time. Once the allotted time period has expired the funds will be directed to the CRA.

In the case of a frozen bank account that results from unpaid family responsibility, the court will issue an order that the account can be frozen. The funds will be held for a period of time and then released to either the Family Responsibility Office or the court, which will later release them to the other parent. If your account has been frozen as a result of unpaid family responsibility you will need to speak to a lawyer to see if he or she can go to court on your behalf to request an order to lift the freeze.

If the case of a bank account that is frozen by the CRA or as a result of a small claims court order, you will need to get financial help, and this help will need to come from a financial consultant who is experienced and capable of combatting a frozen bank account under these circumstances. A good financial consultant can qualify you for programs that will stop the enforcement action being taken against you, freeze the interest accumulating on the debt, potentially reduce the size of the debt and allow you to make a monthly payment that you can afford.

If your bank account is frozen and you need help call DebtCare at 888-890-0888 or visit www.debtcare.ca.