CANADIAN DEBT RELIEF: WHAT ABOUT “Government Approved” GRIPPING DEBT PROGRAMS?

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Canadian debt relief:  What is debt relief Canada?

Canadian debt relief is the reconstruction of debt in any kind of form so as to give the indebted person or company a measure of breathing space.

Canadian debt relief measures can take a number of forms. It can be through an informal process or formal process (discussed below).

I just read a recently issued Scotiabank Economics report that says Canadians are going deeper into debt. With that in mind, I believe it important to describe the Scotiabank findings and then discuss the options available for reliable Canadian debt relief.

Canadian debt relief:  The Scotiabank findings

The main Scotiabank findings are:

• Canadian home credit increased to a 2-year high in August 2019.
• Residential mortgage growth posted a 2-year high, supported by a mid-July 2019 decrease in the mortgage rate used for qualification under the stress testing as well as a decline in posted home mortgage pricing.
• Consumer credit growth struck a 10-month high on the whole but the year over year pattern was the same as July 2019.

The increase in overall household credit was boosted by a much easier borrowing environment. The main types of debt were fuelled by a strong acceleration in both mortgage loans as well as non-mortgage consumer liability growth. Right now Canadians’ household debt-service ratio is at an all-time high. According to the Scotiabank findings, that has not stopped Canadians from continuing their borrowing binge. It seems that super-low interest rates and a strong job market are providing Canadians with either confidence or blind ignorance, to continue to borrow.

With unpredictability staying at raised levels and worldwide demand weakening, business financial investment and exports are not going to be a force to keep the Canadian economy strong.  Therefore, it is essentially up to people buying homes primarily in the Vancouver and Toronto housing markets and general consumer credit demand, with government spending, to keep the Canadian economy strong.  So, it seems that for the foreseeable future, the Bank of Canada will keep interest rates low.  It seems that interest rates will only increase in reaction to events from outside the Canadian economy.

How debt relief works in Canada

It is not that difficult to qualify for real Canadian debt relief services.  You need to be insolvent, or at least, be unable to pay your financial obligations as they come due.  I am not talking about a consolidation loan that you need to apply for. If you are trying for approval from one of the debt consolidation loans providers, you also need to be able to qualify for a new loan.  If you are applying for a Canadian debt relief program that requires you to get a consolidation loan, and you don’t qualify for the loan, then you will not qualify for that type of debt management plan.

However, for financial relief that does not involve you borrowing money, the bar to qualify is set very low.  All you need is to admit that you have a debt problem. Once you do that, you can certainly get help from one of the Canadian debt relief alternatives.

I will describe the various levels of Canadian debt relief programs, but first, I want to answer a question I am asked regularly.  The question is: Can you get credit card debt forgiven?

Canadian debt relief:  Do credit card companies ever forgive debts?

I have never seen complete and full credit card forgiveness given by a credit card company (except for two situations described in this section).  It is possible, to achieve partial credit card forgiveness, but it is not easy. Credit card companies generally will not give any form of forgiveness.  

If you stop making your minimum payments, the credit card company will ultimately “ charge off ” a person’s credit card amount owing after giving them an R9 rating on their credit report. A charge-off takes place when an account is seriously overdue for credit card bills. That will be after 180 days of not making the minimum repayment.

Charging off the amount owing on the credit card is not writing it off or forgiving it.  It is just a way for the credit card issuer to mark it as uncollectible and eliminate the debt from their active books.  What is done when the debt is charged off, is that it is either given or sold to a collection agent. You may be able to make a deal with the collection agency to pay less than the full amount you owe.  However, it will still be a substantial sum and has to be paid all at once.

There are only two exceptions to this I ever heard.  One is a recent feel-good story. In August 2019, it was reported that Chase Bank announced that it was leaving Canada.  Chase Bank issued and administered the Amazon.ca Rewards Visa and the Marriott Rewards Premier Visa in Canada. In order to exit Canada quickly, Chase Bank announced that it was forgiving all credit card amounts owed by clients of its two Canadian charge cards.  Highly unusual.

The only other exception is not such a feel-good story.  If a person dies and the deceased Estate has no cash available after the funeral and testamentary costs or worse, has no assets including cash, then the credit card company is going to have no choice but to write off the liability.  The Estate Trustee will, of course, have to provide proof that there are no funds available.

Canadian debt relief:  Informal options

There are various informal debt-relief options available in Canada.  The most common options are:

Debt consolidation

When when we hear the words debt consolidation we understand that it is the process of qualifying for and taking on a brand-new loan, in order to repay many or numerous smaller debt obligations.  

Consolidating debt involves borrowing money. The concept is that either:

• your credit rating is good enough so that you can take on the new unsecured debt; or
• you have decided to offer security for the loan.

The primary purpose of resolving your debt via this type of borrowing is to lower the overall interest costs you are currently paying across many credit cards and other debt.

Credit counselling

Credit counselling can solve debt problems and supplies you with the skills to live debt-free. Credit counselling solutions consist of teaching proper budgeting, how to use debt sensibly, rebuilding credit and debt management programs.

A word of caution. Please make sure that if you want a credit counselling program that has a qualified and licensed non-profit credit counsellor, you reach out to a real Canadian debt relief provider such as a credit counselling agency and not a debt settlement company.

The Financial Consumer Agency of Canada has provided a stern warning for consumers to be careful when considering using a debt settlement company.  Do not be pulled into what looks like the cheapest Canadian debt relief company. The danger signals and warning signs that the Agency warns consumers about are:

• High-pressure sales
• Unrealistic assurances
• High costs
• Companies collecting monthly payments from you to pay to your creditors supposedly for an agreed-upon settlement amount but postponing repayments to the creditors and never coming up with a real Canadian debt relief plan.

Debt settlement

I have also written about the dangers of debt settlement companies.  In 2017, I wrote about the study by the Office of the Superintendent of Bankruptcy (OSB) on debt settlement companies.  The main findings of the OSB report were that in 2016:

The OSB record indicates that in 2016:

• 17 % of all consumer proposal filings, the customer reported having spent first for debt counselling from a debt settlement firm before being directed to a Licensed Insolvency Trustee (LIT) (formerly called a bankruptcy trustee).
• 57 % of the consumer proposal filings for which earlier debt settlement guidance was obtained, the LITs had connections with 2 large-volume debt settlement businesses. These 2 companies stood for 64 % of the total LIT fees reported in 2016 consumer insolvency filings for debt settlement advice before submitting to an insolvency proceeding with a LIT.
• Thirteen LIT firms, that included one national-level business, were discovered to have numerous LITs operating in regular partnership with large-volume debt settlement firms.
• For about 50 individual LITs within these 13 firms, better than 40% of their consumer proposal filings were sourced from these debt settlement organizations. For about 20 of those LITs, more than 90% of their consumer proposal work originates from these 2 businesses.

Debt settlement companies have long used scare tactics with consumers to attract business.  They tell consumers that all a LIT wants to do is put them into bankruptcy. Nothing could be further from the truth.  As seen by the OSB study results, consumers were paying debt settlement firms fees with money they could not afford to pay.  When they could not pay any longer, the debt settlement company then referred the people to their favourite LITs!  Now that is the pot calling the kettle black. The OSB was also concerned about the business arrangements being made between debt settlement outfits and LITs.

Since then, the OSB has introduced amendments to practices that LITs must follow concerning credit counsellors and business arrangements with a view to curb this behaviour.  For the record, I and my Firm have no relationship with any debt settlement company.

Canadian debt relief:  What about “Government Approved” debt programs?

There are only 2 Canadian government debt relief programs in our country: (i) consumer proposal; and (ii) bankruptcy, which is the most drastic one.

I have written about consumer proposals many times. A consumer proposal is the only structured formal procedure sanctioned by the Government of Canada under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). This process permits insolvent people to make an official offer with specific terms, to pay their creditors less than the full amount owing in full settlement of all debts. This federal government authorized debt settlement strategy is to pay back only a portion of what you owe and you can take as long as 5 years of routine monthly payments to do so.

To qualify, a person must be insolvent and owe $250,000 or less to all creditors, other than for any financial debts protected security against their principal home. The most common examples are either a home mortgage or home equity line of credit registered against the real estate.  The consumer proposal process provides protection from creditors.  It is aimed at compromising unsecured consumer debts, including income tax debt, while the debtor makes regular payments. The end result of a successfully completed consumer proposal is debt cancellation of your remaining outstanding debts.

A consumer proposal is a streamlined process meant to either reduce or totally eliminate the need to go to Court. A successful consumer proposal allows the person to avoid bankruptcy while ultimately discharging all of his or her debts for an amount much less than the total amount owed.

Canadian debt relief summary

Since the purpose of this Brandon’s Blog is about eliminating your burden of debt before having to consider bankruptcy, I won’t discuss the bankruptcy topic here.  Of course, anyone wanting to find out more about either a consumer proposal or bankruptcy can always call me.

Do you have way too much debt? Prior to you getting to the phase where you can’t make ends meet and your credit report looks awful, reach out to a licensed insolvency trustee (previously called a bankruptcy trustee). In fact, if you understand that you can’t pay your financial debts, contact us.

We understand the pain and stress excessive financial debt can trigger. We can aid you to get rid of that discomfort as well as address your financial problems by offering prompt action and the ideal plan to give you freedom from debt.

Call Ira Smith Trustee & Receiver Inc. today. 

Make an appointment with one of the Ira Smith Team for a free, no-obligation consultation and you can be on your way to enjoying a carefree retirement  Starting Over, Starting Now. Give us a call today so that we can help you get back to a stress and pain-free life, Starting Over, Starting Now.