Good debt bad debt using credit wisely: Introduction
Good debt bad debt using credit wisely are another one of those financial terms like Balloon Payments, APY – Annual Percentage Yield, Expense Ratios and Cash Flow that are often misunderstood. As we continue our series of confusing financial terms we thought that the holiday season seemed like the opportune time to explore the concept of good debt.
Good debt bad debt using credit wisely: What is good debt?
Typically we define good debt as borrowing money for something that will appreciate in value and increase your net worth. Examples of good debt are taking out a mortgage to purchase your home and investing in your education.
Good debt bad debt using credit wisely: What is bad debt?
Typically we define bad debt as borrowing money for something that will depreciate in value and does not increase your net worth. Examples of bad debt are credit card debt and debt for luxury items you can’t really afford like fancy cars and expensive vacations.
Good debt bad debt using credit wisely: Is good debt a myth?
The old adage that there’s no sure thing except for death and taxes is true. Although taking out a mortgage to buy a home and investing in your education seem like sure things, sadly that isn’t always the case. If you take out a mortgage that’s the maximum you can handle and the interest rates go up, how will you pay for your house? What would happen if you lost your job? Would you lose your house as well? Investing in your education isn’t a sure thing either. There are many PhDs waiting tables. A good education is no longer a guarantee of a good paying job. Good debt is a myth, unless you are also using the credit wisely. At the end of the day, debt is still debt and must be repaid.
Good debt bad debt using credit wisely: What to do about your debt?
Canadians are struggling with debt like never before. Whether you’ve taken on what you consider to be good debt or bad debt, it still needs to be dealt with. And, to deal with debt you need the help of a debt professional – a trustee. Dealing with debt is not a DIY project. CallIra Smith Trustee & Receiver Inc. today and make an appointment for a free, no obligation consultation. We can give you back peace of mind and put you on the road to debt free living Starting Over, Starting Now.
Debt management spreadsheet: Download ours for free at the bottom of this blog
T’is the season to be jolly but it’s also the season that can have you taking on debt you can’t afford. If you have too much debt before you begin your holiday spending, you could make use of our debt management spreadsheet. At the bottom of this blog is a link for you to get it.
You may have already made your Christmas list and checked it twice, but Santa won’t pay the bills when they arrive, even if you’ve been nice. The question is, will you be able to pay your holiday spending bills?
Why?
Now is a very important time to make a debt spreadsheet. Believe me, it’ll be a reality check as what you can really afford to spend. A debt spreadsheet can give you a clear picture of how much you owe and how you plan to pay off your debts. If you’re in the process of repaying debts, now is no time to take on more debt. Getting deeper in the hole is not what the holiday season is all about. The holidays are all about getting together with family and friends, not spending money you don’t have and can’t repay.
How to enjoy the holidays without new debt
Listen to your spreadsheet and instead of going overboard shopping here are some ideas to control holiday spending.
Sit down with family and friends and let them know that you’re only buying gifts for the children. They’ll probably be relieved that you’ve lessened their load.
Buy books and crafts for the kids, not over-the-top electronic toys and gadgets.
Instead of spending money on hostess gifts, homemade items are always well received – baked goods, jams, sweets or homemade wine.
Give the gift of time. Spend time with your loved ones.
How to get rid of debt
The real spirit of the holidays doesn’t involve spending money you don’t have and creating a bigger hardship for yourself. For help with your financial problems and issues contact Ira Smith Trustee & Receiver Inc. We’re your best defence against debt. Make an appointment for a free, no-obligation consultation and you can be well on your way to a debt-free life Starting Over, Starting Now. Give us a call today.
Our free debt management spreadsheet
CLICK ON THE PICTURE BELOW TO GET OUR FREE EXCEL DEBT MANAGEMENT SPREADSHEET
The holiday shopping season is upon us and the first sign that you are in financial trouble is if you truly need to learn about consumer proposal vs bankruptcy BEFORE you begin your holiday shopping! If you have already recognized that you need to know your options in dealing with your debt before you start putting holiday gift purchases on your credit card, I suspect that the New Year will become the time when you begin taking positive action to reduce your debt and gain back control over your life.
A consumer proposal is an alternative to bankruptcy. Although similar in many respects, there are some major differences. Consumer proposals are available to people only whose total debts do not exceed $250,000, not including debts secured by their principal residence. Division 1 proposals are available to both businesses and people whose debts exceed $250,000 (excluding the mortgage on their principal residence). The focus of this vlog is on the differences between a consumer proposal vs bankruptcy.
Consumer proposal vs. bankruptcy: What are consumer proposals?
Consumer proposals are formal ways governed by the Bankruptcy and Insolvency Act (BIA) available only to people. Working with a licensed insolvency trustee (Trustee) acting as the consumer proposal administrator, you make a proposal to:
Pay your creditors a percentage of what you owe them over a specific period not exceeding 60 months
Extend the time you have to pay off the debt
Or a mix of both
Payments are made through the trustee, and the trustee uses that money to pay each of your creditors. The consumer proposal must be completed within 5 years from the date of filing.
Below I will highlight more differences between a consumer proposal vs. bankruptcy.
Consumer proposal vs bankruptcy: What are the advantages of a consumer proposal?
The advantages of a consumer proposal vs. bankruptcy are:
You keep all of your assets
Actions against you by unsecured creditors, such as wage garnishments will stop.
Unlike informal debt settlement, the consumer proposal is a forum where all of your creditors must deal with your restructuring
You don’t have to declare the “B” word
What are the differences in credit history score?
The individual that declares bankruptcy will certainly get R9 status. This is the lowest credit score as well as it will continue to be on their report for 7 to 14 years. A person that submits a consumer proposal will have an R7 ranking which is less extreme. It will certainly continue to be on their record for approximately 8 years in total, from the moment of declaring.
For the most part, you will certainly pay less than you owe with a consumer proposal. Often as much as 70% less. Your several financial obligations will also be consolidated right into a simple regular monthly settlement. This number will be based upon what you can pay for.
Your ability to improve your credit score later is much different in a consumer proposal vs bankruptcy
What are the costs and fees of a consumer proposal versus filing for bankruptcy?
When doing a consumer proposal, the Trustee’s charges are included in the payment you bargain with your creditors. For instance, if your consumer proposal has you paying $400 monthly for 60 months, the Trustee’s fee and disbursements are taken from those funds.
Nevertheless, if you were to file for bankruptcy, the cost is established by any kind of excess earnings you could have (based on the criterion that includes earnings as well as family size), any assets that you may intend to try to keep, and also the monthly contribution for surplus income if any.
If there is no excess earnings or assets, the insolvency cost will be around $2,000. This is another difference between a consumer proposal vs bankruptcy.
Are assets treated differently between a consumer proposal vs bankruptcy?
If you do a consumer proposal, you can retain your assets whereas in bankruptcy your properties might be impacted. This consists of the equity in your home if higher than $10,000, a car or truck worth more than $6,000 (with no liens against it), financial investments, tax refunds, and also RRSP payments made in the last 1 year. In bankruptcy, you transfer your possessions (except those that are exempt by regulation) to the Trustee, and they are then sold or transferred to repay your creditors.
This difference between a consumer proposal vs bankruptcy is huge.
What if I default on my consumer proposal vs bankruptcy payments?
If you do not maintain your payments on a consumer proposal, it defaults and is void. You also are unable to submit an additional one. Collection action by your credits will begin again. If you do not complete all your duties in bankruptcy, you will certainly not be discharged and eventually, your creditors will resume collection activities as well.
This is another consumer proposal vs bankruptcy difference.
When is a meeting of creditors held in a consumer proposal?
A meeting of creditors in a consumer proposal is held if one is requested by one or more creditors who are owed at least 25% of the total value of the proven claims.
A request for a meeting has to be made by the creditors within 45 days of the filing of the consumer proposal. The OSB can also request the Trustee to call a meeting of creditors any time within that exact same duration.
The meeting of creditors should be held within 21 days after being called. At the meeting of creditors, they vote to either approve or decline the proposal.
If no meeting of creditors is asked for within 45 days of the filing of the proposal, the proposal will be deemed to have been accepted by the creditors no matter any objections received later.
A consumer proposal is finished once the individual has actually made the required payments for the needed period of time. In a bankruptcy, the discharge depends on a variety of different aspects, consisting of whether it was the first time the debtor filed for bankruptcy and if they need to make surplus income payments.
If the debtor has actually never ever declared bankruptcy before and they do not have to make surplus income payments, most bankrupts are discharged 9 months after declaring bankruptcy. However, if the bankrupt has surplus income, they will need to make payments for 21 months prior to when they can be released.
This is another difference between a consumer proposal vs bankruptcy.
What do consumer proposals and bankruptcy have in common?
Both a consumer proposal and filing for bankruptcy are lawfully binding procedures that are provided by a Trustee. If you are thinking about bankruptcy, it is essential that you consult with a Trustee so that you can totally understand the procedure, what’s involved, and also any charges. You can speak with friends or family that may have filed for one or the other before, yet it is necessary that you get professional recommendations concerning your unique situation.
Filing for bankruptcy or doing a consumer proposal are both matters of public record. That means there will certainly be an irreversible public document regarding your insolvency that can be accessed by anyone. If the debts are joint or co-signed, the other individual is accountable for the financial debt in both a consumer proposal and personal bankruptcy as well, unless it is a joint filing.
Even these similarities still point out differences between a consumer proposal vs bankruptcy.
Consumer proposal vs bankruptcy: How to Figure Out Which Option is Best for You?
As you can see, when you look at a consumer proposal vs bankruptcy, there are definitely differences between the two, but they also have a lot in common too. What’s most important, though, is that you find the best way to get your finances back on track in a way that will help you achieve your long-term goals.
Consumer proposals and bankruptcy aren’t the only ways of obtaining debt relief and consolidating debt. There are also other ways of resolving debt problems that don’t involve an official program or paying anyone. If you honestly want to carefully and objectively look at all your options, contact a local Trustee, and speak to him or her. They’ll listen to your situation and issues and advise you on what will work best for you even if you do not need to file for either a consumer proposal or bankruptcy.
Their help is usually free and non-judgmental.
At our Firm, declaring bankruptcy is only encouraged until all other settlement solutions have been exhausted. A consumer proposal in Ontario is shaping up to be one of the better bankruptcy alternatives, primarily because of the reasons I describe in this Brandon’s Blog.
Consumer proposal vs bankruptcy: Who qualifies for a consumer proposal?
A consumer proposal is available to people whose total debts do not exceed $250,000, not including debts secured by their principal residence.
Before you decide what to declare, contact a professional to discuss all of your options. A trustee is a highly-skilled, professionally licensed by the federal government that can evaluate your situation and presents all the options available to you. Whatever process ends up being the best and the most helpful for your particular circumstance, we can administer the insolvency process.
Consumer proposal vs bankruptcy: How to file for bankruptcy?
In order to file, you must engage a Trustee. This is an individual or company licensed by Industry Canada to administer the insolvency process. The 10 steps below are a guide to the bankruptcy process.
Contact a licensed insolvency trustee and attend a meeting with him or her to talk about your personal situation and your options including if it is possible for you to avoid bankruptcy.
Work with the trustee to complete the required forms. The trustee will then file the bankruptcy with the Office of the Superintendent of Bankruptcy (OSB).
The trustee notifies your creditors of the bankruptcy.
You attend a meeting of creditors if one is called.
You attend two counselling sessions.
Subject to your provincial exemptions, the trustee sells your assets; you may also have to make surplus income payments to the trustee.
In certain circumstances, you may have to attend an examination by an officer at the OSB.
The Trustee prepares a report to the OSB describing your actions during the bankruptcy.
You attend the discharge hearing if required.
You get your discharge from your bankruptcy and then the trustee completes the administration, including paying a dividend to your creditors, if available.
Consumer proposal vs bankruptcy: Move on with your life
I hope you have enjoyed this consumer proposal vs bankruptcy Brandon’s Blog. Both a successfully completed consumer proposal or obtaining your discharge from bankruptcy lets you get back on the road to financial health, relieve the stress you face and bring you:
The ability to live better than just hanging on one payday to the next;
Improved credit ratings; and
Improved health and well-being.
Ira Smith Trustee & Receiver Inc. offers a full range of insolvency services to people facing a financial crisis. Whether you need help with a proposal to your creditors to avoid the worst case, financial counselling or advice about insolvency options, our goal is to make sure that you understand the process, your choices, and what steps will get your life back on track.
Call us for your free first consultation. We will inform you about all the choices readily available so you can make a proper decision about the very best plan to deal with your financial obligations. ContactIra Smith Trustee & Receiver Inc. today. All you have to lose is your debt!
If you enjoyed this cost of filing for bankruptcy video and would like a copy of our free e-Book “Cost of Claiming Bankruptcy in Canada” please subscribe to Brandon’s blog by clicking on this link – CLICK HERE
Introduction
The cost of filing for bankruptcy is something you will need to consider when you are considering filing. How much you will have to pay to go bankrupt depends on a number of factors, including:
your monthly income;
what assets you own;
the size of your family; and
whether you have been bankrupt before.
We strongly recommend that you contact a Licensed Insolvency Trustee to arrange for a free first consultation; they will check your situation and calculate the cost for you in your situation.
Your base cost
In most cases, you will have to make payments to the Trustee to contribute to your estate each month to cover various filing fees and other administrative costs. The minimum period for bankruptcy is nine months, so you will be making these payments for at least a nine-month period. This is the base cost of filing.
Surplus income
You are required to pay part of your surplus income into your estate each month. Surplus income is defined by the government, and if you and your family earn over a certain amount each month, you pay part of your earnings over that limit. The limit is essentially the poverty line.
The surplus income calculation is reasonably complicated, so we suggest you bring your recent pay stubs to your meeting with your trustee so that they can estimate the number of surplus income payments you will make while bankrupt. If you have surplus income, your bankruptcy will be extended for an extra year.
Another cost of filing for bankruptcy is that you will lose all of your non-exempt assets.
Tax refunds
You will lose any tax refunds and HST credits you would otherwise receive during the bankruptcy period. This is a further cost of filing for bankruptcy.
Windfalls
Finally, you will lose any windfalls you receive or become entitled to during the bankruptcy period. For example, if you inherit money while bankrupt, or win the lottery, that money must be surrendered to the trustee.
The minimum bankruptcy period in Canada is nine months, but if you have surplus income, or if you were before bankrupt, your bankruptcy will last longer before you are able to apply for your discharge from bankruptcy.
What should you do with too much debt?
The amount you will pay while bankrupt will depend on your monthly take-home pay, your family size, and your assets. Given this information, you may first wish to attempt to avoid bankruptcy by looking at one of the bankruptcy alternatives.
To show how much it will cost to go bankrupt in Ontario, and to look at ways of avoiding bankruptcy, contact Ira Smith Trustee & Receiver Inc. today. Our team of professional trustees can help you manage your financial crisis and get you back on your feet Starting Over, Starting Now.
“I need financial help immediately” is something we hear daily. With so many people struggling to make ends meet and living paycheque to paycheque, it’s not a surprise that they’re looking for ways to get ahead. Unfortunately it’s easy to get seduced by financial newsletters or websites that offer nothing more than get rich quick schemes disguised as financial advice. Please keep the old adage in mind when considering investment opportunities – if it’s too good to be true, it probably is.
I need financial help immediately: 3 things to watch out for
The Ira Smith Team has fully licensed, federally regulated financial professionals and we don’t have any get rich quick advice for you. However, we do have advice about how to protect yourself from get rich quick financial newsletters. Here are three things to watch for:
Run, don’t walk from headlines like “beat the market”. There is no such thing as a get rich quick scheme that works. Remember Bernie Madoff? He paid unbelievably high returns to his investors and that ended up with Bernie in jail for life and many others in financial ruin. Even savvy investors got seduced.
Watch out for newsletters with confusing terminology. They’re designed to confuse you so you won’t really understand that what they’re selling is all hype and no substance. Financial terminology is so confusing that we’re doing a series of blogs about it. So far we’ve covered Balloon Payments, APY – Annual Percentage Yield and Expense Ratios. Knowledge is power.
Creating a sense of urgency is a classic ploy to suck you in before you’ve had the time to really scope things out. Beware of offers that are only open to the “first 100 that sign up” or “register within the next 48 hours or you’ll miss out”.
I need financial help immediately: What to do if this is you
We know there are many people who feel “I need financial help immediately”. Our most viewed blog ever is from May 2014 that people looking for cash find through a Google search because it is titled: Bad Credit Loans Guaranteed Approval.
Who would have believed that a mere 12 hours could cost a family over $1.9M and put them on the verge of bankruptcy? Sadly this is exactly what happened to a family because of the auto insurance in Ontario rule change that came into force 12 hours on the same day before Adam Bari’s motorcycle was T-boned. Although Mr. Bari was not at fault, it did not help his cause.
What is this new auto insurance rule that has this family on the verge of bankruptcy?
When I tried to contact Go Skippy, they explained that this new auto insurance rule change affects the evaluation of injuries. It’s a miracle that Mr. Bari survived. He was in a coma for one month and survived with major injuries including significant brain trauma, multiple broken bones in his right arm, leg and hand, as well as internal organ damage. Although absolutely unbelievable, Mr. Bari’s injuries are no longer considered severe enough under new auto insurance in Ontario guidelines to be deemed catastrophic.
It all boils down to defining catastrophic. Under the old guidelines, the Glasgow Coma Scale (GCS) was used to evaluate functionality. If a car crash victim had a GCS rating of nine or less, they were automatically considered catastrophically impaired and were eligible for increased benefits. At first, Mr. Bari scored a three on the scale which is considered to be the most severe result with the patient being completely unresponsive. Later on, his score rose to an eight, still leaving him catastrophically impaired. New auto insurance in Ontario rules no longer use the scale, though it remains a common evaluator for trauma teams.
What does this mean financially for the Bari family?
According to the personal injury lawyer representing the family, if the accident had happened 12 hours earlier before the new guidelines came into effect, the family would have received $2M in compensation. Instead, they received a pathetic $86K, which can’t even begin to cover the astronomical medical bills the family is facing. Mr. Bari may never recover sufficiently to return to work. His wife is working greatly reduced hours to care for him and there are twins to support. He’s going to require specialized equipment at home, extensive rehabilitation, a personal support worker, therapy and medication.
What recourse does the Bari family have?
They have retained a personal injury lawyer and are planning to sue the driver of the vehicle that hit Mr. Bari to help recover damages for health care expenses. Careless driving charges have also been laid against the driver. Unfortunately, nothing can be done about the new auto insurance rule change that has shamefully put the Bari family on the verge of bankruptcy.
Auto insurance in Ontario: What should you do if you are hit with an emergency that ruins your family budget and finances?
Hopefully, you will never find yourself in the same place as the Bari family but should you feel that you’re on the verge of bankruptcy contact Ira Smith Trustee & Receiver Inc. Sadly we can’t change the auto insurance guidelines but we can help you deal with serious financial issues. We approach every file with the attitude that financial problems can be solved given immediate action and the right plan. Contact us today so that Starting Over, Starting Now we can put you back on track to financial well-being.
To fully fund your retirement, you need to start early. Canadians are just not facing that reality. According to HSBC Bank Canada almost half of working-age people in Canada are not currently saving for retirement. And, they’re twice as likely to consider selling their homes to fully fund their retirement compared to those who have been diligent about their retirement savings plans. Perhaps you are one of the smart and lucky ones who have including seeking the advice of one of the many retirement planning experts.
Fully fund your retirement: Are you counting on your house to?
A recent HSBC survey found that:
20% of pre-retirees in Canada plan to downsize or sell their primary and secondary residence to fund their retirement.
In their 50s, 26% expect their property will fund their retirement.
In their 60s, 31% expect their property will fund their retirement.
Fully fund your retirement: Needs are changing
There is certainly a dramatic shift in people’s views on pension funds, retirement funds needed, retirement strategy and certainly speaks to the lack of retirement planning, saving and the fully funded pension plan.
It seems that as Canadians approach retirement age, selling their house is the only retirement finance option available to them. The problem with this scenario is that it assumes that the house is sold and very sensibly the couple or individual will downsize their lifestyle and put their budget on a diet so that they can live off the proceeds of the sale of the house.
The reality is that if they haven’t:
clearly calculated the retirement funds needed for the lifestyle they wish to have;
saved for retirement (including considering the impact of tax on retirement funds); and
have not already downsized their lifestyle in preparation for retirement
they may blow through the proceeds of the house and be worse off than they were before.
Fully fund your retirement: What to do if your financial concerns prevent you from doing so
If you’re a pre-retiree with financial concerns seek the counsel of a professional trustee before retirement. We can help you deal with how to solve your financial problems while you still have options available to you so that Starting Over, Starting Now you can be on your way to enjoying financial health in retirement. Make an appointment with us for a free, no obligation with the Ira Smith Team today. You’ll be happy you did.
A subject that rarely gets written about is the history of bankruptcy. Understanding the history of the Canadian bankruptcy system and how it has evolved, gives a helpful look into how it works and help Canadians and Canadian society.
History of bankruptcy: Helping the debtor
The Bankruptcy and Insolvency Act (BIA) provides a way for the orderly liquidation of a bankrupt’s assets and distribute that value to the creditors. In this way, the BIA assists the insolvent debtor who needs a way to be forgiven for his or her financial sins, relieved of their burden and be returned to society as a productive contributor. The BIA assists creditors in providing the system of turning the assets into cash to be distributed to them, and not keeping those assets either out of their reach or just laying in an unproductive state. The BIA also is a system of checks and balances, so that it provides both Canadians and foreigners that there is a vibrant and safe Canadian economy.
History of bankruptcy: Helping the creditors
The BIA also ensures that there is a fair and logical system in place to deal with the assets of the debtor and the claims of creditors. By invoking it, it avoids a race among creditors to attempt to get the right to seize assets in an uncontrolled way. Creditors are paid according to their place in the hierarchy of claims as described in the BIA as follows:
Trust claimants who are outside of the bankruptcy scheme
Secured creditors, who are also outside the bankruptcy scheme as long as they hold good and valid security
Unsecured creditors:
Preferred
Ordinary
History of Bankruptcy: bankruptcy alternatives
The BIA also provides debtors to opt for avoiding bankruptcy by making a Proposal. In the case of corporations, a Proposal; for people, either a Proposal or Consumer Proposal, depending on the level of their debt. Proposals are the bankruptcy alternative that allows companies or people to financially rehabilitate themselves and avoid bankruptcy, while offering the creditors more than they would receive in a bankruptcy. In this way, the BIA is both a liquidation and a rehabilitation statute, benefiting both debtors and creditors.
History of bankruptcy: The BIA
The present bankruptcy statute came into force on July 1, 1950. The title of the statute was amended from the Bankruptcy Act to the Bankruptcy and Insolvency Act in 1992, to show the statute had matured into a full financial rehabilitation statute, that could be used to carry out a bankruptcy alternative. Further amendments were made in 1997 to deal with a number of practical issues that became problematic for Canadian society applying the BIA, including:
In 2005 there were another round of comprehensive amendments to the BIA mainly dealing with the new legislation of the Wage Earner Protection Program Act (WEPPA), designed to protect employees for their unpaid amounts when their employer goes either bankrupt or into receivership.
History of bankruptcy: Rehabilitation
It is a fundamental purpose of the BIA to offer the financial rehabilitation of insolvent persons. The BIA permits an honest but unfortunate debtor, be it a corporation or an individual, to secure financial restructuring through the Proposal provisions, or a discharge from bankruptcy for people. It allows for a fresh start for the debtor to resume his or her place in the business community and society.
The BIA attempts to offer balance by allowing an investigation to be made of the affairs of the debtor and setting aside fraudulent transactions so that ordinary unsecured creditors can share in a distribution, rather than someone else being the beneficiary of those questionable transactions. Finally, the BIA allows for creditors to purse actions against the bankrupt either through the Licensed Insolvency Administrator or directly by a creditor or group of creditors.
History of bankruptcy: The Courts
The general approach to the BIA by the courts is that it is a commercial statute. To administer the process it is left largely in the hands of business people. Technical and legal objections and manoeuvres are not given weight beyond those that are necessary for the proper implementation and interpretation of the BIA. Settlement and resolution are rewarded, litigation and court proceedings are not.
History of bankruptcy: What to do if you have too much debt
I hope this history of bankruptcy provides you with a good look into how the bankruptcy system developed in Canada and how it works. If you’re suffering from too much debt and are seeking debt relief options, contact Ira Smith Trustee & Receiver Inc. Our approach for every file is to create an outcome where Starting Over, Starting Now becomes a reality, beginning the moment you walk in the door. You’re only one call away from taking the steps towards a debt free life.
THIS VLOG WAS INSPIRED IN PART BY OUR eBOOK – PERSONAL BANKRUPTCY CANADA: Not because you are a dummy, because you need to get your life back on track
Consumer proposal FAQs: What is a consumer proposal?
Last week we discussed Consumer Proposal Vs Debt Settlement. Consumer proposals remain a hot topic and today we’d like to share with you some of our consumer proposal faqs.
A Consumer Proposal (Plan or CP) is a formal way governed by the Bankruptcy and Insolvency Act (BIA) available only to people. Working with a licensed insolvency trustee acting as your Plan administrator you make a proposal to:
Pay your creditors a percentage of what you owe them over a specific period
Extend the time you have to pay off the debt
Avoid bankruptcy
Payments are made through the trustee, and the trustee uses that money to pay each of your creditors. The debt must be paid off within five years.
Consumer proposal FAQs: How do I qualify for a consumer proposal?
As discussed in our last blog, you must be an individual and your total debts must not exceed $250,000 (not including debts from a mortgage or line of credit secured by your principal residence).
You must also meet the insolvency test. This means that:
your debts are greater than your assets;
if you liquidated all of your assets you would not have enough money to pay off your debts in full; and
you are having trouble making the full payment on all of your debts every month.
Making only minimum monthly payments don’t count as paying off your debts.
Consumer proposal FAQs: What does a consumer proposal cost?
There are no upfront fees associated with CPs. Your Plan payments cover the cost of filing a Plan. There are no separate charges either for filing a Plan or fees paid to the trustee to act as your CP administrator. To calculate the professional fee the trustee uses a formula in the BIA and it comes out of the amount you are paying in your Plan.
Consumer proposal FAQs: How does a consumer proposal work?
A CP allows you to make arrangements to pay all or part of your unsecured debt in monthly payments over a predetermined time period.
A licensed insolvency trustee will meet with you and work out a payment plan that they believe will work for you and be acceptable by your creditors.
The trustee acting as your Plan administrator will file the CP with the Office of the Superintendent of Bankruptcy.
The trustee will send the Plan to your creditors who then have 45 days to accept or reject your CP. The creditors can also accept or reject your CP before a meeting of creditors if such a meeting was held. Normally in a Plan, there is no need to hold a meeting of creditors.
Consumer proposal FAQs: How long will my consumer proposal last?
A CP can last a maximum of five years but you can shorten the proposal term either by increasing the amount of your monthly payment or by offering a lump sum payment (if you are able to borrow a sufficient lump sum from either a bank or family).
Consumer proposal FAQs: Can a consumer proposal get rid of collections agencies and prevent my wages from being garnished?
Yes, a CP immediately stops almost all creditor actions (garnishments for family law support payments cannot be stopped by a consumer proposal) including tax debts.
Consumer proposal FAQs: If I agree to a consumer proposal will I lose my house and my car?
Typically secured creditors are not affected by a Plan and in most cases, you will continue to make your payments as usual. This assumes that your budget, which you prepare as part of filing your consumer proposal, shows that you can afford to do so.
If you have a mortgage against your house or a car loan registered against your car, you can opt for surrendering your house and/or car (secured assets) and stop making those payments before filing the CP. In this case, the lender will sell the secured asset and any resulting shortfall becomes an unsecured debt in your Plan.
NOTE: If you were to give up your secured assets after the filing of your Plan, you won’t be released from any shortfall debt because it occurred after the filing of your Proposal. So make sure that if you are giving up secured assets, you wait for the secured creditors to recognize that you have given them up and they have begun their enforcement proceedings, including selling the home or car, BEFORE you file your CP.
Consumer proposal FAQs: Will I have to give up my credit cards?
Typically, you will have to give all of your credit cards to the trustee and you won’t be able to apply for a new credit card until the term of your CP is over. You will, however, be able to use a prepaid or secured credit card during this period.
Consumer proposal FAQs: If I miss a payment will I be bankrupt?
We strongly recommend you to make your payments faithfully. You can defer up to two payments but if you fall three payments behind, your Plan will end. This means that you will no longer have protection from creditors and they can again start their collection efforts against you.
Consumer proposal FAQs: What is my next step if I have too much debt?
Introduction to bankruptcy and divorce from a Vaughan licensed insolvency trustee (“GTA Vaughan bankruptcy trustee”)
As a GTA Vaughan bankruptcy trustee, I’ve never met anyone who had something good to say about bankruptcy and divorce. At times both are a necessary evil, but it’s never fun. Although divorce has been the butt of jokes by comedians for decades, it’s no laughing matter, especially financially.
This quote may be more telling than funny:
Let’s be blunt: If you hire a divorce lawyer today, there is a good chance you will hire a bankruptcy lawyer within two or three years.
When couples decide to divorce, few have any idea of what the split is really going to cost and what each party will be left with after the divorce. The goal of divorce and the divorce process and results are two very different things. Here’s the reality of most Canadians’ financial situations:
The debt-to-disposable income ratio was 165.3% for the first three months of 2016 (Statistics Canada)
Households owe $1.65 in debt for every dollar of disposable income they have (Statistics Canada)
Total household debt, which includes consumer credit, and mortgage and non-mortgage loans, totalled $1.933 trillion at the end of the first quarter (Statistics Canada)
Balances on consumer loans including credit cards and lines of credit grew by 2.6% year-over-year, driven primarily by the continued popularity of lines of credit and auto loans (RBC)
Mortgage loan balances were up 6.2% from the same quarter of the prior year (RBC)
The average Canadian owed $21,580 in non-mortgage debt during the most recent quarter (TransUnion)
Many Canadians are already teetering on the edge of financial disaster without throwing divorce into the mix. Even if you have an amicable divorce, the cost of an uncontested divorce ranges from $1,000 to $3,500, according to a 2015 Canadian Lawyer’s legal fees survey. If your divorce gets messy the fees can be astronomical. Living two separate lives costs a lot more than living together as a couple. Do you have a clear understanding of what your monthly expenses are? Do you have a budget? These are just some of the divorce financial solutions that as a Vaughan bankruptcy trustee we recommend to people that they have to know about it beforehand.
What can I do if I have too much debt – divorce or no divorce?
Whether you live in the GTA or elsewhere, take the advice of a GTA Vaughan bankruptcy trustee and get your financial house in order before you begin divorce proceedings or you may be looking at bankruptcy and divorce or bankruptcy alternatives down the road. Contact the Ira Smith Team for advice and a solid plan to deal with serious debt issues. We will give you a free first consultation to discuss your options and we can help you get out of debt Starting Over, Starting Now.
GOOD DEBT BAD DEBT USING CREDIT WISELY
