If you’re in a position where it feels like you’re out of options for handling your financial stress, know that with the right help you can get back on track. It’s possible to plan for long-term financial goals even if you’re unsure of how you will be able to keep up with your current debt levels.
You may be in a position where you don’t know what to do next and are even considering bankruptcy. Even if that is the case, there is nothing to fear. You can turn the tables on debt. Start by looking for help from a skilled and compassionate Licensed Insolvency Trustee (formerly known as a bankruptcy trustee).
The bankruptcy trustees here at David Sklar and Associates offer a free consultation for those in financial difficulties, and from there it’s possible to start the path towards debt recovery. With the right counselling, advice, and support, you can get back on your feet by filing for bankruptcy and building yourself up again.
When Is Debt Unmanageable?
Across the country, higher interest rates are coupling up with increasing debt to put greater pressure on Canadians’ finances. In 2017, Canadians paid an overall $9 billion more in interest charges than they did in 2016. This has had a multitude of effects on our economy. Just one symptom of this issue can be seen in the fact that mortgage growth has hit its lowest level in 15 years.
Homebuyers have to grapple with higher interest rates and new rules for home buying. While this means that debt growth has finally “turned the corner” from former all-time highs, interest charges on debt are still a challenge that many individuals and families have to overcome. On average, Canadian households spent $544 more on interest charges in 2017, which can be a considerable strain on those who are already having difficulty making their payments.
Do you know what signs you need to pay attention to in order to fully understand that your debt may be a serious problem? Oftentimes under financial stress, we get into cycles of living paycheque to paycheque, so it’s very possible that this type of spending has just become your reality. It doesn’t have to stay that way, however. There are measures you can take to come up with a debt relief plan and start to plan for long-term debt relief.
Here are some signs that your debt is taking a negative toll on your life and it’s time to take action:
- The required monthly payments to your creditors make up 20% or more of your take-home income (this doesn’t include your mortgage or rent).
- You have to dip into your savings to pay for daily expenses.
- You turn to cash advances from your credit cards as a way to pay other creditors (or as a way to cover otherwise fixed expenses).
- You don’t actually know how much you owe in total to your creditors.
- You’ve begun to conceal things from family members or your partner in regards to the severity of your debt.
- The debt is taking a toll on your personal relationships and causing you to argue and disagree about money issues.
- Your wages are being garnished.
- You are being contacted regularly and tirelessly by your creditors about outstanding payments.
The first thing you need to do when you’re in a situation where you have more debt than you know how to handle is to acknowledge that you need help. Luckily, a good bankruptcy trustee will be well-versed in debt relief proceedings in Canada. Our trustees take the time to understand your situation and take an empathetic approach to presenting you with all of your options. From there, you can decide what is right for you.
In some cases, the best course of action to get rid of debt is through filing for bankruptcy. This might seem like a scary route to take, but the truth is that bankruptcy can be a real relief and fresh start for those who are struggling financially. When you consult with a credit counselling service like David Sklar and Associates, you take an important step in the right direction of getting control back on your debt.
But a bankruptcy trustee is more than just a helping hand. They are the essential link between you and your creditors, and they are the only party who can file bankruptcy for you. For starters, did you know this about bankruptcy in Canada? It’s not anything like the doom and gloom depictions you might have seen in the media.
There is a lot of misinformation that circulates about bankruptcy, and since it is not necessarily a procedure that people are happy to talk about with their friends and family, these pieces of misinformation often go unchecked. A good bankruptcy trustee will demystify the process, reassure you about the decision you are making and they can answer any questions you may have about how it all works.
Common Misconceptions About Bankruptcy
You need to take action when debt starts to control your life. While bankruptcy sounds scary, it is actually a government-regulated form of debt relief that is meant to alleviate one’s stresses and give the debtor a fresh start. For those who have serious issues with their debt, filing for bankruptcy can be the first step in a positive direction. You can start making strides to one day step outside of the cycle of debt and realize your long-term financial goals.
Canadian bankruptcy law is very different from American bankruptcy law, which could be part of the reason why the process has been coloured so negatively in public discourse. Since we consume so much American content, we might unknowingly have come to expect the same things for Canadian bankruptcy. Luckily, this is not the case.
The following is just a short list of some of the popular misconceptions about filing for bankruptcy in Canada.
You’ll “lose everything”
- In a personal bankruptcy, you may be able to keep many of your assets according to the federal laws and the Ontario Execution Act. It’s possible to protect your assets through a bankruptcy since things like your home and RRSP are not always affected. The exemption is things of extraordinary value like fine art, but most of someone’s assets can remain theirs after filing for bankruptcy.
You’ll lose your home
- This is another misconception. Your unsecured creditors may be entitled to some equity in your home beyond certain limits, but it is not a common occurrence to lose a home during bankruptcy. A skilled bankruptcy trustee can guide you through how your debt recovery would affect your housing so you don’t suffer any unexpected consequences.
You won’t be able to get future credit
- Bankruptcy is a method of debt rehabilitation, it’s not meant to punish someone or sentence them to a life of bad credit. As such, it’s counterintuitive and not a realistic part of filing for bankruptcy to assume that someone would be unable to one day get a mortgage or a line or credit. Bankruptcy stays on your credit report for six years after discharge and then it’s gone.
You’ll hurt your spouse’s credit
- Your filing for bankruptcy does not affect anyone else’s credit. Even if you share debts with your spouse and only you file for bankruptcy, while they are still liable for their share of the debts, they don’t take on any of your obligations.
The Bankruptcy and Insolvency Act (BIA)
Are you familiar with all the details and specifications of the Bankruptcy and Insolvency Act? It’s likely that you haven’t familiarized yourself with this document, which was created by the Canadian government and dictates the terms of how individuals and certain corporations must navigate debt relief. For most individuals, a document like this is long and requires plenty of time to fully read, research, and understand. But that’s why it’s so valuable to team up with a bankruptcy trustee.
Not only are bankruptcy trustees the only professionals who can file your consumer proposal or bankruptcy for you, but they are also knowledgeable in the legalities of how to do so. They can give you all the information you need to fully understand your options and what your chosen method of debt relief will look like for you.
You don’t need to be an expert in the Bankruptcy and Insolvency Act, but it doesn’t hurt to know a little bit about how it works. Here are six of the main points in the Act for you to take into consideration when deciding if bankruptcy is right for you.
1. Government guaranteed student loans, if you have been a full or part-time student any time in the past seven years, will not be discharged through a bankruptcy or proposal.
2. RRSPs are exempt from asset seizure in the case of a bankruptcy unless the contributions were made in the 12 months immediately before filing.
3. Tax refunds are seized in a bankruptcy, but you keep all assets in a consumer proposal.
4. Filing for bankruptcy does not give a secured lender the right to terminate a contract. For example, if you have a car loan and your payments are up to date and you continue to make the payments, you can keep your car even if you file for bankruptcy.
5. You are required to reveal your entire income when you file for bankruptcy in Canada. In the case of any surplus monthly income of $200 or more above what is allowed by law, then the length of the bankruptcy period gets extended automatically. The bankruptcy period is extended to 21 months for a first-time bankruptcy and 36 months for a second-time bankruptcy.
6. For individuals to be eligible for a consumer proposal, their debt must be under the limit of $250,000 excluding mortgages on the principal residence.
What Debt Relief Options Are Available Under the BIA?
The BIA (or Bankruptcy and Insolvency Act) covers three forms of debt relief available to assist Canadians who are under intense financial stress. The legislation in the Bankruptcy Act was designed to give relief to those who need extra help in getting back on track, and it is by no means meant as a punitive measure to those in debt. It outlines and protects the rights of debtors and creditors and makes sure that trustees and any other governing parties meet their responsibilities and duties.
There are three possible forms of debt relief to address insolvency under the BIA. They are:
1. Bankruptcy
Personal bankruptcy exists as a legal procedure meant to aid Canadians who need to be discharged from the obligation to repay their debts. This process applies to the eligible debts that were outstanding at the time of filing for the bankruptcy. The insolvent party surrenders certain assets in exchange for the elimination of their debts. Depending on the income of the bankrupt, they may be required to make additional surplus income payments.
2. Consumer Proposal
When an individual cannot repay their creditors in full and they have a stable source of income, then it’s possible to negotiate with the creditors. A consumer proposal is an offer made to creditors for the debtor to repay a portion of what is owed in regular payments over a fixed period of time (up to five years). Creditors get to decide whether or not they accept the terms of the proposal, and in the case of a rejection the debtor may present another solution with the help of their bankruptcy trustee. Once the debtor makes all the payments as outlined in the terms of the proposal they are legally released from the debts included therein.
3. Division 1 Proposal
Consumer proposals are available to individuals whose debt does not exceed $250,000. In some cases, a Division 1 proposal is a viable option for those who have debts that exceed the $250,000 threshold. This method of debt relief is often considered to be a commercial proposal since it is a reasonable plan of action for incorporated businesses dealing with insolvency, too.
Options for Businesses
There are also options for incorporated businesses who can file bankruptcy or make a Division 1 Proposal or file for a CCAA Plan of Arrangement that falls under the Companies’ Creditors Arrangement Act. Unincorporated companies (for instance, small businesses that operate as sole proprietors and partnerships) do not file for bankruptcy as a business, the owner must file insolvency as an individual in the case of a small business bankruptcy.
Get Back on Your Feet
Your credit counselling needs are going to be specific to your situation, but that’s really an advantage of the debt relief process. After filing for bankruptcy with a bankruptcy trustee, you receive credit counselling services focused on helping you build a better life.
You can make it through bankruptcy and with credit counselling you’ll learn how to best use credit, how to rebuild your credit rating, how to set and reach your short- and long-term financial goals, and how to cope with the process overall. You’re in good hands when you partner with a Licensed Insolvency Trustee, and soon you’ll have all the tools you need to build exactly the life you want.
