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Category: Blog

  • Consumer Proposal Vs. Second Mortgage – Which Makes More Sense

    debtcare2Clients often come to us seeking viable debt solutions, but are unsure what those debt solutions are. Most people are aware of some of the options available, but not all, and are sometimes surprised to learnthat accessing the equity in their homes through a second mortgage is a great way to get out of debt. Once they’ve learned this, their next question is which option makes the most sense – a consumer proposal or second mortgage financing?

    Let’s compare the two.

    Consumer proposal

    • Pros: Consolidates debt into one monthly payment
    • Sometimes reduces debt
    • Stops interest
    • Stops collection action
    • Cons: Credit is bruised for a short period

    Second Mortgage

    • Pros: Consolidates debt into one monthly payment
    • Stops collection action
    • Preserves credit
    • Cons: Interest bearing, debt will not be reduced unless settlements are made

    If there is significant equity in your home, an experienced financial professional will tell you that a consumer proposal is probably not the best way to go. In theory, if you have enough equity to obtain a second mortgage, that should be explored before filing a consumer proposal.

    Consumer proposals are negotiated and accepted based on your income, assets and ability to pay. If you have equity in assets that will be considered in your proposal.

    Wait, there is a third option which combines the two. If you have some home equity, you can leverage it to make an cash consumer proposal – this is where a proposal is negotiated for the amount to be paid in one lump sum. Here is an example: Sally owes $45,000 in debt and has the ability to get a $30,000 second mortgage. Sally could make cash proposal for $30,000 to settle the debt once and for all if all of her financial information makes sense within consumer proposal guidelines. This would clear the debt and allow her to rebuild her credit faster.

    Why? A mortgage preserves credit because the creditors are paid in full, whereas a consumer proposal reports to the credit report for 3 years from the date that it is paid in full. In the case of a cash consumer proposal, it would be paid in full when filed and so the proposal would cease to exist on the credit report 3 years from when filed – whereas bad credit can linger for 7 years or longer.

    If we’ve managed to make things a bit more complex than you’d originally envisioned, that is ok – it just means that you are now more aware of the options that exist and better prepared to make the best decision for your own situation.

    Our only advice is this: never go directly to a trustee, whatever your end decision. A trustee represents the creditor, not you and they actually earn more when you file a larger proposal. An independent financial consultant hired by you can structure your CP, save you big and protect you from the trustee and your creditors.

    DebtCare is an experienced financial consultant – one with your best interests in mind.

    Call us today to learn more about your options: 1 (888) 890-0888.

     

     

  • Spotlight: Does a Consumer Proposal Ruin Your Credit?

    debt1Last week we went over some of the basics of a consumer proposal, and thought we’d follow up this week by clearing up a few other questions people have regarding consumer proposals. The spotlight this week: does a consumer proposal ruin your credit?

    Does a consumer proposal ruin your credit? This is one area where people get confused about consumer proposals. One common myth is that, if you file a consumer proposal, your credit will be ruined for 7 years. This is a loaded assumption and one we mean to break down and dispel right now.

    Let’s start with a few facts about your credit:

    • Any late payments to credit and R9s (defaulted debts) report to your credit for 6 years following the date it is paid (back up to date).
    • A bankruptcy stays on your credit report for 6 years from the date that you are discharged.
    • A consumer proposal stays on your credit for 3 years from the date that it is paid in full.

    So, right away you will likely notice that of the 3, the consumer proposal is the one that actually remains on your credit for the shortest period of time.

    The great thing about a consumer proposal is that, once filed, it can be paid off at any time. This means that you can make more than your monthly payments whenever you wish to ensure that it is paid off quickly. This is one of the most important aspects of rebuilding after a consumer proposal. For example, if your proposal is paid off in 2 years, it would be completely off your credit report in 5 years, less time than if you had just left a defaulted item there.

    Additionally, even while the consumer proposal is on your credit report you can rebuild. Many lenders will extend mortgage financing to people who have a paid off consumer proposal with 1-2 years of strong, re-established credit. Using products such as a secured credit card to rebuild while in your CP are a good idea, because once the CP is paid, you won’t have any credit on your report (and lenders will want to see some credit history).

    So, does a consumer proposal ruin your credit? Chances are, if you are loaded in debt, have maxed out credit cards, made late payments to credit, or had accounts go to collections, your credit is already bruised. If this is the case, a consumer proposal leaves you in no worse a position, but will get you out of debt.

    Want to find out more about finally getting out of the vicious debt cycle that keeps you up at night?

    Call DebtCare today at 1 (888) 890-0888.

     

  • Can I File a Consumer Proposal and Keep My House?

    debt2You’ve likely heard the radio ads or seen the commercials on television citing the benefits of consumer proposals. If you’re an individual and your total debts do not exceed $250,000 (not including debts such as a mortgage secured by your principal residence), a consumer proposal might just be the best solution.

    Consumer proposals have been around for a long time, but it has been over the last decade or so that they’ve become popular as a viable solution for dealing with debt. Filing a consumer proposal is a legally binding process which involves a financial settlement to your creditors based on an accepted amount, your income and ability to repay. This often involves reducing your debt.

    Some assume, incorrectly, that a consumer proposal and bankruptcy are one and the same. While both are ultimately administered by a trustee, and both are valuable tools when you’re in over your head financially, they are actually quite different. In bankruptcy, you make monthly payments to a trustee. While undischarged, you must participate in credit counselling, report income, etc., to the trustee. You are insolvent and all of your relevant assets and income are vested in the trustee until you are discharged. The trustee in bankruptcy remains in your life until you are discharged.

    In a consumer proposal, an amount of money is proposed to your creditors with a 4-5 year repayment schedule. Once your creditors accept your proposal it is binding and can be paid in full at any time thereafter. Unlike bankruptcy, you are not “undischarged” and you do not have any obligations to the trustee other than making your monthly payments.

    One of the most common questions we receive when individuals come to us looking for debt help is if they can keep their house if they file a consumer proposal. The answer is yes. As long as you are able to continue making your monthly mortgage payments, your mortgage lender cannot foreclose or change the terms of your mortgage just because you’ve filed a consumer proposal.

    As mentioned, a consumer proposal is a legally binding agreement administered by a trustee. However, in order to reach the best settlement possible – one that benefits your creditors and one which you can realistically meet – you are best served by going to a debt specialist rather than going directly to a trustee. A trustee is required to find the best deal for both parties – which means they represent both you and your creditors. The trustee is the one with the power to determine what you can afford to pay, so entering the ring with a debt specialist who can represent your interests before any others will ensure you are protected.

    If you are considering a consumer proposal to help get rid of your debt, call DebtCare first. We represent you and only you. 1 (888) 890-0888.

     

  • How to Stop a CRA Wage Garnishment

    How to Stop a CRA Wage Garnishment

    debt2You may be surprised to learn how many people have their wages garnished by creditors on a regular basis. This is such a common collection enforcement method, especially when it comes to the Canada Revenue Agency (CRA). We get calls on a regular basis asking about the ways to stop a CRA wage garnishment. This week we thought we’d tackle the topic and give you some tips to help.

    A wage garnishment is a method of collections which requires, in most cases, a court order. This order is then sent to your employer and they are required to remit a portion of your paycheque to your creditor. In the case of the CRA, a court order is not required. If your employer fails to comply, they may be liable for those funds.

    How does CRA find out where people work?

    • The most common method for finding out where you work is by asking. If, at any point, you’ve called the CRA to try and negotiate a payment plan, to try and discuss relief, etc., you’ve likely provided information regarding where you work.
    • Your T4s – your employer files a T4 with the CRA every year – this is part of their own tax obligations.
    • Someone you work for is audited by the CRA – meaning all employee documentation becomes part of that audit.

    When a wage garnishment is imposed by the CRA, the amount varies, but employment income up to 50% and self-employed income up to 100% is fair game.

    There are a few ways to stop a CRA wage garnishment.

    1. The first, and most obvious, is to pay it off. Once the debt is paid in full, that garnishment will be lifted.
    2. Going to tax court is another option, but this can be very expensive and there are no guarantees.
    3. Use an asset to finance the debt, such as your home, through a second mortgage.
    4. File a consumer proposal offering monthly payments to the CRA (this is often the only way to reduce a tax debt).
    5. File for bankruptcy.

    If you have no equity in assets and no ability to do anything more than make monthly payments, options 4 and 5 are viable options that will stop a garnishment immediately.

    When your wages are being garnished, this can take a significant toll on your ability to make payments with respect to other financial responsibilities, so it needs to be taken care of as soon as possible.

    Don’t wait – call DebtCare today. We can walk you through the various options and help you get that garnishment lifted. 1 (888) 890-0888.

     

  • Credit Report Spring Cleaning

    debt2Spring is here, and that means it is time to get down to the nitty-gritty and clean things up. Tackle those oft-neglected areas of your life – the closet under the stairs, the garage, the pantry, the bank account. Wait, the bank account? Yes, make a credit report spring cleaning part of the plan this year – your bank account will thank you!

    How do we spring clean the credit report? Start by requesting it, either through

    Equifax, at http://www.consumer.equifax.ca/home/en_ca, or TransUnion, at https://www.transunion.ca/ca/personal/credit-report.page?channel=paid&cid=ppc:bing:brandtransunionexact. Doing so will give you a much better idea of what lenders see when they pull your report, and it will also help you identify areas that may need a bit of work.

    If your score is not as high as you thought it would be, the next step is to identify what could be impacting your credit. Some examples of issues include too many inquiries, late payments, credit balances that are too close to, or over, the limit, or collection items. One or all of these may work to bring down your credit score. If your overall debt is high, this too may negatively impact the bottom line.

    Some people assume that late or missed payments are what most reflect borrowing behaviour and therefore are the items that make up your credit report and score. However, you can have a history which includes never making a late payment but actually have bad credit because you built up too much debt or maxed out cards or applied for a lot of credit.

    Right away, try to avoid making any more applications for credit, and then work on a plan to start paying off some of your debt. This is the best way to bring that credit report and score back up.

    What about errors? Sometimes credit reporting agencies make mistakes – but those mistakes, if not corrected, can seriously impair your credit and ability to obtain financing. These mistakes need to be corrected as soon as possible.

    One of the most common myths that still catches people off guard is that after time, things just disappear. And sure, after a period of time, most will just fade into the background, but we have seen people with things on their credit from 8, 10 even 12 years ago that are still reporting.

    If you have credit problems, we have the solution.

    DebtCare can help you get your credit report back on track. Call us today at 1 (888) 890-0888.

     

  • Second Mortgage Financing for Dummies

    debt1Home renovations, a child’s education, debt consolidations – these are all common reasons why Canadians are taking advantage of second mortgage financing. If you own your own home, have significant equity and good credit – obtaining that financing is probably far easier than you may think. This week we cover some of the basics to help you.

    Second mortgage financing is a great option for people who need to finance larger sums of money. For example, a second mortgage would be great to finally finish your basement, a task which you’ve estimated at $30,000, but not necessarily to finance that family vacation to Disney World which will run you $5,000.

    Second mortgage financing is also incredibly attractive right now because of record low interest rates. Other than 1st mortgage financing, it is one of the lowest rate credit products you will find. Just remember, even though those rates are currently at record lows – that isn’t going to last forever.

    When looking at second mortgage financing there are a few important points to keep in mind. Firstly, it should be noted that,a few years ago, CMHC mortgage rules changed so the most you will likely be able to borrow against your home is 85% loan to value if you are seeking bank financing.

    Secondly, the key to a realistic second mortgage is how you structure it – amortizing a second mortgage is very important because you don’t want to stretch the debt out over 20 or 25 years. For example, you would be wise to amortize a $20,000 second mortgage to consolidate debt over 5 years. At an 8% rate payments would be less than $400 per month.

    What if your credit is a little on the shaky side? That’s ok. Even with some credit problems you can still get a second mortgage but more equity will be required and you may pay a higher interest rate.

    What to watch out for: loan shark style private lenders. Sky high fees and aggressive default clauses are two red flags that should never be ignored. A good mortgage broker is the way to go because they will deal with all lenders to get you the best deal.

    DebtCare has the knowledge and resources to get you the second mortgage financing for those big projects – at a rate that won’t break the bank. Call us today at 1 (888) 890-0888.

     

  • Missed the 2015 Tax Deadline – Here is what to expect next

    debt1April showers have brought May flowers…but if you missed the 2015 tax deadline this month may also bring with it a tax debt, accompanied by penalties and interest. When it comes to penalizing Canadians for late filing, the Canada Revenue Agency doesn’t fool around – and you shouldn’t either.

    In Canada, the 2015 tax deadline was April 30th, and if you, like many others, missed it, here is what you can expect:

    • If you owe for 2015 and didn’t file on time, you can expect to be charged a late-filing penalty of 5% of your balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.
    • Additionally, if you missed the deadline and were charged a late-filing penalty on your return for 2012, 2013, or 2014, your late-filing penalty for 2015 may be 10% of your 2015 balance owing, plus 2% of your 2015 balance owing for each full month your return is late, to a maximum of 20 months.

    Once penalties are leveraged, they will continue to accumulate and then interest is added to the debt and the penalties. You can also expect, once that assessment arrives in the mail, to start receiving notices to file your returns and pay the debt.

    Not filing is not an option. If you choose not to file, you can be pursued for tax evasion and the CRA can arbitrarily assess you. This is done by looking at your current occupation and making an income estimate based on the industry standard. If you are assessed a debt based on the income the CRA thinks you earned, penalties and interest will also be applied.

    So you file, but still don’t pay the debt. The next step the CRA will take is to levy collection action, which may include a frozen bank account, a wage garnishment, even a lien on your property.

    When it comes to stopping collection action, or avoiding it altogether, your best bet is to pay the CRA in full. If the amount is not readily available, you may consider refinancing your mortgage or obtaining a personal loan. Another option may be reaching an agreement on repayment, but the CRA is not interested in lengthy terms – it wants to be paid back as soon as possible.

    If you can’t pay, and owe enough that you would not reasonably be able to make payments to pay off the debt, in full, in 12 months, move on to plan C – in a situation where you have no assets or you have assets that have no equity, a consumer proposal may be the best option. It will result in a single payment, halted collection action, halted interest accumulation and often is the only way to reduce the principle on a tax debt.

    If you are interested in discussing your options, DebtCare is here to help. We know what the CRA wants to see with regard to repayment or consumer proposal settlements and can help you achieve the best results.

    Call us today at 1 (888) 890-0888.

     

  • The Low Interest Credit Hunt– Your House is Likely the Fastest Way There

    debt22015 was not the year for many big businesses. Sinking prices for oil and other commodities took a big bite out of national income, business investment and domestic demand – and gross domestic product rose just 1.2 % in the year. Last year’s economic growth was pretty dismal – some even suggesting 2015 experienced a slight recession – and that usually doesn’t mean anything good. However, when it comes to your own hunt for low interest credit rates, it actually works in your favour.

    According to the Globe and Mail, Canada’s growth was the lowest since 2009: “Canada’s oil-battered economy in 2015 grew at less than half the pace of 2014, Statistics Canada reported, as a return to sluggish growth in the fourth quarter punctuated a disappointing year.”

    You can read more about how we entered 2016 here: http://www.theglobeandmail.com/report-on-business/economy/growth/canadian-economy-grows-at-better-than-expected-pace-in-fourth-quarter/article28962744/.

    So, we mentioned favourable results for you, but what does this have to do with your low interest credit hunt? These events triggered another: the Bank of Canada dropped interest rates to historic lows, and Canadians began using record low interest rates to finance.

    Right now, Canada’s lending rate is sitting at .5% – but this is an historic low that won’t last forever. If you are looking for low interest credit, these rates present the best opportunity to deal with things you want to finance.

    The lowest interest credit you will likely encounter will be through a mortgage. If you own your home, it makes sense to use equity to finance things like debt while rates are so low. These low interest rates can save a ton in the long run.

    In an effort to temper hot markets which some claim are inflated, this low interest rate was also accompanied by new CMHC mortgage rules, such as reducing the amounts of mortgages you can insure, reducing allowable repayment amortizations and most recently requiring larger down payments on purchases of more than $500,000. See here for more on these rules: http://www.cbc.ca/news/business/new-mortgage-rules-down-payment-1.3440797.

    If you are looking to finance, whether as a means of debt consolidation or to take on some much needed/wanted projects, now is the time to take advantage of great low rates before they go up or the government institutes more rules that make it harder to borrow.

    DebtCare has the financial options that let you take advantage and clear up your finances.

    Call us today for a consultation: 1 (888) 890-0888.

     

  • Missing the CRA Tax Deadline Will Cost You…

    debt2The 2015 CRA tax deadline is fast approaching – April 30th is less than 2 weeks away! That means that your income taxes need to be filed before this date or you’ll be facing penalties and interest if you owe a tax debt.

    If you have a balance owing for 2015, the CRA will charge compound daily interest starting May 1, 2016, on any unpaid amounts owing for 2015.If you have amounts owing from previous years, compound daily interest will continue to be charged on those amounts. Payments you make are first applied to amounts owing from previous years.

    The CRA late filing penalty is as follows:

    If you owe tax for 2015 and don’t file your return for 2015 on time, you will be charged a late-filing penalty of 5% of your 2015 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.

    If you were charged a late-filing penalty on your return for 2012, 2013, or 2014, your late-filing penalty for 2015 may be 10% of your 2015 balance owing, plus 2% of your 2015 balance owing for each full month your return is late, to a maximum of 20 months.

    Yes, those penalties will really add up quickly – and can easily become larger than the initial tax debt if left long enough.

    If you are thinking about missing the deadline because you know that you will owe but can’t pay right now – this is not the way to go. Owing money to the CRA is not a criminaloffense, but not filing your returns is a criminal offense (this is considered tax evasion) and can land you in more than financial trouble – average Canadians are prosecuted every day as a result.

    If you don’t file, how does the CRA know if a debt is owed. Even if you don’t file, the CRA does perform “arbitrary” assessments where estimates of your income are used to determine what should have been paid. Remember, your employer will file and thus the CRA will be aware that you earned income for the year.

    If you can’t pay and don’t know what to do, file and then get some financial help. Your first step is to consult a financial professional who can review your income and finances and leverage that to help you achieve a payment arrangement with the CRA that you can live with. This could mean financing or it could mean leveraging other means to stop the CRA from coming after you.

    Assuming the CRA will not come after you is never a smart approach – it will.

    Stop penalties and interest from accruing today by calling DebtCare. We will help you sort things out: 1 (888) 890-0888.