In a financial crisis, all of your assets may be in jeopardy – especially your home.

A financial crisis can take many forms: an unexpected bill, change in interest rates, job loss, buildup of long-term debt, and more. But one of the hardest to deal with — and most critical – is a CRA tax debt.

When you owe the Canada Revenue Agency (CRA) money, they can act swiftly and aggressively. The CRA has many debt collection tools in their arsenal, including putting a lien on your house.

Particularly in cases of tax debt, many folks freeze and don’t know what to do.

This is mistake! When it comes to a financial crisis — especially a tax debt – time is not your friend. A lien on your house is game over.

When there is a financial crisis, saving your home means acting fast.

The first step is to determine your home equity position. A good financial advisor will be able to access an automated valuation model (AVM) to calculate the actual quick sale market value of your home against what you owe.

The next step is knowing ALL of your financial options and considering the pros and cons of each.

Option 1: Refinancing Your Home

Pros: Can deal with your financial crisis without affecting your credit score.

Cons: The viability depends on the equity available in your home. It isn’t always a long-term solution.

When evaluating refinancing your mortgage, ask:

• Do you have enough equity in your home to refinance?
• If you do refinance, is it just a band-aid solution or does it fully resolve the issue?

Sometimes people will refinance their homes to quickly deal with the issue at hand, but it doesn’t resolve the long-term one. So, a financial crisis is still looming, but they will not have equity to deal with it the next time it becomes urgent.

If refinancing is not a long-term solution, there are other options available.

Option 2: Filing for a Consumer Proposal

Pros: Stops collection action and deals with debt quickly. Payments are geared to income. Your assets are generally not affected.

Cons: Only available for unsecured debt up to $250,000 (excluding mortgage). Leaves you with an R7 credit rating, meaning you will need to repair credit afterwards.

In a consumer proposal, you make an offer to your creditors to settle your debts for less than what you owe. The offer must be accepted by the majority of your creditors.

In most cases, you can keep your home when you file for a consumer proposal, as your assets remain untouched. But this depends on your mortgage payments being kept up to date and whether you have enough income to continue paying your mortgage after the proposal.

Option 3: Filing for Bankruptcy

Pros: No limit to the amount of debt you can file for bankruptcy. Like with a consumer proposal, payments are geared to income and collection action is stopped.

Cons: Leaves you with an R9 credit score. May put your assets at risk, depending on your financial situation.

In a bankruptcy, assets are often sold to pay off debts – including in some cases your house. However, this doesn’t always happen; you may be able to keep your home depending on the amount of equity you have available.

If you are considering filing for bankruptcy, talk to a financial advisor about options for keeping your home.

Filing for a consumer proposal or for bankruptcy can often seem scary. But in a financial crisis, it could be your best option. If there is no lien on your house, both filing for a consumer proposal and bankruptcy could protect your home, depending on your financial situation.

Plus, both have payments that are geared to your income, so you will be able to afford the monthly fees without getting into another financial crisis.

One downside to both is the hit to your credit score and the time it can take to rebuild credit. But that can still be a better option than losing your home. A good financial advisor will structure your consumer proposal or bankruptcy based on equity.

Whether you choose to refinance or are considering filing for a consumer proposal or bankruptcy, it is important to weigh your options carefully but also quickly (as we said, time is of the essence during a financial crisis).

That means talking with a financial advisor who can look at your whole financial situation and help determine the best course for you.

At DebtCare Canada we are experienced in evaluating the pros and cons of all options – and doing everything we can to save your home.

If you’re facing a financial crisis, don’t delay. Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.