debtcare.ca

Tag: a consumer proposal

  • Credit Counselling Canada – How Does It Work and Who Qualifies

    If you are having challenges managing your debt there are many solutions available. The solution you choose will largely depend on your personal and financial circumstances. The amount of debt that you have, for example, will change the financial solutions available to you.

    Credit counselling Canada is a service that helps many Canadians deal with financial challenges. Credit counselling Canada, like any other financial solution, has its pros and its cons. While Credit counselling Canada can help Canadians with any amount of debt, you are best suited to consider it as an option if you owe $7,000 or less in total debt.

    Credit counselling Canada is largely funded by creditors and is not for profit. The credit counselling agency will make a proposal to your creditors that allows you to make a reduced, fixed monthly payment each month. This proposal is not a consumer proposal and this proposal will not reduce your overall debt. It simply provides for a reduced monthly payment.

    The main benefit here is that if you cannot manage your current monthly payments, this will enable you to do so. People who have payday loans and only payday loans are best suited to consider credit counselling Canada. Generally people who have multiple payday loans and no other debt only owe a small amount of money, so other financial options, such as a consumer proposal, are not available to them. Credit counselling Canada will enable someone who has expensive payday loans to make a single reduced monthly payment that they can afford.

    The cons of a credit counselling program include:

    • Damage to credit (likely damage to credit has already occurred though if you are not managing your monthly payments)
    • Overall amount of debt is not reduced
    • Depending on the repayment plan you negotiate, it could extend over many, many years

    The cons that exist with Credit counselling Canada are the primary reasons why an individual who owes more than $7000 should consider other financial options rather than jumping into a credit counselling program.

    A consumer proposal is often a better option than a credit counselling program. When a consumer proposal is arranged, it is formal and final. If your creditors accept a consumer proposal you have the option to pay it off in full at any time. While a consumer proposal can also have some negative impacts on your credit, your credit can often be repaired faster with a consumer proposal when compared to a credit counselling program. Evidence of a consumer proposal will be removed from your credit report three years from the date it is paid in full.

    A consumer proposal may reduce the overall amount of your debt, and because you can pay it off in full, the ball is in your court as far as how long it takes for you to pay it off in full.

    Generally speaking, if you have a financial problem that is resulting in an inability for you to make your monthly payments, or if you have too much debt, you should seek financial guidance. It is advisable to seek this guidance from an independent financial professional who you can hire to help you make the best financial decision and who does not work for the company that is providing you the services. For example, if you are considering a credit counselling program, do not go directly to the credit counselling agency because they will advise you based on the programs they have available, or if you are considering a consumer proposal, do not go directly to the trustee in bankruptcy or you may not get the best deal.

    For more information about credit counselling Canada or to see if you qualify please visit www.debtcare.ca or call 416-907-2582.

  • How to Rebuild Your Credit Blog Series – Part 2 Late Payments and Defaults to Creditors

    This is the second part in a four part blog series about how to rebuild your credit. If you have made late payments on your credit card or have defaulted on debts to creditors this will have a severe impact on your credit that will not resolve itself until you deal with the debt you owe. Many people think that late payments and defaults on debt obligations simply disappear after 7 years, but this is not the case.

    If you want to know how to rebuild your credit you will need to understand “tradelines” and how long items remain on your credit report. There are two different areas where credit is rated on your credit report. Your credit score, also known as your beacon score or fico score, is a number between 300 and 900 which scores your entire credit situation. 300 is the worst credit score and 900 is the best. Most banks like to see that individuals have a credit score of 680 or higher.

    The second area on your credit where you are rated is on “tradelines”. Each loan or credit card provider will report on their own tradeline how you have paid them. The tradeline will show the name of the creditor, the starting balance of the credit product, your repayment terms, your current balance, the number of times you have been 30, 60 or 90 days in arrears and an overall rating. If it is a credit card, there will be an R or an I with a number beside it. R is used for credit card and line of credit products and stands for revolving because credit cards allow you to constantly borrow against them. I is used for loans and stands for instalment because loans are repaid in equal monthly instalments.

    You may have heard people say that they have an R1 or an R9 on their credit report. The number beside the letter represents the current standing of the account. 1 means up to date, 2 means 30-60 days in arrears, 3 means 60-90 days in arrears, 4 means 90-120 days in arrears, 5 means 120 days to 150 days in arrears, 7 means you are in credit counselling, 8 means that you have had security repossessed and 9 means that the account is a bad debt (6 months or more behind). When you have an account showing a number from 2-5 beside the letter, if you pay the account up to date the rating on that tradeline will be restored to a 1, however the record of the late payment will still show. If your rating falls to a 9 it will remain a 9 until 6 years from the date that the creditor reports that the debt was settled or paid in full.

    If you want to know how to rebuild your credit, a fast trick will be identifying how bad your credit actually is. If you have a lot of debt, habitual late payments, or 9’s on credit items, then looking for ways to consolidate or settle your debts is your fastest road back to having good credit.

    Simply leaving defaulted-on items on your credit will not mean that they will magically go away by themselves. They will remain there for 6 years from the last date that the creditor reported to the credit reporting agency that you owed the money.

    There are fast avenues that you can take to rebuild your credit depending on the severity of the damage to your credit and the amount of debt you owe. For example, if you leverage a consumer proposal to settle your debt, a consumer proposal is removed from your credit report 3 years from the date it is paid in full, which can in many cases result in the removal of a 9 rating faster than if you paid the debt in full. In addition, when 9 ratings are present (and where funds are available) you can often make a direct settlement with your creditor for much less than you owe which makes good sense considering that once a 9 rating is present whether you settle the debt or pay it in full the 9 rating will remain on your credit for the same amount of time.

    Figuring out how to rebuild you credit will begin with requesting your credit report so that you can know what is on it. From there you can work with a financial professional who can come up with the fastest solution to deal with your debt and rebuild your credit.

    For more information about how to rebuild your credit or if you are in debt and need help, please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.

  • Canada Revenue Agency Forms and Requests: – Beware

    If you have a tax debt that you cannot pay in full, you should be very careful dealing directly with the Canada Revenue Agency (CRA). In fact, many agencies, including law firms, advise people who have large tax debts not to deal with the Canada Revenue Agency directly.

    Why? Because CRA agents are hired by the government to collect the tax debt from you. Their primary objective is to close your file and that will only happen in one of two ways: pay the tax debt you owe, or file a consumer proposal or bankruptcy.

    The Canada Revenue Agency has many tools in its arsenal to collect your tax debt. These tools include garnishing your wages, freezing your bank account and placing a lien on your property. They cannot however take these enforcement actions against you unless they have done their homework. For example, they can’t freeze your bank account unless they know where you bank, they can’t place a lien on your home unless they know you own a home, and they can’t garnish your wages unless they know where you work.

    Of course, the Canada Revenue Agency does have its own ways to find this information, but sometimes you can be your own worst enemy in this regard. Many people want to make payment plans with the Canada Revenue Agency to pay their tax debt and will directly contact the Canada Revenue Agency to attempt to do so. The CRA always wants to be paid in full. Generally they won’t accept a long term payment plan unless it involves paying off the tax debt within 24 month, which many people are unable to do when they have a large tax debt. This is where Canada Revenue Agency forms and requests come in.

    Say for example you owed $40,000. Over 24 months, your monthly payment would be $1,666 per/month but you can only afford to pay $500 per/month. When calling the Canada Revenue Agency they may indicate that they are willing to accept a temporary 3-6 month payment plan based on $500 per/month if you fill out a Canada Revenue Agency form providing financial disclosure. This form will ask you about your income, income sources, expenses, assets, liabilities, where you bank and more. Once they receive your financial disclosure, they may disallow payments for expenses that do not include shelter, food and transportation and then demand a much larger monthly payment. They may accept the lesser monthly payment for 3-6 months but the danger is that if they demand more, or when the short term payment plan you negotiated expires, the CRA will have all of your personal financial information that you provided in the Canada Revenue Agency form and can proceed to take enforcement action against you. Don’t get caught in this trap.

    If you owe money to the Canada Revenue Agency there are solutions available to you. If the CRA has presented you with one of these Canada Revenue Agency forms for financial disclosure, seek professional help immediately. A seasoned financial consultant with experience dealing with the Canada Revenue Agency can help you negotiate a repayment arrangement that you can live with and help you protect your personal information.

    For more information about Canada Revenue Agency forms and requests to beware of or if you need help with a tax problem, please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.

  • Dealing with Debt Part 3 – Divorce Debt in Canada

    Canada has the 8th highest divorce rate in the world. Human Resources Development Canada has reported that the proportion of marriages expected to end in divorce has fluctuated between 35% and 42% in recent years. In 2008, 40.7% of marriages were expected to end in divorce before the 30th wedding anniversary. In 2008, there were 70,226 divorces in Canada or 2.11 divorces per 1,000 people.

    Divorce debt in Canada is also very common. Human Resources Development Canada also reported that in 2008, 115,789 Canadians were unable to repay their debts. Serious financial difficulties brought them to file either a consumer proposal or a bankruptcy. Individuals who were divorced or separated were more likely to file a proposal or bankruptcy.

    Why is divorce debt one of the leading causes on bankruptcy in Canada? The answer is fairly simple. First, two income households will often accumulate debt based on their “household ability to pay the debt”. The challenge with this is that debt is accumulated based on two people sharing living expenses and when people separate, living expenses will double because now each party has to pay for rent or a mortgage, and living expenses separately. When household debt is present this can make it challenging to pay it.

    Second, some marriages will involve one person working and one person raising the family. When divorce occurs, the party who hasn’t worked will likely have little to no income but be faced with the immediate expense of having to hire a lawyer and also live. In many cases this forces the party who has been home raising the family back into the workforce. Individuals who have been out of the workforce for a long time often have to re-enter the workforce in junior or entry level positions.

    Third, sometimes one party in a marriage may carry all of the debt in his or her name. Much of the debt may have been used by the other spouse. There is nothing worse than getting a divorce and then finding yourself having to pay your spouse’s debt.

    Legal protections may result in the party who has the weaker financial positioning receiving support payments, being awarded the house, having the other party take responsibility for the debt, but this can take years. Also, the legal fees that compound over the course of a divorce may end up being more than the debt you owed to begin with.

    So how can someone in Canada who has divorce debt keep his or her head above water without filing for bankruptcy? Fortunately, if you are in this situation there is a solution and believe me you are not alone. There are financial programs for people dealing with debt and specifically dealing with divorce debt in Canada. These programs will often enable you to make a satisfactory arrangement with your creditors and will enable you to consolidate your debt payments into a single reduced monthly payment. These programs can be found through debt consultants who specialize in divorce debt in Canada.

    It is important if you are dealing with divorce debt to make responsible decisions that protect yourself and your family and also consider both your short term circumstances and long term goals.

    For more information about dealing with debt or to get help with divorce debt in Canada please visit www.debtcare.ca or call 416-907-2582.

  • What is a Trustee?

    What is a trustee? A trustee is a person who holds property, authority, or a position of trust or responsibility for the benefit of another. In the case of an “estate trustee” the trustee could be a company or an individual. An estate trustee in the case of an individual who dies or is incapacitated,  represents the deceased or the incapacitated individual.

    There are other types of trustees though in specific matters that have different responsibilities and are appointed by the government to administer an estate according to legislation.

    What is a trustee in bankruptcy? In Canada, a trustee in bankruptcy is an individual or a corporation licensed by the Superintendent of Bankruptcy to hold in trust and, subsequently, to distribute bankrupt’s property among the creditors in accordance with the Bankruptcy and Insolvency Act (BIA). The bankrupt and all other persons holding the bankrupt’s property must transfer the property to trustee until he or she can determined how the estate shall be administered. “Property” includes income and assets. The trustee may also assist individual in preparing and submitting a consumer proposal to creditors.

    Where an “estate” trustee would act to carry out the intent of the deceased or in the best interest of the incapacitated individual, a “bankruptcy” trustee acts in the best interest of the bankrupts creditors and it is his or her obligation to recover as much money from the estate as possible for the benefit of the creditors.

    In Canada, consumers and businesses often find themselves confused, pondering the question “what is a trustee?” and many get the impression that the trustee in bankruptcy represents their best interests. This is because so many trustees aggressively advertise to people who have financial problems. They do this because they aren’t profitable unless they have individuals and businesses approaching them to file for bankruptcy or to file consumer proposals. These advertisements often promote debt solutions, debt settlements and debt help. When you visit the trustee he or she will often only offer one of two choices: a bankruptcy or a consumer proposal. Inevitably the question is who does the “debt solution” benefit in the end?

    In the case of a bankruptcy the trustee is paid a “tariff” a “fee” from the proceeds of the bankrupt estate. In the case of a consumer proposal the trustee receives remuneration based on a percentage of the amount of the consumer proposal that he or she negotiates.

    When you visit the trustee he or she will require that you provide complete disclosure of your income and assets. If the trustee determines that a consumer proposal is the only legal remedy to your debt, he or she will then determine the amount of the consumer proposal based on your ability to make monthly payments over 4-5 years. For example, if you owe $20,000 and the trustee determines that you can afford to repay your creditors at 100 cents on the dollar, on a monthly basis over 5 years then the amount of the consumer proposal will be $20,000, 100% of the debt owed. If the bankruptcy trustee determined that you can only afford to repay $13,000 over 5 years then your consumer proposal would be 65% of the debt owed. The challenge is that the smaller the consumer proposal, the less remuneration to the trustee, which provides an incentive to the trustee to arrange larger proposals. In addition and as we mentioned earlier the trustee is required by law to secure the greatest amount of repayment possible for the benefit of your creditors.

    It is for this reason that approaching a trustee directly to discuss your debt can be a risky proposition. In the past 5 years, this has spawned new industry: debt consulting. Debt consultants are familiar with the BIA and are able to evaluate your estate to help you determine which option is right for you and they can even negotiate on your behalf with bankruptcy trustees.

    This provides the insolvent person or debtor with a number of benefits.

    1.      Because the debt consultant is hired by the debtor, he or she represents the debtor`s best interests, not the creditors.

    2.      The debt consultant can interpret financial information and often negotiate a better deal than the consumer or business would have achieved had they visited the trustee directly.

    3.      The debt consultant can request evaluations of assets like homes and vehicles to ensure that the trustee does not over-estimate an asset resulting in you paying more in a consumer proposal or bankruptcy.

    4.      The debt consultant can work with you to come up with a financial plan to rebuild your credit and finances after a bankruptcy or a proposal.

    A bankruptcy or proposal offers many benefits and can provide a person who has a financial problem with immediate debt relief, including stopping collection action like a wage garnishment. Like anything else, researching a solution to a financial problem is truly “buyer beware” and if you are considering an avenue for debt relief like a bankruptcy or consumer proposal, we do not recommend that you do so unrepresented.

    For more information about a trustee in bankruptcy or if you are struggling with a financial problem please visit www.debtcare.ca or contact Michael Goldenberg at DebtCare Canada by calling 416 907-2582 for more information.

  • What is a Consumer Proposal in Canada? Pro’s and Con’s

    Individuals and businesses in Canada are very fortunate to have many options available to them should they run into financial problems. One option that many individuals and businesses with unmanageable debt choose is a consumer proposal.

    What is a consumer proposal in Canada? Well, a consumer proposal is a legal option mandated by the Federal Government. It enables consumers and businesses to settle debt at much less than they owe, freeze interest and make a single monthly payment that is disbursed to their creditors.

    Generally, a consumer proposal becomes an option when individuals or businesses are bringing in much less income than they were at the time they took out credit. This could occur due to job loss, disability, divorce, or loss of contracts or business. Another scenario where a person may consider a consumer proposal is when he or she has racked up a lot of debt and is only making minimum monthly payments with no reasonable ability to pay off the overall debt. The common denominator is that debt has become unmanageable and the individual or business that is in debt needs debt relief.

    The single biggest “con” as it relates to a consumer proposal is the myth that it will hurt an individual’s credit. A consumer proposal will remain on an individual’s credit report for 3 years from the date it is paid in full. This is a non-issue where the party has already begun defaulting on money owed to creditors because he will have likely already damaged his credit for a long period of time. When an item goes into default on an individual’s credit, it will remain there for 6 years from the date it is paid in full.

    Consumer proposals offer many “pros”. First, a consumer proposal provides debt relief. Once a consumer proposal has been accepted, all creditors must stop any enforcement action being taken. Enforcements actions like frozen bank accounts and wage garnishments will be stopped immediately.

    Second, a consumer proposal involves settling debt for less than what was originally owed. Third, consumer proposals enable the individual or business who files to make a single monthly payment that is much less than what they had been paying prior to filing the consumer proposal.

    Trustees in Bankruptcy administer consumer proposals. This can pose a challenge because trustees act for the creditors involved in the proposal, in addition to the individual or business who is filing it. They are compensated based on the size of the consumer proposal they negotiate. These two factors can often result in the individual or business filing the consumer proposal not getting the best deal.

    How do you know that a consumer proposal is the best option to deal with your financial problem? There is no easy answer to this question. The right answer to your financial problem will depend on your personal circumstances. Determining the right choice will involve a detailed review of your assets, liabilities and budget.

    Financial consultants and debt counsellors who routinely arrange consumer proposals will be able to perform this review and because you pay them, you will be assured that you are receiving impartial advice and not a sales pitch. It may end up that a consumer proposal isn’t the best choice for you.

    For more information about this article topic “What is a Consumer Proposal in Canada” or to receive a review of your financial situation contact Michael Goldenberg at DebtCare Canada by calling 416 907 2582 or visit www.debtcare.ca