What are Some Frequently Asked Questions About Consumer Debt?
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Who Can File a Proposal?

Any one who owes at least $1,000.00 can legally file a Proposal under the legislation, but practically speaking balances of at least $10,000.00  and up are more the norm. Generally, someone who only owes $1,000.00 can make an informal arrangement with their creditors to repay this money.  The other determining factor in whether or not you can file a Proposal is your ability to make the payments. The Trustee will discuss this with you and determine if you can afford to do this based on your budget.

How Do Proposals Work?

When you meet with the Bankruptcy Trustee he will discuss all of your options with you. If you then decide that a Proposal is a good option for you, the Trustee will review your budget and the amount that you owe and the two of you will determine an amount that you “propose” as a repayment term to your creditors. This amount must be more than the creditors would receive if you filed for bankruptcy and it also must be an amount that you can realistically afford to pay back. There is no sense proposing an amount that is going to be too difficult for you to repay and that results in you defaulting on your payment. You can also vary the payment terms if you have seasonal employment or other factors that affect your income.

This amount does not have to be 100% of what you owe if that amount is unattainable for you. You can “propose” to the creditors that you will pay back 75 cents on the dollar or 50 cents on the dollar (1/2 of what you owe), whatever the amount that you and the Trustee decided you can afford to pay. This amount must be greater than what the creditors would receive if you filed for bankruptcy.

This Proposal is then registered with the government “The Office of the Superintendent of Bankruptcy” and then sent to all of your creditors for approval.

Your creditors have 45 days to “vote” or approve the proposal. A majority vote (dollar value) is required to approve the proposal and then it is binding on all creditors. If no votes are received the Proposal is “deemed” to be accepted and is binding on all the creditors.

If the majority of creditors do not approve the Proposal, a meeting of the creditors is called and you can amend or revise the proposal to make it more appealing to the creditors. If you filed a Consumer Proposal and it is still not approved you can not file another Proposal on these same debts without a Court Order. This happens rarely as the creditors are usually more agreeable to accepting some sort of repayment term rather than receive nothing. The exceptions to this rule is if most of your debt is to Revenue Canada, they usually will want payment in full on a Proposal. At this point you may decide to file for bankruptcy if the Proposal is not approved.

If you file a Division One Proposal (You owed more than $250,000.00) and the creditors reject the Proposal or the Court refuses to approve the Proposal you automatically become bankrupt. That is why is important to discuss all possibilities with the Trustee.

Once the Proposal has been accepted by the creditors, all creditors are bound by the Proposal and must stop any collection proceedings.

You will make payments to the Trustee on behalf of your creditors as agreed upon in the Proposal and the Trustee will administer the funds (apply interest etc) and distribute the money to the creditors on a pro–rata basis on a pre-determined schedule. (Usually once a year.)

How Long Do Proposals Take?

A Consumer Proposal must be fully paid in 5 years or 60 months. A Division One Proposal can be paid over a longer period of time.

Do Proposals Have Additional Fees

The Trustee does not charge an additional fee to administer the Proposal. His fees are paid out of the proposal so there is no additional cost to you and no interest is charged.

What is the Interest Rate For Proposals

No interest is charged on the Proposal, and no further interest can be added to the amount that you owe the creditors after the date that the Proposal is filed.

What Happens to My Assets in a Proposal?

All assets must be declared on a sworn Statement of Affairs for full disclosure purposes, however, you retain all assets in a Proposal. If you have assets that would need to be surrendered to the Trustee in a bankruptcy, the Proposal must be greater than the value of those assets.

What if My Situation Changes and I Can’t Afford the Payments

Firstly, keep the Trustee informed of your situation. In a Consumer Proposal if you miss more than 3 payments the Proposal is automatically annulled and the rights of your creditors are reinstated and they can begin collections again. You must file an amendment prior to the Proposal being annulled. You can not file another Consumer Proposal on these same debts without a Court Order. You can file a Division One Proposal, but remember if the creditors do not accept it or if the Court refuses to approve it you will automatically become bankrupt. If you file a Division One Proposal, there is low tolerance for missed payment so it is important to understand that you must maintain the payment schedule, failing which, you become bankrupt.

If your situation changes on a permanent basis you can try to amend the Proposal with the approval of your creditors to reflect a lower payment or reduced number of payments. This is much better than to have the Proposal annul due to lack of payments.  If your situation changes for the better and you can pay the proposal off earlier, this helps to rebuild your credit rating faster.

What Happens To My Secured Creditors (Mortgage and Car Loans)?

These creditors are not affected by the Proposal and you must continue to make these payments. If you can no longer afford to make a loan or lease payment on a vehicle or recreational vehicle and wish to surrender the asset, you may accomplish this by informing the Trustee. A Proposal is one of two ways (the other is bankruptcy) that enables you to void the loan or lease by surrendering the asset back to the secured party. The secured creditor will seize the asset and recover the proceeds by way of a public auction or private sale. If there is a shortfall they may submit a claim to the Trustee for his consideration. Certain claims cannot be accepted by the Trustee, therefore, a shortfall may become a loss to the creditor involved.

What Happens To My Credit Rating With a Proposal?

A Proposal is slightly better for your credit rating than a bankruptcy. It shows an effort on your part to make the repayment to your creditors. During the repayment process you shall be rated as a R9 and once satisfied the rating is shown as a R7. If you are paying on a 5 year Consumer Proposal, once satisfied the credit bureaus maintain this data on your record for additional 3 years, therefore, the credit bureau has an approximate reporting duration of 8 years.

Can I Be Fired For Filing a Proposal?

NO! Federal law prohibits an employer from dismissing, suspending or laying off an employee solely on the premise that they have filed a Proposal. The same is true for a landlord, you cannot be evicted and your utilities cannot be disconnected for debt incurred prior to the Proposal. You must however, remain up to date with the current charges.

What is Bankruptcy?

Bankruptcy is a legal process that immediately stops all collections and legal actions by unsecured creditors and allows you to eliminate or “write off” your unsecured debt. Bankruptcy Legislation allows for the honest debtor who is overburdened with debt to obtain relief from the debt and an opportunity for a fresh start. There is much fear that when filing for Bankruptcy that you will lose everything and that the creditors will come and take everything you own away.  THIS IS SIMPLY NOT TRUE!   There is a stigma attached to the process that life is over and everyone will know I filed for Bankruptcy.  This is also not true.  In most cases, no one needs to know and the relief of the stress associated with overwhelming debt feels like a huge weight being lifted. The other misconception is that someone (the government) is paying off your debts for you. This is also not true. The company that you owe the debt to is writing off this amount and is one of the reasons that they charge higher interest rates on all their accounts to cover these losses.

Do I Have Alternatives to Personal Bankruptcy?

Yes, there are a number of alternatives to personal bankruptcy and doing your research will help you to determine which one is best for you. See “Options” or “Help Info” for more information or call and let us assist you personally.

Should I Declare Personal Bankruptcy?

No one can tell you that, it is a decision only you can make. That being said, the decision should only be made after careful consideration and advice from the expert, a Trustee in Bankruptcy. Bankruptcy is not necessarily the best option for each situation. Examine your budget and your debts, calculate the length of time it is going to take you to pay off your debt, review your credit rating. Better yet, schedule a free confidential consultation and let us help with it. Is the first step to becoming educated and making a well informed decision.

Do I Qualify for Bankruptcy?

If you owe more than $1,000.00 and are insolvent (if you can’t pay your bills as they become due) you technically can file for bankruptcy, although there are better options if you only owe $1000.00.  As each situation is unique, there is no hard and fast answer as to when bankruptcy may be the right solution. At BNA Solutions, we work with every individual to determine the facts and understand the issues and then explore the various options. If you are near to or have reached your breaking point, call us to talk.

How Do I File for Bankruptcy?

Filing for Bankruptcy must be done through a Bankruptcy Trustee. He or she is the government licensed individual who can assist you in the process, much like any other professional. Choose one you like and are comfortable with.

Will Creditors Stop Pressuring Me if I File for Bankruptcy?

When you file for Bankruptcy, unsecured creditors must stop all collection proceedings and legal action against you. It is not uncommon for the phone calls and letters to continue for a short period of time until the information is relayed to the right people. It is important that you inform the creditors that you have filed for Bankruptcy and provide them with the name and phone number of your Trustee.

What Does it Cost to Go Bankrupt?

The cost is determined by a number of factors including your income and assets. The fee will be discussed and determined at the initial interview and is payable over the duration of the bankruptcy, with no interest. At BNA Solutions, we do not require this fee up front. We realize that you are already in a difficult financial situation and that you will have a better ability to make these payments after you are relieved of your other debts.

How Long Will I Be Bankrupt?

Several factors will affect the length of a Bankruptcy. It will depend on whether or not you have previously filed bankruptcy and what your income and expenses are. Normally 9 to 21 months is the average. If this is your third or subsequent Bankruptcy it would require a Court review before you would be discharged from the bankruptcy.

Will I Lose Everything If I Go Bankrupt?

NO! Every province has a different  list of assets that are considered “exempt” or “necessary” and are not required to be given up in a Bankruptcy.

There are some items that are considered to be non-essential that you are required to turn over to your Bankruptcy Trustee. These items are then sold and the funds are held “In Trust” for the general benefit of your creditors. The Trustee may let you purchase them from your “Bankruptcy estate” for the appraised value. This might apply to things like a large screen TV that was bought on credit but not yet paid for.  In Alberta this is very rare.

EXEMPTIONS IN ALBERTA INCLUDE:

  • Clothing and Personal items to a value of $4,000.00 (resale value)
  • Furniture up to a value of $4,000.00 (resale value)
  • Equity in a motor vehicle up to $5,000.00.
  • Equity in your principal residence up to $40,000.00
  • Tools of the Trade up to $10,000.00
  • If you are a farmer, a homestead of up to 160 acres
  • Farming equipment required to operate the farm for the next year, if farming is your primary source of income
  • A 12 month supply of food
  • RRSP’s (A 12 month claw-back period may apply)
  • Pensions, LIRA’s, DPSP’s.
  • Lawsuits for personal injury, pain and suffering
Can I Continue to Work While I am Bankrupt?

Absolutely! There is no reason not to. There are some fields of employment in which a person who files for bankruptcy is required to report to a regulatory or professional body. (Life insurance sales people, accountants, lawyers, investment advisors, etc.)

During the bankruptcy you are required to report and provide proof of your income to your Trustee.

What Happens to the Money I Owe When I File for Bankruptcy?

Immediately upon filing for bankruptcy, there is a “Stay of Proceedings”, or what we refer to as ‘protection’. The creditors are prevented from commencing or continuing collection action for unsecured debts. The Bankrupt person is required by the legislation to perform some duties for the Trustee and by doing so, they earn their discharge. The discharge serves to eliminate these unsecured debts. If you fail to perform the duties as required or do not finish the bankruptcy, the rights of the creditors are reinstated and they may then resume collections.

What If Someone Has Co-signed a Loan for Me and I File for Bankruptcy?

If you file for bankruptcy, the co-signer then becomes responsible to pay the debt for which they co-signed.

Who Will Find Out That I Am Bankrupt?

When you file for bankruptcy the Trustee is required to notify your creditors, the government (Office of the Superintendent of Bankruptcy) and possibly the Court. If you have a garnishee against your wages or bank account, your employer or bank will also be notified in order to have the garnishee stopped. All corporations and a very small percentage of personal bankruptcies called Ordinary Administrations, are required to be advertised in the classified section of the local newspaper. For the most part, all though they become public record, no bankruptcies are made public.

Are All of My Debts Eliminated in Bankruptcy?

All debts must be disclosed, however, some debts will survive Bankruptcy. These include alimony and child or spousal support; student loans if you have been out of school for less than 7 years; Court fines; debts caused by fraud or fraudulent misrepresentation; civil claims arising from assault causing bodily harm, sexual assaults or death arising from the assaults.

Debts for mortgages and car loans are not written off in a bankruptcy unless you voluntarily surrender the asset at the commencement of the process. If you wish to keep secured assets you must continue to make the payments otherwise, you will lose the asset to a foreclosure or repossession. Once you obtain relief from your unsecured debts, it is often easier to make the payments for your car loan and mortgage.

Utility bills can also be included in bankruptcy, however, you must continue to pay the subsequent utility bills for utility services.

How Will My Credit Rating Be Affected?

Even before filing for bankruptcy, your credit rating may already be affected by late payments, NSF cheques, etc. A bankruptcy will be recorded on your credit bureau for the term of the bankruptcy plus a further 6-year period. This does not necessarily prevent you from obtaining credit after the bankruptcy, but you will have to earn the privilege back by developing a better credit history. Your credit rating can only get better after bankruptcy.

Can I Get Credit After I File For Bankruptcy?

Yes, you can have credit after a bankruptcy, sometimes as soon as you are discharged. You will have to earn the privilege again and you may have to pay a higher rate of interest initially. The quickest method of re-establishing credit is to apply for a prepaid or secured credit card. This type of credit card requires you to provide a cash deposit and in exchange you will be given a credit limit to work within. (For example, you provide a $1,000.00 cash deposit and then you can use the card up to a that limit.)

What Does a Trustee in Bankruptcy Do?

Bankruptcy Trustee’s are licensed by Industry Canada a department of the government of Canada. They will assist you in the process and act as a liaison between you and your creditors. Under the Bankruptcy and Insolvency Act, Trustee’s also represent the creditors and are Officers of the Court. They will advise your creditors that you have filed for bankruptcy and that you are therefore protected. Trustee’s ensure that your rights are respected and that you are knowledgeable about the bankruptcy process.

Trustee’s wear many hats in the process to guide you along the way and to ensure the creditors receive what they are entitled to. They are not addiction counselors, marriage counselors or lawyers, but they can recommend agencies that can help you resolve various issues.

What Do I Have to Do During The Bankruptcy?

During the bankruptcy the Trustee will ask you to do a number of things. These items are required under The Bankruptcy and Insolvency Act, which means that the Trustee is only enforcing the legislation.

Some of the rules are there as a learning process, some of them as a monitoring process and some of them as a legal requirement.

Firstly, you are required to be up front and honest with your Trustee. Keep him/her aware of any change in your circumstances. If you move, get married, change jobs, have a baby etc., all of these things can affect the administration of your bankruptcy. Trying to hide things, usually only ends up causing a lot more problems and can lead to an extended bankruptcy process. You must disclose all of your assets and all of your debts and provide him with any information that is required or asked of you, such as income tax records.

Secondly, you may be required to attend meetings with the creditors or with the government. The Trustee will advise you of this and give you whatever instructions are necessary.

You must turn over all of your credit cards, including ones where no outstanding balance exists.

You are required to attend two individual counseling sessions that last about 30 minutes. They are part of the learning process aimed at avoiding a future bankruptcy and to deal with any underlying causes. You will review budgeting, money management and goal setting. The first session usually occurs with 30 – 45 days after filing for bankruptcy and the second session about four months later.

You must complete a monthly budget of your income and expenses and provide proof or evidence of income and certain non-discretionary expenses such as daycare and child support. This is also part of the learning process. The Trustee will monitor your income and compare it to the “Standard” as set out in the Bankruptcy and Insolvency Act. If you have what is considered “surplus income”, it may be necessary for you to make an additional payment to the Trustee for the benefit of your creditors.

Will I Lose My House If I File for Bankruptcy?

As long as you continue to make your mortgage payments and property taxes as required, and keep those payments in good standing there is usually no reason to worry about losing your home. If your mortgage is up for renewal, it is a good idea to renew the mortgage prior to filing for bankruptcy.

Under the Bankruptcy and Insolvency act you are allowed to keep $40,000.00 equity in your home. (The difference between what it is worth and what you owe.) If you have more than $40,000.00 equity in your home, Bankruptcy may not be the best option for you and you should talk to a Bankruptcy Trustee for advice.

Is My Spouse Affected By My Bankruptcy?

Your debts are your debts, and your spouse can not be held responsible for them. The exception to this is if they co-sign a loan or credit card application with you. In those cases if you go bankrupt, the lender or creditor can go after your spouse for the debt. If most of your debts are joint with your spouse, they may need to consider bankruptcy as well and you should discuss this together.

Will I Lose My Car If I File For Bankruptcy?

Not normally, only in very rare instance,  that is if you continue to make the required payments to the lender. If you don’t, they have the right to repossess the vehicle.

In Alberta you are entitled to have $5,000.00 equity in a vehicle before it becomes an issue in the bankruptcy. This means if you have a vehicle worth less than $5,000.00 and you own it free and clear, you can keep it under the Bankruptcy Act. If you have a vehicle worth more than $5,000.00 but have a loan against it and the difference is less than $5,000.00, once again it is considered exempt under the Act. For example if your car is worth $9,000 and you owe $6,000.00 the difference or equity is $3,000.00 and it is considered exempt. If you own a vehicle and the amount of the equity is more than $5,000.00 the Trustee will discuss the situation with you and give you advice on how the vehicle will be handled. In all cases, the vehicle needs to be declared to the Trustee.

On the other hand, if you own a vehicle and owe more money than the vehicle is worth, (Being up-side down on a loan) a bankruptcy is one way to legally enable you to return the vehicle to the lender and write off or eliminate the balance of the loan.

Will The Bankruptcy Stop All the Garnishees?

The bankruptcy will normally stop all garnishees and legal proceedings for collections against you. The exception to this may be Maintenance Enforcement.

Will My Employer Find Out If I File for Bankruptcy?

Not normally, but it is also not guaranteed. If you are being garnisheed we will need to contact your employer with the legal documents to stop the garnishee. Also if you fail to provide information as requested it may be necessary to contact your employer for information.

What Happens To All of My Credit Cards During Bankruptcy?

All of your personal credit cards must be turned over to the Trustee and the accounts will be closed.  If you fail to do this there is a good chance that the lending institution will find out and close the account anyhow.  If you use the credit cards after the date of bankruptcy, this amount can not be included in the bankruptcy and you are responsible for paying this debt.

You can apply for a secured credit card, if you are able to pay the security deposit on the card or you can apply for a $1000.00 credit card with Affirm Financial.

Will I Lose My RRSP’s and Pensions If I File For Bankruptcy?

Recent changes to the Bankruptcy and Insolvency Act protect RRSP’s in a bankruptcy. Pensions have been protected all along. That means that if you have an RRSP or Pension the government is allowing you to keep them if you file for Bankruptcy. This is their incentive for you to prepare more for retirement and be less dependent on the government.

What If I Win a Lottery or Get an Inheritance During the Bankruptcy?

First of all, lucky you! Secondly, make sure you tell your Trustee. Your Trustee will discuss with you what happens with these “windfalls”. Sometimes if the “windfall” is large enough the Trustee will encourage you to convert the bankruptcy to a proposal and be able to pay off all of yours debts and have a nest egg left over for you. Smaller windfalls can be handled in a number of ways. Just make sure once again that you are honest with your Trustee. Trying to hide these is a difficult thing to do and will often cause you more problems.

How Do I Get Out of Bankruptcy?

If this is your first time filing for bankruptcy in Canada and you have done everything that is asked of you by the Trustee you will normally be discharged “released” from Bankruptcy after nine months, if you have no surplus income to pay or 21 months if you do. If for some reason there are outstanding issues to deal with, the bankruptcy will be extended for a period of time. Some of these issues need to be dealt with by the Court and some can be dealt with by the Trustee’s office.

If you fail to co-operate with the Trustee he can ask the courts to “Adjourn your Bankruptcy Sine Die”. This is a Latin term that means essentially date unknown. It means that you are still bankrupt and will be for an unknown period of time. It also means that your Trustee can withdraw the protection he has provided you from your creditors and allow them to proceed with collections and garnishees against you again.

During the Bankruptcy if your situation changes there is also an opportunity to convert your Bankruptcy to a Proposal or Repayment and have the Bankruptcy removed from your record.

Can I Have a Bank Account When I File for Bankruptcy?

Absolutely, there is nothing in the Act that prevents you from having a bank account and under the Consumer Protection Act, Banks can not deny you a bank account simply for filing for Bankruptcy. You are encouraged to start saving and not living on credit.

When you file for bankruptcy if you owe money to the bank you have your account with, you are encouraged to open a new account at a different bank not just a different branch of the same bank prior to filing for bankruptcy. For instance if you have a bank account at the Royal Bank, and a VISA account with TD, we will ask you to open a new bank account at perhaps BMO or a trust company.

Do I Need a Lawyer When I File For Bankruptcy?

No not normally. It is a very rare instance that a lawyer is required and that is usually only if bankruptcy offences have been committed or it is a very complicated file. A Lawyer can not provide Bankruptcy services, this must be done through a licensed Trustee in Insolvency.

How Are Student Loans Handled During Bankruptcy?

Student loans are a little different than most other creditors in that their debts will survive (not be written off) in a bankruptcy if you have been out of school for less than 7 years. During the time period that you are bankrupt they are prevented from pursuing collection from you, but you will have to resume paying them after your discharge from bankruptcy. If you have been out of school for more than 7 years they are handled the same way as all other unsecured debt. If you have been out of school for less than 7 years, you may still apply to the court after 5 years have passed to apply to have the loan discharged or removed due to hardship. We can help you with this as well.

What Happens To My Income Tax Returns During Bankruptcy?

During the year that you file for bankruptcy, your income tax return is split in to two parts, a Pre (before Bankruptcy) and a Post (after Bankruptcy). The main reason for this is to enable you to include in your bankruptcy any money that you owe to Revenue Canada (Income tax debt) up to the date of bankruptcy. This is particularly important for self employed people. If you file for bankruptcy in June, you want to include any taxes that you owe up to the date in June that you file for bankruptcy. Any taxes that are owed after the date that you file for bankruptcy are your responsibility.

If you have not filed your tax returns for the previous years, your Trustee will usually prepare these for you as well. If you have been self employed you will need to be involved in preparing the information for filing.

Any refunds that result from filing these tax returns are issued to your bankruptcy estate and any debt will be included in the bankruptcy.

When I Make Payments to the Trustee or He Sells My Assets, What Happens To The Money?

Every person who files for bankruptcy has what we call a “bankruptcy estate account”, similar to a Lawyers trust account. Highly regulated and very secure. In that account any payments you make, any assets that are sold or income tax refunds that are received, interest, etc are deposited. At the end of the bankruptcy the Trustee provides an accounting of this money to the Office of the Superintendent of Bankruptcy and they approve the distribution of the money. From this money, the Trustee receives his fee for time and expenses, the court and the government fees are paid and the remainder is divided up amongst your creditors on a pro-rata basis. All creditors get the same percentage.

Can I Be Sent to Jail When I File for Bankruptcy?

No, No, No!!! In a very rare instances there are things called “Bankruptcy Offences”. These offences are serious enough that they can be referred to the RCMP for investigation. They can result in fines or up to three years of imprisonment. It all goes back to the premise that bankruptcy is for the honest person to get a fresh start and to deal with his debt. Some examples of offenses are:

  • Failure to comply with duties under the Act.
  • Fraudulent disposition of Property
  • Falsifying a statement or accounting
  • Concealing or removing property
  • Obtaining credit by false representation
  • Selling property obtained on credit but not paid for
  • Obtaining credit while being an undischarged bankrupt and not disclosing this fact
What is a Trustee in Insolvency (Formerly Bankruptcy Trustees) and Why Do I Need One?

You see a dentist for your teeth and a lawyer for your legal problems. When you have financial issues you see a Trustee in Insolvency. They are the professionals and they do much more than bankruptcy.

A licensed trustee is the only person federally licensed with the legal jurisdiction and legislative authority to deal with your debts. A Trustee in Insolvency is a very specialized individual who deals with debt. A trustee is a highly educated, highly trained and highly regulated individual that deals with debt. They have the experience and expertise to help you.

There are many many companies who have found a market for desperate people looking for help to solve their financial struggles.  They may advertise as “credit counselor’s”, “debt counselors”, “loan consolidators”, with slogans like “let us settle your debt for 75% less”, “let us deal with your creditors.”  Please, please, please use extreme caution when looking for help.  These firms are not licensed, not regulated and have no jurisdiction or legislative authority to deal with your debt.  They are simply looking for a way to make a good living off of desperate people who can least afford to lose more money.  Often they will set up a payment plan for you while they pretend to work with your creditors to sort out your debts. After many months or in some case years of you making payments and your creditors continuing to hassle you, they will admit they haven’t been able to work out an agreement with your creditors and, “oh, by the way, all your payments are going towards our fees”.  In other cases they may simply charge you an exorbitant fee to refer you to a licensed trustee.  You do not need a referral to see a licensed trustee.

Remember, these people have no legal jurisdiction or authority to deal with your debt.  They have simply found a niche in the market place to make money.  They come and go and change names as quickly as other fly by night companies in other industries. As always buyer beware!

Government programs were put in place to help you, but you must deal with the trustee’s licensed to administer these programs.

Budgeting

If you file a bankruptcy or a consumer proposal, you are required to attend two individual counselling sessions that will deal with your finances and we will look for ways to assist you gain control of your finances, meet your monthly obligations, start a savings plan and set financial goals for the future.

If you file a bankruptcy, you will be living on a cash basis for a few months and be required to keep track of all your income and expenses. This will enable you to better understand your monthly costs.

There are numerous apps on the internet and government websites to help with keeping track of your finances. Once you have dealt with the debt and actually have funds to budget and track moving forward, part of the process is learning how to do this.

The Office of the Superintendent of Bankruptcy has booklets that we have available in our office or you can order on line free of charge. Activity books for children of different age groups to start them on the right track early as well as financial guides for post-secondary students. www.ic.gc.ca go to “just for consumers”, “get out of debt” for more information.

An app that you might find quite useful is www.mint.com. It can help with budgeting, finding savings, and helpful articles on finance. Just beware that they also promote certain credit cards that can save you money but credit cards may or may not be a useful tool at the moment.

Mint

Statistical Information
  • While all age groups have borrowed more since 2007, the 65+ age group has accumulated debt at three times the average pace.
  • More and more Canadians are going into retirement with debt and or mortgages. 20 or 30 years ago, Canadians typically retired with little or no debt.
  • The change in insolvency filings from bankruptcies to proposals in 25 years is substantial. Since 1987 when 99% of filings were bankruptcies and only 1% were proposals, now proposals account for about 50% of all filings. Some of this is due to people filing a second proceeding and not wanting to file a second bankruptcy and some due to the fact that as the age of people filing increases the older population has a greater desire to repay debt than write it off. They were raised in a generation when you paid your bills.
  • Average household debt is at $103,000, up by more than 80% since 1990
  • Savings have plummeted by 2/3 since 1990
  • Over 1 million households have a debt servicing ratio of over 40%. This means they are very vulnerable to adverse events. A rise in interest rates or a job loss.
  • Seniors were 17 times more likely to become insolvent in 2010 than in 1990.
  • The gap between median and average incomes continues to widen. Average income is the total income of all, divided by the total number of people and the median number is the mid-point between all, half above and half below. The rich are getting richer and the poor are getting poorer.
  • In the past 21 years, total incomes increased by 9.6% or less than 0.5% per year. Household spending increased by 21.6% and debt loads increased by 80.9% and savings decreased by 66.5%
  • Over 1 million families have a debt servicing ratio of over 40% and walking a slippery slope towards being insolvent or not being able to pay their bills as they become due.
  • As expected, single parents are the most highly strained of them all with an average debt to income ratio of 254% versus 137% for couples with no children.
  • Of the consumer price index, (cpi) many items had large percentage increases in items we buy daily. Transportation, bread, insurance, home fuel etc.  Recreational equipment and hotel costs decreased. This doesn’t help those on a fixed income who must buy bread and heat their homes and get to work but don’t own motor homes and can’t afford to go on holidays. The one bright side is that clothing and footwear has also decreased.  Sadly, the poorer you are the harder hit you are by increases in the cpi and suffer more financial stress.
  • Income of hourly wage earners has not kept pace with inflation
How Do I Deal With Collection Agencies?

Collection agencies are largely an unregulated industry and can sometimes be very difficult to deal with.  There are basic rules that they are to abide by and you can lodge a complaint against them if you feel you are being unduly harassed.

When you owe money to a business (store, bank, credit card, utilities, etc.) And you don’t make the payments to them as agreed, they can hire a collection agency to try to recover this money from you.

  • First of all, when you are notified that your account has been turned over to a collection agency “don’t panic”. The agency just wants to collect the money from you; they don’t want to make life unbearable for you, it just feels like that. Remember your attitude and cooperation will go a long way to solving the problem.
  • Once your account has been turned over to a collection agency, you must deal with the agency and not the company you originally owed the money to. If there has been an error made on your account, you can go back to the original creditor.
  • You may pay the full amount of money you owe to the collection agency and they will close your file and you won’t hear from them again. If you owe a substantial amount, talk to us first to discuss a settlement offer. Always keep a copy of your receipt or cancelled cheques as proof of your payment. Do not do this before speaking to us!
  • If it is not possible to pay, contact the agency, explain your situation and try to make some sort of payment arrangements. If they agree to this, make sure you follow up on your end of the bargain. If you don’t, you are asking for more problems and may be subject to legal action.
  • Never pay in cash, unless you can get a receipt. Always pay by cheque or money order so that you have proof of your payment.

A collection agency must:

  • Notify you of who they are collecting for.
  • Advise you in writing before taking legal action.
  • Not call before 7:00 am or after 10:00 pm.
  • Not make abusive calls or so many calls that they are considered harassment.
  • Not contact you at work if you have asked them not to. You must however provide an alternative time and phone number for them to call and you must be available.

For complete information on what a collection agency can and cannot do go to: www.servicealberta.gov.ab.ca. Once you arrive on the page, click on “publications” then click on “tipsheets”.

What to do if the collection agency is being abusive:

  • Ask for the person’s full name and obtain the correct spelling.
  • Ask for his or her phone number and fax number.
  • Ask for an account or reference number.
  • If they are being abusive or harassing you, inform them that you will tape the conversation.
  • Makes notes of the conversation and whether that person was yelling, threatening or swearing at you. If necessary, hang up the phone.
  • Contact Alberta Government Service at 1-877-427-4088 to find out your rights.
How Do I Deal With Creditors?

If you use or obtain credit to make purchases or to obtain services and you fail to repay this money back to your creditors, they have a number of options available to collect this money from you.

The options depend on the type of credit you have obtained. Generally, there are two types of credit, secured and unsecured.

Secured Credit:

Secured credit is the kind you normally have for car loans and mortgages. This means that the car or the house is the item that “secures” the credit or loan. This type of credit or loan is usually for larger amounts of money than unsecured items like credit cards. The creditor “secures” the item by registering a lien against it until you have paid for it in full. In other words, you don’t really own the house or the car until you pay for it in full. Once paid, the company releases their “security” and discharges or removes the lien. On a house, this is when the bank would discharge their mortgage or encumbrance.

If you have “secured” credit, this means that if you don’t make those payments to the creditor they can take back their security, the car or the house etc. This is called “seizing an asset”. To do this they must use a civil enforcement agency, and a bailiff will do the actual seizure, or a financial institution will commence foreclosure proceeding.

In some instances, the courts will allow the creditor to seize the asset and still pursue you for any shortfall. (the difference between what they received from the sale and what you owe them.)

If your creditor needs to go to court to recover the money you owe them, this will become more expensive for you as you will be required to pay for their legal expenses as well.

If the creditor receives authority to “garnishee” your wages, bank account or an accounts receivable, different rules apply to each and you should go to the government website for a full explanation.  www.governmentservices.gov.ab.ca sometimes.  In order to obtain credit if your credit rating isn’t good enough for you to qualify on your own, the creditor may have ask you to have someone else co-sign the loan. In this case, if you don’t repay the amount you owe, they can ask the co-signer to pay this money for you. They can also garnishee the co-signers wages and seize their assets.

Think twice before ever co-signing a loan for someone else unless you are prepared to pay the loan yourself!

Unsecured Credit:

The other type of credit is called “unsecured” credit. This is the majority of debt. Credit cards, lines of credit, overdrafts, payroll loans, utilities, Canada revenue agency (income tax) debt, dentist etc. Unsecured creditors can sue you and garnish income and bank accounts if you don’t pay them.

A creditor can hire a collection agency to try to collect either type of debt from you.

Although these creditors are unsecured and they have nothing as “security” for the money you owe them, they have the right to withhold future services from you. The credit card company can refuse further charges. The utility company can refuse to provide utilities without payment or deposits, dentists can refuse to do further dental work, Canada revenue agency can withhold or set-off GST credits and income tax refunds etc.

If you fail to pay your creditor and you owe them less than $25,000.00, they may choose to sue you in the civil division of provincial court (formerly small claims court). If you are served with a civil claim don’t ignore it! You only have 20 days to respond. If you don’t respond they can obtain a default judgment against you which allows them to garnish your wages or bank account or attempt to seize your assets. You can represent yourself in civil court or you can hire a lawyer.

In some cases, the courts may allow the creditor to garnishee your wages or your bank account instead of “seizing the asset”. This is especially true for car loans when the car is worth less than the loan.

If you owe the creditor more than $25,000.00 the case will be heard in Queens Bench Court and you should hire a lawyer to represent you. If you are served with a statement of claim, you have 15 days to respond. You may want to contact a lawyer or legal aid for assistance.

If your creditor is awarded a judgment against you by the court, the judgment is enforceable for 10 years and it can be renewed for a further 10 years. Interest is charged on unpaid judgments. The judgment is only enforceable in Alberta if it is issued in Alberta. If you move to another province, the creditor can transfer the judgment to the other province, so moving doesn’t make the judgment disappear.

Once a judgment is granted the creditor can do one of three things to get the money you owe them:

  • register a writ of enforcement
  • garnishee your wages, bank accounts or accounts receivable
  • seize your property

For more information on this go to the government website: www.servicealberta.gov.ab.ca

If your creditor is also your bank you need to be aware that they have the “right of set off”. This means that they can withdraw money from any of your accounts at any location without notifying you or asking your permission. They also do not have to go to court for a judgment. Unlike a garnishee, they do not have to leave you any money. For example, if you owe money to the RBC visa and you have an RBC chequing account, they can take money out of your chequing account to apply to your outstanding visa debt.

Conditional Sales Contracts:

When you purchase something on a conditional sales contract you don’t actually own the goods until you pay the debt in full. The goods are the “security” for the contract. For example, when you buy a car on a conditional sales contract you don’t actually own the car until you have made the final payment.

Quit Claim:

If you don’t make the payments on a secured debt the creditor can ask you to sign a “quit claim”, which means that you are voluntarily giving back the security. If you agree to do this, the creditor will not have to hire a civil enforcement agency and a bailiff to seize the asset from you.

If the creditor sells the security and does not receive enough money to pay off the debt, you are still liable for the remaining balance. On the other hand, if they sell it for more money, they are required to pay the difference to you. For example, if you return a vehicle to the dealership and you still owe $5,000.00 on the loan and they sell the vehicle for $4,500.00, they will ask you to pay the balance of $500.00. If, on the other hand, they sell the vehicle for $6,000.00, they will have to pay you the difference of $1,000.00. It is in your best interest to try to sell the vehicle on your own, for the highest selling price and then pay off the loan.

What is The Credit Bureau and How Does it Work?

In Canada there are two major credit bureaus. These are independent agencies whose business is to record all information reported to them or from public records about your credit history, just like a report card. They provide the information to their clients (banks, finance companies, lenders, insurance companies, employers etc.). You must give someone authorization to view your credit history. The ratings assigned to your credit are done by the people you borrow money from, not the credit bureau. If you have excellent credit with one lender, this will be reported and if you have a poor payment history with another, it too, will be reported. Each creditor provides an independent rating based on your payment history, thus making a profile of your credit.

This information is not always correct and it is your responsibility to periodically review the information and advise them of any necessary corrections. You will have to provide evidence of debts paid, change of address, bankruptcy and bankruptcy discharges etc. If there is a dispute about the information the bureau can advise you about your rights. The credit reporting industry is largely unregulated. If you are having problems with an agency in resolving your problem, contact the Alberta government services at 1-877-427-4088.

Because of privacy legislation, we cannot do this for you and it is in your best interest to make sure this information is accurate, before you ever need it. Your trustee does not have access to this report nor can he influence the bureau.

Every time you apply for credit, the company you apply with will check your credit bureau. If the information is incorrect this may negatively affect your ability to obtain credit. Each time you apply for credit, the enquiry is recorded at the bureau, so making numerous applications for credit will also negatively affect your rating.

Not every creditor will report to the credit bureau (i.e. Revenue Canada). It is your responsibility to know who you owe money to.

You will hear many people say that they have “great” credit. Yes, it may be correct that they are making the minimum payments on all of their accounts, but they may have too much debt. This isn’t a ‘‘great’’ situation. Their debt ratio (the amount they owe versus the amount they earn) may still be high and they are usually close to being in crisis mode. Lending agencies will also look at your debt servicing ratio before deciding to lend you money or approve further credit.

Credit ratings are done on a scale of R1 – R9, with the 1 rating being good and 9 being very poor. There is also a numerical system that some lenders are using called a fico or beacon score. It is not included in the bureau report that you obtain on yourself.

  • R0 – too new to rate, approved but not used.
  • R1 – pays (or paid) within 30 days of billing or pays as agreed.
  • R2 – pays (or paid) in more than 30 days but less than 60 days, or not more than two payments past due.
  • R3 – pays (or paid) in more than 60 days from payment due date, but less than 90 days, or not more than three payments past due.
  • R4 – pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due.
  • R5 – account is at least 120 days overdue, but is not yet rated “9”.
  • R7 – making regular payments through a special arrangement to settle a debt re: O.P.D. or proposal.
  • R8 – repossession (voluntary or involuntary return of merchandise).
  • R9 – bad debt; placed for collection; moved without giving new address; bankruptcy.

The two main credit bureaus in Canada are Equifax and Transunion. They will not give you information over the phone but will allow you to order your report which will be sent to you with contact information.

To obtain your credit report, you can contact either of the agencies listed below:

Equifax
P.O. Box 190 Station
Jean Talon Montreal, Quebec
H1S 2Z2
1-800-465-7166
Fax: 1-514-355-8502
www.equifax.ca
consumer.relations@equifax.ca

Trans Union of Canada
Consumer Relations Centre
Suite 201, 3115 Harvester Road
Burlington, Ontario
L7N 3N8
1-800-663-9980
www.transunion.ca

What is a Consumer Proposal?

A Proposal is a formal repayment plan to your creditors that is administered by a Trustee in Insolvency  under the Bankruptcy and Insolvency Act. It provides you with protection from your creditors while giving you time to pay back your debts. These Proposals have no interest and can be offered to the creditors for much less than you owe. On average our clients payback 57% of their debt.

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