It is very easy to fall into debt; one more drink, another piece of clothing, an Uber ride instead of walking. Getting out of debt requires a little more work. The first step to conquering your debt is to create a list of all your debts, balances, interest rates and minimum payments and total them up to find out what you owe. This key piece of information allows you to effectively plan the next steps. If you are eligible, try to make 0% balance transfers and get your APR lowered or refinance your debt. This helps to ensure that you aren’t increasing your debt bit by bit due to interest while simultaneously trying to pay it off. Start tracking your spending. There are many apps that provide this service simply by linking your cards. After you have been tracking your spending for about a month, take a first pass at a budget. See if any of your spending can be cut back to allow for increased debt repayment and savings. Now that there is an outline of each month’s spending, you can draft a repayment plan for your debt. There are services that will help you with repayment plans.
There’s a unique Canadian option called a “consumer debt proposal.” A consumer debt proposal is negotiated with your creditors through a administrator. It is an alternative to personal bankruptcy. This places a legally agreement that provides protection from debt collectors and arranges partial repayment of your total debt. Consumer debt proposals require filing in the province of your residence. Consumer proposals in Ontario, for instance, are a good method of debt consolidation if you do not have the ability to pay all the debt you owe, do not have consistent income, or would not be able to be approved for a debt collection loan. However, consumer proposals in Ontario are public record. Creditors can reject your consumer debt proposal, and if they do, you may have to increase your funding to have your proposal continue. Additionally, consumer debt proposals are more expensive than declaring bankruptcy.
Weigh the pros and cons of drafting a consumer debt proposal as a personal solution to your debt. There are methods to repay debt – even slowly – without a consumer debt proposal.
For more information on this great Canadian resource you can visit one of the many Hoyes offices around town.
I may have jumped the gun with my first post about consumer proposals. While I’m here to tell my story about bankruptcy, insolvency and so much more, there is a lot of information that feels so commonplace to me, but not necessarily to everyone that has yet to go through it. So I wanted to take a minute and discuss some core definitions.
Number 1: What is a consumer proposal? Before anyone can talk about frequently asked questions for a subject, one must first understand or at least know something about that subject. Well, it’s essentially a vote by your creditors whether or not they agree with your proposal (which may be to pay 70% of the debts over two years and then be done with it). If more than 50% (votes based on how much you owe each creditor) agree, then it is legally binding. For a list of consumer proposal faq you can click here. There’s a lot of information, but it is broken down very clearly, so you don’t need to worry about digging for details or specifics.
If you’re looking for more specifics instead into bankruptcy questions then you can find that out too! There are a lot of similarities, obviously the solution / end goal to get out of debt, but you need specific advice to know what’s best for your situation.
Before diving too far into my experience with bankruptcy and sharing all sorts of information on working with trustees, I wanted to explain what a bankruptcy trustee is and what they even do. Do you need one? Can you do it on your own? In short: no, any legally binding bankruptcy-related product requires a bankruptcy trustee (now Licensed Insolvency Trustee I guess) to file it for you.
When struggling with debt, consumers usually consider filing bankruptcy (note this article does not cover corporate insolvency or business bankruptcy). This is a legal debt management option available to individual consumers, businesses, charities and learning institutions among other types of organizations. Bankruptcy gives consumers relief from the burden of debt. It will also bar creditors and collection agencies from making threatening phone calls to the debtor in a bid to recover their funds.
The Role of Bankruptcy Trustee
Before you file bankruptcy, you must decide which bankruptcy chapter is suitable for you. A Chapter 7 involves liquidation of assets belonging to the debtor. However, the debtor must not have a significant source of income. If the debtor has a stable job, Chapter 13 bankruptcy should be considered. In case of a business entity with a considerable monthly income, Chapter 11 bankruptcy should be considered. It is the responsibility of the bankruptcy trustee to decide which chapter is best suited for each debtor. On top of all of this there are also things called a consumer proposal in Ontario that can be an alternative to bankruptcy! More on that later when I dive into more details on consumer proposals and the difference with them.
Since there are people who may want to take advantage of bankruptcy to avoid paying their debts, even when they are able to, the bankruptcy trustee must be able to distinguish between legitimate applications from fraudulent applications and take the necessary action. For this reason, bankruptcy trustees must be experts in finance, business or law among other related fields. Typically they have business backgrounds and an accounting designation.
For more information on what a bankruptcy trustee is and most importantly who they work for (what’s their end game and why are they involved), check out the below YouTube video I saw the other day. It’s open and honest and speaks to the question well.