How do I know that I’m suffering from financial instability?

I suffer from crushing debt. What are my options?

Depending on your particular situation, the following options may be available to you if you have accummulated burdensome debts.

• Proposal to creditors
• Consumer bankruptcy
• Financial counselling
• Debt consolidation loan

All other options will be discussed in detail when you meet one of our team members.

What is a proposal to creditors?

A consumer proposal is an offer made by a debtor to his or her creditors to modify his or her obligations to them. For example, you may propose to your creditors that you will pay a lower amount each month than they are asking for but over a longer period of time. Or you may propose that your creditors accept being paid a percentage of what you owe. The benefit to the creditors is that you avoid declaring bankruptcy so they get at least part of what they’re owed.

In what way is a proposal to creditors the best option for me?

A proposal may give you additional time to pay your debts, provide you with a lower monthly payment, help you finally pay your creditors and stop interest charges on your debts.

How much does it cost to make a proposal to creditors?

The fees paid to the trustee are included in the payments made by you under the terms of the proposal. The fee is set by the Bankruptcy and Insolvency Act and includes a preparation fee plus a percentage of the funds paid to your creditors.

What is consumer bankruptcy?

Bankruptcy is a legal process, regulated by the Bankruptcy and Insolvency Act, by which you may be discharged from most of your debts. The purpose of the Act is to permit an honest, but unfortunate debtor to obtain a discharge from his or her debts, subject to reasonable conditions.

When you declare bankruptcy, your assets are given to a trustee in bankruptcy who then sells them and distributes the money among your creditors. Once you declare bankruptcy, your unsecured creditors cannot take legal steps to recover their debts from you (such as seizing assets or garnisheeing wages).

If I choose to declare bankruptcy, when can I be discharged?

If you are a first-time bankrupt, you will be automatically discharged from your debts nine months after the date of bankruptcy if you have no surplus income. You will be automatically discharged after 21 months after the date of bankruptcy if you are required to make surplus income payments.

For a second bankruptcy, you will automatically be discharged after 24 months after the date of bankruptcy if you have no surplus income and 36 months after the date of bankruptcy if you are required to make surplus income payments to the estate.

Bankrupts with personal income tax debt of $200,000 or more, representing 75 percent or more of what they owe creditors, are not eligible for an automatic discharge.

An automatic discharge happens only if notice of opposition to the discharge is not given by the Superintendent of Bankruptcy, the trustee or a creditor. Contact us to find out more.

If I declare bankruptcy, do I have to cancel all my credit cards?

If you declare bankruptcy, you are required to turn in all of your credit cards to the trustee, whether or not amounts are owed. If you have chosen a proposal to creditors, you are not required to give up your credit cards. However, the credit card companies, once they have been informed of the proposal, will usually cancel your cards.

If I choose the bankruptcy or the proposal option, what happens to the co-signer on my loans?

A bankruptcy or a consumer proposal does not remove your creditors’ rights to collect from the co-signers of your loans. Your co-signers will have to pay the debt in your place but may be entitled to a dividend instead of the creditor. Contact us to learn more.

What credit rating will I have after I file a bankruptcy or a proposal?

In the case of a first bankruptcy, your credit rating will be R-9 for six years following your bankruptcy discharge. You may have heard the length of time is seven years, as most people calculate the period from the date they declare bankruptcy. Your credit rating will be R-9 during the period of your proposal and increase to R-7 for three years once you complete your proposal.

How can I rebuild my credit?

Good credit is based on good activities on your credit bureau report. Good activity means paying on time every month. Your goal is to maintain a credit rating of R1 for each of your active creditors. Here are some ways you can start rebuilding your credit:

• Open a savings account and discuss your need to reestablish your credit rating with your banker.
• Aim to save money. Consider putting aside 5–10% of your pay each month Some banks offer recurring deposits into your savings account. Or you may consider saving for an emergency fund, which can amount to three to eight months worth of your monthly pay.
• Consider taking a small loan using your savings account as collateral, and then pay it back.
• If you were able to keep your financed vehicle, ensure that payments are always made on time in order to keep a rating of R1.
• Consider applying for a secured card with a low limit. The following website can help you choose the correct one for you: www.fcac.gc.ca.
• Pay your credit card balances in full and on time. Do not carry balances over to the next month.
• Only use your credit card when you know that you can repay it in full (100%) the next month.

What is a secured card and how can I get one?

A secured card is a card secured by funds you have deposited with the bank. The card looks like a credit card, and acts like a credit card but will have a limit depending on the amount of money that secures the card. To learn more about secured cards, consult the following website of the Financial Consumer Agency of Canada www.fcac.gc.ca. You will learn more about how secured cards work and which banks and companies offer them.