6 Questions About Debt Relief Answered

Janet Doyle

May 22, 2019

After over 20 years helping people achieve a fresh start through a consumer proposal or a bankruptcy, we’ve found that most people wish they had called us sooner, so why don’t they? The truth is that many people are embarrassed to admit they are not in control of their finances and are fearful or embarrassed to ask for help. Likely they also may hold many misconceptions about what is involved in a formal insolvency proceeding.

Insolvency and debt problems are more common than you think; recently Refresh Financial released a report on Credit in Canada that shed light on how consumers are managing their credit. The study found that 53% of people are living paycheque to paycheque and 49% do not have a plan in case of a financial emergency. With no way to handle unforeseen expenses like job loss, illness, or unexpected bills, it’s understandable that people fall behind on their bill payments. In particular, people living paycheque to paycheque are more likely to be declined for credit and become harassed by collectors before seeking relief with a Licensed Insolvency Trustee (LIT).

If you’re wondering if a consumer proposal or a bankruptcy is the right option for you, we’re available to help guide you and answer your questions including other alternatives which may be more appropriate for you which do not involve a formal insolvency process. We can explore options such as a consumer proposal , credit counselling, debt consolidation and go over your finances to provide clarity on your options.

Having helped over 20,000 people in Ontario and Quebec, we’ve compiled a list of common concerns that people have when they come to us:

Is Bankruptcy the Only Option?

Many people believe that bankruptcy is their only option when they are unable to pay their debts, but this is not necessarily the case. Over the last few years an increased number of Canadians have found debt relief after filing a consumer proposal which often results in a more favourable outcome for everyone.  A consumer proposal is designed with your financial situation in mind including the payment schedule which is based on your income, living expenses, family responsibilities and personal circumstances. The result is typically a reduction in debt by up to 70% or more, eliminates interest, provides you legal protection, and allows you to start repairing your credit immediately.

Will I Lose My House?

Very few ever lose their home in a formal insolvency proceeding; it depends on the value of your home as well as the amount owing on your mortgage. A Licensed Insolvency Trustee (LIT) can advise you on your options by accessing the equity in your home, the affordability of your mortgage payments, and what options you have if you choose to keep your home. If your home has $10,000 of equity or less and you continue to pay the mortgage and taxes, your house is protected from seizure in Ontario. If you have fallen behind on your mortgage payments or there is a lien on your home, the amount overdue from a seizure and sale of your home by the creditor would be included in a consumer proposal or bankruptcy.

Will I Lose My Car?

In Ontario, vehicles are protected In a formal insolvency proceeding if they are worth less than $6,600 and there are no loans or liens registered against it. If your vehicle is worth more you are required to pay the amount over the limit towards your consumer proposal or bankruptcy in order to keep your car. If the vehicle is leased, financed, or there is a lien registered against the vehicle you have two choices. If your payments are up to date you may continue making payments on the original loan or lease if there is no equity in your vehicle.

The alternate option is to stop making payments and surrender the vehicle to the lender; if you stop making payments prior to bankruptcy the outstanding payments will be included in your consumer proposal or bankruptcy.

Will People Know If I Go Bankrupt?

Once you sign a consumer proposal or a bankruptcy, it is filed with the Superintendent of Bankruptcy and then the information is sent to the two credit reporting bureaus in Canada, where your credit rating will be updated. Any organization or person that you authorize to check your credit (new landlords, new loans) will see the information. In addition, your creditors will receive a formal notice from your Licensed Insolvency Trustee, and collection agencies will be notified to inform them to cease collection.

Can I Include My Tax Debt?

Taxes owing are treated as unsecured debt but the Canada Revenue Agency (CRA) has special powers that other creditors don’t. If you have taxes owing, CRA has the power to garnish your wages, freeze your bank account, or put a lien against any property you own meaning you may not be able to sell it until you pay your taxes. When debts are unsecured, they can be included in a consumer proposal or a bankruptcy so you only pay a portion of what you owe. Once there is a lien on a property, it becomes a secured debt and cannot be included in a consumer proposal or bankruptcy, meaning you have to pay all taxes owing back in full to keep your house.

How Will I Be Able to Get Future Credit?

While filing a consumer proposal  or a bankruptcy does affect your credit rating, for many it is the best first step in repairing their credit and starting over. As part of the process, you’ll receive two counselling sessions designed to provide you with a better understanding of how to manage your money. After filing, you can begin immediately to save money and also repair your credit by using a secured credit card.