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by Janet Doyle
Many Canadians are facing uncertainty as the effects of the COVID-19 pandemic changes our ability to work, pay our bills, keep a roof over our heads and put food on the table. As businesses are forced to shut their doors, many employees are being laid off leaving households with little to no income, wondering how they will be able to manage their debt payments.
In recent years, many studies have come out showing that a large number of Canadians are only a few hundred dollars away from not being able to service their debt. As the COVID-19 pandemic continues to effect people across the country, we’re faced with an unprecedented situation that many questions.
If you are experiencing a reduction in income, you may be wondering what to do about your bills. Even though the government is promising to support Canadians, the Canadian Centre for Policy Alternatives estimates that 30% of those unemployed are not eligible for the new Emergency Response Benefit, leaving them with no income support. 1.2 million Canadians were unemployed before the outbreak, leaving them with no support in addition to facing a bleak outlook for employment.
While this time may feel scary, with no end date in sight, this is not the time to make decisions in a panicked state. Use the gift of time to study your budget and make long-term decisions following these steps:
1. Lost Income.
If you’ve lost income due to the effects of the COVID-19 Pandemic, there are new government assistance programs to support you:
- Those who are in quarantine can apply for EI sickness benefits immediately, if you can demonstrate that you’re unable to work for medical reasons, your regular weekly earnings from work have decreased by more than 40% for at least one week, and you accumulated 600 insured hours of work in the 52 weeks before the start of your claim or since the start of your last claim, whichever is shorter.
You will also need to get a medical certificate signed by a medical practitioner when you apply for Employment Insurance (EI) sickness benefits.
There are different regulations for people who are self-employed and have been affected by COVID-19, for full details visit https://www.canada.ca/en/services/benefits/ei/ei-sickness/qualify.html
If you aren’t sick, you can still qualify for a taxable payment of up to $2000 a month for four months if:
- You must stop working due to COVID-19 and don’t have access to paid leave or alternative income support.
- You are sick, taking care of someone who is sick, or in quarantine and not eligible for EI sickness benefits.
- You’re a working parent who must stay at home without pay to care for children due to school and/or daycare closures.
- You are employed due to the pandemic there is a lack of sufficient work and your employer has requested you don’t come to work.
- Wage earners and self-employed individuals, including contract workers, who are not otherwise eligible for EI.
- As of May 2020 parents will receive an extra $300 per child in the Canada Child Benefit payment amounts, applicable for the 2019/2020 benefit year
Other benefits that are available starting in May include a one-time Goods and Services Tax credit (GSTC) for low- to mid-income families of approximately $400 for singles and $600 for couples. Parents will receive an extra $300 per child in the Canada Child Benefit payment amounts, applicable for the 2019/2020 benefit year.
In addition, there is a six-month interest free pause on the repayment of federal and provincial student debt loans and a 25% reduction in minimum withdrawals
Also included under the federal plan are a six-month interest-free moratorium on the repayment of student loans and a 25 per cent reduction in minimum withdrawals, allowing seniors to maintain their investment in a tax-sheltered environment. CIBC Bank has released a statement with examples detailing how this affects seniors based on their age and marital status: https://www.cibc.com/content/dam/personal_banking/advice_centre/tax-savings/covid-rrif-en.pdf
2. File Income Tax.
If you haven’t already filed your 2019 income tax return, you should do so immediately to have a complete understanding of what your expenses will be in the coming months. The new deadline for filing is June 15, 2020 and any balance is due by September 1, 2020.
Even though any balance owing due only in September, it’s best to file your taxes on time to ensure there is no disruption in Canada Child Benefit.
3. Interim Budget.
Whether you have prepared a budget before or not, this is the time to sit down and evaluate your spending habits to see where you can reduce your expenses. Start with your priority payments including housing, medical, food and transportation. During the period of distancing and isolation, many expenses such as entertainment, fuel, recreation, dining out, etc. will be reduced.
4. Cut Back on Spending.
With most restaurants, shops, and stores closed, many Canadians are finding themselves at home and it can be tempting to spend money to cure boredom. Resist the lure to shop online or order takeout and use the extra time to focus on your grocery budget and cooking meals at home. Use the food in your fridge, freezer, and pantry to save on grocery costs while keeping you safe at home. If you’ve been contributing to investments or other stocks, consider diverting the funds into a savings account to ensure you have cash set aside if you need to access it.
5. Reduce Bills.
Take advantage of the relief efforts from utility providers such as hydro and telecommunications companies. Many companies are offering flexible payment plans, waiving fees, and offering freebies to support residents and businesses. Contact any companies you have a monthly subscription with such as a gym membership or parking for work and place those payments on hold or cancel them while you aren’t using the services.
6. Payment Deferrals and Financial Relief Plans.
Many banks are changing their lending practices in response to COVID-19 to help people manage their bills during these challenging times. Depending on the bank, there could be new arrangements you can apply for in relation to your mortgage, personal loan, vehicle financing, line of credit, and/or credit cards. Contact your bank to learn if you can defer, extend, or revise the terms of your loan and mortgage payments. Ensure that you go over all the details of the agreement to understand exactly what the changes mean for your finances, and if you can afford any additional debt incurred.
Deferrals only allow you to skip payments, buy may still add additional interest to your principal debt, increasing the cost of payments later. In addition, applying for relief might require a new application and credit check which could affect your credit score. Alternatively, some institutions have promised to waive fees on stop payments, transfers, and pre-authorized debt payments and waive overdraft fees on high-interest savings accounts. Other major Canadian banks have pledged to cut interest rates on certain products by 50% or lower them to 10.99%. To take advantage of these lower rates, reach out to your financial institution directly – the changes will not be applied automatically.
To learn more about how the 6 major banks in Canada are handling mortgage payment deferrals, visit https://cba.ca/mortgage-deferral-to-help-canadians-experiencing-financial-hardship-due-to-covid-19?l=en-us.
If you are renting and unable to make your monthly payments, let your landlord know in writing immediately. Some provinces have suspended evictions orders, meaning that your landlord can still issue an eviction notice but is not permitted to enforce it while the government has closed the courts, and made temporary changes to the legislation during the pandemic. This means that while you may continue to accrue rental charges, you can stay at the property until the government orders otherwise. Remember that you still owe the unpaid rent.
7. Emergency Savings.
First and foremost, your current funds need to be able to cover your basic essentials as we wait for the effects of the pandemic to subside. While there are many people speculating about the future of the economy, the truth is that there is no certainty and we will all have to wait and see how things unfold. Ensure you are taking advantage of all the government funds you are eligible for; with changes happening day by day there may be new programs that will assist you as the situation develops. If you need to tap into your savings, start with cash and TFSA accounts that have no effect on your income taxes. Avoid withdrawing from your RRSP’s if you can, and if necessary, ensure you understand the implications on your personal tax situation.
Frequently Asked Questions about debt and COVID-19
1. Should you withdraw from your RRSP to pay your bills during COVID-19 Pandemic?
Withdrawing from an RRSP should be considered as a last resort. No matter what happens during the next few weeks and months, you need to plan for your future, which includes the golden years of retirement. The tax implications of withdrawing from an RRSP account are significant, and in the end can cause more harm then good.
Many people don’t realize that RRSP’s are a protected asset under the Bankruptcy and Insolvency Act, meaning they can keep all of their RRSP’s with the exception of contributions made in the last year (This means that unsecured debt can be settled for a fraction of the cost and paid back without interest, all while maintaining your RRSP investment for retirement).
2. Should take a low interest loan to cover my expenses during COVID-19?
If it’s a reasonable opportunity and you have the credit to do so, then it might be a good option. Banks are currently reassessing their situation as well as their clients’ credit worthiness. Many people with existing loan applications, credit applications and loans will need to be reassessed considering the impact of COVID-19 to the economy. If you lost your job due to COVID, it immediately changes your credit worthiness and in addition asset values are being re-evaluated as the economy moves into a state of deflation.
3. Should I take out a Payday Loan to cover my bills during the COVID-19 Pandemic?
Because of the changes caused by COVID-19, financial institutions are reluctant to move forward with new business and issue new loans. Typically, credit worthiness is based on income history and expenses, but with many Canadians suddenly out of work, their financial history is not indicative of their future and financial institutions are unwilling to accept new loan applications.
Many people take out payday loans as their last resort. With no emergency funds, many times their credit is too damaged to access a conventional loan or line of credit through a traditional bank. For most Canadians that are already living paycheque to paycheque a payday loan is the beginning of the end. These lenders typically charge high interest rates as well as hidden fees and charges that are triggered when you breach certain terms; sometimes adding up to annual interest rates over 60%! Many times, the cycle of debt caused by payday loans eventually forces many people into insolvency. Don’t make the mistake of signing an agreement that you can’t afford; there are other options that will.
4. Should you file a proposal or bankruptcy during COVID-19 Pandemic?
Proposals can be set off in the future, allowing you immediate protection from creditors and a definite plan to settle unsecured debt, interest free, with up to 5 years to pay from the date of signing. With an undetermined date or date to commence payments (fixed or accelerated amount), subject to approval by the creditors, depending on the cashflow of the client. No interest or cost associated, custom created to ensure the client living and family needs are met. Bankruptcy terminates the unsecured debt immediately with payments made under the legislative guidelines which are based on the individual’s income and family responsibilities.
5. How do I deal with collection calls during the COVID-19 Pandemic?
Doyle Salewski offers a free consultation with a debt management professional who will access your situation and help you determine affordable options that will allow you to work towards a debt free future. We offer appointments by phone and video conferencing – contact us to book an appointment today.
Doyle Salewski has made changes to help you during the COVID-19 Crisis
1. Interview and assess clients online by video conferencing or telephone.
While our offices are still open and operating as an essential service, we do offer phone and video conferencing. If you do choose to come into our office, you can feel confident that our new procedures are keeping you safe. In addition to reduced staff on site, we have outlined physical distancing and sanitization procedures for all spaces in our offices and our staff are all provided with appropriate sanitization products to maintain a safe workspace.
2. Execute documents online.
All the required documents can be signed online.
3. Current clients can contact us if their finances have been affected and they need to defer payments (with no additional interest).
If you have been suspended or terminated from your employment, call our office and speak to the director administering your file to learn how we can help you adjust your payment plan to suit your new situation.
4. Counselling by videoconferencing or telephone.
As part of the bankruptcy process we provide 2 credit counselling sessions that are mandatory to attend as directed by the Superintendent of Bankruptcy – these are now available via phone & video conferencing.