Money Problems Anonymous Q & A Blog

Question: I am considering making a consumer proposal, because the amount of debt that I have is just unmanageable. My home is worth about $350,000, with maybe $20,000 in equity. I have about $35,000 in credit card debt, and a $100,000 unsecured line of credit. I have three children and a non-earning spouse, and I earn $130,000 per year. I am making minimum payments on credit cards and the LOC (which is interest-only) and I am always hugging the line every month. It’s very stressful, and I’m not getting ahead.  Is a consumer proposal an option for me?

Answer: Yes, a consumer proposal is a possible option for you.  A consumer proposal works best when you have a good income, but are unable to repay your debts in full.

We suggest the following approach:

First, make a budget to determine what you can afford to pay each month in your consumer proposal.

Second, use our debt options calculator to determine the approximate cost of a consumer proposal.

If the numbers work, contact a consumer proposal administrator for a free initial consultation to review your options in detail, and to determine the best course of action.

Question:  I live in Ontario, and the collection agency said that the debt occurred in 1996 and was written off in 1998. I do not think this was an unpaid debt, but after all this time what can I do? How can I prove that it was or was not paid now?

Can the collection agency still come to me after this many years?

Can they put a judgement against me after all this time, and will this affect my current credit score?

If this turns out to be an old unpaid debt, can I settle for a lesser amount?

Thank you

Answer: You have a number of options.  First, you can do nothing.  It is highly unlikely that a collection agency will take you to court for a 12 year old debt.  In fact, it is possible that the Statute of Limitations has expired on the debt, although you would need to consult a lawyer for more information.  (Here’s a book that may help: The Wolf at the Door: What to Do When Collection Agencies Come Calling).

You can also negotiate a settlement with them, if you so choose.  However, to start, you should request proof that you owe the money.  Given the age of the debt, they may not have the original paperwork, and in fact you may not even owe the money, so getting proof of the debt is your first step.

Question: I am considering making a consumer proposal, because the amount of debt that I have is just unmanageable. My home is worth about $350,000, with maybe $20,000 in equity. I have about $35,000 in credit card debt, and a $100,000 unsecured line of credit. I have three children and a non-earning spouse, and I earn $130,000 per year. I am making minimum payments on credit cards and the line of credit (which is interest-only) and I am always hugging the line every month. It’s very stressful, and I’m not getting ahead.  Would a consumer proposal work for me?

Answer: Yes, a consumer proposal is a viable option for you.  The key will be to determine what you can afford to pay each month, and that will be the basis of your proposal.

Your creditors will know that if they don’t accept your proposal and you file bankruptcy, they will be entitled to the equity in your home (say $20,000), and a portion of your surplus income, so your proposal will need to be for more than they would receive in a bankruptcy.

We suggest you make a detailed budget to determine what you can afford to pay each month, and then contact a consumer proposal administrator to help you determine what monthly payment is likely to be accepted by the creditors.

Question: I’m just curious if there is a time frame between getting new credit and filing a proposal. For instance, if you got some furniture on a no interest, no payment deal and then 3 months later the situation changed so that filing a consumer proposal is your best option?

We have an excellent credit score and have had no problem obtaining credit, including the above described furniture financing, however recently our situation has changed. Reviewing the situation our debt has been increasing steadily and just lately we have been relying on overdrafts and credit cards to meet our obligations. This month everything is late except for the mortgage and car payment, and the situation is not getting better, so a consumer proposal may be our option – but how are recent loans viewed?

Answer: Recent loans are not viewed favorably by the creditors.  Obviously if you used your credit card to buy a $5,000 big screen TV on Monday, and then filed a consumer proposal on Tuesday, the credit card company would be very upset.  They would assume you had committed fraud: you knew you were in financial trouble, and you used your credit card anyway, knowing you would never be able to repay it.

The longer the time that passes between the purchase and the filing of the consumer proposal, the less likely the creditor will object.

All purchases within the three months prior to the filing are automatically reviewed by the creditor, since they are required to provide that list to the trustee.  However, even transactions over a longer period can be reviewed.

The real issue is whether or not you were insolvent (unable to pay your bills) when you made the purchase.  If four months ago you were still working, and paying all of your bills on time, and you bought some furniture, it may not be an issue.  If you were unemployed at the time, it may be an issue.

The amount of money involved will also impact your case.  A $50 purchase probably won’t be an issue; a $5,000 purchase, if your total debts are $10,000, could be a serious issue.

Each case is different, so we suggest you contact a consumer proposal administrator to review your situation and advise you on the likely outcome of your filing a consumer proposal.

Question: I’m behind on property taxes but have made payment arrangements with the municipality. I would like to sell my house to get completely debt-free. Can I use the proceeds from the sale to pay off the property taxes? Is this something that can be negotiated at the closing and the lawyer pay the City?

Answer: When the house is sold, the property taxes will automatically get paid first, even before the mortgage.  The city will not let you transfer ownership until the taxes have been paid, so yes, your lawyer will arrange with the city for the property taxes to be paid on closing.

Question: I am considering making a consumer proposal, because the amount of debt that I have is just unmanageable. My home is worth about $350,000, with maybe $20,000 in equity. I have about $35,000 in credit card debt, and a $100,000 unsecured line of credit. I have three children and a non-income earning spouse, and I earn $130,000 per year. I am making minimum payments on credit cards and the LOC (which is interest-only) and I am always hugging the line every month. It’s very stressful, and I’m not getting ahead.  What should I do?

Answer: Yes, a consumer proposal is a possible solution.  However, the first step is to ensure that the consumer proposal will solve your problems.

You make a good salary, but you have a lot of debt, so in the past you have spent more than your income.  It is therefore necessary to analyze your spending to make sure you can cut your expenses to the point where there is some money left over every month.  Start by making a household budget, and work with your spouse to find areas to reduce spending.

Once your budget is under control, then a consumer proposal may be the correct answer.  Contact a consumer proposal administrator for more information.

Question: I filed a consumer proposal late in 2009. I usually use the T1 Special forms for filing my taxes. I understand that you can’t use the T1 forms for filing if you have declared bankruptcy, but can you use them if you have entered into a Consumer Proposal? (I don’t owe Revenue Canada any money).

Also, do you have to declare a consumer proposal on your income tax return?

Thanks.

Answer: When you file a consumer proposal, you file your taxes in the normal manner, just as if you had not filed a consumer proposal.  You can use the normal tax forms; there is no requirement to indicate that you have filed a consumer proposal on your tax forms.

In fact, being able to keep your tax refund is one of the main reasons that people in debt file a consumer proposal instead of personal bankruptcy.

Question: If you are behind in credit card payments do you still have the option to apply for a consumer proposal?

Answer: Yes.  In fact, most people who file a consumer proposal are behind on their payments.  Even if you are so far behind on your payments that the credit card companies have taken you to court and have started to garnishee your wages, you can still file a consumer proposal.

Contact a consumer proposal administrator, licensed by the federal government, for more information.

Question: I have recently been trying to re-establish my credit since I have returned to a secured field of employment that would allow me to do so. I have previously started establishing credit by having a visa, a revolving store account and a cell phone contract that was obtained in 2004. All have been sent to collections, but have recently been paid in full as I am in a position to borrow again. I have met with several lenders who could not give me the proper advice needed in order to obtain credit from their institution. They would rather treat it as a gamble and advise me to “just apply and see what happens.” Once I have applied and have been denied, even with a down payment the lender would give me advice on what I needed to do in order to obtain credit. I have conducted research into the issues i have encountered and have been monitoring my credit report and score in an effort to bring my file to an acceptable lending position. Even with doing so and having my fico score start at 630ish with nothing owing and plummet to 550 from the numerous inquires then return to 600 and plummet once again due to the inquiries and false advice received from the lending institutions every time they would tell me I would be approved for the loan. Now that all three bills have been paid in full for over six months the lending institutions are now telling me that I am a credit hunter and are refusing my application as a result of the previous inquiries. I currently have a secured credit card and a loan from well fargos that are relatively new. I was wondering if there was anything i could do to have the inquiries removed from the bureau as the majority of them are only there as the banks stated I would be approved if I complied with their request’s but only to be denied by them again? I am starting to think that it might have been more efficient to claim bankruptcy instead of trying to repair the credit on my own.
Thanks

Answer: Your question raises some interesting issues.

If you have a debt that goes into default, and then at some later point you eventually repay it, the notice of the default still appears on your credit report.  According to Equifax, information about debts you pay late remains on your credit report for six years, which is the same period that information regarding bankruptcy appears.  Credit inquiries remain on your credit report for three years.  So yes, you may be correct that in hindsight a bankruptcy may have been a viable option for you.

It should also be pointed out that since the market crash back in late 2008, all banks have tightened up their lending practices.  It has become much more difficult to borrow now, even if your credit isn’t bad.  That could also be a factor in your inability to borrow.

Your best option is probably to only borrow when you are highly likely that you will get the loan.  For example, perhaps you start a small RRSP at your bank, and then apply for an RRSP loan for a small amount.  Since the loan will be re-invested in your RRSP at the bank, it is more likely that the bank will approve the loan.  That will then give you a loan approval on your credit report, which should improve your credit score in the future.

Some other tips:

First, avoid credit repair scams.  There are lots of people who will promise to fix your credit, but there are no magic solutions, so if it seems to good to be true, it probably is.

Second, the best way to repair your credit is to have money in the bank, so work on saving money.  That money can then become a down payment or a security deposit on a future loan.

Third, don’t apply for lots of loans.  As you have discovered, every time you are rejected your credit score on your credit report drops.

Finally, keep all of your current bills up to date.  Don’t be late with your hydro bill, or any other bill, as that will negatively impact your credit.

Credit repair doesn’t happen overnight, so take your time and allow the gradual improvements to improve your credit score.

Question: How long is it for, if you win any lotteries etc, that you have to notify your trustee?

Answer: All lottery winnings, inheritances, and other lump sums of money you receive while you are bankrupt must be reported to your trustee.  Once you are discharged from bankruptcy you are not required to report anything further.