Archive for Category 'Consumer Proposals in Canada', page 3

Question: Me and wife have joint about $80,000 of combined unsecured loan,a joint $30,000 of secred loan. I have another $60,000 of unsecured loan on my personal name ,the total equity in my house is around $80,000 and I am leasing a car (don’t own it).  My gross yearly income is $90,000 and my wife gross is $36,000. What are my option for bankruptcy,proposal or credit counselling?

Answer: Personal bankruptcy in Canada is probably not the correct answer for you.  If you have $80,000 in equity in your house, you would lose your house if you declared bankruptcy.  In addition, in bankruptcy the more you earn the more you are required to pay, so you would have significant surplus income in a bankruptcy.  With your family income, you would be bankrupt for 21 months, and the payments you would be required to make would be significant.

A consumer proposal is a possible solution.  The amount of payments required in a proposal would be more than you would be expected to pay in a bankruptcy, or else the creditors would not accept the deal.  So, the cost of a consumer proposal would also be significant.

In a credit counselling debt management plan you keep your house, but you are required to repay your debts in full, over a three to five year period.  That may be prohibitively expensive for you as well.

You can compare the different options using our debt options calculator.

A final solution may be to downsize your lifestyle.  You could sell the house and find a place to rent, and use the $80,000 in equity to either file a lump sum proposal, or repay a significant amount of your debt, which leaves you with much more manageable monthly payments.

The correct answer will depend on your income and expenses each month.  A credit counsellor or trustee can calculate the cost of the different options for you in more detail.

Question: Hello! Can you please tell me if you fall behind in credit card payments or just pay small payments to credit card companies….can they sue you or place a lien on a mortgaged home? We are a one income home(pension), car is on a loan and our home is mortgaged. Can they take our home, force us to sell or move out? I am very worried! I do not want a consumer proposal or go bankrupt. I thank you in advance. M

Answer:  In theory, yes, if you default on your payments the credit card company could take you to court, sue you, obtain a judgment against you, and then enforce that judgment by placing a lien on your home.

However, that is very unlikely.  Since your home already has a mortgage on it, there is probably not a huge amount of equity.  Also, the credit card company, in order to get their money, would have to sell the home and pay off the first mortgage holder.  It is unlikely they will want to spend that much money to collect what you owe them on your credit card.

You should attempt to make payment arrangements with the credit card company.  If that’s not possible, it may be time to consider your other debt management options.

Question: There are companies that specialize in consumer proposals that charge fees to prepare your consumer proposal and guide you through the process working on your behalf. They are not trustees and claim that trustees work on behalf of the creditors while they work on behalf of you… my understanding is that a trustees fees are not paid by the debtor but instead come out of the funds from the proposal?

Answer: You are correct. To administer a consumer proposal you must be licensed by the federal government of Canada, and one of the conditions of that license is that the proposal administrator receives a fee set by the government.  All administrators receive the same fee, and it is paid out of the proceeds of the proposal, so, in effect, it is the creditors that are covering the cost of the proposal.

You can hire an advisor to help you through the process, but in most cases it’s not necessary.  The administrator is required by law to inform you of all of your options and to help you through the process, so in most cases it is pointless to pay someone else, who is not regulated by the government, to help you.

Most proposal administrators are licensed bankruptcy trustees, and therefore are subject to continuous review by the government to ensure that they are meeting all requirements set out by the law.

Question: In the case that I apply for a consumer proposal, do I risk losing any of my assets? For example I own a boat valued at 30,000.00 dollars. Could that be taken away from me even if it held as collateral on a personal loan. If so would it be wise to get that personal loan secured.

Answer:  One of the main reasons for filing a consumer proposal is so that you don’t lose your assets.  The concept behind a consumer proposal is simple: you offer your creditors more than they would get if you filed bankruptcy, but you make the payments over a longer period of time, so it’s affordable for you.

If you own a $30,000 boat with no loans against it, it is likely that you would lose it in a bankruptcy.  Therefore, if you file a proposal, you will need to offer the creditors more than $30,000 so you can keep the boat.

If the boat is security for a loan, then the bank with the loan has first rights to the boat in a proposal or bankruptcy.  In most cases if you continue making the payments to them they will allow you to keep the boat.  Of course if you are in financial difficulty and are having trouble making payments, you will need to determine whether or not it makes sense to keep the boat: surrendering it may be the most prudent financial decision.

The rules in this area are somewhat complex, so we suggest you contact a licensed trustee for more information.

Question: How does a consumer proposal affect a debtor’s future when accepted? Does it affect your future like someone who’s gone bankrupt?

Answer: Once a consumer proposal is accepted by the creditors, the creditors cannot take you to court, sue you, or garnishee your wages.  Once you have completed all of the payments and the proposal is completed, your debts are legally eliminated.

Unlike in a bankruptcy, once the consumer proposal is accepted, the payments you are required to make in the consumer proposal are fixed; they don’t change.  That’s good, because you know exactly what you are required to do to eliminate your debts.  In a debt consolidation loan with a line of credit, the interest rate may change, so your payments may change.  In a bankruptcy, the payment you make each month is based on your surplus income, so if your income increases, your payment increases.  A fixed payment is a big advantage of a consumer proposal.

Another advantage of a consumer proposal is that you don’t lose your assets, such as a house, car or RRSP.  In a bankruptcy if there is equity you may lose some of your assets.

According to Equifax, Canada’s largest credit reporting agency, a consumer proposal is reported as an R7 (perfect credit is R1), and remains on your credit report for 3 years after the payments are completed.  A bankruptcy is coded as an R9, and remains on your credit report for six years from the date of discharge.  Since a normal first bankruptcy lasts for 9 months, that means it’s on your credit report for about 7 years.  If the proposal payments last for 4 years, the proposal is also showing on your credit report for 7 years, so in that respect a proposal and a bankruptcy are similar.

To decide whether you should file a proposal, a bankruptcy, or some other option, you need to consider all of the costs and implications.   A licensed trustee can provide you with a free consulation to review all of your options.

Question: I can’t find anyone who can offer me a unsecured debt consolidation loan. Banks have said NO …. Wells Fargo said NO … Citifinancial said NO. Where do I go now ?

Answer: With the credit crisis it has become increasingly difficult to qualify for a debt consolidation loan.  If everyone is saying no, you have the following choices:

First, you could simply not get a consolidation loan.  Cut your expenses and pay down your debt on your own.  In today’s world that is often the best solution.

Second, you could pay your debts on your own, and then try again in six months.  It may be that six months from now your debts are a bit lower, and your credit score may be a bit higher because you have lived at the same place, and been at the same job, for six more months, so you may qualify.

Third, instead of a debt consolidation loan you could try a debt management plan, which is like a debt consolidation loan, but there is no interest.  A not for profit credit counsellor can negotiate a repayment plan where you pay the debts in full, but at a reduced interest rate.

If you can’t afford to repay your debts in full, the next option is a consumer proposal, where a licensed proposal administrator works out a plan where you repay a portion of your debts.

If all else fails, the final option is personal bankruptcy.

The point here is that just because the bank says no, you don’t have to give up.  There are other options.  To find out more, check out our free Debt Options Calculator to see the cost of the different options.

Question: Is a Consumer Proposal a better option than a 2nd Mortgage with a private lender?

Answer:  It depends on the cost of the second mortgage, and the cost of a consumer proposal.

Our debt options calculator can give you a rough idea of the cost of the consumer proposal, and your lender can tell you what a second mortgage would cost.   You can then compare the two options and decide which option is best for you.

If you have substantial equity, and can qualify for a second mortgage, that may be the best option.  If however you don’t have much equity, and you can’t afford the mortgage payments, a consumer proposal may be the best option.  A trustee can provide you with a no charge initial consultation to explain the costs of the consumer proposal in more detail.

Question: I have paid 3/4 of proposal amount. can maintain that payment.

cannot pay mortgage, due to rising home costs, other expenses, illness. how to handle with mortgage company? I have missed 4 weekly payments can I ask mortgage bank to take over house? can they garnishee my wages since paying mortgage was included in original proposal?

thank you.

Answer:  You have three choices.

First, you could attempt to continue making your mortgage payments, perhaps by taking in a boarder or cutting your expenses or increasing your income.

Second, you could sell the house.  If you get enough money to repay the mortgage, the mortgage isn’t an issue, and you can continue to make your consumer proposal payments.

Third, you could stop making the mortgage payments and surrender the house to the mortgage company.  They will then sell the house, and you will be liable for any resulting shortfall.  Since that shortfall was not included in your original proposal, they can pursue you for it, and potentially garnishee your wages.

The correct answer may depend on the value of the house and the amount owing on the mortgage.  You should get an appraisal done on the house, and then discuss it with your proposal administrator.

Question: I own a house that is worth 144k but owe 130 on it. I have gone in debt 91k on credit cards and my personnel line of credit. I have never missed a min payment but have used my overdraft on my checking account. I have a full time job that earns 88 thousand per year but know I am in serious trouble. Currently I pay over 1400 in fees and interest and am only heading backwards with nothing on the principle. I have gone to the bank for a debt consolidation loan but have been declined as a result of my overdraft. I know I need help but am unsure of my alternatives.

Answer: Great question.  With the decline in the real estate market, and with the recession, many people find themselves with houses with minimal equity, and with a lot of debt.  You have a few choices for dealing with your debt:

1. Attempt to pay it off on your own.  That means you will need to prepare a detailed budget,  and determine what you can afford to pay.
2. Decide whether or not it makes sense to keep your house.  If you can’t afford the payments, it may be prudent to sell the house and lower your living costs by renting.
3. Consider a debt consolidation loan to reduce your monthly interest costs.
4. If you can’t afford a debt consolidation loan, consider credit counselling.
5. If that’s not affordable, consider a proposal.
6. If none of those options work, the final option is personal bankruptcy.

To evaluate these options, use our debt options calculator, and then contact an expert for more information.

Question: I do not want to claim bankruptcy. I have about $25,000 debt, credit cards, loans etc. still good credit. been doing all my min payments. Don’t have a job. min payments are about all I can do. Am not getting anywhere with my debt. Will remain in debt forever if i don’t get help. Can anything be done?

Answer:  You have a few options.

First, you could continue doing exactly what you are doing until you find a job.  You make your minimum payments to keep your rating positive, and then when you are back to work you can work on paying down your debt.

Second, you could file a debt management plan with  a not for profit credit counsellor who will work out a repayment plan where you repay your debts in full, but at a low or zero rate of interest.

Third, you could file a consumer proposal where you repay a portion of your debts.

Both a debt management plan and a consumer proposal require you to have enough money each month to make payments on your debts.  If you are not working that may not be possible, so you will need to review your budget to see exactly how much you can afford each month.

Finally, as a last resort bankruptcy is an option.  If you are not working you have no wages, so your wages cannot be garnisheed, so bankruptcy is not necessary to prevent a wage garnishment.  However, you may decide that it is better to deal with your debts now, so that when you return to work you do not have the stress of the debts.

We suggest you consult a licensed bankruptcy trustee to review your options in detail, and help you decide which option is best for your.