Archive for Category 'Bankruptcy Alternatives', page 2

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: A collection agency called and told us that if they don’t get payment by 3pm the following day they would proceed. When we asked what this meant, the agent replied “I don’t know, I’m not a lawyer” What does proceed mean??

Answer: Most of the time it doesn’t mean anything.  A collection agent’s job is to collect money, so they will tell you whatever they think will help them collect money.  If a collection agent tells you something, and then can’t explain what it means, it’s likely that that means they won’t be doing anything.

A collection agency can phone you and send you letters.  If that doesn’t work, they could “proceed” to take you to court and attempt to get a judgment and garnishee your wages.  However, court actions cost money, so that’s a last resort for a collection agent.

Also, they know that if they do start a wage garnishment, it is likely that you will file a consumer proposal or bankruptcy to stop the garnishment, so there is little point in them forcing the issue too far.

For more information, please see our article on dealing with collection agencies.

Question: I owe the following:
1.$17,500 credit cards.
2.$17,000 personal loan.
3.$3,700 for my computer
My yearly income totals roughly is $27,000.
My question is should i go the route of getting a debt consolidation loan (which is really hard for me to get one).
Or do a consumer proposal which in my option is better for me?

Answer: If your goal is to protect your credit score, a debt consolidation loan is your best option.  If you qualify and can use the loan to repay all of your debts, you will have a very high credit score.

Unfortunately, as you stated in your question, it is very hard to get a debt consolidation loan.  We are in a recession, so unless you have assets, a good job, and perhaps even a co-signer, it’s not easy to qualify for a loan.

For that reason a consumer proposal may be a better option.  In fact, if you don’t qualify for a loan, it may be your most logical option.

We suggest you start by using our free debt options calculator to determine the cost of each of your options.  Then, consult a consumer proposal administrator to review your options and determine which option is best for you.

Question: Recently my husband and I applied for a second mortgage to pay off bills and were declined..within the past year he lost his job was on EI maxed out EI and had no income coming in and our credit cards fell behind..he recently got a new job but our credit cards are behind..I was looking at a debt management plan..I am wondering if since the credit cards are not joint (except 1)and he is in worse shape (4 months behind) if he should just do it and if I should try to bargin with the credit card companies so I could stay out of a debt management plan (I’m 2-3 months behind in my payments) ..I was thinking if one of us had decent credit it would be easier? Also the one joint credit card: would it be wise to keep it out of the proposal or would it hurt my credit alot to have 1 credit card in the proposal and the rest not??

Answer: You are asking about two different procedures: A debt management plan and a consumer proposal.  In a debt management plan all of your debts are repaid in full; in a consumer proposal the creditors will often accept less than full payment.  Both procedures have the same impact on your credit report.

In general, if it’s possible for you to repay all of your debts in full, then it would be better for you to not file a consumer proposal or debt management plan.  However, if you are already two or three months behind in your payments, it’s likely that your credit is already damaged, so preserving your credit may not be your biggest priority at the moment.

It may be better for both of you to deal with all of your debts now, and then begin rebuilding your credit once your debts have been dealt with.  We suggest you contact a credit counsellor or a trustee that administers proposals to review your options in more detail.

Question: Can a collection agency working for the bank sweep your entire bank account every payday?
I am dealing with an overdue overdraft account and made arrangements for weekly payments. I was 2 days late with a payment and they swept my entire account. I thought that worse case, they can only take half? They have been repeatedly sweeping it, even before the late payment.
I need to know if they can take everything and leave us nothing to live on? Since every other time it was swept they have returned it.

Answer: Yes, as you have observed, a bank or collection agency can take money from your bank account.

The immediate solution is to open a new bank account at a new bank (where you don’t owe any money).  You can then deposit your paycheque in the new account.  Since the old bank and collection agency is not aware of the new account, they can’t automatically seize funds from it.  They would require a court order to seize funds from the new account.  (Your current bank doesn’t need a court order, since the money is sitting in your account at their bank).

Of course opening a new account is only a temporary solution.  The collection agency can still pursue you for the amount owed.  If you have other debts, it may be prudent to consider a permanent solution, such as a consumer proposal or a bankruptcy.

Question: Is there any way to get a loan to pay off the remainder of my consumer proposal (13,000) and we also have a car loan with 29% interest rate. I would like to get one loan to pay off both but i have called and the banks say they will not give us a loan because of the debt proposal is pretty much the same as bankruptcy.

Answer: As you have discovered, it is almost impossible to get an unsecured bank loan while you are in the middle of a consumer proposal.  Here’s why:

In a consumer proposal you offer to repay a portion of your debts.  For example, your total debts may have been $50,000, and you have made a proposal and still owe $13,000 on the proposal.  If for some reason you are unable to complete the proposal and pay the remaining $13,000, the proposal fails and all of your original debts return (less whatever they received during the proposal).  In your case that could mean you still owe close to $50,000.  That’s why a bank doesn’t want to lend you the money; they are afraid that if the proposal isn’t repaid, you end up with a lot more debt than they expected.

You have some options.

The first option is to repay the proposal as quickly as possible.  Once it’s repaid, your credit score will begin to improve, so that in the future you can refinance your car loan at a more reasonable rate.

Your other option would be to get a friend or family member to borrow the money for you, and then loan it to you so you can repay the proposal.

Or, keep the proposal in place and ask your friend or family member to co-sign for you on a new car loan, or to arrange for a new car loan in their name.  That may make it possible to refinance the car now at a lower rate, since the bank’s decision will be based on your family member’s credit score.

Unfortunately there are no easy solutions, so it may be best to simply continue with the existing payments.

Question: My wife and I are self employed. We have huge credit card debts because we’ve used them to finance our businesses. We also have about 20% equity in our home. The problem is business has been bad for the past six months and we’ve run out of cash. Is there a solution where we could defer making payments on the debts for six months or so and then simply resume making payments when business improves?

Answer: You are in a difficult situation.  In general, credit card companies will not allow you to stop paying for six months.  You have a number of choices:

First, you could simply stop paying.  The credit card companies will obviously call you and attempt to collect the money, and they may even take you to court.  If they do, they will probably have difficulty garnisheeing your wages, since as a self-employed person you have “earnings”, not “wages”.  Since it may take them six months to do that in any event, by the time they are ready to go to court you may be in a position to resume making payments.

A second option would be to continue making whatever payments you can, even if it’s less than the minimum payment, and hope that your business improves and you become able to make full payments again.

A third option would be to file a consumer proposal.  You could offer the creditors a nominal payment for the first six months (say $100 per month), and then gradually increase the payments after that based on your expectations for future income.  A consumer proposal only makes sense if you are confident that business will improve significantly in the future.

The final option would be to simply assume that business won’t improve in the near future, and declare bankruptcy.  This may result in losing your home, so careful consideration would need to be given to this option before making a decision.

A trustee can provide you with more advice on whether a consumer proposal or a bankruptcy is the correct option for you.  Either way, you will want to make a plan as soon as possible so that you can deal with your debts, and devote most of your energies to running your business.

Question: We filed a consumer proposal in April of 2009 and part of that consumer proposal was to pay Canada Revenue back for income tax, if in the 2010 year we were to receive a tax refund, will we be eligible to receive this refund without penalities?

Answer: Yes, CRA generally keeps your refund and applies it against back taxes for the year of the proposal, but you should receive all tax refunds starting in 2010.

Question: My gross income annually is $70,000 and my wife’s is $42,000. We own a home valued at $490,000 with an outstanding mortgage of $460,000. We have $110,000 of unsecured credit, a secured car loan for $15,000, and a second leased vehicle. In addition to this we are behind $7,000 in property taxes.  Is personal bankruptcy in Canada our only option?

Answer: No, bankruptcy is not your only option.  In fact, it is probably not the correct option.  Before considering bankruptcy, you should consider two other alternatives.

First, you could consider selling your house and renting.  By selling your house you might generate a small amount of cash, but you would probably also significantly lower your monthly living expenses.  Paying rent is probably much less expensive than paying a mortgage and property taxes and repairs and maintenance on a $460,000 mortgage.

A house is not an investment, so reducing your living expenses may be a good start.

Second, whether or not you decide to keep your house, bankruptcy would be very expensive, because the cost of bankruptcy is based on your surplus income each month.  Given your income, a bankruptcy would be very expensive.

A better option would be a consumer proposal.  With a consumer proposal you can work out a payment plan that is affordable, without the significant monthly costs of a bankruptcy.  A trustee can explain both options in more detail, and show you the costs based on your situation.