Sometimes it takes just one event to trigger a phone call to a debt professional. This was the case for Bruce (not his real name). He originally called a MoneyProblems.ca trustee in bankruptcy because he owed Canada Revenue Agency $25,000 and they had told him they planned to garnishee his wages. However, that was just the last straw for Bruce. As it turns out, he had more financial issues to address, not just his tax debt. Bruce needed a debt strategy.
Bruce is single, has no dependents and is retired from his first profession. He has a good income as he receives a pension income and is now a university professor. Every year he owes income tax because he does not have enough taken out of his pay for source deductions due to having two incomes. Eventually this resulted in an unpaid tax debt of $25,000. Bruce also had $100,000 in credit card debt but was not behind on his monthly payments. With two sources of income he was able to make his monthly credit card payments with little difficulty although his debts were not going down.
Bruce’s primary concern when he talked to his trustee was that he would not be able to pay his bills if CRA garnished his wages. Bruce also disclosed that he had previously filed for bankruptcy many years ago.
Bruce owned one old car but also had two cars that were financed. To make Bruce’s situation a little more complicated his income in the summer was reduced substantially because he did not teach. It was clear from our meeting that Bruce had more than a tax debt problem. He clearly had no idea how to budget, nor did he understand how to manage credit.
Bruce’s Debt Solution
In order to decide how to deal with Bruce’s credit card and income tax debt he first had to work on a budget. On the advice of his trustee, Bruce asked his employer to adjust the amount of income tax deducted from his pay which would eliminate any income tax owing going forward. His trustee pointed out that the cost of running and maintaining and insuring three vehicles took up a lot of his after tax income. He decided to return both of the financed cars and lease one less expensive car which helped his cash flow significantly.
Once Bruce had a budget worked out he was then able to determine how much money was left over to deal with his debts. Declaring bankruptcy was not a good option due to his high level of income and his previous bankruptcy. In a bankruptcy, his surplus income payments would have been very high and, due to bankruptcy rules in Canada he would be bankrupt for 3 years. Bruce preferred to offer his creditors a settlement through a consumer proposal. His trustee was even able to negotiate a proposal with Bruce’s creditors that allowed him to make lower payments in the summer when his income was reduced and higher payments the rest of the year when his income was higher.
Bruce has been in his proposal for some time now. He admits that managing his money wisely is still a challenge, but agrees that life is a lot less stressful. He has learned to live on a cash basis as he no longer has credit to buy things that he cannot afford. He looks forward to finishing his proposal and looks forward to being able to build up some savings. But mostly, Bruce looks forward to the day when he will be debt free and with the advice and recommendations provided by his trustee he is sure he can stay that way this time.
If you think you need some help looking at the big picture and coming up with a plan to deal with your debts, talking to a professional bankruptcy trustee is a great start. To book an appointment, or ask a question, contact a bankruptcy trustee in your area today.