Debt consolidation is one of the options you may choose to investigate if your debt payments have become overwhelming. Though there are numerous ways to consolidate your debt, the practice generally involves lumping most or all your balances together into a single affordable payment.

Consolidation options are varied and come with their own benefits and potential risks. Let’s consider pros and cons for some of the options available to consolidate debt.

Balance Transfers

Your bank or credit card provider may offer the opportunity to transfer the balance of one or more debts to a credit card or line of credit at a reduced rate over a set timeframe ­— usually between six months and a year.

Qualifying for a balance transfer typically requires a decent credit score and good borrowing history with the lender. It will also typically involve paying an up-front fee, usually in the neighborhood of three percent of the total balance you’re transferring over.

Pros:

• Great introductory rates:  Most balance transfer offers feature an ultra-low or zero percent introductory interest rate.  This maximizes the efficiency of every payment and can help you pay down the debt much faster - provided you don't add to it over that timeframe.
• Maintains your credit:  There's a twofold benefit here:
  • Paying off  your old debts will boost your credit rating.
  • Paying down your balance transfer debt will maintain your positive credit history.

Cons:

• High rates after introductory period:  Once the introductory period ends, any remaining balance will be subject to the normal interest rate (usually around 19.99%).  Before committing to a balance transfer, ensure you know all the rates and terms you are agreeing to for the lifetime of the debt.
• Temptation to spend:  Instantly freeing up space on credit accounts can be dangerous if you don't have a plan to prevent future debt.  Consider reducing your credit limits, cancelling existing accounts or other techniques to prevent overspending.

Consolidation Loan

Generally obtained through a bank or private lender, a consolidation loan ­­enables you to combine most or all of your outstanding debts into one affordable monthly payment. It will ideally have a much lower interest rate than you’re currently paying on average between your credit cards, lines of credit and other loans ­— reducing both the number and total cost of your monthly debt payments.

Pros:

• Simplifies monthly budgeting:  Instead of juggling multiple debt payments every month, you have just one.   This significantly cuts down on your stress and makes it easier to keep track of your finances.
• Increases your cash flow:  A consolidation loan with a favorable interest rate could potentially free up hundreds of dollars in your monthly budget.  You can direct these surplus funds toward paying your debt down even faster or necessities you couldn't afford previously.

Cons:

• Potential for high payments:  To avoid paying more than you are right now, it's critical to ensure your consolidation interest rate is lower than the average of all your outstanding debts.  Don't get so swept away by the promise of making fewer payments that you end up putting yourself in a more difficult financial position.
• Temptation to spend:  If your old credit accounts remain active, you may be tempted to use them.  Consider cancelling or reducing your credit limits to prevent adding new debt and repeating the debt cycle. 

Debt Management Programs

Depending where you live, credit counsellors and other service providers may offer a handful of options which allow you to pay back debt at a reduced amount over a certain timeframe. Usually this involves entering either a Debt Management Plan or otherwise negotiating an informal debt settlement with your creditors.

Pros:

• Pay off debts:  These programs can be effective at reducing both the timeframe and total cost of your debts - provided you have the income to sustain relatively large payments through the duration of the program.
• Good advice and support:  Many credit counsellors can offer insight and feedback about your financial situation and relationship with credit - and help you avoid falling back into the cycle of debt.

Cons:

• High payments:  Some debt management compani9es charge large administrative fees which result in a high monthly payment that can strain your budget.  What may at first seem like an effective solution can quickly become a new financial hardship.
• No legal protection:  Creditors are not required to agree to the terms of your program and may terminate your agreement at any time.  Moreover, creditors may still pursue collection action - including wage garnishments and court judgments for unpaid debts - even while they participate in the debt management program. 

Consumer Proposal or Bankruptcy

Bankruptcies and Consumer Proposals are the only two federally legislated options to ‘consolidate’ your debt. They are also the only two options which, provided you meet your responsibilities, offer both legal protection and a clear path to debt freedom. Most debts may be included in a Bankruptcy or Consumer Proposal and these options tend to be the most cost effective for debtors.  

Pros:

• Legal protection:  Both Consumer Proposals and Bankruptcies place a stay of proceedings on all current and future collection action, wage garnishments and court judgments.  This eliminates the stress of dealing with your creditors and allows you to focus on rebuilding your finances and your life.
• Clear path to debt freedom:   Bankruptcies and consumer proposals give you a transparent, legally binding cost structure, process and timeline to eliminate your debt.  You will never be caught off guard by unexpected administration fees or creditors withdrawing their participation.
• Financial counselling:  Every person who files a Consumer Proposal or Bankruptcy must participate in two financial counselling sessions.  By discussing everything from budgeting strategies to savings goals and understanding the causes of debt — these sessions will give you the confidence to create a stable financial future.   

​
Cons:  

• Effect on credit:  Bankruptcies will negatively impact your credit rating for at least six years after their completion.  Consumer Proposals will negatively impact your credit rating for at least three years after their completion.  However, they also offer the opportunity to begin rebuilding your credit almost immediately —certainly sooner and more effectively than if you were to continue the cycle of debt.
• Stigma:  Many people avoid Bankruptcy and Consumer Proposals because of outdated attitudes toward insolvency.  Just remember, these programs exist to give honest, unfortunate debtors like you a second chance and the opportunity for a financial fresh start. 

​
The Right Solution

When you’re trapped in the cycle of debt and faced with a range of options, it can be difficult to know which choice is the right one for you and your financial future. Thankfully, you don’t have to make that decision alone. Licensed Insolvency Trustees will always offer a no obligation Free Confidential Consultation to review your financial history, discuss your goals and help you find the best path forward.

Licensed Insolvency Trustees are the only debt professionals in Canada who can administer Life-Changing Debt Solutions such as Consumer Proposals and Bankruptcies. However, they also have a legal and ethical duty to explain all your debt reduction option and provide an unbiased opinion about which options you’d benefit from most. From the moment you walk in their door and through every decision you make, you can feel comfortable knowing you’re getting the best, most informed and most trustworthy advice possible.
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You’re only one call away from defeating your debt for good. Call MNP today to begin your financial fresh start today.

This article was originally written for MNP Ltd.  View the original post here.

That’s a good question, and one that might produce some surprising answers. There’s no one size fits all solution to debt. You need to consider all your options before you take out a consolidation loan or max out your line of credit to pay off your debts. You also need to be clear on your short- and long-term financial goals.

What’s prompting the question?

If you’re considering using your line of credit to pay off your debts, it’s likely you’re facing one or both of the following scenarios: 

• You currently owe a balance on a higher interest credit account (e.g. credit cards, loans, etc.) than your line of credit would charge;
• You currently owe a balance on several different credit accounts (e.g. multiple credit cards, loans, etc.) and are having trouble managing your monthly debt payments;

If that’s the case, using your line of credit to consolidate your debts can potentially:

• Reduce the amount of interest you pay on your debts (the typical line of credit charges about four times less than the typical credit card)
• Reduce stress by simplifying your finances (one monthly payment)
• Reduce the time it will take to pay off your debts

But don’t make that transfer just yet. There are some potential pitfalls you need to be aware of. And if you’re not careful, they can negatively impact your debt situation. 

Secured Line of Credit

Secured lines of credit like a home equity line of credit (HELOC) often provide flexible repayment terms and high credit limits. They are fast becoming the borrowing tool of choice for debt consolidation. HELOCs can be useful, but they can also be risky — especially in unstable real estate markets.

Interest rates are usually lower for secured lines of credit because you are providing collateral to the lender. The lower interest rate comes with a catch, though, because you aren’t bound to set monthly payments and your lender could foreclose on your home if you fall too far behind.

Remember, if you cannot make payments toward your HELOC, or you make interest only payments, you will not reduce your debt. So, you may find yourself in the same situation as before you used your HELOC — or even further in debt.

You must be disciplined and consistent with your repayments if you’re going to use this option.

Unsecured Line of Credit

An unsecured line of credit typically commands higher interest rates than their secured cousins because you are not guaranteeing the loan via title to your real property. But like an unsecured line of credit, you will typically only have to make interest only payments every month.

This repayment flexibility is convenient. But it can also be troublesome if you’re not disciplined with your payments. Failing to repay the principle balance on your line of credit could prolong your timeline to becoming debt free — and it could also end up costing you the same in interest as a higher interest credit card.

If you’re going to use an unsecured line of credit to consolidate your debt, you need to have a clear repayment plan in place first.

What Are My Other Options?

Consolidating your debt can make your payments easier, but it does not reduce the overall amount you have to repay. Depending on your financial situation, it may also be difficult to obtain a line of credit or consolidation loan if you don’t currently have one.

There may be other options available to both reduce the number of payments and the total amount you to repay. Schedule a Free Confidential Consultation with a Licensed Insolvency Trustee today to learn whether these are appropriate for your unique situation.

By Selina Jacobson, Registered Insolvency Counsellor

Scheduling and attending a Free Confidential Consultation with an MNP Licensed Insolvency Trustee is the first step to changing your financial future. You may initially feel hesitant because you don't know what they're going to ask you, or you're unsure of what to bring with you. Perhaps everything you've heard about filing a bankruptcy or a Consumer Proposal is negative. If these are your fears, you're not alone. But the only way to get the right information is to speak with a qualified professional, specifically trained to get you out of debt.  

To set your mind at ease, attending a Free Confidential Consultation does not automatically mean you will be filing a bankruptcy. Your consultation is an information gathering opportunity where we will use our education and experience in solving debt issues to advise you of your best options. You can ask as many questions as you need to. Our role as consultants is to do the same; ask specific questions to gather all the information relevant to your situation.  

Think of it like a puzzle.   First, we put the edge pieces together to frame the picture and gain perspective as to which pieces will go where.  Next, we group pieces according to their color or pattern, fit those pieces together and join them to the frame. Then we move on to another set of pieces and so on. Soon all the pieces fit and the entire picture connects. This systematic approach helps save time compared to randomly grabbing pieces and attempting to put them together with no clear plan or strategy.

Throughout the consultation, questions will be grouped together according to topic.  Initially, some may not seem relevant. But each reflects a piece or section of the financial puzzle we are fitting together. Once we have a clear picture of your financial situation, we'll present you with options and help you make an informed decision regarding your next steps.  

The Frame

What makes up the frame of your financial puzzle? A good starting point is to briefly explain the causes of your financial difficulties. When we understand where you are coming from, we can tailor the remainder of our questions to your unique situation. For instance, if you operate a business, we would ask what type of business it is.  Depending on the answer, we'd proceed with specific follow up questions that contextualize how your business might inform your options for getting out of debt.  

Questions regarding your personal life are also part of the framework. Are you single or married? Do you have dependants or pay support to an ex-spouse? Do you own or rent? What is your total household income? 

Why does this matter? Well, if you're married with 10 children, we would carefully analyse your monthly income and expenses to evaluate what type of debt solution would be affordable for you and avoid further financial hardship to your household. On the other hand, if you're single with no dependants, you may have more freedom to pursue other debt solutions.

Once we have the frame complete we can start grouping questions to gather specific sections of the puzzle. These sections include: your assets, debts, monthly income and expenses and a brief history of your financial transactions.

Your Assets

Many people avoid investigating debt solutions from fear of losing their home, car, household goods, etc. However, each province provides exemption amounts for certain assets to help ensure rehabilitating debtors are not left homeless, carless or couch-less. 

Full disclosure of your assets, including investments like RRSPs or TFSAs, insurance policies, recreational vehicles and potential future windfalls like an inheritance or settlement helps your Licensed Insolvency Trustee assemble a comprehensive list of what your assets are worth, along with what is exempt and not available to creditors. It's also the first big chunk of the puzzle to help determine whether you are insolvent and what MNP can do for you.

Your Debts

Knowing the total amount of your debts is the next large chunk of the puzzle required to determine whether you are insolvent and what solutions are available. Your Licensed Insolvency Trustee will benefit from any recent loan or credit card statements you have, collections notices and a simple list of any other personal debts you may owe to friends or family.

It's important that you disclose all debts you owe – whether it's to a credit card company, an automotive lender, the Canada Revenue Agency or a family member. With few exceptions, all creditors rate the same under insolvency legislation.   For your protection and to ensure all creditors are treated fairly throughout the process, this means you cannot decide to disclose one creditor and not the other. Whether it's a $100,000 tax debt or a $10 library fine, you want to include absolutely everything. 

Your Monthly Income and Expenses

Your Licensed Insolvency Trustee will then look at the actual income coming into your household every month– including employment income, tax credits, pensions, social assistance, etc.
They can also assist you with creating a comprehensive list of your expenses and will prompt you for the kinds of expenses you may not have thought of - like bank fees, pet food, and the weekly (or daily) coffee splurge. Bringing a recent bank statement with you will help with detailing specific payments like insurance and utility bills that may be automatically debited from your account.

Being insolvent doesn't mean you have to forego living a normal life – you need to get haircuts, buy shoes, spend money on gifts, buy a bottle of wine. However, you need to be realistic and honest with us about your spending each month, so we can make sure your bases are covered.  

Now with this third chunk of the puzzle added, we are getting very close to seeing the whole picture.

Recent Financial Transactions

Questions about recent financial transactions help your Licensed Insolvency Trustee understand whether any personal property such as a home, vehicles, personal goods or investments have been sold, transferred or cashed out in the previous year, and what was done with the proceeds from those transactions. 

Among other things they will ask:

• Have you filed a bankruptcy or consumer proposal in the past?
  
• Are there current court fines you are responsible to pay?
  
• Are you involved in any civil litigation matters where you may be entitled to a settlement?
  
• Are you up to date with filing your taxes?
  

These seemingly random pieces will fit into the final gaps of the puzzle. With those in place, you Licensed Insolvency Trustee can craft a solution to fit your unique situation.

Your Options

It is your Licensed Insolvency Trustee's duty to ensure you are informed of all debt relief options available to you. They will explain each of them to you in detail. These range from proceeding as you are with your current debt reduction strategy to consolidating debt with a personal loan through a financial institution, filing a consumer proposal or bankruptcy.

When the picture of how to fix your financial troubles becomes clear, it's much easier to decide which solution seems best for you. 

Don't wait too long to schedule your Free Confidential Consultation with a Licensed Insolvency Trustee. The sooner you can assemble your financial puzzle, the quicker you will find relief from financial stress and the sooner you can start working toward a financial fresh start for yourself and your family.  

This article was originally published by MNP.  To view the original article, click here.

By Selina Jacobson, BIA Insolvency Counsellor

Remember Simon and Molly? Last month they completed their first bankruptcy counselling session with Joan. They arrived extremely nervous and not knowing what to expect, but walked away with a greater sense of confidence about how to take control of their financial life.  

Today, they are about to begin their second counselling session. With a better idea of the process, Simon and Molly are looking forward to continuing their journey to a better financial situation and improved relationship with debt.

"What are you going to teach us today?" Molly asks, reaching for a booklet on Joan's desk.

"First, I'd like to review how your budget and money management processes are coming along," Joan replies. "I know you were struggling before our first meeting, so I'm interested to see how you've progressed over the last few weeks."

The couple nod, looking noticeably more confident and self assured than the last time she saw them.

"Then I have some new concepts to work through which I think will really benefit you both," she adds.

"We'll look at some non-budgetary reasons that lead to insolvency. I'll share some helpful resources that can help you stay on track. And, as promised, I'll walk you through how to rebuild your credit once you receive your discharge from bankruptcy."

"Sounds good," Simon replies as he looks over Molly's shoulder at the handout.

Review and Savings Goals

Joan asks Simon and Molly how their budgeting process has progressed over the past month.

Molly explains they've not only set a time each payday to discuss their budget, but also a separate time to complete a monthly report. Simon offers that the guidelines and worksheets were a big help in establishing their routine and that they've already uncovered areas where their budget is leaking and how to fix it.

"Best of all, we didn't argue too much!" Simon laughs.

"Keeping receipts and tracking everything like you suggested was an eye opener," Molly adds.

Pleased with their progress, Joan asks about any challenges they encountered along the way and whether they've set any financial goals. Though they seem eager, both appear hesitant to commit to any financial goals.

"Right now, focusing on sticking to your budget and focusing on open communication is a good goal," Joan explains.

Looking ahead to when the bankruptcy is completed, you could consider some other goals.  Like allocating your current bankruptcy estate payment towards building an emergency fund or saving for something specific you can work towards once the bankruptcy is finished.  

Non-Budgetary Causes of Financial Difficulties

Joan passes a worksheet to Simon and Molly and asks them to read it over. It's a list of common reasons people find themselves in financial distress.

"You'll notice many of these are addictions related," Joan explains. "Gambling, drugs, alcohol, even shopping... I know none of those played a significant role in your bankruptcy. But they underscore how certain personal challenges are more financial in nature than they appear at first glance."

She asks them to identify which items resonate. She's encouraged when Simon and Molly point to many of the same – with inadequate family role models, medical issues and chronic stress rounding out the top three. Joan asks how those factors have affected them and offers suggestions on how they can better prepare for and manage similar situations in the future.

She reinforces the importance of communication. Especially when it comes to stress, which is a broad umbrella which blankets most (if not all) the other factors. She explains how understanding how one another is feeling and coping with challenges can be the key to get past them.

"I've been guilty of holding it in," Simon concedes. "But regularly talking about our finances has shifted my perspective on many of our previous troubles."

Resources to Prevent Future Financial Distress

"I'm glad to see you two are so engaged with this process," Joan says. "Because, unfortunately, multiple bankruptcies are on the rise. And as much as I like you both, I really don't want to see you back here."

She explains that anyone who files for bankruptcy faces two options: One is to continue down the same path – overspending, blaming others for poor financial decision making, not taking accountability and refusing to ask for help. The other is to make the necessary, and often difficult decision to change – to create a budget, curb spending, communicate openly and seek assistance when it's needed.

"If you follow option one," her words hit bluntly, "I can all but guarantee we will meet again."

Simon and Molly's eyes widen. Both are visibly distraught at the prospect of having to repeat this process.

Joan softens her voice and assures them she's confident they're moving in the right direction.

"There will still be bumps along the road," she cautions. "But navigating them is easier when you know when and where to ask for help."

She instructs them to flip to a page in their counselling booklet, which includes contact information for everything from addictions counselling and support to consumer education websites. Joan asks Molly to write down several additional resources that she believes would be particularly helpful given their unique challenges.
"These are your lifelines," she says. "If you ever feel like you're even at risk of drowning, use them!"

Rebuilding Credit

"Remember in the last session, you asked me whether you'd be able to buy a house someday, Molly?" Joan asks. "Or buy a car?"

"It's definitely a long-term goal," Simon replies.

"We realize it will take several years. But we're willing to be patient and do whatever it takes to rebuild our credit, so we can get what we really want – not just 'stuff'," Molly adds.

Joan praises the couple for being realistic. She explains that rebuilding their credit will take time, but also that it's worth thinking about now so they can begin goal setting, planning and putting the pieces in place. She also cautions that not all credit vehicles are equal nor are all credit products suitable for them right now.

Additionally, Joan offers different strategies Simon and Molly may want to consider that will help them build and maintain good credit – including applying for secured credit cards, discussing RRSP loans with their bank and how mortgage brokers can help them rebuild their credit for specific purposes.

Finally, she emphasizes the importance of getting a requesting their credit report immediately after their bankruptcy is discharged and annually moving forward.

"As a consumer, you are the only one who can bring up any issues on your credit report to the credit bureaus," she says.

"They have to follow through and investigate any mistakes. Among other things, like preventing identity theft, correcting any misinformation that may hinder your credit rebuilding goals is vital for protecting your future financial stability."

Nearing the Finish Line

"You will receive your discharge certificate in the mail when you're officially done with your bankruptcy," Joan explains. "Make some copies and keep the original in a safe place – just in case anyone needs to see it."

She smiles and slides a counselling certificate towards Simon and Molly. "I know this isn't the one you're really looking forward to, but trust me when I say it's still an accomplishment worth celebrating and one you've more than earned."

"Thank you so much for everything," Simon says graciously as he reaches out to shake Joan's hand.

"You've been so, so helpful," Molly adds as she reaches out to do the same. "For the first time in a long time we genuinely feel confident about our future."

After walking Simon and Molly to their car, Joan returns to her office to make some final notes and file her copy of the counselling certificate. Confident they took the sessions to heart, she takes a moment to visualize how their post-bankruptcy life might look and feels grateful for the role she got to play. 

This article was originally written for, and published by, MNP.  To view the original post, click here.

By Selina Jacobson, BIA Insolvency Counsellor
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​When an individual or couple files a consumer proposal or an assignment in bankruptcy, the Bankruptcy and Insolvency Act requires the completion of two financial counselling sessions with a Registered Insolvency Counsellor. 

Why Counselling?

Many people are initially skeptical about financial counselling and wonder why they're obliged to participate. They may perceive it as a punishment for taking on too much debt or feel ashamed they need someone else to teach them about money management.

This is absolutely not the case.

As part of the financial rehabilitation of a bankrupt or consumer proposal debtor, financial counselling provides a safe non-judgemental forum to learn new ways to manage finances, recognize what changes are necessary to achieve financial goals and prevent falling back into the same cycle of unmanageable debt.

The financial costs, measured both in dollars and impacts to one's credit report, are significantly higher for second and additional bankruptcies and consumer proposals. Financial counselling is a pre-emptive measure to help avoid these damages.

Inside a Session: Simon and Molly
Simon and Molly are a fictitious couple who recently filed for a joint bankruptcy. Their debt troubles began when Simon lost his job. With only one income stream in the household, the couple began using credit cards and lines of credit to cover many of their living expenses. Their story picks up immediately prior to their first financial counselling session.

Simon and Molly are waiting nervously in the lobby. Neither of them know what to expect. They're both worried, stressed out and have been struggling to get their household budget back on track. When their counselor Joan enters the room, she offers a warm greeting and directs the couple to a meeting room where she provides them with a counselling booklet.

"How are you both today? "Joan begins, smiling.

The couple look at each other and then back at the counsellor. "We're so overwhelmed. And nervous," Molly confesses. "We have no idea what to expect today. We don't even have our budget in place.

"I know we were supposed to fill in a budget form for you, but I lost track of our expenses and work's been all over the place for Simon. So even trying to budget with what little is coming in doesn't make sense." 

Joan's empathetic smile persists. "Don't worry," she replies. "You'll get there. That's what this process is all about. Let's begin with a quick review of your file."

She spends a few minutes thumbing through some paperwork and offers to answer any questions Simon and Molly may have about their bankruptcy. After gaining a better idea of their situation and with the tension in the room noticeably eased, she shifts her focus to the day's materials.

"There are four main topics I would like to discuss with you this afternoon," Joan explains.

"We'll start with money management skills and knowledge. Then we'll look at your shopping and spending habits, identify the warning signs of financial difficulties and I'll give you a brief introduction on how to obtain and use credit moving forward.

"First, let's talk about your budget."

Money Management

Joan returns to the budgeting worksheet that she'd requested Molly and Simon fill out prior to their first meeting. With the couple agreeing to redouble their efforts for the next meeting, Joan offers some tips and techniques to make the process less intimidating. She asks them about methods they have previously used to manage their expenses and offers suggestions for how to create a more structured and sustainable budgeting strategy moving forward.

Joan then turns her focus to effective financial goal setting strategies – explaining how financial goals will strengthen their ability to manage money better, how to set clear and attainable short- and long-term goals and how to use their budget to measure their progress and achieve success. She offers examples of financial goals Simon and Molly may want to consider and hands them several worksheets to complete together before the next meeting.  

Shopping and Spending Habits

Shifting to the next topic, Joan offers Simon and Molly a word of caution.

"While budgeting and money management skills are the foundation for your financial success," she explains, "whether you achieve your goals or not will ultimately depend on how closely your actions align with your plan."

Offering practical examples of how quickly unplanned expenses can add up to completely overshoot a budget, Joan reminds Simon and Molly about the dangers of impulse purchases. To drive the message home, she asks them both to discuss the areas where they have fallen prey to overspending and to consider how they could avoid those urges in the future.

Not wanting it to be all bad news, however, she also reveals some valuable money saving insights she believes the couple might benefit from – including how to reduce their food and household expenses, cut down on monthly bills and even entertainment costs.

Warning Signs of Financial Difficulty

"Money troubles rarely ever happen overnight," Joan warns as she passes Simon and Molly a sheet of paper. It's a list of financial red flags. She asks them to read it over and identify anything they believe may have contributed to their bankruptcy.

As they do, she encourages them to be honest about any poor habits and to consider what they could do to change them. She reminds the couple that changing their behaviours will be an ongoing process and they may have to try several strategies before they find something that works. She encourages them to review the list every month when they create their budget, to use it as a benchmark to review their progress and as a reminder of their priorities whenever they feel the urge to spend outside their plan.

"It's not about beating yourself up," she reminds the couple. "It's about seeing where things could go off the rails and course correcting to prevent things from spiraling out of control."

Obtaining and Using Credit

"It's been a struggle to adjust to only using cash," Simon laments. "Without credit to fall back on, we constantly feel like we're on the verge of collapse."

Thanking him for the transition to the final topic of the afternoon, Joan immediately sympathizes with Simon's point of view. She's watched dozens of clients go through a similar transition and is aware of how difficult it is to lose such a significant financial vehicle – especially so suddenly.

But she's also quick to temper her compassion with a word of warning: "Credit is a financial tool designed for a specific purpose," she says. "And that purpose is never to offset an unbalanced budget."

She then explains some of the more productive and healthy ways the couple could use credit in the future if they choose. She re-assures Simon and Molly that their dreams of someday owning a house or buying a new car are entirely within reach, though it will take some effort to rebuild their credit. She promises they will learn more about that process in the next session.

Looking Ahead  

"Do either of you have any questions before we wrap up for the afternoon?" Joan asks.

"I don't think so," Simon replies.

"You've given us a lot to think about," Molly echoes. "I'm sure we will have several the next time we meet."

"I'm sure you will," Joan says as she looks down at her calendar. "Our next appointment will be one month from today. Does the same time work for you?"

The couple nod in agreement.

"Perfect," she says as she hands them a card with the details for their next meeting. "How are you both feeling now?"

Molly sighs. Both she and Simon look much more relaxed. "Much better, thank you. This was far less stressful than I think either us anticipated."

​Stay tuned for the second installment where we'll continue with Simon, Molly and Joan during their second counselling session. They'll learn contributing factors to insolvency beyond their budget, how to rebuild their credit and helpful resources that can prevent future financial difficulties. 

This article was originally written for, and published by, MNP.  To view the original post, click here.

By Sandra Wolverton, BIA Insolvency Counsellor

For people with minor or even moderate debt, the combination of a structured financial plan and a few temporary sacrifices can go a long way toward eliminating their burden. One less dinner at a restaurant. A few nights playing board games at home instead of going to the movies. Avoiding the mall for a few months. A few small sacrifices can ultimately add up to a big reward.

But what about people dealing with extreme levels of debt? Is it reasonable to reduce their discretionary spending to nearly zero for an extended time-frame in hopes of achieving a financial fresh start?

Aggressive Debt Repayment

I recently spoke with a financial planner who told me about a young couple he'd been helping. They earned a decent income but struggled with an overwhelming debt burden. He suggested they consider an aggressive debt repayment strategy which could free them of their several credit cards, loans and lines of credit in eight years.
This plan required every single dollar from the couple's discretionary spending bucket go toward paying down their debt. That meant:

• No restaurants, coffees, snacks or food aside from groceries
• No movies or concerts
• No shopping for new clothing, furniture, appliances or electronics
• No date nights, birthday parties, weddings or special events
• No vacations, road trips or travel of any sort
• No gym or club memberships
• No retirement savings contributions
• No contributions to their emergency fund

Essentially, their life would be a repeating cycle of: Wake up, go to work, come home, make dinner, watch TV, go to bed, repeat. Could you imagine doing that every day for nearly a decade?

Consumer Proposal

I asked the financial planner whether he'd considered suggesting a Consumer Proposal instead.

Not only would this help the couple achieve the same goal (becoming debt free) within five years, but their monthly payments would also be lower – leaving ample room to enjoy their lives. But more importantly, they could still contribute toward their emergency savings and retirement – necessary measures to prevent falling back into the debt cycle and position them for long-term financial success. 

Also, given the significant timeline difference, a Consumer Proposal even makes sense for their credit rating. After eight years of aggressive debt repayment, the couple might expect to end up with average or slightly below average credit. With three extra years for responsible debt use, they could be well on their way to building their credit back up and have a meaningful nest-egg to show for it.

Choosing the Right Option

As with our couple above, a Consumer Proposal can often be the fastest, least expensive, least stressful and most productive option for people facing overwhelming and unmanageable debt. But every situation is different, so how do you know whether that path is right for you?

During a Free Confidential Consultation, a Licensed Insolvency Trustee will review your entire financial situation and help you understand your options. They may advise a Life-Changing Debt Solution such as a Consumer Proposal or Bankruptcy – or they may suggest other measures, such as creating a better budget, working informally with your creditors or something else entirely. No matter what they advise, you can trust your Licensed Insolvency Trustee to offer helpful, unbiased insights so you can make an informed choice that's right for you.

Based out of Victoria,  is an Estate Manager at MNP Ltd.  To learn more about how MNP can help, contact our local office at 1.877.363.3437 or toll-free at 310.DEBT (310.3328).​

This article was originally written for, and published by, MNP.  To view the original post, click here.

By Leah Drewcock, Licensed Insolvency Trustee

​You're a good, honest person. You know you should pay your debts. You want to pay your debts. But you can't. It's unbelievable how quickly things spiraled out of control. First it was one unexpected expense, then another. Now you're in over your head – missing payments, dodging collections calls and creditors are threatening to take you to court.

Even if a judgement goes against you, you know it won't make any difference. You have no assets of value and hardly any income to speak of. So, what can a creditor do when you can't pay, have nothing to give up and no wages to garnish? More importantly, how do you solve this problem for good?

What it means to be 'Judgment proof'

Creditors have the option to pursue legal action against debtors who fail to pay their bills or respond to collections action. Once the creditor successfully obtains a court order granting a judgement against you, it is up to them to enforce that judgement through various channels – including asset seizure or wage garnishment.

​To ensure you maintain a reasonable standard of living, there are certain government mandated exemptions to these judgements. If all your assets and wages fall under that exemption, your creditor will not be able to enforce the judgement, thereby making you 'judgement proof'.

Examples of Exempt and Protected Property

​B.C. Income Assistance – Under the Employment and Assistance Act, it states that any provincial income assistance is exempt from garnishment. 

Federal Income Benefits – Canada Pension Plan (CPP), Old Age Security (OAS) and Guaranteed Income Support (GIS) and Employment Insurance (EI) payments distributed either by cheque or direct deposit are exempt from garnishment by non-government creditors. However, other government bodies such as the Canada Revenue Agency (CRA) or the B.C. Family Maintenance Enforcement Plan (FMEP) can still garnish these payments for outstanding government debts, such as income tax or child support.

Personal Property – Each province has its own legislation determining what types of personal property are and are not exempt. In B.C. this falls under the Court Enforcement Act. Protected assets include:

• All necessary clothing and medical aids for the debtor and / or their dependent(s)
• $4,000 of household goods
• $10,000 of tools of the trade
• $5,000 from a motor vehicle ($2,000 if you have spousal / child support arrears)
• $12,000 equity in principal residence ($9,000 outside the Greater Vancouver Area)

Jointly Owned Assets – Assets that are co-owned between you and another person are exempt from seizure unless you are both subject to the judgement.

Beware Bank Deposits

Regardless of where your income comes from – including the exemptions mentioned above – once income enters your bank account, it is no longer judgement proof. As a worst-case scenario, if your primary banking institution is the same one you owe money to, they could potentially freeze your accounts and use your account balances toward your outstanding debts.

To protect yourself, you may want to consider having a bank account with a financial institution whom you do not have any credit dealings and transferring your automatic deposits to this account.

Duration of Judgement Proof Status

You will remain judgement proof for as long as your financial status remains unchanged.
However, it is important to remember that judgement proof does not mean your debt, or the judgement, will go away. Once your financial situation changes and / or you obtain income or property that is not judgement proof (e.g. employment wages), your creditors may then resume enforcing judgement against your property.

Debt Doesn't Expire

B.C.'s Limitation Act provides unsecured creditors (e.g. credit cards, lines of credit, payday loans) two years from the time you made your last payment to initiate legal action against you. However, that only limits their ability to obtain a judgement for wage and asset seizure; it does not expire the debt itself.

Short of taking you to court, your creditors may still proceed with regular collections activity such as requesting payment, sending written collections notices, contacting you by phone or reporting your delinquency to the credit bureaus. And they can continue to do this until you've settled your accounts to their satisfaction.

Notable exceptions to the Limitation Act include:

• Secured debt (vehicle loans and mortgages)
• Government debts, including taxes and student loans
• Child support, fine and civil judgments involving fraud

Collection Activity and Your Rights

As above, judgement proof status and the two-year limitation period can only protect you from creditors exercising or obtaining a court judgement. They do not prevent creditors from engaging in other regular collections activities. Because your judgement proof status can continue for an indefinite period, you may have to endure the stress and frustration of collections activity for months or even years. So, it's important to know your rights and what creditors can and cannot do.

Debt collectors can:

• Contact you Monday through Saturday between the hours of 7:00 a.m. and 9:00 p.m.
• Contact you Sunday between the hours of 1:00 p.m. and 5:00 p.m.
• Contact your friends, relatives, employer or neighbours – but only to request your telephone number or address.

Debt collectors cannot:

• Suggest to your friends, employer, relatives or neighbours that they should pay your debts, unless one of these individuals has co-signed your loan
• Use threatening, intimidating or abusive language
• Apply excessive or unreasonable pressure on you to repay the debt
• Misrepresent the situation or give false or misleading information
• Call you on your cell phone, unless you've provided that number as a way to reach you

If you feel a debt collector is not respecting your rights, you may contact the Provincial Consumer Affairs office to file a complaint.

Defeat Your Debt

The idea of being judgement proof may initially sound reassuring. But it can only provide temporary relief from wage garnishment or asset seizure. It's not a permanent solution. Remember, your status could change at any time. And when it does, your creditors will be ready to commence or enforce any judgement against you.

There is only one way to end the stress of your debt and harassment from your creditors: you need to settle for good.

While this may seem impossible given your current situation, a Licensed Insolvency Trustee can help. During a Free Confidential Consultation, they will work with you to review your financial situation and determine if you qualify for a Life-Changing Debt Solution such as personal bankruptcy or Consumer Proposal and whether that might be your best path forward. They'll explain your options and help you make the choice that's best for you. Though things may seem difficult now, you're just one phone call away from a financial fresh start.

Based out of Prince George, Leah Drewcock is a Licensed Insolvency Trustee and Vice-President at MNP LTD. To learn more about how MNP Debt can help, contact our local office at 250.596.4901 or toll-free at 310.DEBT (310.3328).​​

This article was originally written for, and published by, MNP.  To view the original post, click here.

Debt consolidation is the process of combining two or more debts into one. The aim of debt consolidation is to enable you to become debt-free through one consolidated monthly payment over a defined period of time.  Debt consolidation can seem like an attractive option when you are struggling to make payments to several creditors or when your overall indebtedness never seems to decrease, despite making minimum payments.

There are several debt consolidation options, each with their own benefits and considerations.  The best debt consolidation option depends on your financial situation and other factors.

 1.  Personal loans and personal lines of credit

When your debt is causing you financial pressures, it is natural to first consider consolidating your debt through a personal loan or a personal line of credit provided by a bank or finance company.

We can define personal loan as a lump sum loan disbursement to make a one-time purchase (such as a car) or commonly, to consolidate debt.  As you repay the personal loan, the loan balance decreases and the loan is not reusable.

A personal line of credit, by contrast, is reusable. Once you are approved for a personal line of credit, you can access any portion of the credit line at any time.

Beware of the cost of borrowing, as personal loans and personal lines of credit carry interest charges.  A personal loan can have a fixed or variable rate, while a personal line of credit has a variable rate.  The amount you can borrow will depend on your credit score, your ability to service the debt and other factors.

If you are turned down for a personal loan or personal line of credit, there are other ways to achieve debt consolidation, outlined below.

2.  Debt management program

An accredited, non-profit credit counselling agency can assist you with a debt management program. A debt management program consolidates all of your debt payments into one monthly payment that you can afford.  You then make the one monthly payment to the credit counselling agency and they distribute the funds to the various creditors. 

If you work with a reputable credit counselling agency, your interest rates will typically be reduced to either zero or a very low interest rate.  To cover their costs, non-profit credit counselling agencies charge small fees for their debt management programs.  You should never pay large, upfront fees for a debt management plan, nor should you ever have to pay for advice about your options. If you are asked to pay fees for advice or charged large upfront fees to go on any debt management program, you are not dealing with a reputable organization.   

Your creditors have to agree to allow you to go on a debt management program, but they typically will if a reputable credit counselling agency believes that a debt management program is right for you.  If a reputable credit counselling agency believes your overall debt level is too high to repay in a reasonable period of time under a debt management program, they will suggest that you contact a Licensed Insolvency Trustee for advice about a consumer proposal - a legal process for settling credit card debt, among other debts.

3.  Consumer Proposal

 A consumer proposal is a formal, government-regulated option that involves the consolidation of all unsecured debt into a single monthly payment.  The debts do not continue to accumulate interest and there is a stay of proceeding that stops garnishments (excluding child support), harassing calls and other collection actions.

Most consumer proposals involve a settlement arrangement whereby creditors are prepared to accept repayment terms of less than what you owe, as long it exceeds what would be available if you were to file for personal bankruptcy.  A consumer proposal cannot exceed 60 months or 5 years and generally involves a monthly payment, but is flexible enough to allow for lump sum payments, semi-annual payments or some other unique payment schedule that works for your situation.

In addition, consumer proposals can include debts to Canada Revenue Agency and their provincial counterparts, whereas most debt management plans do not.

Only a Licensed Insolvency Trustee can file and administer a consumer proposal on your behalf.  For many people, a consumer proposal is a desirable alternative to bankruptcy as it enables you to retain your assets, involves fewer duties / responsibilities than bankruptcy and generally does not affect your credit rating as significantly as bankruptcy.​

Click here to learn more about consumer proposals.

Lana Gilbertson is a Licensed Insolvency Trustee with MNP Ltd., based in Vancouver, BC  for more about how Lana can help, contact her directly at 604-637-1599 or lana.gilbertson@mnp.ca.

If you find yourself facing bankruptcy, you’re not alone. With soaring levels of consumer debt, many Canadians are finding themselves contemplating bankruptcy as a means to resolve their financial difficulties.

Bankruptcy is a term that most people are familiar with; however, there are many myths and misconceptions associated with the term.  When people receive full and factual information about bankruptcy, they are struck by the simplicity and fairness of the process.  Moreover, the simple act of becoming informed provides a sense of great relief.

This 5-part series is meant to provide a general overview of bankruptcy; however, individuals contemplating bankruptcy, or exploring other options, should meet with a Licensed Insolvency Trustee for further information to learn how bankruptcy will impact them based on their unique circumstances.

Anyone who finds themselves in a bit of a financial pickle (the signs may be different for different people) first needs to meet with a Licensed Insolvency Trustee, who will review the individual’s specific situation and explain all of the options available.  A meeting or phone call with a Licensed Insolvency Trustee is free and confidential.

Many people in financial difficulty don’t realize that there are options other than bankruptcy. A Licensed Insolvency Trustee has a responsibility to go through all of these options.   If bankruptcy is the best option in the circumstances, the trustee will advise you of the next steps.

Stay tuned for Part 2, where we'll discuss how to file for bankruptcy.

More articles in this series:

• Bankruptcy 101:  Step 2 - Filing for Bankruptcy
• Bankruptcy 101:  Step 3 - Being in Bankruptcy
• Bankruptcy 101:  Step 4 - Discharge from Bankruptcy
• Bankruptcy 101:  Step 5 - Fresh Start

Lana Gilbertson is a Licensed Insolvency Trustee with MNP Ltd., based in Vancouver, BC  for more about how Lana can help, contact her directly at 604-637-1599 or lana.gilbertson@mnp.ca.

Click here for a list of our offices throughout Greater Vancouver, Fraser Valley and Vancouver Island.

In today’s constantly shifting economic landscape, many Canadian households from coast-to-coast are struggling to keep up from one payment to the next, let alone keep up with an ever-increasing cost of living. To compensate, many have relied on credit to carry them through financial difficulties. While credit can be an incredible tool, credit reliance can quickly lead to a dangerous cycle of debt and stacking interest that seems impossible to get out of.

Sound familiar? If debt has taken hold, it’s important to understand that you’re not alone and you have options. For eliminating debt all-together, two widely used options to Canadian households are bankruptcy and Consumer Proposals. While many people have a basic understanding of what a bankruptcy entails, the details behind filing for a Consumer Proposal are not as widely understood.

There are several differences between a Consumer Proposal & bankruptcy. Although both filings are legislated under the Bankruptcy and Insolvency Act (also known as the BIA) and must be filed by a Licensed Insolvency Trustee, these are two separate processes.

First, a Consumer Proposal is an arrangement made with your creditors. In most cases with a Consumer Proposal, you are able to retain all of your assets.  Furthermore, debtors who would like to retain their non-exempt assets like non-exempt vehicle or non-exempt equity in their home are able to make arrangements with their creditors to pay an amount over a period of time instead of filing for bankruptcy. In the case of a bankruptcy, only certain assets are exempt (it should also be noted, exemptions on assets also depends on provincial legislations where you reside).

Secondly, the process of filing a Consumer Proposal is different from that of a bankruptcy. Generally, no court appearances are required. Creditors have 45 days to vote on the Consumer Proposal and have the option to accept, refuse or request a meeting of creditors. The initial Consumer Proposal filed can be amended if the creditors do not agree with the terms.

Thirdly, once a Consumer Proposal has been accepted by the creditors, your only other requirements are to attend two counselling sessions. As long as the terms of the Consumer Proposal are being met, the Administrator or the Licensed Insolvency Trustee will not monitor your income, expenses or any disposition of assets. In a bankruptcy, a Trustee will monitor the bankrupt’s income throughout the process and will be required to file certain income tax returns for the bankrupts. Trustees may also be required to seize any acquired properties in a bankruptcy scenario.

Fourthly, a significant difference between a Consumer Proposal and bankruptcy is the impact it can have on your credit rating. Bankruptcy is registered as an R9 and will remain for six years after receiving your certificate of discharge. A Consumer Proposal however, will be reported as an R7 and will stay on your credit bureau for three years after receiving your Certificate of Full Performance.

Many individuals may wish to avoid bankruptcy for a number of reasons which could include stigma, legal implications (an inability to sponsor while undischarged for example), business ramifications or disclosure requirements in retaining professional designations. 

When you’re struggling from one payment to the next, understanding which route to choose can be daunting. A Licensed Insolvency Trustee can help you understand your options so you are able to make a fully informed decision as you work towards a stronger, debt-free future. 

Nora Edwards is a Licensed Insolvency Trustee with MNP Ltd. serving clients in Burnaby, Port Moody and Port Coquitlam. To learn more about how Nora can help, contact her at nora.edwards@mnp.ca or 778-374-1850.