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.   

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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. 

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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.

Compared to March, far fewer feel confident they can cover living expenses for the year without going further into debt

VANCOUVER, BC – July 20, 2020 – The financial picture for many British Columbian households looked bleak last quarter. And even with the current raft of pandemic-related support programs, many are struggling. The latest MNP Consumer Debt Index, conducted quarterly by Ipsos, found British Columbians feel less confident about being able to cover their living expenses for the next 12 months without going further into debt (56%, -5), the lowest proportion of any province.

“While our results show the rest of Canada becoming more optimistic or even hopeful about their personal finances, British Columbians are not having the same experience,” says Lana Gilbertson, a Vancouver-based Licensed Insolvency Trustee with MNP LTD. “That could stem from the lack of wiggle room in household budgets prior to the pandemic. Those who were finding it difficult to get by before are really struggling now.”

The number of British Columbians who say they are $200 or less away from financial insolvency at month-end increased three points since early March (43%). This includes 22 percent who are already insolvent and unable to cover their bills and debt payments, a decrease of three points this wave.

“It wouldn’t take much to push many B.C. households into dangerous territory. Just $200. That’s a small car repair or a loss in overtime pay,” says Gilbertson. “We also expect to see a range of efforts from creditors to help people catch up as the economy begins to re-open. This could include increased monthly payments or extended loan terms. For those who are already overstretched, the net result will see them falling further behind and deeper in debt.”

Gilbertson says one financial upside of the pandemic is widespread store closures left fewer opportunities for spending and that many realized savings on gas and commuting costs while working from home.

The poll found British Columbians have more wiggle room in their household budgets each month compared to March. On average, after paying their bills and debt obligations, they report having $128 more at month-end than in early March.

“With altered consumer spending during COVID-19 due to the closure of restaurants, theatres, malls, and other bastions of discretionary spending, some reported savings — even with a marginal increase in groceries, utilities, and online shopping,” explains Gilbertson.

The poll found some optimism in the province as slightly fewer regret the amount of debt they have taken on in life (44%, -2). But four in 10 (44%, +1) are still concerned about their current level of debt.
So far, support from the government, mortgage deferrals, and the flexibility of creditors have all contributed to a significant decline in insolvency filings since the pandemic began. In May alone, consumer filings declined 37 percent in British Columbia compared to the same month last year.

Given the already shaky ground British Columbians were standing on before the COVID-19 crisis — not to mention the magnitude of the virus, its economic impacts, and the government response — Gilbertson says it won’t be at all surprising to see insolvencies jump.

“Even in the best-case scenario, we will likely see the number of insolvency filings quickly return to the pre-COVID baseline as federal subsidies and stimulus dollars run out, deferred payments become due, and consumer spending returns to pre-pandemic levels,” says Gilbertson.

For those who are struggling with debt, Gilbertson notes Bankruptcy is not the first nor is it always the best option. Licensed Insolvency Trustees are the only federally regulated debt professionals empowered to provide a full range of debt relief options including Consumer Proposals, informal debt settlements and bankruptcies. They take a customized approach and provide an unbiased opinion to help severely indebted individuals understand their rights and determine the right path forward.

About MNP LTD
MNP LTD, a division of the national accounting firm MNP LLP, is the largest insolvency practice in Canada. For more than 50 years, our experienced team of Licensed Insolvency Trustees and advisors have been working with individuals to help them recover from times of financial distress and regain control of their finances. With more than 230 offices from coast-to-coast, MNP helps thousands of Canadians each year who are struggling with an overwhelming amount of debt. Visit MNPdebt.ca to contact a Licensed Insolvency Trustee or use our free Do it Yourself (DIY) debt assessment tools. 

In light of the social distancing measures currently in place, MNP LTD is currently offering free consultations via videoconferencing (Skype, Messenger, Zoom, FaceTime, etc.) and by phone. Their team of Licensed Insolvency Trustees are empowered to help those struggling financially to make the most informed choices to deal with their debt during this time. Visit MNPdebt.ca to book an appointment or to start a live chat.

About the Survey
These are some of the findings of an Ipsos poll conducted between June 1-2, 2020, on behalf of MNP LTD. For this survey, a sample of 2,001 Canadians aged 18 years and over was interviewed. Weighting was then employed to balance demographics to ensure that the sample's composition reflects that of the adult population according to Census data and to provide results intended to approximate the sample universe. The precision of Ipsos online polls is measured using a credibility interval. In this case, the poll is accurate to within ±2.5 percentage points, 19 times out of 20, had all Canadian adults been polled. The credibility interval will be wider among subsets of the population. All sample surveys and polls may be subject to other sources of error, including, but not limited to, coverage error and measurement error.

A summary of the provincial data is available by request.

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

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.

Fear Statement #1:  A Licensed Insolvency Trustee doesn’t work for you, he or she works for your creditors.

This statement bothers me every time I hear it!  To say that a Trustee works for one party suggests that he or she works against someone else.  The above fear statement is meant to lead you to believe that the Trustee is working against you and therefore you need to be represented by someone who will stick up for you and protect your rights. If you’ve done something fraudulent or illegal, I will be the first to refer you to a lawyer, but if you are like 99% of the consumers I meet every day, you are an honest but unfortunate debtor who doesn’t need a lawyer.

The simple fact is the Trustee does not act for any one party but instead has a duty to all stakeholders in an insolvency proceeding, including the debtor (the person who owes money), the creditors, the Office of the Superintendent of Bankruptcy (the regulatory body that oversees insolvencies filed in Canada) the Court, when it is involved, as well as other affected parties, as applicable.  Rule 39 of the Bankruptcy and Insolvency Act, which is contained in the Code of Ethics for Trustees, requires a Trustee to be honest and impartial, which is defined by Collins Dictionary as “not prejudiced towards or against any particular side or party; fair; unbiased.” 

Clearly, a Trustee doesn’t work for the debtor either, but a Trustee provides such invaluable help and relief that most people feel like they’ve had a positive life-changing experience.  The reality is there are many ways that a Trustee helps, starting with providing a free, confidential information session to individuals looking at their options. 

Fear statement #2:  A Licensed Insolvency Trustee will always encourage you to go bankrupt.

If my profession was about encouraging people to go bankrupt I never would have put in the time it takes to earn a license as a Trustee!  Plus, Trustees are too dynamic, creative, educated, well-trained and experienced to be so one dimensional. 

Directive 6R3 of the Bankruptcy and Insolvency Act sets out the comprehensive information to be discussed with a debtor who is considering their options, and it requires that a Trustee discuss the formal (bankruptcy and proposal) AND informal options (consolidation loans, informal debt management plans, etc.).  When dealing with a debtor who is insolvent, the Trustee is required to determine if a consumer proposal is a viable option, as an alternative to bankruptcy.  According to government statistics, proposals comprised exactly 50% of formal insolvency proceedings filed by consumers in 2016.  Clearly, Trustees helped half of all insolvent debtors avoid bankruptcy in an formal insolvency proceeding.  And only a Trustee can administer a formal proposal to creditors, despite misleading advertisements by non-Trustees claiming they can help an individual file a proposal.

If you ask the Trustee for his or her recommendation and they say, “I recommend that you go bankrupt”, rest assured that this is a professional opinion based on comprehensive assessment and not a pat answer.  No Trustee will make that recommendation lightly.  But, if there are other options the Trustee will let you know what those are.  Nothing thrills a Trustee more than helping a debtor avoid bankruptcy; in fact, we do just that every single day!

Fear statement #3:  A Licensed Insolvency Trustee will disclose your confidential information.

It’s always kind of awkward when I sit down with that rare someone who grills me about confidentiality and to whom I will divulge their information – usually before I even know their last name!  While I appreciate that it is very humbling and difficult to discuss sensitive financial information with anyone, rest assured that a Trustee is bound by some rules and regulations around confidentiality.

Rule 40 of the Bankruptcy and Insolvency Act, which is contained in the Code of Ethics for Trustees, prohibits a Trustee from disclosing confidential information to the public concerning any professional engagement, unless the disclosure is 1) required by law or 2) authorized by the person to whom the confidential information relates.  The Canadian Association of Insolvency and Restructuring Professionals (“CAIRP”) imposes Rules of Professional Conduct on its Trustee members, and Rule 5 provides that a member has a duty to confidence to a client and shall not disclose or exploit any information obtained in the course of an engagement.  Moreover, there are provincial and federal laws respecting the protection of personal information, and most organizations have written policies regarding the same.

At the same time, certain information must be shared with certain parties in a bankruptcy or proposal proceeding, particularly with the Office of the Superintendent of Bankruptcy and creditors of the debtor.  The Trustee will let you know what information will be shared, and with whom.  As I like to say to people, I am far too busy to go sharing your information with third parties when I don’t have to! 

If you hear or read the above fear statements, ask yourself what the individual or entity has to gain by making such statements, and what they are selling.  Chances are, they want you to avoid seeing a Licensed Insolvency Trustee – even when it will benefit you – because they want to sell you something that they have to offer.  In many cases, what they are selling will lead you directly to a Licensed Insolvency Trustee anyway. 

A Licensed Insolvency Trustee is an educated, highly trained and strictly regulated professional.  Trustees are the only professionals who can legally administer bankruptcy and consumer proposal proceedings.  To find out more about how a Trustee can help you or someone you know, please contact us for a free consultation.

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.