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Difference between revisions of "Dealing with Debt (10:V)"
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→D. Debt Consolidation and Refinancing
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== D. Debt Consolidation and Refinancing == | == D. Debt Consolidation and Refinancing == | ||
Creditors will often offer refinancing or debt consolidation as the solution to the debtor’s financial problem. The interest rate may be | Creditors will often offer refinancing or debt consolidation as the solution to the debtor’s financial problem. The interest rate may be higher for the consolidation. Terms and conditions will determine total interest paid and the payment period. If making payments in the first place is the problem, consolidation loans may not be the solution. All creditors should be treated on a pro rata basis; if the consolidation only satisfies a particular creditor, the debtor should ensure they are at least able to meet the minimum payments owing to all other creditors. | ||
== E. Voluntary Debt Repayment Programs == | |||
When someone has some ability to repay their debts, but is unable to meet the minimum payment requirements of their creditors, contact the Credit Counselling Society for help determining if the Debt Management Program (DMP) at the Society might be an option. This is an agreement between a client, to make set, reduced monthly payments, and their creditors, who in return agree to accept reduced payments and who often suspend or reduce ongoing interest charges. A client agrees not to incur further debt while on the program. If a client defaults from the program, creditors may proceed with any and all remedies available to them. The client should contact the Credit Counselling Society for more information at 1-888-527-8999. | |||
'''NOTE:''' Though non-profit, the Credit Counselling Society does charge a small fee to administrate the Debt Management Program (DMP). While counselling is free, CCS charges a one time setup fee of $75 upon entering the DMP. Once a client has entered into the program and begins making payments, CCS charges 10% of a client’s deposit to a maximum of $75 per month. CCS will consider reducing or waiving fees where they would become a barrier to clients needing the help of a DMP. | |||
== F. Settlements == | |||
Depending on the consumer’s circumstances, their creditors may be willing to accept a settlement on a portion of what is owed. If a consumer has funds available, they can approach their creditors in writing to accept a onetime lump sum payment. In exchange, the creditors agree to report the debt as “settled’ to all credit reporting agencies. It is essential that the consumer get this agreement in writing from the creditors before sending any money for the settlement. | |||
Clients should be advised that some agencies that advertise “debt settlement” services may take advantage of debtors. Debtors should be aware of agencies that demand upfront fees before a settlement is negotiated. During the pay period of a settlement there is no protection from legal action or garnishes. Contact the Credit Counselling Society for help with the settlement process if needed. '''Please consult the Financial Consumer Agency of Canada’s warning regarding debt reduction companies at:''' | |||
http://www.fcac-acfc.gc.ca/eng/about/news/pages/ConsAlert-ConsAvis-0.aspx?itemid=170 | |||
== G. Government Debt == | |||
The government is the most powerful creditor in Canada and has unique remedies available to it. For example see [[Creditors%27 Remedies against Debtors (10:II)#6. Garnishment of Statutory Benefits | Section II.B.6: Garnishment of Statutory Benefits]]. There is also a category of government entities called “tax payer support entities.” For debts owed to these agencies the six year limitation period still applies. Commercial crown corporations of self-sufficient entities do not belong to this category. Unpaid ambulance fees and Medical Services Plan premiums are example of tax payer support entities. | |||
== H. Services a Trustee Provides Under the Bankruptcy and Insolvency Act == | |||
The first appointment with a Bankruptcy Trustee in BC is always free. During this appointment, the Trustee should outline the implications and information a consumer needs to consider before taking any action. This is the time to ask questions to understand the process and long term effect on your credit. A Trustee should be willing to take the time to explain everything thoroughly as there is no backing out once someone has signed the documents to assign themselves into bankruptcy. The same limitation does not exist with consumer proposals. | |||
=== 1. Consumer Proposal === | |||
Depending on the nature and amount of the debt(s) and the consumer’s ability to pay, a consumer proposal should be considered. A consumer proposal is a legal arrangement with creditors to repay a portion of the amounts owing. Assets are not usually jeopardized (as they may be in bankruptcy) and the interest stops accruing as long as payments are being made. Legal action is not effective while the consumer proposal arrangement is in place. Please consult a Trustee for more detailed information. | |||
=== 2. Personal Bankruptcy === | |||
Personal Bankruptcy is governed by the BIA, and is based on the premise that the client is completely unable to pay their debts, even at a reduced rate, and does not have assets to liquidate (client is insolvent). Bankruptcy is one option to deal with a heavy debt burden. The record of a bankruptcy stays on a person’s credit record for a '''minimum''' of six years from the day the debts are discharged for a first-time bankrupt. This increases to 14 years for a second-time bankrupt. This does not necessarily mean that credit will be denied, only that the bankruptcy will be a factor that a potential creditor will consider when deciding whether or not to extend credit to that person. Certain professionals (such as lawyers, accountants, and mortgage brokers) may be required to report their bankruptcy to their professional organization. The BIA does provide that no person may be terminated just for filing bankruptcy. | |||
The debtor is required by law to engage a trustee to administer their bankruptcy. Personal bankruptcy using a trustee may cost the debtor approximately $1 685 (including $85 per counselling session, of which two are mandatory for a first time bankruptcy and GST). Usually the trustee will require a minimum payment to initiate the proceedings; however, the first appointment with a Trustee is free. The timelines for automatic discharge, in addition to being subject to fulfilment of the terms and conditions of the bankruptcy are dependent on both bankruptcy history and the individual’s surplus income (as prescribed by the Superintendent of Bankruptcy standards – Directive 11R2). | |||
If all the conditions of bankruptcy have been met, there are no facts for which a discharge may be refused pursuant to s.173 of the BIA, and no objections have been filed by creditors or the Superintendent of Bankruptcy Canada; | |||
*A first-time bankrupt with surplus income payable less than $100, is automatically discharged after nine months; | |||
*For a first-time bankruptcy with surplus income greater than or equal to $100 all debts are automatically discharged after 21 months; | |||
*For a second-time bankruptcy with surplus income less than $100 all debts are automatically discharged after 24 months; | |||
*For a second-time bankruptcy with surplus income greater or equal to than $100 all debts are automatically discharged after 36 months. | |||
The period of the discharge may also be extended for certain prescribed reasons under BIA. Consult the Office of the Superintendent of Bankruptcy or trustee. | |||
==== a) Debts That Bankruptcy Will Not Discharge ==== | |||
A client should know that filing for bankruptcy will not discharge their obligations, such as: | |||
*an amount owing on a fine, penalty or restitution order imposed by a court in respect of an offence or debt arising out of a recognizance or bail; | |||
*an award of damages by a court in civil proceedings in respect of bodily harm intentionally inflicted or sexual assault (including wrongful death resulting therefrom); | |||
*a court order or a separation agreement regarding alimony or maintenance; | |||
*an amount obtained under false pretences while acting in a fiduciary capacity; | |||
*a debt resulting from obtaining property or services by false pretences or by fraudulent misrepresentation (other than a debt arising from an equity claim); | |||
*any debt or obligation for federal and provincial student loans where the date of bankruptcy occurs before the date on which the bankrupt ceased to be a full or part-time student or, as of June 18, 1998 through an amendment to the Act, within 7 years after the date on which the bankrupt ceased to be a full or part-time student (BIA, s 178(1)(g)). | |||
The full list of exceptions may be found in section 178(1) of the BIA. Questions about bankruptcy, including specific questions regarding Canada Student Loans, may be directed to a licensed trustee or the Superintendent of Bankruptcy, Vancouver, B.C. at 1-877-376-9902. | |||