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Month: August 2014

Student Loan Treatment in a Consumer Proposal

Reading time: 4 minutes

student-loans-consumer-proposal-post-updated

Student loans are similar to all unsecured debts: they can be eliminated in a consumer proposal. However, there are special rules that apply to government guaranteed student loan debt.

Specifically, section 178 (1)(g) of the Bankruptcy & Insolvency Act states that the following debts are not automatically discharged in a bankruptcy or consumer proposal:

any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred:

(i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or

(ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student;

These same rules apply whether you are filing a consumer proposal or filing bankruptcy for student debt in Canada.

What It All Means – 7 Years is the Key

For those of you who are not lawyers, here’s the translation of the 7-year rule for student debt:

If you have been out of school for more than seven years, your student loan will be eliminated in a consumer proposal.
If you have been out of school for less than seven years, your student loan may not be automatically discharged, even if all of your creditors accept your consumer proposal.

Here’s an example:

Former student A has $25,000 in debts (say $15,000 in credit card debts and a $10,000 Canada student loan). Her last date of study was 8 years ago. She could file a consumer proposal. If her proposal is accepted, her student debt would be eliminated because those student loans are more than 7 years old.
Former student B has the same debts except that his last date of study was 6 years ago. If more than half of the dollar value of the creditors accepted the proposal, the proposal was accepted. However, the student B’s student debt is not discharged because it is six years old, not more than seven.

When your student loans are less than 7 years old, your creditors still receive a prorated share of your consumer proposal payments, just like any other unsecured creditor. However, and this is important, once the proposal is over, they can pursue you for the rest of the money they are owed.

The only exception to this would be if the student loan lender specifically agreed to the discharge of the student loan as a term of the proposal. If they simply don’t vote, the other creditors can approve the proposal, but the student loan continues to exist.

Using our example above, if $15,000 in credit card debts voted in favour of the proposal, but $10,000 in less than seven year old student loans voted against, the proposal would be accepted, but the student loans would not be discharged. At the end of the proposal, the debtor may still be liable for the student loan debts.

To reiterate: A former student’s student loans, if less than seven years old, will only be discharged in a consumer proposal if the student lender specifically votes in favour of the proposal.

Does that mean you have no option if your student loans are newer?

No.

If you can’t pay your student debt, a consumer proposal might be the answer.

If you have significant other debts (like credit card and unsecured bank debt), a proposal will eliminate these debts which can mean that you will now be able to afford your monthly student loan payments.
You can also ask that your student loan lender agree, up front, to discharge your student loans in full as part of the proposal. Why would they do this? Well if you are close to the 7 year mark and would otherwise file bankruptcy anyway, and you can offer slightly more as an incentive, they may agree. You are still better off, and so are they.

If you are strugging with student debt, the key is to talk with a Licensed Insolvency Trustee who can review your personal situation and provide debt relief solutions that will work for you. Contact us today for a free no-obligation consultation.

Payday Loan Help. What Are Your Options?

Posted in Debt Relief

By Hoyes Michalos

Reading time: 5 minutes

It is estimated that somewhere between seven and ten percent of Canadians use payday loans on a fairly regular basis to help make ends meet. It’s an understandable dilemma.

The rent is due and you don’t have the cash. You need to pick up groceries or pay for a car repair but you don’t have the money until your next pay cheque arrives. Taking out a payday loan sounds like a simple, quick way to help with the crisis. Unfortunately what is often seen as a one-time solution turns into an on-going debt cycle that is hard to break.

In fact, a payday loan study of those who we have helped break the payday loan cycle proved just that. Not only do four in 10 debtors owe money to payday loan companies when they go bankrupt, they actually owe on average not one week’s pay but more than twice a month’s wages. And most had multiple payday loans from more than one pay day loan company outstanding at the time.

Payday Loan Debt Help

Our slideshare summarizes everything you need to know about payday loans including:

understanding the true cost of payday loans;
payday loan regulations in Canada and Ontario;
understanding your rights under payday loan legislation;
discovering alternative borrowing and money management solutions;
your payday loan debt relief options.

Payday Loan Debt Relief from Hoyes Michalos

If you have questions, contact a trustee today by phone or email to discuss your options or make an appointment to talk to one of our licensed professionals.

If you owe money on payday loans, credit cards and other debts, it’s time to find relief.

Below we discuss what steps you can take and what programs are available to consolidate or eliminate your payday loans, along with other unsecured debts.

Steps To Eliminate Your Reliance on Payday Loans

No matter how much help you need, one of the first things you should do is reduce the dependency on payday loans to pay your bills. You can do this by:

Avoid taking out back to back payday loans, known as a payday loan rollover. It’s just too costly.
If you need extra cash this week, look for alternatives to borrowing with a payday loan lender.
Create a plan to manage your cash inflows and outflows. This may include making a budget if you are so inclined, or you can even try our easier no-budget budget as a way of making sure you have the money to pay your bills when they come due.
Begin to build a small reserve fund for emergencies so you won’t be tempted by payday loans again.

Consolidating If You Need More Debt Help

If you are already in too deep with payday loans that you need help breaking the cycle, or owe other debts like credit card debts, you may need to consider ways to consolidate your payday loans and other debts into one lower monthly payment.

If you are relying on high cost payday loans you likely do not have good enough credit to qualify for a debt consolidation loan. There are lenders that will offer high cost loans to consolidate multiple payday debts into one however it is unlikely this will provide a real solution to your financial problems.

You should also know that payday loan lenders will not participate in a voluntary debt management program through credit counselling agencies.

This leaves you with two main consolidation options in Canada:

A consumer proposal will consolidate AND settle all of your unsecured debts including your payday loans. You pay back less than you owe and make one single payment until your proposal term (usually up to 5 years) is completed.
If you cannot afford a consumer proposal, you may, as a final resort, want to consider declaring bankruptcy.

If you are continuously relying on payday loans, it’s time to look at your alternatives. Contact us and we can help you review your options.

Call us today 1-866-747-0660 or contact us on-line.

Payday Loan Regulations and Your Rights

If you have used payday loans and may be tempted to do so again, it’s important that you understand your rights under payday loan law in Canada.

While the Criminal Code of Canada limits interest rates for any lender to 60% per year, payday loan companies in Canada are also regulated by provincial legislation.
In Ontario, payday lenders must be licensed by the Ontario Ministry of Consumer Services and are governed by the Ontario Payday Loan Act.

What Can Payday Lenders Do?

Ontario law limits the maximum cost of borrowing for one payday loan to $15 for every $100 borrowed (as of January 1, 2018).
Rollovers are prohibited meaning a payday lender cannot grant you a second payday loan until the first has been paid off.
You have a cooling off period of two days to change your mind at which time the lender must cancel the arrangement at no cost to you.
You must be provided with a contract that clearly states the amount borrowed, how long the loan is for, the total amount of fees and charges and the date the loan is due.
The lender must give you the full amount of the loan up front. So if you borrow $500, you must be given $500.
You cannot be required to make any payments, either fees or loan repayments, before the due date.

Never deal with a payday loan lender that is unlicensed or does not comply with the above requirements.

Stop the Payday Loan Cycle

We can help you eliminate your debt.

Book A Free Consultation

J. Douglas Hoyes - Licensed Insolvency Trustee

How To Deal with the Consequences of Declaring Personal Bankruptcy

Posted in Bankruptcy Basics

By Hoyes Michalos

Reading time: 5 minutes

declaring-personal-bankruptcy-post-updated

Most people view bankruptcy as the end of the road but in truth it’s just a beginning. Whether you file for bankruptcy or are able to make a deal with your creditors through a proposal, the upside is that you will be debt free at the end of the process. so while there are a number of consequences of declaring bankruptcy in Canada – they are all things that can be dealt with.

Here’s how you can better manage each step along the way and recover from the bankruptcy process more easily.

Financial Cost of Claiming Bankruptcy

You will be required to make payments during the bankruptcy process. These will be outlined by your bankruptcy trustee but are typically a minimum of $200 per month for the duration of the bankruptcy. In the event your income is higher the the limit set by the government or you have assets, these cost of claiming bankruptcy will increase.

You can keep up with these payments by devising a monthly financial plan (budget). Keep in mind that while you’ll have to make monthly payments to the trustee, you’ll no longer be struggling to make minimum payments on debts that are included in the bankruptcy or proposal.

At Hoyes Michalos we offer pre-authorized monthly payments to make managing these payments easier as well. You can choose your payment term (weekly, bi-weekly, monthly etc.) based on your pay schedule.

Potential Loss of Assets

Bankruptcy does require you to surrender certain assets to your trustee however in most cases don’t lose all your assets when you declare personal bankruptcy. Allowable bankruptcy exemptions mean you are able to keep personal possessions (clothing, jewelry), furnishings, tools you need to earn a living, and even an inexpensive vehicle. Your trustee will explain in detail how to determine what you do and don’t get to keep.

If you do have assets you’d like to keep that would be forfeit in a bankruptcy, you may want to consider a consumer proposal instead of bankruptcy.

Even if you have filed and lost some assets, you can make a plan for rebuilding any savings and investments as part of your fresh financial start. Remember, once you have finished your bankruptcy your cash flow should improve significantly. Even before you are finished, monthly demands on your income decrease because you are not trying to keep up with all those debt payments. With the improvement in your financial situation, you can begin to rebuild your savings, even putting money away towards a down payment for a new home if that is what you want.

Required Duties

Aside from turning over assets and making required payments, you will also be required to report your income monthly to your trustee and to attend two counselling sessions. There may be other meetings that your trustee requires you to attend as well. It’s important that you complete all your required duties in a bankruptcy as they’re an important part of the process and you won’t be discharged from bankruptcy if you don’t! Discuss with your trustee ahead of filing what the required duties will be so that you’ll feel prepared and ready to tackle them.

Impact on your Credit Score

When you declare bankruptcy, the Office of the Superintendent of Bankruptcy will register the fact that you filed on your credit report. Your credit rating will be recorded as an “R9” for the duration of your bankruptcy and the bankruptcy will remain on your credit report for a maximum of 7 years after you are discharged from bankruptcy if you’re a first-time filer, or 14 years for a repeat filer.

The best way to deal with this consequence of the bankruptcy is to work on the plan to rebuild your credit as soon as you are discharged from the bankruptcy. This could include obtaining a secured credit card, borrowing for an RRSP or borrowing money with some form of security given to the lender.

Keep in mind that in order to rebuild your credit, you need to USE credit (but responsibly). Here are some tips on how to do that:

Pay all bills on time. If possible, always pay the balance in full to avoid excessive interest charges but at the very least pay the minimum amount due by the due date.
Don’t exceed the credit limit on your credit card.
Don’t apply for too many new loans. Continuous applications does not look good on anyone’s credit report.

These, and more, strategies will be discussed as part of the counselling you’ll receive during the bankruptcy process.

Emotional Toll

The emotional consequences of declaring bankruptcy differ for everyone but in truth most are relieved once they file. The main reason for this is that they finally feel they have taken charge of the situation. There is nothing better than feeling some sense of control over your future. Once the process continues, you will also be relieved to find your financial situation improving. The remaining positive feelings just tend to snowball from there.

As always, every person’s situation is unique and it’s best to meet with a bankruptcy trustee to discuss the options that are available to you to deal with your debts. Contact us today for a free, no-obligation consultation so we can help you review all your options, including those that can help you avoid bankruptcy.

Seniors – A Small Group Carrying High Risk Debt

Posted in Viewpoints

By J. Douglas Hoyes, CA, LIT

Reading time: 3 minutes

By the time you approach retirement age you should be out of debt, right? That’s the conventional wisdom, because after a life of working you have paid off your mortgage and other debts, and accumulated savings for retirement.

Unfortunately the conventional wisdom is wrong.

Our 2017 Joe Debtor study shows that the number of seniors who carry debt into retirement is growing. soon one in four Canadians will soon be 65 or older according to Statistics Canada reports. With a growing average household debt-to-income ratio, increasing costs in everyday living, it’s not surprising that the number of retired insolvent debtors is growing.

Debt is Just More Acceptable

There is no question our cultural attitude towards debt has changed, even among older Canadians. Almost everyone now uses credit cards, whereas even 20 years ago most seniors did not. For many seniors this apparent increase in debt may just be the normal ebb and flow of how our economic system works.

In fact, a Statistics Canada survey found that 1 in 4 retirees with debt owed less than $5,000, certainly not a number to be worried about. Even pushing the numbers a little higher, almost 60% owed less than $25,000 which may just represent the final few payments on their mortgage, a few monthly purchases, and perhaps a vacation or house upgrade or two.

But Should It Be?

Our Joe Debtor study shows that seniors have the highest debt-to-income levels out of all insolvent debtors. Insolvent seniors (60+) are currently sitting at a 226% (2018 update) unsecured debt-to-income ratio. That is huge.

But is this high debt just because seniors are affluent? It’s true that both lower income seniors and seniors with a high net worth were less likely to carry significant debt. The problem is with those in the middle, neither low income nor high net worth, who showed the highest propensity to carry significant debt into retirement. In other words it’s the average senior that has the biggest debt problem.

It’s important for seniors to remember that their income will decrease after retirement. So payments and a lifestyle that is easy to maintain today, may not be feasible after retirement – and you definitely shouldn’t use debt to pay for it.

Bankruptcy Among Seniors On The Rise

Insolvent debtors aged 50-59 in our Joe Debtor report were more likely to have an RRSP, it was still only half. So 50% of seniors who filed insolvency had an RRSP, but 50% did not. Many people struggle to pay off their home, help dependents, and pay off debt, but neglect their finances. This can be dangerous for someone on the brink of retirement because an unexpected illness can lead to a drop in income sooner than expected.

Over the course of six years, we’ve seen the number of insolvent seniors rise from 9% of our study to 12%. In our most recent study 56% of seniors were retired and a significant portion of them (47%) held tax debts. Without knowing your options prior to retirement, it can be easy to deplete your savings to try and recover from your debts. The best way to ensure prosperity in your retirement is to make sure you don’t carry debt into it.