by admin | Bankruptcy, Consumer Proposal, Uncategorized
One of the most frightening jolts you can get financially is to go into a bank account to see if you have enough to cover off a payment only to find a zero balance.
You’re in financial hardship; you’re juggling payments to make sure one doesn’t get too far behind; you’re trying to pay as best you can and in one fell swoop, you’re left with zero and you don’t know if you’re going to be able to pay the rent or make the car payment. What happened?
In all cases, it’s because one of your debts is to your bank (a mortgage, loan, credit card or line of credit) and they have the right to take what they can to pay off some or all of the amount owed to them, even if it leaves your bank account empty. And pleading your case won’t do you any good because their payment is more important than all the other payments you may have.
When you borrow money, there are two types — secured and unsecured. Secured debt is a loan that is borrowed against some property — a house, a piece of furniture or a car, for example — and the creditor has the right to seize your property and (with notice) sell it off to pay off your debt. A mortgage is the best example of a secured contract — if you don’t make your payments, the bank can repossess your house and sell it to pay off the amount owed. A financed car purchase is another example, where the dealership technically owns your car until the last payment is made.
A credit card is unsecured debt. Even though you fill out an application that indicates you have a mortgage (maybe with the same bank) and/or a car, the credit card company can’t seize your house or your car to pay off the amount outstanding to them. What they can do, is take money directly out of an account you may have with that bank.
And if you get wise to this and don’t leave any money in that account until such time as it’s needed to make other payments, they may get wise to your ways and garnishee (or freeze) your account, in which case deposits are allowed but withdrawals are not (whether those are cash withdrawals or automatic transactions).
Banks don’t have to notify you before this happens because they don’t have to get permission from a court to do this. Neither do government agencies (if you owe back taxes or support), but other creditors have to sue you in order to gain access to your accounts.
They usually send you notice that they are considering the action and if you don’t act on it, they will file a suit to recover what is owed, including gaining access to your accounts. If you are sued, you have to go to court in your own defence and if judgment is awarded to the collector, you will have to pay all fees and costs, in addition to the debt and related penalties.
It should be noted that there is a statute of limitations on owed debt, which in Ontario is two years after the last payment was made. If you have unsecured debt and haven’t made a payment in two years, and your creditor hasn’t sued you to recover the money, the threat of a claims suit is not valid. If they do attempt to sue you, you may still have to go to court in defence and plead the expiration of the limitation on your unsecured debt.
It is important to note, though, that if you make a payment (regardless of whether it’s a bluff) — even a small one — the two-year clock resets and they can then initiate a suit for all the money owed.
by admin | Bankruptcy, Consumer Proposal, Uncategorized
Everybody dreads calls from collection agencies, but there are certain guidelines collection agencies must follow in dealing with debtors and there are certain things consumers can do to protect themselves from the harassment some collection agencies employ.
First of all, let’s understand why collection agencies do what they do. They have been hired by creditors to get payment as quickly as possible from debtors. For their efforts, they get a fee or commission from the company whose debt they’re collecting. As such, the best way to get collection agencies out of your hair is to pay off your debts as quickly as possible.
Collection agents are allowed to contact you in order to make you aware of the debts you owe and are allowed to use reasonable means to collect. They don’t have to explain your rights to you, and if you’re ignorant to those rights they may overstep the boundaries within which they are required to operate.
Collection agents are required to send a physical letter explaining who they are, who they represent and the debt they are attempting to collect. Six days later, they are allowed to contact you in person or by phone. After making contact with you (in person by email or through a voice mail — a physical letter is not considered contact) an agent must limit contact with you to three or fewer times in any seven day period, without your consent.
The glitch is that if you don’t answer the phone and if they don’t leave voice messages, it doesn’t count as contact. In that case, you could have the same number ring up to several times a day as often as they want.
Collection agents cannot contact you at all on holidays or on Sundays except between 1 and 5 p.m. They also cannot contact you between the hours of 9 pm and 7 am on any other day.
And they can’t contact your family members, relatives, neighbours or friends except to ascertain your address and phone number. And, they can’t contact your employer except one time to get your employment information. The exception in all cases is if the other person has guaranteed your debt, in which case they are subject to the same collection contact protocols, or if you have given the agent permission to contact them.
Collection agents are also not allowed to use threatening, profane, intimidating or coercive language, to put undue, excessive or unreasonable pressure on you to pay off your debt, harass you about your debt and obligations, or to give out false or misleading information about you to others.
If you feel a collection agent has acted inappropriately, send off a letter (by registered mail so you know they’ve received it by signing for it) explaining in detail what you feel the transgressions were and how you expect the agent to comply with the law (in Ontario, according to the Collection and Debt Settlement Services Act). You can also file a complaint with the Ministry of Consumer Services.
Another thing to keep in mind is that there are several websites that recommend how you deal with collection agents, but some of them are obviously created by people who have had bad experiences with agents. As with all things, be informed but get your information from credible sources, such as federal and provincial consumer agencies.
by admin | Consumer Proposal, Credit Counseling, Uncategorized
One of the things we constantly preach about in terms of savings is to start early in order to make it easier to budget and maximize your investment, and the same thinking applies to learning financial responsibility — start learning early.
Now, it may be a bit late for readers of this column, but you can “pay it forward” by teaching your children the importance of watching their finances, both in terms of budgeting their daily spending effectively and also saving for the things they want.
It’s still fine to hand over a couple bucks, but many homes have done away with the action of simply handing over a few bucks to children, simply “allowing” them to be children. The fact is that in today’s consumer market, money does not go far, so it’s important to teach children (a) the value of money, (b) how to budget, and (c) how to save.
Teaching the value of money is not as easy as saying “money doesn’t grow on trees.” I prefer “money is so hard to earn and so easy to spend.”
Keying in on the first part of that statement, give your child a chance to make more money. Say you give your child $5 per week as a “base salary.” He or she gets this just for being your kid. The idea is that some things are expected for this allowance — just as you cook meals for your family and run the vacuum around, they are expected to get themselves ready for school on time, brush their teeth and hair every day, bathe regularly and keep their rooms in some sort of order.
But then also give them the chance to earn more money — a commission, so to speak. Cleaning up their rooms once a week may be worth another dollar, putting their dirty clothes in the laundry room hamper may be worth a dime, putting away clean clothes in the dresser could be worth another dime, loading or emptying the dishwasher may be a 25-cent task, hauling the trash to the curb is worth a quarter, etc.
This shows them that working harder earns more money — a lesson that will resonate well with them when they get out into the working world — and that they can control their own earnings. At the same time, you can teach them the basics of handling money.
A good way to start is with the jar theory of budgeting, where you literally label jars or envelopes “groceries,” “gasoline” and “fun,” as examples, and then put actual money (the ubiquitous debit card is making the whole thing harder too!) in them to cover those costs as they arise, taking out the exact amount of money to pay.
For children, you can start off with something as simple as a jar labelled “spend” and another labelled “save” and have them break off their earnings into cash they want to spend right away and money they want to save up for something bigger. Depending on your values, you may want to add a third jar — give — to illustrate the importance of charity.
So at the end of the week, instead of handing over a $5 bill, for example, give them five loonies and they have to put at least one in each of the jars. This teaches them planning — you can choose to save just one dollar and spend the rest, but then reaching that goal of a new video game, for example, will take a considerable amount of time. Similarly, they may choose to bank $3 toward that video game more quickly, but then they will only have enough for one chocolate bar, for example. They can also move money between the jars, so if they find themselves short halfway through the week, they can take some out of their savings, or if they have surplus cash-on-hand, they could choose to add it to their savings. The “give” jar, if you have one, should be regarded as untouchable — what goes in there stays in there.
As kids get older, you may want to introduce more financial responsibility into their lives, such as giving teenagers a back-to-school lump-sum payment and allowing them to spend it on clothes, shoes and backpacks as they see fit, rather than dragging you to the store and expecting you to buy name-brand everything because “that’s what all my friends are getting.”
It’s fairly simple and kids get an idea of the gives and takes of money handling. In the process, you may also find that breaking down the handling of money into simple terms makes budgeting a lot less complex.
by admin | Consumer Proposal, Credit Counseling, Uncategorized
A lot is said about recognizing when you’re in financial trouble, with the idea being that you can fix your situation if you recognize early enough that you’re in trouble, but not much is written about how to know that you’re financially healthy or that your money woes are behind you.
Ironically, in order to know that you’ve put your financial problems behind you, you have to understand and recognize the signs when you were sailing into financial dire straits, so you can avoid them and “do the opposite.”
Overcoming financial difficulties is a bit like overcoming cancer — early detection gives you a better chance of a successful recovery. Having ignored, or not recognized, those signs, you found yourself trying to stay afloat in rough financial waters. Regardless of what you’ve done to reach safe harbour, you now want to enjoy the calm seas for a while, and preferably forever. So what are the signs that you’ve turned the corner?
The slush fund — that cash stash that will help you weather a financial storm is a must. Most analysts suggest having at least three-months’ worth of living expenses (rent, groceries, utilities, gas money … the essentials) in an emergency fund. Having this emergency fund means that even if a life-altering event were to happen (lose a job, have to take on heavy medical costs, relationship break-up, etc.), you could survive for three months during which you can enact a turnaround (find a new job, downsize your living arrangements, etc.). When you consistently start to see the balance in your savings account going up every month, instead of constantly being taken down to zero, you could be on your way to financial recovery. It may take some time to set aside that three-month slush fund, but every step forward means you’re on your way.
Credit card payments — once you start making more than the minimum monthly payment on your credit card, it means that you’re paying off your debt instead of just keeping your head above water. Many people don’t know that paying only the minimum on $1,000 costs you almost as much to finance that amount and takes you over a decade to pay off. It’s not cause to celebrate your financial independence just yet, but every journey of a thousand miles starts with a single step.
Sticking to a budget — it may seem like a simple thing, but a lot of people who get into financial difficulty don’t have a budget, and if they do, they don’t pay attention to it. They don’t always do it out of ignorance or apathy but in many cases they don’t even bother with a budget because they’re always in the red. Consciously drawing up a budget makes you realize you are in control of your spending, and then looking at your financial comings and goings on a regular basis will not only keep you on track but help you see how relatively easy it is to stay ahead of the game.
Finally, you’re answering the phone again — when things start going bad, creditors start calling; once they do, you find yourself ignoring phone calls or being selective about answering the phone. After all, creditors don’t usually leave messages and anybody from whom you want to receive calls will either leave a message or get hold of you some other way. And in this day of caller ID, it’s easy to see on the display if it’s a call you want to take or ignore. Once those bills are being paid regularly and you’re on the road to recovery, you’ll find yourself answering the phone a lot more often.
by admin | Bankruptcy, Uncategorized
When contemplating drastic action to resolve your financial woes, it is important to consider what you get to keep and what you have to give up.
One of the first things a trustee in bankruptcy does is figure out if you are insolvent. In other words, if you liquidate assets, are you able to pay off some of your debts and still be able to carry on with some comfort in life. If you are deemed to be insolvent, then you relinquish your assets (except your house) for liquidation and the proceeds pay off a certain percentage of your debts. Then, you pay a monthly amount over a certain period of time to make restitution on the balance owing, until your creditors are satisfied with the amount you paid back in relation to what you owed.
This is where the differences between a bankruptcy and a consumer proposal become important. In a consumer proposal, you do not have to liquidate your assets, meaning you get to keep the money in your Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) while you make a monthly payment to make restitution on your debts. Creditors decide whether they want to accept your payment plan or not, and as long as you continue to follow the payment schedule, you can keep whatever you have.
In a bankruptcy, you may get to keep your RRSPs (except whatever contributions you made in the 12 months leading up to filing for bankruptcy, and even some of those may be exempt from liquidation) but a TFSA is not protected, meaning the money you have in there will be used to pay off some of your debts.
The difference lies in how the two filings behave. In a bankruptcy, you are basically saying “OK, I’m selling all my stuff and here’s what I am able to give you against what I owe you.” In a consumer proposal, you are saying “Let me keep my stuff and although I can’t pay you everything I owe you, I’ll pay you this much a month for the next five years.”
In a consumer proposal, creditors are getting more from you than they would in a bankruptcy; that’s why many don’t want you to go bankrupt and will likely not contest your proposal, if it’s structured properly.
It should be noted that a TFSA holds no special standing and all your bank accounts will be treated in the same way under both a bankruptcy and a consumer proposal. What a TFSA has done for you, though, is allow you to earn interest without paying tax on it, so over the course of contributing to it, you’ve made money you can then use as you see fit … even if that is to help you pay off your debts.
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