by admin | Bankruptcy, Consumer Proposal, Credit Counseling, Uncategorized
On of the things that get many people in debt trouble and on the road to bankruptcy, especially self-employed people or small business owners, is non-payment of taxes. Income tax debt can pile up very fast because it never goes away unless you pay it all off (or most of it, under a consumer proposal) or it is discharged in bankruptcy.
The annoying part is that whereas other debts don’t come back unless you don’t learn your lesson and fall back into bad habits, income tax owning keeps accumulating as you work hard (literally!) to meet your proposal or bankruptcy obligations.
There are really three problems in dealing with income tax debt: getting up to date on income tax owing, straightening out your current income tax return and staying on top of future income tax payments.
In a bankruptcy, one of the bankruptcy trustee’s first tasks is to file an income tax return for the year prior to bankruptcy. The trustee must then file a return for the current year up to the time of bankruptcy. And then you must file a return for the remainder of the current year before the tax deadline in the coming year.
The past tax owing gets lumped in with all your other debts, under certain conditions, and it will be eliminated when you are discharged from bankruptcy. However, if income tax debt is your biggest debt (as is the case in most bankruptcies), it may not be automatically discharged when you emerge from bankruptcy (especially if it tops $200,000 or if it accounts for more than 75% of your debt).
However, there are other paths you can explore prior to filing for bankruptcy.
First and foremost is applying to the Canada Revenue Agency (CRA) for debt relief. The CRA may exempt payment of penalties or fines if the financial hardship was caused by extenuating circumstances such a physical duress (an accident or serious illness), emotional stress (such as that created by a death or divorce), natural or man-made disasters (such as floods or fires), or civil disturbances or disruptions of services (such as a lengthy postal strike or government shut-down).
Payment relief may also be available if the cause of the debt stress was related to CRA actions, such as processing delays or errors, not providing information in a timely manner to the individual or providing information later deemed erroneous, or undue delays in processing on the agency’s part.
And lastly, relief may also be granted if you can show an inability to pay due to loss of employment, if the interest penalties are a significant portion of the amount owed, or if repayment would result in considerable hardship to provide the basic necessities of life (food, shelter, medical help or transportation).
In the case of a small business, relief may also be granted if having to repay the outstanding amount might lead operations to cease, cause job losses or somehow influence the well-being of a community.
If relief cannot be had from the CRA, the next step to explore would be a consumer proposal. As in dealing with other debts, the trustee would file a proposal for repayment of a portion of the outstanding debt to the CRA, which may choose to accept the proposal.
If either of those avenues fails, then bankruptcy would be the final option. But remember, as you keep working under your new financial freedom, income tax keeps accruing, and if you’re not getting taxes deducted off a paycheque, then there is the chance you may not be able to pay off the accumulation at the end of each year and that would be considered new debt for which you are responsible.
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by admin | Consumer Proposal, Uncategorized
For many people, a consumer proposal as a solution to financial difficulties is preferable to declaring bankruptcy because it causes a little less damage to their credit scores and/or lets them keep their assets. It also lets people honor their debts by repaying them over time, but has the added benefit of generally requiring them to repay only a small percentage of what they actually owe.
You can file a consumer proposal that includes all your unsecured debts through a trustee. From the date your proposal is filed, you stop making payments on your debts directly to your creditors, and any actions in effect against you such as a garnishee of wages or a lawsuit also stop.
From the date of filing with the Office of the Superintendent of Bankruptcy (OSB), your creditors have 45 days to respond. If a majority of your creditors by dollar amount accept the terms (i.e. 50% of your debt, plus $1), the proposal is accepted and all creditors must abide by its terms.
If creditors totaling at least 25% of your debt request one, a meeting of creditors may be held within 21 days of filing. A Trustee office can also call a meeting if desired. Your creditors will then vote at the meeting. If a quorum of creditors fail to show, the proposal is accepted.
Most reasonable consumer proposals don’t require a meeting of creditors. Although it usually means only some part of the total debt will be repaid, creditors know that if they don’t accept a proposal, it could drive the debtor to bankruptcy, in which case they get nothing.
If your proposal is approved, you will then make agreed-upon payments through your trustee to your creditors over a period not longer than five years.
If you think you may be headed for financial trouble, talk to a qualified credit counsellor about your options as soon as possible. The sooner you act, the sooner you can put those troubles behind you.
by admin | Bankruptcy, Consumer Proposal, Uncategorized
Q: Will filing a consumer proposal impact an immigration sponsorship?
A: You should check with Citizenship and Immigration Canada to get the most up to date information, but as of this writing, you can submit a consumer proposal and sponsor someone for immigration at the same time. You can’t, however, sponsor someone while you are an undischarged bankrupt. It’s important to note that when a consumer proposal is successful, any interest you’re paying is frozen, you may only have to repay a portion of your debts, garnishments on your wages cease, and your creditors are restricted from taking any legal action.
Q: How does a consumer proposal affect my credit report?
A: For the course of the proposal, up to five years, you will be rated “R9” or bad debt. Once the terms of the proposal are fulfilled, you will be rated “R7,” which reflects that you are repaying your debts by special arrangements, for three years.
Q: Who keeps track of my credit history?
A: In Canada, there are two credit bureaus, Equifax and TransUnion, who keep track of your credit. A consumer proposal will be reflected on your credit report for three years after it is completed.
Q: How does that affect my future?
A: A lower credit rating will affect your ability to get future credit, but the rating you get with a consumer proposal is not as bad as if you declare bankruptcy, and it doesn’t stay on your record as long. A bankruptcy will be on your credit report for seven years or more.
Q: I own a house and a car. Do I get to keep them?
A: Most of the time, secured creditors aren’t involved in a consumer proposal. You will likely continue to make your payments as usual.
Q: What happens when my mortgage comes up for renewal?
A: You’ll have to discuss the details with your lender, but usually if you keep your payments up to date and can prove that you will be able to continue to make your payments in the future, you will qualify for a renewal.
Q: Am I qualified to submit a consumer proposal?
A: You may be, if your debt doesn’t exceed $250,000 not including your mortgage (primary residence). Everyone’s case is different. GTA consultant can review your details and help you determine that.
Q: Can I go to jail for filing a consumer proposal?
A: As long as you file truthfully, there are no criminal charges associated with filing a consumer proposal.
Q: Can I pay my full debt through a consumer proposal?
A: At the end of the term of the proposal (up to five years), your debts are considered fully paid, even though most of the time the amount will be less than the actual debt you started with.
Q: I have to leave the country for my work. Can I do a consumer proposal first?
A: You should discuss your unique position with GTA consultant.
Q: How much does a consumer proposal cost?
A: It depends on a few factors, including your monthly budget and the value of your assets. Talk to GTA consultant about your specific situation.
Q: How long will a proposal last?
A: Up to five years.
Q: What happens if I can’t afford to finish my proposal?
A: If you miss three months of payment and do not file an amendment, your proposal is no longer a legally binding agreement and your creditors are free to take further collection action against you for the full amount of your debt. You may have to file for bankruptcy. Your trustee can advise you further.
Q: What happens if I forget a creditor on my proposal?
A: It depends on the amount of the debt. Your proposal may continue as offered if the debt is small, but a larger debt may mean an increase to your proposal payment.
by admin | Bankruptcy, Consumer Proposal, Uncategorized
How does making a late payment affect my score?
A: Badly! 35% of your credit score is based on your payment history. Credit bureaus don’t make available to the public their exact formula for calculating the points on your credit score, so it’s hard to say exactly how one late payment might affect you. Better to just be on time.
Q: So how does the rest of my credit score break down then?
A: Well, 35% comes from your payment history, 30% is your debt utilization ratio (sometimes also referred to as a credit to debt ratio), 15% is your credit history, 10% is new credit, and 10% is the types of credit you have in use.
Q: How do I get a credit score if I’m new to Canada?
A: If you have a short credit history – or none at all – you may not have a credit score. You need to have at least one active account within the last six months. The best thing you can do to start establishing credit is to apply for a secured credit card.
Q: How do I rebuild my credit after filing a proposal or for bankruptcy?
A: It will take some time, but you can do it. Your GTA consultant will help.
Q: Will filing for bankruptcy affect my spouse?
A: Not directly. But we do recommend that you come see us together to talk about both your options for solving your financial problems.
Q: Will my personal information be kept private?
A: In the case of credit counselling and informal arrangements, absolutely. For formal proceedings like a proposal or bankruptcy, the Office of the Superintendent of Bankruptcy keeps a record of your filing. A trustee is required to file
your income tax return for the year in which you declare Bankruptcy, so Canada Revenue Agency will also have a record of it. Your creditors will also receive notice once it has been filed with the Office of the Superintendent of Bankruptcy.
Q: How long does a proposal or bankruptcy stay on my credit record?
A: In Ontario, a consumer proposal stays on your record for three years after it’s completed; a first bankruptcy stays for up to seven years or more.
by admin | Bankruptcy, Consumer Proposal, Uncategorized
Q: What about my income tax debt?
A: Personal income tax debt is just like any other unsecured debt. Once you’ve filed for bankruptcy or submitted a consumer proposal, Canada Revenue Agency (CRA) can’t take any further action against you, including wage garnishment or freezing your assets. Your trustee will notify CRA once you file, and instruct it to stop any further action against you to collect your debt.
Q: I used to be able to meet my obligations, but my income has dropped. What can I do?
A: An income reduction because of a job change or job loss isn’t unusual. If you fall behind on your debt repayment and your creditors are threatening to put you into collections, you may want to consider filing a proposal, which would allow you to reduce your payments. If you don’t have enough income to consider a proposal, you may have to consider filing an assignment in bankruptcy.
Q: If I have to file, what assets will I lose? And what will I keep?
A: A consumer proposal doesn’t have any effect on your assets, unless you choose to liquidate them to fund the proposal. Check out our “What We Do” page for a list of those assets that are exempt under provincial law should you file for bankruptcy. In many cases, you can make arrangements to allow you to keep even those assets that might normally be sold. Q: What’s a credit score? A: A credit score is a number value assigned by credit bureaus to represent your credit record. It’s kind of a shorthand way of summing up how you’ve handled credit and debt repayment in the past.
Q: What happens to my credit score if I file a proposal or for bankruptcy?
A: Your credit score is affected whenever you don’t pay your bills on time, even if you haven’t filed a proposal or for bankruptcy. When a credit bureau is notified of a proposal, they will drop your score to “bad debt,” which is the same rating you would get if your debt went to a collections agency, until the proposal period is over, which can be up to five years. It’s called “R9.” After that, it becomes an “R7,” which means you are making regular payments through a special arrangement to settle your debts. After three years, the R7 is taken off your file. In bankruptcy, your credit score goes to R9 for the nine months it takes for your bankruptcy to be discharged (assuming it’s your first time), and stays that way for seven years or more afterwards.
Q: Will closing unused credit card accounts help my credit score?
A: Closing unused credit card accounts can actually hurt your score, either by making your credit history appear younger than it is, or by reducing the total credit available to you, which can affect your debt utilization ratio very badly. Your debt utilization ratio is the total amount of credit you have available (add up all the credit limits on your cards and lines of credit) compared to the total amount of debt (add up all your balances). As a general rule, you never want your debt utilization ratio to go higher than 20% (or a one to five ratio of balance carried to limit available). Closing an unused credit card account has a bad effect on your debt utilization ratio if you are carrying a lot of debt on your other cards.
by admin | Bankruptcy, Consumer Proposal, Uncategorized
Q: I read on one of your other pages where you talk about “secured” and “unsecured” debts. What’s the difference? A: “Secured” debt is backed up by some kind of collateral, which reduces the risk for your lender. Your mortgage, for instance, is a secured debt because the value of the house itself means the lender’s risk is minimized. To oversimplify things a bit, if you fail to pay the loan, the lender takes the house, and they lose nothing. A credit card is an example of “unsecured” debt. There is no “lien” on your property; that is, the lender has no right to take your property if you don’t meet your repayment obligations. Secured debt usually carries a lower interest rate because of the lesser risk for the lender.
Q: Harassment from my creditors is ruining my life! How do I make them stop? A: When you file for bankruptcy or submit a consumer proposal, your creditors are prohibited from contacting you.
Q: My wages have been garnisheed! What can I do about it? A: When you file for bankruptcy or submit a consumer proposal, any further garnishment stops too. It’s part of the “stay of proceedings.
Q: My credit is pretty bad. Can I still get a bank loan? A: If you already know your credit is bad, you shouldn’t even apply. Just applying can make your credit score even worse. Let us help you fix your credit first.
Q: If I come to see you, what are you going to be looking at? A: We’ll look at your assets and liabilities, and figure out your net worth, even if it’s negative. In other words, we’ll take what you own and subtract what you owe. We’ll take what’s coming in and subtract what’s going out. And that way we’ll have a clear picture of your situation. We’ll check out your credit report, too. Then we’ll get you set up with a monthly budget to get you started on the right track. Remember, a trustee represents your creditors, but we work for you!
