Debt Management and Credit History Questions
Q: I’ve gotten myself into a mess, and now I just want to stick my head in the sand and pretend none of it ever happened. Collection agencies are calling me. I’m getting letters in the mail almost every day. If I ignore them, will they go away?
A: Sadly, no. The worst thing you can do is to ignore it all. All that stress is bad for your health. Call GTA Credit Solutions, and together we’ll begin to make them go away – but in the smart, legal way.
Q: I didn’t think my debt load was a problem because I always made my monthly payments, but my business has taken a downward turn lately, and I’m starting to have trouble. I feel like I’m on a slippery slope to real financial problems. How do I get things turned around?
A: Great question! Fixing things before they become a real problem is always the best course. The bad news is that your descent on the slippery slope started long before now. If you’re just barely making your minimum payments, you’re paying way too much in interest – wasted money that goes straight into the deep pockets of your already-wealthy creditors. Minimum monthly payments barely scratch at the surface of your principal debt, and all that money you’re spending on minimums and interest is money you can’t use to build wealth for the future. Plus, once you’re struggling to make those minimums, it isn’t long before you’re using one card to pay the minimum on another, and you start to feel like you’re on some nightmare merry-go-round you’ll never get off.
Fortunately, there’s good news too. The good news is that it isn’t too late to get off the merry-go-round, get on track, and create a financial future that looks very different from your past. Call us, and we’ll help you create a budget that works, and a debt repayment plan that makes actual progress.
Q: What’s some good advice for the average person?
A: We don’t believe any person is “average.” Everyone has different circumstances, different priorities, different jobs, different families, different debt loads – you get the idea. Our solutions to your problems are custom-tailored to you and your unique situation. Our advice to the “average” person is to give us a call.
Q: Why should I pick GTA Credit Solutions over the others?
A: Because we treat our clients like family. That may sound a little corny and we don’t blame you for being sceptical. But we understand financial problems, and we know the last thing you need is to be stuck with some stuffy advisor with an attitude who makes you feel even worse. We pride ourselves on our customer service – the GTA Credit Solutions family truly is the one thing we can offer you that no one else does. All you have to do to find out for yourself is come in for a visit. We treat you with the warmth and respect you deserve.
Of course, this particular “family” is comprised of a well-trained, professional, knowledgeable staff that has helped thousands of clients, in numerous languages, to get through a rough time with dignity, and then to face the future with hope.
Our team of progressive, honest individuals were hired for their skills and qualifications. They are here to assess your situation and help you take the best next steps for you. They’re available any time during business hours to answer your questions and offer some advice.
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 do I need to bring with me?
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!
Q: What are my options when dealing with my creditors?
A: You can try to get a consolidation loan to pay off your creditors while lowering your monthly payment (and often your interest rate too). A bad credit history or the inability to meet the loan payments may mean this isn’t an option for you.
In that case, the next step may be to try to negotiate a settlement or new payment terms with your creditors. This option is more successful when you have only a few creditors. It’s more difficult to get many creditors to agree to payment terms that are favourable to you.
A more practical option may be to submit a consumer proposal with the help of a GTA Credit consultant. Our consultant will help determine how much you can afford to pay and what payment may be acceptable to your creditors.
As a last resort, you may have to consider getting a trustee to help you file for personal bankruptcy.
Q: What’s the difference between personal bankruptcy and a consumer proposal?
A: Basically, with a consumer proposal you get to keep your assets and you will still pay off (at least a percentage of) your debts. The terms of the proposal may last as long as five years, at which time you will be legally released from your unsecured debts. In Ontario, a consumer proposal stays on your credit history for three years. In personal bankruptcy, you may be able to keep some of your assets; those that are not exempt under law will be sold and any proceeds distributed among your creditors. Once all the conditions of your bankruptcy have been met, you are then legally released from your unsecured debts. A first bankruptcy with no unique issues or surplus income takes nine months; it stays on your credit history for seven years or more.
Each consumer proposal and bankruptcy is unique, so talk to your trustee about your particular situation.
Q: If I declare bankruptcy or submit a consumer proposal, do I get to keep my cell phone, internet service and things like that?
A: Yes, as long as you are current with your payments.
Q: Will declaring bankruptcy affect my ability to sponsor my family for immigration?
A: The sponsorship application does ask if you are bankrupt, since you are stating that you will be financially responsible for your family. Filing a consumer proposal is a better option in this case.
Q: If I am bankrupt or have filed a consumer proposal, can I still rent an apartment?
Q: Will declaring bankruptcy get rid of my student loans?
A: There is specific legislation that deals with student loans in a bankruptcy. Ask your GTA consultant about the particulars of your situation.
Q: How will filing bankruptcy or a consumer proposal affect my future employment?
A: Sometimes, a job application will ask if you have ever filed for bankruptcy. They don’t usually ask about consumer proposals. In some professions, bankruptcy can mean a restricted licence.
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.
Q: What if there’s a mistake on my credit report?
A: You can dispute it with the credit bureau.
Q: Is there a limit to how many items I can dispute?
A: No, but if you try to dispute too many items, you may not be taken seriously by the bureau.
Q: 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.
Q: My employer just informed me my wages had been garnished! Nobody even told me! Can they do that? How do I make it stop?
A: Unfortunately, yes, they can do that. Your regular creditors can get your wages garnished by up to 20% of your gross; government creditors by up to 50%, such as for back taxes or child support. A creditor can go to court and obtain what’s called a “garnishee summons,” and your employer does not have to inform you until the garnishment begins. The creditor gets his payment from your gross wages directly from your employer.
The faster you call us, the faster we can help stop the garnishment, either by helping you file a consumer proposal or for bankruptcy. If you’re under threat of garnishee, we can help you approach your creditors with an alternate arrangement, such as post-dated cheques. Once a garnishment of your wages has begun, it’s very difficult to get a creditor to stop without the legal protection of a proposal or bankruptcy.
Q: I don’t understand my credit rating. What do these numbers mean?
A: The most common ratings, called North American Standard Account Ratings, being with “R,” which indicates “revolving” credit, such as credit cards or lines of credit. They’re coded from 0 to 9, with zero being the most desirable, best score and 9 being the least desirable, worst score.
Here’s what Equifax, one of Canada’s two major credit bureaus, says:
- R0 Too new to rate; approved but not used
- R1 Pays (or paid) within 30 days of payment due date or not over one payment past due
- R2 Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due
- R3 Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due
- R4 Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due
- R5 Account is at least 120 days overdue, but is not yet rated “9”
- R7 Making regular payments through a special arrangement to settle your debts
- R8 Repossession (voluntary or involuntary return of merchandise)
- R9 Bad debt; placed for collection; moved without giving a new address
TransUnion, our other big credit bureau, uses a number system that encompasses payment history, outstanding debt compared to credit available (balances above 50% of your limit harm your credit score), credit account history, recent inquiries, and the types of credit you use (a healthy profile uses a mix of credit accounts and loans). A score of more than 650 means you will likely qualify for a standard loan; under 650 means you may have trouble getting credit.
Q: How long does a bad credit score stay with me?
A: It depends on how bad, and on which credit bureau. With Equifax, delinquent transactions, judgments against you, collections efforts, secured loans and bankruptcy stay on your record for six years; consumer proposals and credit counselling for three. At TransUnion, judgments against you and bankruptcies stay on your record for seven years, delinquent transactions and collections efforts for six, secured loans for five, consumer proposals for three and credit counselling for two years.
Q: How will bankruptcy affect my spouse?
A: Assuming the debts are yours and yours alone, bankruptcy does not necessarily have to affect your spouse. If he or she co-signed or guaranteed any of your debts, then they’re not yours alone, and your spouse will become liable for repaying them if you declare bankruptcy.
Any holder of a supplementary credit card on your account becomes responsible for that debt if you default or declare bankruptcy.
If you divorce, you are both equally liable for the entirety of any joint debts, so you can’t split your debt 50/50. You both must do your part to ensure joint debts are fully paid in the event of divorce or legal separation. If you default on the debt, the creditor can take action against your spouse, and vice versa.
Consumer Proposal Questions
Q: What is a consumer proposal?
A: It’s when a formal arrangement is made with your creditors under the Bankruptcy and Insolvency Act to repay your debts – or very often a portion of them – over a period of time, which can’t exceed five years.
Q: Can anyone file a consumer proposal?
A: If you are unable to repay your entire debt, and it’s less than $250,000 not including your mortgage, you can file a consumer proposal. A proposal is a legally binding procedure; by contrast, a debt management plan is a voluntary agreement between you and your creditors. A proposal is administered for the court by a licensed trustee who acts as an administrator. A debt management plan is a service provided by your GTA Credit Solutions Services Ltd.
Q: If I do choose to file a consumer proposal, what happens to my assets?
A: Nothing. They’re still yours.
Q: Will a consumer proposal stop collection action by my creditors?
A: In most cases, it will stop garnishments and other legal actions. A consumer proposal is a good direction to go in to work on clearing your debt.
Q: What if I don’t fulfill the terms of my proposal?
A: If you go more than three months into arrears on your proposal, it is automatically annulled and your creditors will resume their collection efforts. You may not file a second consumer proposal, but if you have a valid reason for your failure to complete the proposal, your trustee may reinstate it.
Q: What effect does a consumer proposal have on my credit rating?
A: Your rating will drop to an “R9”, or bad debt, for the duration of the proposal (up to five years), then become “R7,” which reflects that you are making regular payments through special arrangement. It is dropped from your record three years after that.
Q: Are there any other requirements of a consumer proposal?
A: Yes. You are required to attend two credit counselling sessions.
Q: How long after filing is my consumer proposal accepted?
A: If there is no objection by your creditors, then it is accepted within 45 days. If it is rejected by your creditors or the court, you may not make another proposal, but GTA Credit will help you find another solution.
Q: What is a Division I proposal?
A: It’s similar to a consumer proposal, but used when debt is more than $250,000 including car loans.
Q: Why would my creditors accept a consumer proposal?
A: Because it’s better to get something than nothing. Let’s say you owe $40,000, and in your consumer proposal, you offer to pay half of that. Your creditor may accept $20,000 because they believe you may otherwise be forced to declare bankruptcy and they’ll get nothing. A consumer proposal is a good option for everyone involved. Your creditors recover some of what they loaned to you, and you get to keep those assets that you may lose in bankruptcy.
Q: What are the advantages of a consumer proposal?
A: It lets you make one monthly payment towards all of your unsecured debts, and in some cases can help reduce your debt load by as much as 70%. You don’t have to declare bankruptcy, and you likely won’t lose your assets. You continue to make payments as usual on your secured loans, and your unsecured creditors stop any further collection actions. Garnishments on your wages and bank accounts stop. And any interest or penalties stop piling up as soon as you submit.
Q: Can the proposal be changed if it’s rejected?
A: If your creditors vote against your proposal, they will let you know under what terms it would be acceptable. If it doesn’t get majority support (with each dollar of your claimed debt counting as one vote), it can then be amended.
Q: One of my credit card bills isn`t that big and I’d like to keep the account. Can I leave that creditor out of my consumer proposal?
A: No. You are required by law to include all your unsecured creditors when filing a consumer proposal.
Q: What is a joint consumer proposal?
A: A joint proposal is when more than one person submits a proposal together because they share a close financial relationship and their case can reasonably be considered together.
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.
Q: What is bankruptcy?
A: Bankruptcy is a legal process that may discharge you from most of your debts, subject to reasonable conditions. Once you declare bankruptcy, your unsecured creditors cannot take any further steps to recover the money you owe them.
Q: Who can declare bankruptcy?
A: Anyone who owes more than $1,000 and is unable to pay their debts in the normal course.
Q: Will I lose all my assets?
A: There are a few exemptions: Household furnishings to a value of $11,300, personal effects to a value of $5,650, a personal vehicle to a value of $5,650, tools of the trade to a value of $11,300. Certain life insurance policies and RRSPs, and most pensions, are also exempt.
Q: What if some of my debts have a guarantor or co-signer?
A: If you declare bankruptcy, a guarantor, co-signer or supplementary credit card holder will likely be held responsible for the debt.
Q: What’s a counselling session?
A: The goal is to prevent you from getting into financial trouble again. A counsellor will help you understand why and how you got into trouble, help you budget, and teach you how to properly use credit in the future.
Q: What effect does bankruptcy have on my credit rating?
A: A first bankruptcy will give you a credit rating of R9, which is the worst rating, for as long as seven years or more after your bankruptcy is discharged.
Q: Can I keep my bank account?
A: You are allowed to have a bank account, but if you owe money to the bank where your account is, you may need to open one at a different bank.
Q: Can I keep my leased car?
A: As a secured debt, it is possible to keep a leased car, but remember that monthly expenses that are simply too high are probably the biggest part of your problem. Giving up the car will reduce your expenses – not only is there the lease payment to consider, but also insurance, gas, repairs and maintenance.
Q: Can my partner and I file a joint bankruptcy?
A: Yes, when two debtors are involved in a close financial relationship and their debts are substantially the same, it is possible to file jointly for bankruptcy. Your GTA Credit advisor and trustee will advise you if they believe a joint filing is in your best interest.
Q: What are the laws pertaining to bankruptcy?
A: The laws that govern bankruptcy are contained in the Bankruptcy and Insolvency Act (the Act), which the federal government established to help unfortunate but honest debtors recover from their financial problems and get a fresh start. The Act details the responsibilities and rights of all parties involved in solving debt problems: the Superintendent of Bankruptcy, the official receivers who represent the Superintendent of Bankruptcy, the court, licensed trustees – and you.
Q: Is bankruptcy my only option?
A: No! There are many options that can help you solve your money problems, including a consumer proposal. Come on in and we’ll talk you through all your options, and then we’ll help you decide which one is right for you.
Q: How does bankruptcy affect alimony or maintenance payments?
A: It doesn’t. Alimony and maintenance are provable claims that will be treated as preferred claims for any amount incurred the year before your bankruptcy. Alimony and maintenance payments must be kept up to date, and a bankruptcy will not stop any action for collection.
Q: What are the advantages of declaring personal bankruptcy?
A: Your unsecured creditors must stop any collection actions against you, including legal actions, and any garnishment on your wages or bank account stop. You are released from unsecured debt and free to make a new start.
Q: Can I go to jail for declaring bankruptcy?
A: Honest but unfortunate debtors who file truthfully don’t go to jail. There are no criminal charges associated with filing for personal bankruptcy.
Q: Will people find out about my bankruptcy?
A: It will be on public record, and all your creditors (secured and unsecured) will be notified. Your employer will only be notified if the trustee is required to stop your wages from being garnisheed.
Q: Will I lose my house?
A: It depends on the amount of equity you have in the property. You may be able to pay the value of the equity to your trustee to be distributed to your creditors. As long as you are able to keep current with your mortgage payments, you may be able to keep your home. Talk to GTA Credit advisor or your mortgage lender about your unique case.
Q: Will I have to sell my assets?
A: Not necessarily. GTA consultant will advise you about which assets may need to be sold or distributed. If you have assets in which there is no equity (if you owe more on a secured loan for an item, a car for example, than the item is worth) and your trustee agrees, you may be able to negotiate with the lender to keep the asset.
Q: What happens if my bankruptcy doesn’t get discharged?
A: Once the trustee has completed the administration of your case. if your bankruptcy isn’t discharged, you will remain responsible for your debts and your creditors can resume their collection actions.
Q: Why wouldn’t my bankruptcy be discharged?
A: Your trustee or your creditors can prevent your bankruptcy from being discharged if you don’t perform your obligations during the nine months after you declare, such as not showing up for credit counselling sessions or not providing monthly income & expense report or failing to make the required monthly payments to your trustee.
Q: I have to leave the country for work. Can I declare bankruptcy first?
A: Talk to GTA consultant about your unique situation.
Q: How long does bankruptcy take?
A: From filing to discharge, a normal first bankruptcy takes nine months or more (if you have surplus). There are some factors that will affect that, such as if this isn’t your first bankruptcy, you have surplus income, your creditors dispute your bankruptcy or you fail to meet your obligations. Talk to your trustee about your unique case.
Q: What happens if a creditor I forgot to include in the bankruptcy contacts me after I’m discharged?
A: In most cases, as long as the debt was incurred before you filed for bankruptcy and is a provable debt, your trustee will send notice to the creditor and it will be cleared. Talk to your trustee.