What exactly does it mean to be insolvent you may ask? Well, insolvency in short, is the inability to pay one’s debts when they are due. If you were to liquidate all your assets and it would still not be enough to cover your liabilities, then you are also considered to be insolvent. And the rate of insolvency has grown amongst Canadians according to the Office of the Superintendent of Bankruptcy by 9.7% over the past year. Reasons for this upswing in Consumer Proposals and Bankruptcies could be a result of the oil industry taking a hit out west and the rise of home prices within larger cities proving to be less affordable for the average consumer.
If you answer yes to any of the following questions, it may mean you are insolvent or heading in that direction:
- Do you struggle to pay off your credit card debt, utility bills, rent or other payments in full by the due date?
- If you sold your car, cottage, boat, or any other objects of value plus any savings you may have, would this still not be enough money to clear all of your debts?
- Do you borrow from one credit card to pay off another and the debt doesn’t decrease?
Should any of these situations reflect your current situation, consider contacting a credit counselling service to go through your budget and debt repayment options with you. Sometimes having a second pair of eyes looking at your income, expenses and debts can provide solutions you weren’t aware of. A Trustee in Bankruptcy is another professional that can explain how insolvency options may work in your particular case.
I urge anyone dealing with the challenges of insolvency not to ignore this financial struggle.
Every situation is different, of course, but if you are able to trim down on take-out coffees and switch to no-name brand products, small changes to your monthly budget may be able to push your expenditures from a deficit to a surplus. Is there a way you can increase your income with a second job or getting a room-mate? Should you have any savings in a TFSA, consider using those savings to help as any withdrawals will not be taxed (in contrast to RRSP saving which will be taxed upon withdrawal) and they can be replaced the following tax year should you be able to do so. Be sure not to transfer any large items like deeds to a house or car to family or friends for less than the market value as this is considered fraud should you end up filing for bankruptcy. Rest assured that any RRSP contributions you have made prior to one year from filing will be safe, only new contributions will be included in the affairs to be distributed to creditors by a bankruptcy trustee in order to offset their losses.
I urge anyone dealing with the challenges of insolvency not to ignore this financial struggle. If left too long it will quickly turn to quick sand leaving you with even loss control and fewer options to help free you from insolvency.
Frequently Asked Questions
Have a question? We are here to help.
What is a Debt Consolidation Program?
A Debt Consolidation Program (DCP) is an arrangement made between your creditors and a non-profit credit counselling agency. Working with a reputable, non-profit credit counselling agency means a certified Credit Counsellor will negotiate with your creditors on your behalf to drop the interest on your unsecured debts, while also rounding up all your unsecured debts into a single, lower monthly payment. In Canada’s provinces, such as Ontario, these debt payment programs lead to faster debt relief!
Can I enter a Debt Consolidation Program with bad credit?
Yes, you can sign up for a DCP even if you have bad credit. Your credit score will not impact your ability to get debt help through a DCP. Bad credit can, however, impact your ability to get a debt consolidation loan.
Do I have to give up my credit cards in a Debt Consolidation Program?
Will Debt Consolidation hurt my credit score?
Most people entering a DCP already have a low credit score. While a DCP could lower your credit score at first, in the long run, if you keep up with the program and make your monthly payments on time as agreed, your credit score will eventually improve.
Can you get out of a Debt Consolidation Program?
Anyone who signs up for a DCP must sign an agreement; however, it's completely voluntary and any time a client wants to leave the Program they can. Once a client has left the Program, they will have to deal with their creditors and collectors directly, and if their Counsellor negotiated interest relief and lower monthly payments, in most cases, these would no longer be an option for the client.
