News
New protection for Registered Retirement Savings Plans (RRSP)
Relief from the burden of Student Loans
Behind on your income tax?
The Effects of Bankruptcy After Marriage Separation
Making Ends Meet After Marriage Separation
Implementing a Budget
New changes to laws for Canadian bankruptcies
Credit counseling not always the best option
New protection for Registered Retirement Savings Plans (RRSP)
Changes have come into effect regarding RRSPs.
Currently, certain types of RRSPs are protected in a bankruptcy (meaning they will not be available to creditors). Some life insured RRSPs are exempt from bankruptcy where there is a beneficiary that meets specific criteria. Locked-in plans from former employers and company pension plans are also exempt.
However, the traditional RRSPs through banks, investment companies and certain types of Deferred Profit Sharing Plans are not exempt. If you file a bankruptcy, these plans will be redeemed by the Trustee to be distributed to the creditors.
The new rules came into effect in July 2008 and exempt all types of RRSPs from bankruptcies. The only exception will be contributions made within the 12 months prior to the bankruptcy.
This will benefit those who do not have the advantage of employer sponsored pensions and must rely on their RRSP as main source of income when they retire.
Further information on these changes can be found at:
http://strategis.ic.gc.ca/epic/site/bsf-osb.nsf/en/h_br01368e.html
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Relief from the burden of Student Loans
The Bankruptcy and Insolvency Act has been changed recently to help those weighed down by Student Loan debt that just won’t go away. The Bankruptcy and Insolvency Act has specific rules which allow for Student Loan debts (OSAP, Canada Student Loans) to survive after a bankruptcy or consumer proposal.
If you have been out of school for more than 7 years, a bankruptcy or consumer proposal will eliminate the debt. Prior to the recent changes, you needed to be out of school more than 10 years.
Even if you have been out of school less than 7 years, there are still options to deal with the debt. If you have been out of school for more than 5 years and have been through a bankruptcy or consumer proposal, then you can apply to the Courts to have them consider reducing or eliminating your debt depending on your individual circumstances.
If you have been out of school less than 7 years and experiencing financial hardship from various types of debt, including Student Loans, there are still options. If you file for bankruptcy or a consumer proposal, any collection action is stopped on the Student Loans. Once the bankruptcy or consumer proposal is completed, you can negotiate the repayment of the remaining balance of the Student Loan.
Our Financial Counsellors can provide further information concerning your particular situation and the impact of a bankruptcy or consumer proposal. More information can be found at:
www.hrsdc.gc.ca/eng/learning/canada_student_loan/index.shtml
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Behind on your income tax?
There are occasions where people are behind on either filing their income tax or paying the outstanding balances. What can happen?
Penalties and Interest
Canada Revenue Agency (CRA) will charge a penalty when tax returns are not filed on time. The amount of the penalty will increase depending on whether it is the first time (5%) or if it is not the first time (10%+). The amount owed will continue to increase just like interest on a loan until the balance is paid.
Interest will be charged on the tax arrears just like interest on a loan. Interest can be charged even when the return is filed on time but the balance is not paid. The amount of interest charged is based upon a prescribed interest rate set quarterly by the government and is similar to rates being charged on bank loans.
Penalties and interest will also be charged where you are required to make quarterly instalments and they are not made as required. Instalment payments normally apply to self employed individuals and those receiving pensions.
Collection action
If CRA is unable to make a suitable payment arrangement with you to bring your tax balance current, they have several options to recover the money.
Phone calls
CRA has its own collection group that will call in an attempt to make payment arrangements.
Requirement to Pay (Garnishee)
This is the same as a wage garnishee. If CRA issues the Requirement to Pay to your employer, your employer is required to hold back a portion of your wages and remit it to CRA. The amount held will depend on whether you are paid a wage or commission. Filing a bankruptcy or consumer proposal will stop the garnishee.
Liens
If you own property, CRA can take steps to register a lien against your home. Once registered, the lien has the same status as a mortgage. Filing a bankruptcy or consumer proposal will not affect the lien. CRA normally uses the lien as a last resort after all efforts to collect the tax debt have failed. If you own property and are unable to pay the tax debt, it is important to speak to an insolvency professional before it is too late.
What are your rights?
It may not seem like you have many rights, but you do. If you have the ability to pay but need time, you should refer to the CRA document on taxpayers’ rights, which can be found at http://www.cra-arc.gc.ca/agency/fairness/rights-e.html
If you are unable to pay the debt, you should discuss your situation with an insolvency professional to see if a consumer proposal or bankruptcy may assist you in getting a fresh start.
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The Effects of Bankruptcy After Marriage Separation
When you are bankrupt and separated from your spouse, there are several issues that are unique to your situation.
Support Payments
If you are required to pay either spousal or child support, this will not change because you are bankrupt. While a bankruptcy can stop most court ordered garnishees, support obligations are one that cannot be stopped.
If you are in arrears of support, this debt will survive after the bankruptcy is over. If the arrears started within 12 months prior to the bankruptcy, your former spouse will be entitled to special status in the bankruptcy and will have priority over other creditors to be paid first.
Equalization of Assets
In many separation agreements, there are sections that deal with either an equalization payment or division of property. An equalization payment is treated the same as any other debt. It would be added to the creditors included in the bankruptcy. A division of property is different and how it is handled will depend upon the wording of the agreement.
Separation of Debt
In some separation agreements, it is agreed that each person will pay certain debt. However, it is possible the creditor shows both people as the borrower. The creditor will not be required to follow the separation agreement and could possibly pursue the other spouse if one has become bankrupt.
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Making Ends Meet After Marriage Separation
This is a common statement heard after a separation or divorce. While married or living together, you have two incomes that are running the household. After separating, you have the same amount of income but now need to pay the expenses of running two households. In a very short period of time, debt will pile up as you try to keep up with daily living.
The first step is to plan out when your pay is received and match it to the expenses that come up during the month. For example, if you are paid bi-weekly, budget the expenses that will need to be paid from that cheque such as rent, mortgage, utilities or car payments. Then budget the expenses that will come up after the next pay is received. Once you have done that, you will now need to budget out your debt payments for loans, credit cards etc.
If you find there is not enough money left, the time to act is now. One option is to apply to the bank to consolidate the debt into one monthly payment. If the payment is still too high, then you should consider whether a consumer proposal or bankruptcy is needed. A consumer proposal is a way of telling the creditors you canít afford to pay them the full amount owed, but are willing to pay a reduced amount you can afford. A bankruptcy is the last resort when there is no money left to make any payments.
A financial counselor can meet with you at no cost and review your situation in detail. This will help you identify which option is best for you.
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Implementing a Budget
Implementing a budget can seem overwhelming, but it need not be complicated. Start by creating a list of your housing expenses, then work related and transportation costs, essential living costs, and finally personal expenses. You will find that some of these costs will be “fixed” in that they are the same every month, i.e. rent or mortgage, car payment, insurances. Then there are the expenses which we pay for with “cash”, which has now become synonymous with our use of debit cards. These would include food, fuel, entertainment, etc. Finally list the “occasional” costs, i.e. those that typically do not necessarily occur every month, but should ideally be planned for and require anticipated savings. These would include clothing, gifts, car repairs etc. Typically these expenses are paid for with the use of credit, simply because we failed to plan ahead for them. This in turn, increases the true cost of these items.
Getting started. Fixed expenses are just that, fixed, they are also the easiest to identify.
Cash expenses tend to be somewhat consistent from month to month. There are different methods to track and control cash costs. One may be to total the monthly amount of such costs and divide the amount into a weekly cash withdrawal. Purchase the priority expenses such as fuel and food and leaving the remaining monies available for entertainment, dining, etc. Once the weekly cash is utilized you must forego the expense until the following week.
Another method would be the use of a debit card. While this is very convenient it can be difficult to monitor and should be discouraged if one is trying to gain control of spending. The majority of people likely use a combination of both cash and debit.
Now, let’s focus on saving ahead for the occasional expenses. A list might include an annual estimate for car or house repairs, gifts, sports, vet fees, vacations, or investments. By projecting an annual amount and then setting those funds aside monthly, there will less of a need to rely on credit. An easy way to allocate money for irregular costs is to instruct the bank to transfer a specific amount to a designated account monthly or per pay period. This ideally ensures that funds are available when required. The use of credit cards is not elaborated on, if expenses are being paid by credit it is strongly recommended that the balance be paid monthly
You will find that planning for and tracking your expenses will allow you to attain your financial goals.
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New changes to laws for Canadian bankruptcies
As of September 18, 2009 the rules for Canadians declaring personal bankruptcy have changed. The new regulations represent the final phase in a series of laws passed by Parliament in 2005, and are part of a larger series of revisions aimed at reforming the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. They promote easier acceptance of a consumer proposal, impact how long it will take to complete a bankruptcy, and are more stringent on those owing income tax.
Those declaring bankruptcy will now be bankrupt for a longer period of time. Prior to the new laws enacted September 18, 2009, most bankruptcies were discharged within a period of nine months. Under the new regulations individuals with above average income filing for bankruptcy will have their debts discharged after 21 months, increasing the amount of time it will take to complete a bankruptcy. For those declaring bankruptcy a second time, discharge will not happen for a minimum period of 24 months. This time period can be extended up to 36 months for those who earn above average income.
The new laws have also greatly increased the amount of personal debt an individual may have and still qualify to complete a consumer proposal rather than a bankruptcy. Previously individuals with a debt load of more than $75,000 did not commonly complete a consumer proposal. Under the new regulations individuals owing up to $250,000 can now qualify for a consumer proposal.
The new laws have also tightened regulations for those who owe the tax man. Individuals who owe more than $200,000 in income tax representing more than 75% of his or her debts are not eligible for an automatic discharge, and must go through the Courts. For a detailed explanation of the new laws and how they may impact your personal options for debt settlement, speak to a professional at 310DEBT. Dial 310-3328, or book an appointment online at www.310debt.com.
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Credit counseling not always the best option
For those struggling to make ends meet, credit counseling often seems like the best first option. However for many people credit counseling does not provide the immediate financial relief needed, and only prolongs the inevitable, causing their debts to continue to mount, only to eventually file for a bankruptcy or consumer proposal. For anyone with any financial or debt concerns at all, the best first step is to sit down with a professional, discuss your personal situation, and learn about all of the options that are available to you.
Credit counseling programs are designed to help people create a plan to pay back debts in full over a period of up to four years. For some individuals this strategy of streamlining expenses and paying down their debts can be successful. However for many families and individuals, this option simply does not work. Those carrying large debt loads at high interest rates often struggle to make payments significant enough to dig themselves out. And, like the proverbial house of cards, one unexpected expense can cause the whole plan to fall apart.
The current reality for many Canadians who find themselves in financial difficulty is that a significant change in has taken place in his or her life: Loss of a job or reduced income; death of a spouse or the break-up of a marriage; injuries or health problems. Often in these cases the best approach is to file for bankruptcy. It puts an immediate end to harassing calls from creditors, creates a realistic payment plan, and—most importantly—provides the chance to wipe the slate of old debts clean, eliminating stress and providing a fresh financial start.
To learn more about the all of the options available to assist you, including credit counseling, consumer proposal and bankruptcy, speak to an expert. A meeting with one of the friendly professionals at 310DEBT will help explore all options and assist you in selecting the option that works best for your circumstances. Dial 310-3328, or book an appointment online.
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