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Factors to Consider Before Declaring Bankruptcy or Filing a Consumer Proposal

With emotions running high during the pandemic, your immediate reaction might be to consider personal bankruptcy or a consumer proposal. It is easy to rush into such decisions when you do not fully grasp the financial landscape and are not completely aware of all the available solutions.

However, it is advisable to pause and thoroughly assess your situation. Taking the time to examine all your options will help you move beyond any panic and enable you to make an informed decision about the best course of action.

Here are some of the most important factors to consider before declaring bankruptcy or filing a consumer proposal:

1. Clarify Your Situation

It is extremely important to have carefully evaluated and analyzed all the facts before considering bankruptcy. Your decision should be based on your specific financial situation and needs. Furthermore, many individuals are not even aware that filing a consumer proposal is an available option.

Analyzing your debts can help you avoid bankruptcy. A consumer proposal is considered appropriate if your debts (excluding your mortgage) are less than $250,000, and it allows you to retain many of the rights you would lose if you were to declare bankruptcy.

Be sure to consult a bankruptcy trustee to ensure you choose the most suitable solution for your situation.

2. Consider Deferral Programs

If you find yourself in a state of insolvency, meaning you do not possess sufficient assets or funds to repay your debt, deferral programs may offer assistance.

Deferred payments provide you with the option to postpone your repayments. Payment deferral can be negotiated directly with your original creditor, or you may need to work through one of Canada's major banks if the deferral is for a mortgage or a line of credit.

It is important to understand that this money will need to be repaid at some point. Therefore, it is a short-term solution that provides you with more time to acquire the necessary funds and alleviate some of the financial pressure you may be experiencing.

3. Obtaining Financial Support from the Government of Canada

The Canadian government has acknowledged the financial strain experienced by a significant portion of the population, leading to an increase in financial support available to Canadians during the Covid-19 pandemic.

We encourage you to consider this assistance to facilitate debt repayment and avoid bankruptcy. As previously mentioned, the Canada Emergency Response Benefit (CERB) was established to assist individuals affected by the pandemic by offering $2,000 for a maximum period of 4 months.

Accepting this additional funding will hopefully provide you with some financial flexibility, as it will allow you to redirect funds towards repaying your debts.

Canada's Economic Response Plan to COVID-19

What the COVID-19 Pandemic Taught Us About Personal Finances

Covid-19 has created an unstable landscape surrounding personal finances. As individuals navigate unprecedented territory, it presents an opportune moment for reflection. The pandemic has compelled us to re-evaluate how we manage our money, as adaptability has become a necessity.

The most crucial aspect highlighted by Covid-19 is the importance of planning and flexibility regarding your finances. The pandemic has underscored how essential preparation and sacrifice can be for families to stay afloat.

This is where the necessity of saving comes into play. From a young age, we are encouraged to save, a practice that proved indispensable for many during the pandemic.

It is highly advisable to open a savings account to avoid being caught off guard by unforeseen expenses. Simply setting aside $100 per month could significantly benefit you in the future.

Beyond planning, the Covid-19 pandemic has emphasized the importance of financial flexibility. Establishing a budget is crucial for managing your finances. The pandemic has highlighted not only the significance of budgeting but also the need for flexibility when creating your budget.

A budget management ledger is an effective way to track your income and expenses. It will enable you to easily identify where your money is being spent and where you can save. A flexible budget will allow you to better adapt to changes in your financial situation.

How Has COVID-19 Influenced Bankruptcies and Consumer Proposals in Canada?

While the COVID-19 pandemic has had devastating effects on individual finances, it has also profoundly impacted the processes for filing bankruptcies and consumer proposals. It is important to be aware of the changes introduced by the Office of the Superintendent of Bankruptcy, as these will affect you if you decide to proceed with either of these processes.

Increase in Potential Payment Defaults

This is a key allowance provided for consumer proposals. Prior to the pandemic, an individual was permitted to defer three monthly payments before their consumer proposal was annulled.

However, between March 13 and December 31, 2020, debtors were granted three deferrals, and subsequently, an additional three deferrals were permitted to allow for greater payment flexibility.

Credit Counselling Sessions

In-person credit counselling sessions are not feasible during the pandemic due to social distancing measures; therefore, they are now conducted online. You must attend two credit counselling sessions to successfully complete your consumer proposal or be discharged from bankruptcy.

How to Manage Your Debts During COVID-19

During times of financial crisis, the ultimate goal is to avoid bankruptcy. However, over-indebtedness can be stressful. Here are some helpful tips for managing your debts:

• Prioritize your debts. If you owe money to multiple creditors, determine which debt to pay first. Repaying high-interest debts, such as credit card balances, will reduce the total amount you will have to spend in the long run.
• Create a payment plan. To maintain control over your debt and avoid additional fees, a payment plan is an ideal tool to ensure your repayments are made on time and that you do not fall behind on other essential payments, such as your weekly bills.
• Boost your savings. Saving small amounts of money on your daily expenses can make a significant difference. A minor change, such as switching to a more affordable insurance provider or energy supplier, can lead to savings that can be used to repay your debts.

How a Licensed Insolvency Trustee Can Help You During COVID-19

The most important thing to remember when facing debt is that you are not alone. Even if it feels like the end of the world, there are always people available to guide you through the process and offer advice and support.

The bankruptcy trustees are among those who can help you. They are extremely knowledgeable about all legal matters related to insolvency, even as the situation rapidly changes due to COVID-19.

These are the professionals to consult if you are considering bankruptcy or a consumer proposal, as they are the only ones legally authorized to administer an insolvency proceeding and help you become debt-free.  

Consulting with a trustee will ensure that you have explored all possible solutions. Should you decide that bankruptcy or a consumer proposal is the best option, they will be able to guide you through the entire process.