When to consider a bankruptcy or consumer proposal during COVID

Faillite ou proposition de consommateur Covid

The Covid-19 pandemic has caused financial uncertainty for individuals, families and businesses across Canada. The Canadian financial landscape has been volatile for some time, with pre-pandemic figures showing the debt-to-income ratio as 180.4% in Q1 of 2020. It is clear that even before the financial complications of the pandemic, much of the Canadian public was struggling. 

Unfortunately, the pandemic has only made the financial situation worse, with credit scores taking a hit, and general debt increasing across the board. As governments across the world issued lockdowns and stay at home orders, Canadians were not alone in the situation they found themselves in. Mass unemployment was one of the harshest side effects of the pandemic. 

As unemployment skyrocketed, many people found it difficult to make ends meet. Although the Canadian government did put financial support in place, namely in the form of the Canada Emergency Response Benefit (CERB) and a halt on debt collection, this was not enough to save many of the devastating effects of the pandemic. 

Things to consider before declaring bankruptcy or filing a consumer proposal

As emotions run high during this pandemic, your state of mind may be telling you it’s time to consider declaring bankruptcy or filing a consumer proposal. It’s easy to rush into these decisions when you do not fully understand the full financial landscape, and are not fully aware of the options available to you.

However, it’s best to slow down and take stock of your situation. Taking some time to consider all of your options will remove you from your panicked state of mind and help you make an informed decision on what to do next. 

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

1. Get your facts straight

It’s extremely important to have thoroughly assessed and analyzed all the facts before considering filing for bankruptcy. Your course of action will ultimately depend on your financial situation. 

For example, many people do not even know that filling for a consumer proposal is an option. Assessing your numbers may allow you to avoid bankruptcy and file for a consumer proposal instead. A consumer proposal is deemed appropriate if you have under $ 250,000 (not including a mortgage) and allows you to keep many of the rights that you lose if you were to have filed for bankruptcy. 

It is encouraged that you seek out help when you are collating all your numbers. Consulting a licensed insolvency trustee will ensure you choose the best course of action for your individual situation.

2. Deferral Programs 

If you find yourself in a position of insolvency, meaning you do not have sufficient assets or funds to pay off your debt, deferral programs may be able to help you. 

Deferral payments do exactly what you think they would do, they give you the option to delay paying back what you owe. Deferring payments may be negotiated with your original creditor or you may need to go through one of Canada’s major banks if it is for a deferral on something like a mortgage or a line of credit payment.

It’s important to remember that you will still need to pay this money back at some point, it simply gives you a little bit of time to find the money needed to make these payments. This can be a good short-term solution that can alleviate some of the financial pressure you may be feeling. 

3. Apply for government funding 

The Canadian government has recognized the financial strain that a large amount of the population is under so the financial support available to Canadians has increased during the Covid-19 pandemic. 

We would encourage you to consider taking this help in order to help you pay off any debts that you have built up in order to avoid bankruptcy. As previously mentioned, the introduction of the Canada Emergency Response Fund was put in place to help individuals who have been adversely affected by the pandemic by offering them $2,000 for up to 4 months. 

Accepting this extra funding will hopefully give you some financial liberty as it will allow you to redirect funds towards paying off debts with funds that would otherwise have been unavailable to you. 

Canada’s COVID-19 Economic Response Plan

What the coronavirus pandemic has taught us about personal finance 

Covid-19 has created an unstable landscape around personal finance. As individuals find themselves in unprecedented territory, now is the perfect time for self-reflection. The pandemic has forced us to reassess how we handle our money, as adaptability has become a necessity.

The most important takeaway from covid-19 is the importance of planning and flexibility when it comes to your finances. The pandemic has highlighted how preparation and sacrifice are sometimes integral for families to keep their heads above water. 

When the world went into lockdown, we lost the luxury of preparedness as covid took hold within the blink of an eye. However, it did highlight the need for financial planning in the future, so people are not caught off guard like this again. 

This is where the necessity of savings comes in. From a young age, we are encouraged to build up our savings, a practice that proved invaluable to many during the pandemic. Opening a saving account is one of the most integral takeaways that can be learned from the shortcomings of many over the past year. 

It is highly advisable that you open a savings account to ensure you are not caught off guard by unexpected expenses. Simply putting away $ 100 a month could really help you further down the line and offer some debt relief. 

In addition to planning, the covid-19 pandemic has stressed the importance of flexibility with your finances. Similarly to planning, we have always been told about the importance of budgeting in order to stay on top of our finances. The pandemic highlighted how important budgeting can be, but also the need for flexibility with your budgeting. 

Having a budget journal is a good way to track your incoming and outcoming money. It will allow you to easily assess what you are spending your money on and will allow you to identify areas of over spending, subsequently highlighting where you can save money. Being flexible with your budget will allow you to easily adapt to your changing financial landscape.

How Has COVID-19 Affected Bankruptcy and Consumer Proposals in Canada?

Although the covid-19 pandemic has had obvious effects on the finances of individuals, it has also had a profound effect on the very processes of filing for bankruptcy and consumer proposals. It is important to be aware of these changes, as introduced by the Office of the superintendent of bankruptcy, as they will undoubtedly affect you if you make the decision to progress with either filling. 

Increased payment defaults for annulment

This is a key allowance that covid has allowed for in regards to consumer proposals. Pre-pandemic, an individual was allowed to defer three monthly payments before their consumer proposal was deemed annulled. 

However, between the 13th of March and December 31st 2020, debtors were afforded three deferrals, and were subsequently allowed another three additional deferrals to allow some flexibility in payments. 

Credit Counseling Sessions

In person credit counseling sessions are not entirely feasible during the pandemic due to social distancing measures so these have been moved online. You need to attend two credit counseling sessions in order to successfully have your consumer proposal completed or your bankruptcy discharged, so being computer literate is a necessity in these covid-19 times.

How to deal with debt during COVID-19

In times of financial crisis, the ultimate goal is to avoid bankruptcy. However, dealing with debt can be stressful. Here are a few quick tips that we think are most useful when dealing with debt: 

  • Prioritize. If you have amounted debts from multiple different creditors, prioritize which you pay off first. This is a tactical move as paying off debts with high interest rates, such as credit card debts will decrease the amount you have to spend in the long run by avoiding highest interest rates. 
  • Create a payment plan. In order to stay on top of your debt and avoid any extra charges, a payment plan is a brilliant option. A payment plan is a great organizational tool to ensure your repayments are on time and you are not late for any other payments, such as your weekly bills. 
  • Boost your savings. Saving yourself small amounts of money on daily expenses can add up to make a big difference. A small change such as switching to a cheaper insurance or energy provider can allow you to make savings that can ultimately go towards paying off your debt. 

How a licensed insolvency trustee can help you during COVID-19

The main thing to remember when dealing with debt and the thought of bankruptcy or having to file a consumer proposal, is that you are not alone. As much as it can feel like the world is ending, there are always people on hand to talk you through the process and offer you advice and support. 

Licensed insolvency trustees (LITs) are amongst some of the people who are available to help. LITs are extremely knowledgeable and up to date with all the legalities surrounding insolvency, even as the situation changes rapidly due to COVID-19. 

They are the best people to consult when considering bankruptcy or a consumer proposal as they are the only people who can legally administer insolvency proceedings in order to absolve you from your debt.  

Ultimately, liaising with a licensed insolvency trustee will ensure you are armed with all the facts of your debt and all avenues have been explored. If you decide that bankruptcy or a consumer proposal is your last option, they will be able to talk you through the proceedings to settle your debt.