Overwhelmed by debt? Consumer proposals can restore peace of mind (and sleep)

It’s no secret that Canadians have been struggling financially because of the coronavirus pandemic, especially those in the low- to middle-income tax brackets.

And the new year isn’t bringing much relief for many. A combination of postholiday bills coming due, deferred-payment programs for mortgages and credit-cards possibly ending, and even repayments of (and paying taxes on) federal financial-support programs like the Canada Emergency Response Benefit (CERB) might start weighing heavily on the minds of many.

Equifax Canada reported last November that about 900,000 Canadians had taken advantage of mortgage deferrals and about 1.2 million had put off credit-card payments under programs offered by banks and other lending institutions.
Although those deferrals should not affect credit ratings, the bills will still have to be paid.

Results from a January 18 Ipsos poll conducted on behalf of MNP Ltd., a national insolvency-services company, found that almost 30 percent of Canadians are insolvent, meaning that they cannot meet all of their monthly financial obligations. When those who are only about $200 or less away from that status are added, that figure jumps to almost half of Canadians.

Many financial experts advise those on the brink of financial crisis to create a strict monthly budget, pay off debts as quickly as possible, and avoid using credit. Those and others who might also be holding on to limited financial resources for fear of future hardships should probably take advantage of free credit-counselling services, such as those offered by the Credit Counselling Society.

For those who are in a serious financial situation, where no way out is seen and creditors are in contact for repayment, there are options.

One is consolidation of personal debts into one loan with a consistent interest rate and set monthly payments. This can provide peace of mind by allowing debtors to concentrate on a single creditor, although the debts will all still have to be repaid, and interest still accrues.

Another option is declaring personal bankruptcy, which is a relatively drastic measure that would probably see liquidation of most assets for distribution to creditors. This is usually done with the assistance of a licensed insolvency trustee (LIT) or with the help of the federal Office of the Superintendent of Bankruptcy Canada (OSB).

Then there are what are known as “consumer proposals” to creditors, which is a legally binding but less onerous option to insolvency—again, done with the assistance of an LIT—that involves making offers to your creditors to pay off debts less than $250,000 within a fixed period (not to exceed five years). Some proposals may include only a percentage of what is owed.

Consumer proposals are filed with the OSB, and creditor payments, lawsuits, and wage garnisheeing are all stopped at that point. Then creditors have 45 days to accept or reject the proposal.

Lana Gilbertson, a Vancouver LIT and senior vice president of MNP Ltd., told the Straight in a phone interview that “more people in B.C. file proposals than bankruptcies” and that MNP offers a free consultation to consider all options. “It could be a one-hour meeting or a series of meetings.”

Almost as important as a plan to get out from under a crippling debt load, Gilbertson said, is the peace of mind that comes with that. “To be honest, that feeling of relief starts as soon as they know their options. A common thing that I hear is that they’re not sleeping; they’re racked with worries.”

Once a proposal is worked out, Gilbertson said, much of that worry is gone. “They are grateful and they feel like they have a new lease on life.”