Category: Personal Finance

You may have heard the term consumer proposal. But do you understand what it truly means? And do you know how it’s different from a bankruptcy?

Both consumer proposals and bankruptcies help you get rid of debt and assist from a monthly cash flow perspective. However, the way they achieve these outcomes is very different.

In this blog post, we’ll take a look at exactly what a consumer proposal is, how a consumer proposal works and why you might benefit from filing for a consumer proposal over a bankruptcy.

What’s a Consumer Proposal and How Does it Work?

A consumer proposal is a formal arrangement that’s negotiated with the creditors to whom you owe money. This legally binding agreement is negotiated and administered by a Licensed Insolvency Trustee (LIT). A consumer proposal is another way to handle debt besides filing for bankruptcy. It protects you from creditors who are seeking immediate debt collection, sometimes via legal action.

When filing a consumer proposal, you should work with an experienced LIT you can trust. Together, the LIT will work closely with you to come up with a proposal your creditors are likely to accept. At its core, the consumer proposal can:

• Pay your creditors a percentage of what’s owed to them;
• Lengthen your payment schedule (to a maximum of 5 years); or
• A combination of both.

When filing a consumer proposal, instead of paying creditors directly, you’ll make the payments through the LIT you’re working with. The LIT will then pay the creditors based on the agreed upon repayment schedule and amount in the consumer proposal.

Creditors will usually accept a consumer proposal if they believe they’re likely to receive more money than they would under a bankruptcy.

What are the Benefits of Filing a Consumer Proposal?

Are you considering filing for a consumer proposal or bankruptcy, but you’re not sure which one to go with? Here three key benefits of filing a consumer proposal over bankruptcy:

1. Avoiding Bankruptcy. 

A major benefit of filing a consumer proposal is that you’re not filing for bankruptcy. A consumer proposal offers you short term debt relief, plus a better opportunity to rebuild your credit score over the long term.

For instance, the debts included in your consumer proposal filing will be marked as “R7” or “I7” on your credit report. An R7 or I7 means that you have compromised or settled your debts and it remains on your credit bureau report for 3 years after your proposal is paid in full. Bankruptcies, on the other hand, result in your debts being marked as an “R9” or “I9”, which is the worst possible status on a credit report. An R9 or I9 represents a bad debt write off, meaning you defaulted on your debt. And an R9 or I9 will remain on your credit report for 7 years from the last date of any activity or payment on your outstanding debt.

2. Better Cash Flow. 

Since the amount of time you have to repay your debts may be extended – or the amount of money you’re required to repay may be reduced – your cash flow will almost always improve. Interest also stops accruing when you’re in consumer proposal, helping you save on the total amount of interest you’ll pay.

3. Keep Your Assets. 

One of the biggest concerns many people have when they file for bankruptcy is that they’ll lose the assets they’ve worked so hard to acquire. Unlike a bankruptcy, where you may have to turn over the keys to your home and car, a consumer proposal typically protects those assets from being seized by creditors.

What Happens Once You’re in a Consumer Proposal?

There are several things that will happen when you enter into a consumer proposal.

First, your LIT will file your proposal with the Office of the Superintendent of Bankruptcy (OSB). Once your proposal is filed, you stop making any further payments to your creditors. Any collection or legal actions initiated by your creditors (including collection calls, wage garnishes or court actions) will cease immediately.

Next, your LIT will submit the proposal on your behalf directly to your creditors. The proposal will include a detailed report about your personal situation, as well as the source of your financial difficulties. Your creditors will then have 45 days to either accept or reject the proposal. If they accept it, you will begin making payments according to the terms you have agreed to.

Can You Get Out of a Consumer Proposal Early?

Luckily, if you have the ability to, you can make additional payments towards your consumer proposal to pay it off earlier.

At Climb, we’ve designed a custom program, called the Climb Accelerator Plan, that provides the option for clients in consumer proposal pay if off earlier, while also building their credit score.

If you’ve recently filed a consumer proposal, our plan may be right for you. Learn more about the Climb Accelerator Plan today.

Updated: March 27, 2020
Originally Published: February 12, 2019

Everyone wants to make big change in the new year. We want to quit smoking, start reading more novels and stop spending so much time on our phones.

But many of us also want to use the new time as an excuse to fix our finances. If you spend most of your days avoiding your bank account balance or refusing to open your credit card bills, then make 2020 the year you change.

Here are the best ways to take control of your finances in 2020:

Start Tracking Your Expenses

The most basic way to control your finances is to track how you spend money, whether it’s a $3 croissant or a $300 TV. Tracking your money will notify you of any trends in your life and help you find your financial weak spots. There are many apps available you can use to track or simply track on a spreadsheet or journal.

After you’ve tracked expenses for a while, you can start a budget or plan to minimize your spending and maximize your savings.

Create a Debt Payoff Plan

If you have any non-mortgage debt, make 2020 the year you finally tackle it. Make a list of what you owe including credit cards, student loans, car loans and personal loans. If you have extra discretionary income, decide how you want to conquer your debt.

There are two debt payoff methods: the snowball and the avalanche. The avalanche means paying off debt in order from highest interest rate to smallest. This strategy will decrease how much you pay in total interest.

The debt snowball method encourages people to make extra payments on the smallest balance first. When you do this, you’ll pay off individual debts faster and gain more momentum.

Shore Up Your Retirement Accounts

Most of us have no idea how much we have in our retirement accounts or how much we need to save. The best action you can take in 2020 is to determine how much is in your retirement accounts and if you need to do more.

List all your retirement accounts including your RRSP and TFSA and their current balances. Note any pensions that you might receive in the future and what you need to qualify for those.

Start Estate Planning

One personal finance topic that people usually ignore is estate planning. No one wants to think about their death or their spouse’s, so they ignore it. Unfortunately, avoiding the problem doesn’t make the process easier.

If you’re married or have a family, now’s the time to create a will. A will can speed up the probate process and prevent any snags when distributing assets.

If you don’t want to hire an estate lawyer, you can use a service like LegalZoom to create a will for a fraction of the price. Make sure to be thorough as possible when creating a will and list all of the assets you have. If possible, go through all your accounts and designate a beneficiary. That will also accelerate probate.

About the Author

Zina Kumok is a trained journalist and has covered everything from professional sports to murder trials. Now, she specializes in personal finance and has written for brands and publications such as Mint, Investopedia and Discover. She paid off $28,000 worth of student loans in three years.

Have you ever heard of the TV show MythBusters? Well we’re going to do some “myth busting” of our own with respect to bankruptcy.

With household debt near a record level and interest rates on the rise, it should come as no surprise that Canadians are becoming increasingly worried about debt. In an Ipsos survey, one in three Canadians admitted to fearing bankruptcy. Millennials are finding themselves the most concerned. 62% are concerned about paying their bills, while 46% are worried about being pushed into bankruptcy.

With financial literacy lacking in this country, bankruptcy isn’t something most Canadians know very much about. It’s only when you’re on the brink of it that it becomes top of mind. With that in mind, here are three bankruptcy myths busted.

1. Filing for Bankruptcy Erases Your Student Loan Debt

Most employers these days are demanding more education. In our parent’s generation, you could often get by with just a high school diploma, while these days in many fields you need an undergraduate degree at a bare minimum.

Imagine you do everything right: you go to university, get straight A’s and graduate top of your class. The problem is that it’s in a field that’s not in demand. Instead of graduating with a well-paying job waiting for you, you’re left with a crippling level of student debt and no way to pay it off. Don’t think this could happen? It happens more often than you think.

If you were thinking about filing for bankruptcy to forgo paying back your student debt, I hate to break it to you, but you’re out of luck in most cases. While are sometimes when you can get out of paying back your student debt, you’ll need to jump through a lot of hoops to do so.

Similar to death and taxes, repaying your student debt is almost a certainty in life. If your student debt is under seven years old, then you’ll still be on the hook for repaying it even after you file for bankruptcy. The only option may be to apply for the repayment assistance program to lower your payment, but your student debt will still be there, so choose wisely a university program with good job prospects rather than a big mound of student debt waiting at the end.

2. Only Reckless Spenders File for Bankruptcy

Like it or not, there’s a negative stigma with bankruptcy. There’s a general belief out there that only reckless spenders file for bankruptcy, when that couldn’t be further from the truth.

I recently interviewed Ben Le Fort for my Burn Your Mortgage podcast whose parents, who were successful real estate agents, were forced to file for bankruptcy when the 2008 financial crisis happened and they didn’t have any emergency savings.

Sometimes life circumstances can throw you a curveball. You could lose your job, get sick or your partner could suddenly pass away. That’s why it’s so important to have an emergency fund. Three to six months’ living expenses should suffice, depending on the stability of your job. But that’s a lot to save if you don’t have any savings, so start small. Save whatever you can afford – $25 or $50 a week – to start. You’ll have a sizable emergency fund before you know it.

3. The Insolvency Trustee You Go With Doesn’t Matter

When you’re hiring a real estate agent, you wouldn’t hire the first one that you meet (at least I hope not). You’d take the time to interview at least two or three agents before making your final decision. The same holds true with trustees.

Choosing an insolvency trustee is kind of like picking a lawyer. The trustee you end up working with can have a huge impact on how your bankruptcy is handled and how your financial future plays out.

There are over 900 licensed insolvency trustees in Canada. Each one may interpret the Bankruptcy and Insolvency Act differently. Taking the time to interview at least a couple is time well spent. These are just three bankruptcy myths. Thinking about filing for bankruptcy? Speak with one of our experts to see what makes the most sense for you.

How much money is ideal to pay towards Visa #2? Personal finance is very personal, so it depends on your own personal situation. Creating a budget is a good first step to see how much you can comfortably afford to put towards paying off your debts.

Are you motivated to pay off your debts that much sooner? Go on the offense with your finances by bringing in extra income or go on the defense by cutting expenses. For example, if you’re a good photographer, you could be a wedding photographer in your spare time. Likewise, if you’re looking to save money, instead of buying lunch every day at work, you could pack your lunch once or twice a week.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.

Who doesn’t love the holidays? It’s a great time to kick back, relax and enjoy some quality time with those nearest and dearest to you.

While there’s a lot to love about the holidays, something that a lot of us dread is opening our credit card statements in January. Many of us take an “out of sight, out of mind” approach. The problem is that this can lead to something I like to call “bill shock” in January, when we open our credit card statements and find out we ended up spending way more than we intended to spend on the holidays.

Starting the new year in debt isn’t fun, but if you find yourself in this situation, there’s no need to panic. Here are two tried-and-true strategies for paying off your consumer debt.

The Debt Avalanche Way

With the debt avalanche way, you start by paying off the debt that’s costing you the most – the debt that has the highest interest rate. For example, if you have two credit cards, Visa #1 with an 18% interest rate and Visa #2 with a 28% interest rate, using the debt avalanche way, you’d focus on paying off Visa #2. (Don’t forget to keep paying the minimum payment on all your other credit cards, otherwise you could hurt your credit score.)

How much money is ideal to pay towards Visa #2? Personal finance is very personal, so it depends on your own personal situation. Creating a budget is a good first step to see how much you can comfortably afford to put towards paying off your debts.

Are you motivated to pay off your debts that much sooner? Go on the offense with your finances by bringing in extra income or go on the defense by cutting expenses. For example, if you’re a good photographer, you could be a wedding photographer in your spare time. Likewise, if you’re looking to save money, instead of buying lunch every day at work, you could pack your lunch once or twice a week.

The Debt Snowball Way

The second effective way to rid yourself of your debt is the debt snowball way. The debt snowball way is slightly different than the debt avalanche way. Instead of focusing on the debt with the highest interest rate, you’d focus on paying off the debt with the smallest balance. This may be the same credit card as the one with the highest interest rate or it may not be. It really depends.

Using the same example, if Visa #1 has an outstanding balance of $1,000 and Visa #2 has an outstanding balance of $4,000, with the debt snowball way you’d pay off Visa #1 first. (You’d of course still keep making the minimum payments on Visa #2 to keep your credit in good standing.)

I know this may seem counter intuitive and from an interest savings perspective, the debt snowball way doesn’t make sense, but debt repayment isn’t just about dollars and cents. It’s about doing something that motivates you to take action. If the debt snowball way motivates you the most, more power to you.

In the end, there’s no single right way to pay off  consumer debt. I’d encourage you to choose the way that works best for you, setting yourself a goal of when you’d like to pay off your debt and putting a plan in action. By creating a plan and sticking to it, you’ll drastically improve your chances of reaching your goal of debt freedom that much sooner.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.

It’s hard to pick up a newspaper these days and not see at least one headline about the elevated debt levels in Canada. If you find yourself in consumer debt, at least you’re not alone. But is all the worry really justified? Is Canadian household debt bordering on excessive or is the fear overblown?

Let’s take a closer look at Canada’s household debt situation and what it all means.

The Debt to Income Ratio Hits a New Record

If we focus on just the facts, the facts don’t lie – Canadian household debt is on the rise. Together we owe $2.16 trillion in debt. As a share of GDP, Canada has the dubious honour of having the highest debt load of the G-7 countries.

How did we as Canadians find ourselves in this situation? Low interest rates for the better part of a decade have encouraged Canadians to go on a borrowing binge.

A popular way to measure household debt is the debt to income ratio. The media loves to use this in attention grabbing news headlines. The debt to income ratio looks at your total debt compared to your income. To calculate your own personal figure, add up all your debts – your mortgage, car loan, line of credit, credit card debt and any other debt you might have – and divide it by your net (after tax) annual income. Multiply that figure by 100 and voila, you have your own debt to income ratio!

As of the fourth quarter of 2018, the average Canadian’s debt to income ratio rose to a record 174%, up from 148% a decade ago.

But there’s no guarantee interest rates will stay low forever. The Bank of Canada has already increased interest rates five times since mid-2017. Although it looks like our central bank has taken a pause with respect to further rate increases, if rates were to continue to rise again in the future, many Canadian families who are already feeling the squeeze from higher interest rates, might feel even more of a squeeze if and when higher interest rates arrive.

Is It All Really So Bad?

At first glance Canada’s debt situation looks pretty dire. While the total debt figure and the debt to income ratio may look scary, those are only two measures of household debt. Another important measure is your ability to service your monthly debt.

To calculate this figure, add up how much debt you have each month. This is debt you’d have to pay even if you were on holidays laying on a beach, sipping an umbrella drink. This includes your mortgage, car payments, minimum credit card payments and minimum student loan payments. Then calculate how much your household brings in on a monthly basis. This includes your salary, your spouse’s salary and any extra income you earn on the side.

Take the debt figure and divide it by your income figure and multiply by 100. Ideally, you want to keep this figure below 40 percent, although if you’re living in a city like Toronto or Vancouver where the cost of living is higher, that number could creep as high as 50 percent (although lower is better). Anything over 50 percent and it should raise the alarm bells. In that case, you should look to cut back on your fixed expenses.

The Bottom Line

When I was paying off my house, my debt to income ratio was almost 450 percent and I was fine. That being said, if your debt to income ratio is high and so is your monthly debt figure, then that should be an area of concern.

Confused about these numbers? Contact us today. We’re happy to walk you through them and help you get on the right financial path.

Climb’s Personalized Credit Prescription provides you with customized recommendations to help rebuild your credit score.

About the Author