Caught In between Bankruptcy and Financial Disaster

Lot of financial debt

A lot of people have found themselves caught up in a lot of financial debt.   At the same time they are able to keep their heads above water, but barely.  They basically going to work every week, collect their paycheque and then start looking forward to the next week’s cheque, because there is nothing left from these weeks.

They have managed to make the bare minimum payments on their credit cards, and nobody is threatening to shut off the utilities.   When it comes to shopping for groceries or using gas for the vehicle outside of getting to and from work, it is near impossible.

They feel like they are borderline bankrupt but just can’t phantom that they have gotten to that point yet.   Most often those in this type of financial situation have gotten this way from what is known as unsecured debt.  This is mainly from credit cards.   Normally it may include 3 or more cards, and the accumulated interest paid on this type of debt is horrendous.   Without being able to pay down the capital amount on the cards the situation is never going to change.

Is there any other solution besides claiming bankruptcy?

There may be, and it’s called the consumer proposal.   This is a financial remedy that may be available to those who have over $5,000 in debt but less than $250,000, and it must be unsecured debt.  Married couples can look at this option jointly if their total unsecured debt is less than $500,000.   Other types of unsecured debt may be lines of credit, or some loans, or even your income tax debt.   Unsecured means that you have not put up something you own as collateral.

Basically what happens is all of your unsecured creditors that are involved are asked to accept lower payments over a set period of time.   They must vote on this.   If the majority agree then all of these creditors must accept the terms proposed.

This is not something you do yourself, but is done through the Bankruptcy act.  Once this form of agreement comes into effect, the accumulating interest on all these debts stops there.   These creditors cannot take any legal action against you.

You will be assigned a bankruptcy trustee who will determine if a consumer proposal is your best course of action for getting your debts under control.   He will first determine how much money is left over after paying your living expenses and secured debt.   For example, if you have a $1,000. a month left over then this amount will be distributed amongst your unsecured creditors.

Why would creditors accept this arrangement?

As said, the creditors have to vote as to whether they accept the payments or not, and the majority vote rules.   In most cases they will settle for this because if they don’t chances are you will go bankrupt.   Then in that case they may end up with nothing.

Start by having your accountant help you determine what your financial situation actually is, so you know what you really do have left over in income after your living expenses and secured debt.   If there is anything left to work with then make an application for a consumer proposal and follow the advice of your bankruptcy trustee.


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Sam Seidman, CPA, CA, LPA
629 Sheppard Avenue West
Toronto, Ontario
M3H 2S3

Telephone: (416) 398-1700
Fax: (416) 398-6226

Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant


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