Now is the time of year when people both reflect on the past and make plans for the future. If you aren’t where you want to be financially, you should be asking yourself what changes you need to make.

If you have an unmanageable mountain of debt, it’s important to understand your options for dealing with those debts. Maybe a consumer proposal or personal bankruptcy is the best way of moving toward your financial goals.

That might sound a little backwards since people tend to associate bankruptcy with failure. Here’s how I look at it: filing a consumer proposal or personal bankruptcy means that you have had difficulty in the past. Can you change the past? Neither can I. What’s more important is dealing with the past so that you can work toward your goals.

My role is to listen to you and provide information so that you can make the best choice for you and your family. If you want to talk about your circumstances, please feel free to call me at 310-PLAN or to send me an e-mail.

There is a lot of misinformation out there about personal bankruptcy, perhaps related to this question more than any other. The reason for the confusion is that there have been significant changes to the bankruptcy system in the last couple years. These changes mean that the answer could be very different for different people depending on your circumstances.

One quick comment, and then I’ll try to explain the different possible lengths of time for bankruptcy. When a person files for bankruptcy, he or she is asking to be legally discharged or released from paying his or her debts because there is no reasonable hope of paying it all back. A person is “discharged” from bankruptcy when the process is complete. It is when you are discharged that the debts are gone. That’s the fresh start.

For a person who hasn’t been bankrupt before, bankruptcy is either 9 or 21 months in length before you are discharged. It is 9 months if you have no surplus income and 21 months if you are required to make surplus income payments. Please check the related article linked above to understand more about how surplus income works.

Maybe you thought it was seven years. I hear that all the time. Bankruptcy itself is 9 or 21 months for the debts to be gone. Then the bankruptcy still shows on your credit report for another six years after the 9 or 21 months is complete. Add it together, that’s where the seven years comes from.

The system is similar for a second bankruptcy. However, instead of 9 or 21 months it is 24 or 36 months depending on whether or not you have surplus income. Furthermore, a second bankruptcy shows on your credit report for 14 years after you are discharged.

More than two bankruptcies? You would be required to go to court for a judge to decide how long and how costly bankruptcy would be.

If you are finding this information scary or overwhelming, there may be other options that make more sense. With a consumer proposal, for example, it shows on your credit report for only three years after your last payment is made.

Do you owe money on credit cards? How about a line of credit, income taxes or payday loans? If you have more debt than you can handle, no doubt you are looking for answers about how to deal with your debts.

For people who are simply unable to pay back all of their debts, the decision often comes down to filing a consumer proposal or personal bankruptcy. I am often asked which is better. Here’s my answer to that question – IT DEPENDS.

That’s not being wishy washy. The best answer for you will depend on a variety of factors particular to your circumstances. There is no one right answer for everyone.

There are many similarities between a consumer proposal and personal bankruptcy. Both are legal proceedings under the Bankruptcy and Insolvency Act of Canada that give you legal protection from the people you owe money to. That means your creditors can’t garnishee your wages. Furthermore, both provide a clean slate from your debts once they are completed. I like to think of it as two different roads to the same destination. It’s how you get there that is different.

In general, personal bankruptcy would be more appropriate for somebody who has modest income and no significant assets. If you file for bankruptcy and have assets that are not protected, your trustee is required to sell those assets. If your income is too high, you are required to pay surplus income. Maybe you’ve been bankrupt before. A second or third bankruptcy will be longer and more costly.

The benefits of a consumer proposal are that it’s not bankruptcy. You get to keep all of your assets and are not required to make surplus income payments. You offer a payment plan to your creditors to repay a portion of the debts. If they agree to your offer, you make a single monthly payment to your trustee to deal with your debts. Most people find that this payment is less than the monthly minimum payments they’ve been struggling with for months or years.

That is the ultra quick summary of consumer proposal vs. personal bankruptcy. I don’t expect to answer all of your questions here. I just want to give you a general idea on some of the key differences. You can read here for a good summary of similarities and differences.

For many people, reaching out to ask for help causes a lot of anxiety. I’m not here to make you feel any worse that you already do. If you have some questions, feel free to call me at 310-PLAN (7526) or send me an e-mail. I’ll help you figure out what makes the most sense for you.

When I talk to people about the potential costs of personal bankruptcy, they often laugh when I mention surplus income. Surplus? Not me, I’ve got nothing left over at the end of the month.

That’s not exactly how it works. The government sets monthly income limits based on the size of your family. You can check here for the figures for 2011. If your average income is over the limit, you are required to pay half of the amount that you are over.

The concept behind “surplus income” is that if you make more, you pay more. However, it doesn’t matter what your expenses are. It just matters what your income is.

For some people, this cost can be several hundred or even several thousand dollars each month. Think of it as a penalty. If your income is high, you are required to pay more to be able to get a fresh start from your debts.

The trap can get more complicated because the amount you are required to pay is not based on your income before you file, it’s based on your income after you file for bankruptcy. If your income goes up, you are required to pay even more.

The magnitude or uncertainty about surplus income is a common reason why people search for alternatives to bankruptcy to deal with their debts. For many, it means filing a consumer proposal. With a consumer proposal, the payment amount is fixed and doesn’t increase. You should expect the total payments to be more, but the monthly amount will be less because the payments are spread over a longer period of time.

Not sure what to do? Here is a more detailed look at how surplus income works. I appreciate that the information available can be overwhelming. Feel free to call me at 310-PLAN (7526) or send me an e-mail so that I can help you sort it out.

I spend a lot of time talking to people about their money problems. Often times, the conversation starts with a comment like, “I’m looking for information about how to claim bankruptcy.”

We all like lists. Here is a concise list of the 10 key steps in filing for bankruptcy. I’m going to comment on just a few of the steps in the process.

The biggest part, quite honestly, is recognizing and acknowledging that you will be unable to repay all of your debts. There could be any number of reasons for this. The common element for most people is reduced income, whether it’s from job loss, reduced hours, marital breakdown, etc.

Once you decide that you need help, the next step would be to talk to a licensed trustee about your circumstances. Ask for a free consultation to be able to review your options. Maybe personal bankruptcy is the most reasonable choice. Maybe there are better options that you hadn’t considered. There is no right or wrong answer that applies to everybody. The trustee’s role is to provide information about all of your options so that you can make the best choice possible to deal with your debts and start planning for the future.

If you decide that bankruptcy is the right choice for you, the trustee will prepare the appropriate paperwork, file the documents with the federal government and notify the people you owe money to. Once your creditors have been notified of your bankruptcy, they have to stop contacting you.

As I said, my comments here are not intended to be an exhaustive review of the bankruptcy process. It’s about how to start the conversation. For many people, there is a huge emotional barrier in reaching out to a stranger about money problems. I get that. I met with a woman this week who thought that I would yell at her because of her problems. I’m here to help, not make you feel worse than you already do.

Please feel free to call me at 310-PLAN or send me an e-mail if you want to talk.

Now some humour. Here is an example of how you don’t file for bankruptcy.

Ian Martin

Ever heard of a debt consultant?  Referring to me, your quick answer might be a skeptical, “Aren’t you a debt consultant?  What’s the difference?”

For people struggling to pay their debts, it is a very confusing time.  The internet, radio and TV are covered with ads, everyone claiming to be able to help you.  How are you supposed to know who is legitimate and who is not? 

I met with Carl last week in my Kitchener-Waterloo office.  He told me about a debt consultant he found online that can help with “debt settlement.”  When he spoke to the operator, he discovered that he was speaking with a call centre based out of California. 

Scary?  There’s more.

Carl asked me about what “debt settlement” actually means.  I explained that this is the inexact science of paying some guy a lot of money to negotiate on your behalf so that your creditors will allow you to pay back less than the full amount. 

Carl thought that it sounded like a consumer proposal.  What’s the difference? 

First, a consumer proposal is a formal legal process that gives you protection from your creditors.  Even if one or more creditors disagree with your proposal, the overall acceptance is determined by the majority.  With an informal settlement, there is no protection.  Co-operation is entirely at your creditors’ discretion.

Second, we are not “some guy.”  A consumer proposal is administered by a trustee in bankruptcy.  A trustee gets his license from the federal government of CANADA.  Ask a debt consultant where he gets his authority from.

Third, your creditors won’t accept a settlement if you’ve been making your minimum payments.  What’s the answer?  The debt consultant told Carl to stop paying his bills.  That means, of course, that Carl will start to get even more calls from his creditors.  Does that sound like good advice?

Finally, a settlement normally requires a large up front payment of the consultant’s fee as well as the money to actually settle with the creditors.  That’s another reason why Carl was told to stop paying his bills.  He’s been living pay cheque to pay cheque.  How is he supposed to come up with the $5,000 that they had discussed? 

We’re different because you can talk to us for free.  A consumer proposal is a single monthly payment that fits in your budget.  Our fee is built into that payment, no extra cost. 

I don’t know you and you don’t know me.  Choosing how to deal with your debts is a big decision.   Do some research.  Talk to people.  When you are ready, please feel free to give me a call at 310-PLAN (310-7526 with no area code) so that we can get started on a real plan for your future.  You can also send me your questions by e-mail.

That is one of the most frequent questions I get asked.  More and more people are becoming aware of consumer proposals, as evidenced by recent bankruptcy and proposal statistics.  However, there is a lot of confusion out there.

There are many resources online that can help you understand the legal aspects of a consumer proposal and how it works.  Here’s a good one.  I simply want to talk about how I consult with people to help them understand the different options to deal with their debts and why a consumer proposal would be a good choice for many people.

Consider the tale of Jack and Diane (those aren’t their real names of course – I’m just a John Cougar Mellencamp fan from the 1980’s).  Their situation is a very common one.  They are both in their late thirties with three kids at home.  They have a modest home in the suburbs of Waterloo.  Jack has a decent job now, but it’s been rough over the last few years.  His plant shut down three years ago.  He’s been lucky enough to find a new job, but the pay and benefits aren’t what they used to be.  Diane works part-time to be home when the kids aren’t in school.  The cost of childcare would be almost as much as her pay cheque.  Because of the ups and downs, they have accumulated about $40,000 owing on credit cards and a line of credit.

Now that I understand more about Jack and Diane’s circumstances, we can start talking about their options to deal with their debts.

Are they good candidates to go to the bank for a consolidation loan?  Probably not.  There is some equity in their home, but not enough to consolidate their other debts.  Turns out, they already talked to their bank and were declined.

Would they be able to do a debt management plan with a credit counsellor?  Maybe.  Because the debts are $40,000, the monthly payment will be almost $700 each month for the next five years.  Does that fit in the budget?  Diane shakes her head no.

What about personal bankruptcy?  Bankruptcy would likely mean losing the house because there is some equity.  It would likely also mean paying surplus income for 21 months.  They look at me like I’m crazy.  Of course they want to keep their home and provide stability for their family.

How about a consumer proposal?  For Jack and Diane, this might be the best choice.  A consumer proposal will:

• Give them the same protection from their creditors as bankruptcy – no more collection calls, no wage garnishee
• Allow them to keep their house (and all of their assets)
• Allow them to deal with their debts through one monthly payment that fits their budget
• Fix the amount that they have to pay, unlike the uncertainty of surplus income in bankruptcy

Pretty quickly, I can see what choice Jack and Diane are going to make.  Does this mean that a consumer proposal is the right choice for everybody?  Of course not.  There’s no one size fits all answer for everybody. 

I want you to think about the future.  Imagine the feeling of building a real plan for your family.  Are you on the right path?  If you’re not sure, I encourage you to seek out as much information as possible so that you can make the right choices for dealing with your debts.

Whether we’re talking finances or some other topic, my experience is that many people find it comforting to know that they are not alone.  The reality is that a shocking number of people have filed a consumer proposal or personal bankruptcy in Kitchener-Waterloo (and Canada) over the last several years because of the poor economic times. 

Earlier today, the Office of the Superintendent of Bankruptcy (OSB) released its statistics for the first six months of 2011.  The full report can be found here.   I want to focus more on Kitchener-Waterloo.

For the first six months of 2011, there were 770 consumer proposals and personal bankruptcies filed by residents of Kitchener-Waterloo.  That compares to 889 for the same time period of 2010, representing on overall decrease of 13%.

If you look a little closer, an interesting trend appears:

• Bankruptcies decreased from 582 in 2010 to 426 in 2011, a decrease of 27%. 
• Proposals increased from 307 in 2010 to 344 in 2011, an increase of 12%. 

This trend is not limited to KW.  You can check here for information on statistics outside Kitchener-Waterloo, and here for commentary on the growth of consumer proposals in Canada. 

So, what does all this mean?

A general comment first:  A consumer proposal is usually more attractive than bankruptcy for people who cannot pay their debts, but who have assets that would be lost in bankruptcy, and/or have stable income to repay a portion of their debts.    

Here’s what I think:  A lot of people had their debt load increase while they were out of work or had reduced hours.  Even though many of those people are back to work, it might be at a reduced wage or part-time hours.  Some people have been able to pay their debts back, but many cannot.  However, a consumer proposal is a better option than bankruptcy because they are working or have some equity in their house.

Is that you?  Maybe yes, maybe no.  Frankly, it doesn’t really matter.  Statistics are about trends for a large group of people.  What’s more important is to look at your circumstances and figure out what the right choice is for you.  I’m here to help you in that journey.

If you have questions, please feel free to call me at 310-PLAN (310-7526 with no area code) or send me an e-mail.

For more information about the current OSB statistics, you can also see the following website:

• hoyes.com
• bankruptcy-in-ontario.com
• bankruptcy-ontario.org

Probably very little is my answer. 

The Office of the Superintendent of Bankruptcy released its official statistics for bankruptcies and proposals earlier this week.  The complete report is here.  You’re free to read it, but it’s probably not going to give you the answers you are looking for.

Will knowing that there were 140,234 personal proposals and bankruptcies filed in Canada in 2010 help you reduce the interest rates on your credit card debt?  That’s a no.  Will knowing that the comparable number for 2009 was 158,441 (representing a decrease of 11.5%) help you reduce the cost of heating and cooling your home?  Probably not.  Will knowing that there were similar trends for Ontario and Waterloo Region help you reduce the rising cost of feeding your family?  Again, probably no help here.  Some people find it comforting to know that they are not alone, that there are other people going through similar struggles.  Take a moment to reflect on that.

I’ve been accused before of having a sarcastic tone.  I apologize if it’s not to your liking, but I hope you see the point I’m trying to make.  People try to read so many things into different statistics that are drawn from thousands or millions of people.  I’m referring to unemployment rates, inflation, currency rates, stock indices, housing prices, etc. etc. etc…. 

Don’t drive yourself crazy trying to draw conclusions about yourself from all these conflicting messages.  It seems that there are just as many positive signs as negative.  Focus on something that is a little bit more manageable.

The people that you are most concerned about are you and your family.  Sit down with your spouse and do a thorough assessment of your financial state of the union.  Here’s a planner to help you.  Once you know where you are, it’s easier to figure out if you’re heading where you want to go.

I’m talking about the B word.  No, not bankruptcy.  I’m talking about BUDGETING.  Budgeting is the allocation of a scarce resource according to your needs and wants.  The scarce resource in question is your money.  One of the keys to success is to put the needs before the wants (and being able to tell the difference between the two).

If you don’t think you’ll be able to manage your debts on your own after you’ve done a self-assessment, feel free to call me at 310-PLAN to review your options for dealing with your debts.  Hopefully, it won’t come to that.

Struggling with a heavy debt load can impact all areas of your life: your relationships with family and friends, your performance at work, your sleep and overall health, etc.  It can be a dark cloud hanging over everything you do.

 Somebody told me a very telling anecdote recently.  She said that she and her husband, in talking about their financial difficulties, realized that they could not remember the last time they did anything fun.

Does that sound familiar?  Has the burden of your debts been weighing on you for years?  Do you feel like everything you have is going to pay only the minimum payments on your credit cards?  This isn’t the way life was supposed to go, was it?

I am by no means a miracle worker.  I do not have a time machine that allows you to go back in time to make different decisions.  I do not have a magic wand that makes debts go away.  What I do have is knowledge about the options available to you to deal with your debts when you are unable to pay them in full.

I want to make sure this is clear.  I work for a firm of bankruptcy trustees.  Some people will tell you not to talk to a bankruptcy trustee because he will try to convince you to file for bankruptcy.  By law, a trustee is required to review with you all of your options.  Yes, personal bankruptcy is one of those options.  However, bankruptcy should be considered a last resort when no other options are realistic.  Maybe a consolidation loan is a realistic choice.  Maybe you should consider a debt management plan with a credit counsellor.  Consumer proposals have become a very popular alternative to bankruptcy.  Maybe that’s the best choice for you and your family. 

Once you understand the merits and consequences of the alternatives, you can make an informed choice for yourself.  Many people tell me that by the time they’ve decided to file a consumer proposal or personal bankruptcy, they can already feel some of the stress going away.  That’s what it’s all about.  We can’t change the past.  We look for the best way to deal with the past so that you can focus on the future.  Imagine sunshine poking through those dark clouds.

If you would like some more information about how to deal with your debts, please feel free to contact me at 310-PLAN (310-7526 with no area code).  You can also send me your questions by e-mail.