This Saturday, Scott Schaefer and I will be on 570 NEWS in Waterloo Region from noon until 1:00. We appear on “Ask the Experts” from time to time to share our knowledge about how to deal with your debts when it’s become unmanageable.

The theme for the show is to go back to basics. What are your options? Is a consumer proposal better than bankruptcy? What is the role of the trustee?

Keep in mind that our job is to listen to you and provide information so that you can make informed choices. I encourage you to give it a listen. Also, the show is now available by live webcast.

If you want to speak with somebody now, please feel free to call our office at 310-PLAN (310-7526 with no area code) or send me an e-mail.

It’s now the middle of January and the New Year is well under way. Now is the time when people are starting to implement their resolutions, but remember that it is never a bad time to make positive changes in your life. At this point, you’re probably expecting me to preach about the importance of setting a budget and sticking to it…

A budget sounds like a great idea, but it’s a lot of work. Tracking every dollar that you spend can be tedious. It’s the sort of thing that most people have trouble sticking with.

Don’t set yourself up for disappointment with unrealistic goals. If you are not going to stick to a detailed budget, don’t bother. I’m not advocating sticking your head in the sand. I’m simply advocating taking a more practical approach.

I think that it’s more important to consider the purpose of a budget. The concept is to provide yourself with information so that you can make decisions on how best to allocate your money.

Most of your regular monthly expenses (rent, utilities, groceries, insurance, etc.) are pretty consistent from month to month. Look back over the last few months to determine how much it costs you each month for these necessities. Now consider how much your pay cheques are in a month. How you use your money above the cost of necessities falls into three categories:
• Discretionary expenditure
• Savings
• Debt repayment

I don’t want to oversimplify, but the rest is really up to you. Nobody can tell you your priorities. You set your own priorities and how you allocate your money will follow.

Here’s a suggestion. I like to set aside money in a savings account for unplanned emergency expenses. Based on my income and necessities, I decided on an amount and transfer money from my main account to this savings account with every pay cheque. Set up the transfer with online banking and it’s virtually no work at all.

If you want to save for a specific expenditure – vacation, home improvements, whatever – set up another account. Schedule an online transfer from every pay cheque so that you save up the money over time.

Everything is golden as long as you’re paying your bills and saving toward your goals. What can foul this up is unexpected reductions of income, significant unplanned expenses or pre-existing debt loads that are beyond repayment. That’s a discussion for another day.

Looking for more information on (not)budgeting? Check out what Doug Hoyes has to say.

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.

I am plesaed to say that I will be appearing on Talk Local, Rogers TV’s talk show about issues impacting residents of Waterloo Region.

The show is to air on Wednesday December 14 at 7 pm with the topic of advice for navigating the stress of holiday spending. Here’s my preview: MAKE A PLAN (AND STICK TO IT)

In case you hadn’t noticed, it is now the first week of December. That means that Christmas is just around the corner. It probably also means you find yourself filled with stress over holiday shopping. Say it a different way. Though the shopping can be stressful, it’s the holiday spending that causes the real problems.

Any number of people will offer you advice on how to navigate the pitfalls of holiday spending. Here’s what it comes down to for me: KNOW YOUR LIMIT.

I’m not trying to be doom and gloom by using the OLG’s slogan for responsible gaming. If you use your credit cards to make your holiday purchases and aren’t sure when or how you are going to pay it off, you are gambling on your future. The overused expression “I’ll make it work” does not count as a plan.

Here’s an interesting tool that I found to help you estimate the real cost of paying off your high interest credit cards.

Let’s say that you put $2,000 of purchases on your credit card this December. If the interest rate is 18% (and you don’t already have a balance on the card), your minimum monthly payment is $60. That doesn’t sound so bad. However, you’ll be making that payment for 13 years and 10 months, paying almost $3,800 in total.

How does that feel? It’s like you’re still paying for your purchases from before 1999. Put that in perspective. We’re talking about when all the talk was about the Y2K problem.

What if you already have a balance owing on your credit card and this year’s purchases take you up to $5,000? You’ll be making your minimum payment of $150 monthly for 18 years and 10 months, paying almost $9,800 in total.

What if you have two other credit cards that also have a balance of $5,000 each? That’s a monthly payments of $450 for 24 years and 11 months, paying almost $29,800 in total. I’ll stop now.

Clearly, my message is to make careful use of your credit cards. Temptation is everywhere. The 60 inch HD TV you’ve had your eye on is $500 off. You can buy a Blackberry Playbook for less than $200. There are even ads suggesting you buy a new car for that someone special in your life.

The shine from these toys will fade in short order. Without a plan, the stress of paying for them will be with you for much much longer.

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.

Imagine a 10 year old child wrapped in a blanket in his bedroom with his closest friend by his side. The only light is from the small flashlight illuminating his face. They’ve been taking turns telling tall tales to scare each other. There have been stories of vampires, werewolves and countless other mythical creatures.

But then the scariest story of all. It starts with, “Can you believe my mom and dad paid a debt consultant $3,000 when they could have talked to a trustee for free?”

Please pardon my Halloween indulgence. Debt consultants are a serious matter. New ones are popping up all the time offering to help you with your debts. The common scenario is that after you pay the “consulting” fee (of a few hundred to several thousand dollars), you are referred to a trustee in bankruptcy to file a consumer proposal.

The chilling part is that there is no need for you to pay that fee. You can contact a trustee directly for free unbiased information about how to deal with your debts. The other scary part is that, unlike vampires and werewolves, this story is real. It happens every day.

A consumer proposal may be the right choice. Consumer proposals are the number one alternative to personal bankruptcy for dealing with debt. Here are the primary benefits of a consumer proposal:
• Legal protection from your creditors (just like in bankruptcy)
• Wage garnishments stop (just like in bankruptcy)
• You get to keep all of your assets, like your house, car, investments, etc.
• Deal with your debts through one affordable monthly payment

Talking to a trustee is also the right choice since consumer proposals can only be administered by licensed trustees. The reason consultants “pop up” so frequently is that there is no government regulation over who can be a debt consultant. Think you know something about money? You could call yourself a debt consultant and open a business today. By contrast, a trustee in bankruptcy has to go through several years of education and training to receive a license from the government of Canada.

You work hard for your money. If you’re not careful, there’s no shortage of people willing to take it from you.