Fresh Start: Canadians & The Right To Restructure Debt
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By Brian Browning | Reading time: 4 min | 806 words
Debt can be broadly defined as the ability to purchase goods and services based on future earnings. Chances are high that no matter who you talk to, they will be carrying some sort of debt. This could be credit cards, utility bills, a car loan, mortgage, student loans, payments on goods bought with time-to-pay and so on. Truth is debt is a normal and necessary part of how our economy and the economies of nations around the world function.
Can Debt be Helpful?
If it weren’t for the ability to take on debt, the average Canadian would likely be unable to buy a house, finance their education, or purchase any of the goods that we as Canadians deem necessary, such as a car, furniture and appliances. Nor would the average Canadian be able to purchase larger ticket items like boats, trailers or other goods and services that can enhance our lives.
Further, Canada is built on the accomplishments of entrepreneurs. These risktakers often walk away from the predictable income a career could provide and instead risk it all to build a business that can support them, and often create jobs for many others. This can mean taking on significant personal debt as the business is growing and acquiring financing from other external sources.
If there were no way to restructure financially if things fall short, entrepreneurship would likely grind to a halt. The risk of starting a business is already huge. If an entrepreneur were also faced with no ability to rebuild, likely many of this country’s great accomplishments would never have seen the light of day.
What Causes Debt Problems?
Life is unpredictable. Things can be moving along quite smoothly and then along comes an illness, a change in relationship status, a decrease in wages, a loss of job or other unexpected burden. Suddenly, what may have been affordable becomes impossible to maintain. The Covid pandemic certainly showed Canada and the world the impact a global event can have on all of our personal lives.
What Can Canadians Do About Overwhelming Debt?
To help ensure the health and welfare of Canadians and keep our economy humming, there must be a formal process for the settling of debt and financial rehabilitation. In Canada, this process is governed by the Bankruptcy and Insolvency Act (BIA), which has the mandate to provide ‘honest but unfortunate debtors’ with formal processes to restructure and settle overwhelming debt.
The two formal processes available to all Canadians through the BIA are called a Bankruptcy and a Consumer Proposal. Both provide legal avenues to restructure debt, and they can only be administered by a Licensed Insolvency Trustee (LIT) like Bromwich+Smith.
Consumer Proposal or Bankruptcy?
The BIA provides for a process called a Consumer Proposal. With a proposal, there is a negotiated agreement with the creditors. The LIT offers a settlement to the creditors based on what the client can afford, and not what creditors were demanding. The client then pays the settlement amount as a monthly lump sum for up to 5 years, with all interest charges, penalties and legal actions coming to a halt. All unsecured creditors are bound by the proposal once it is accepted, even if not all agreed. As long as creditors representing 50% or more of the debt owed agree to the proposal, it becomes a legal agreement for all.
In a Bankruptcy, debt is eliminated through a process in which the LIT examines the liabilities and assets of an individual or family and determines what if any of the debt can be paid to creditors. There are several bankruptcy exemptions available that allow the debtor to keep all or a portion of defined assets. Further, the Federal Government has set income thresholds, based on the number of family members, to determine if a portion of income must also be paid into the estate for the duration of the bankruptcy, for distribution to creditors.
Canada truly is a land that offers a wealth of opportunities. Through processes like the Bankruptcy and Insolvency Act, Canadians can provide for themselves and their families, and in the case of entrepreneurs, take risks knowing that if debt does become unmanageable, there are processes in place to allow for rebuilding of their worth and regaining their spot as the fuel that powers our economy.
No matter how difficult or complicated your financial situation may seem, there are options available to help you rebuild and thrive. Our Debt Relief Specialists are available by phone at 1.855.884.9243, or you can request a call back via our contact us page. There is no need to travel to a local office. Licensed Insolvency Trustee, Bromwich+Smith, is now offering video appointments, with all services available from the comfort of your home.