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Script 253 gives information only, not legal advice. If you have a legal problem or need legal advice, you should speak to a lawyer. For the name of a lawyer to consult, call Lawyer Referral at 604.687.3221 in the lower mainland or 1.800.663.1919 elsewhere in British Columbia.
If you have money problems, first assess your overall financial situation
List your monthly expenses for food, rent, clothing, transportation, medical and dental fees, and so on. Remember to include a monthly amount for annual expenses like car repairs and insurance. Total this up, then subtract it from your income. The amount left over is what you have available to pay towards your debts.
Next, list all your debts and total up the monthly payments.
Now compare the two amounts. Do you have to pay more on your debts each month than you can afford? If so, you’re getting further into debt each month and should consider one of the options described in this script.
What are your options?
You can:
- solve the problem yourself,
- use a debt management program,
- consolidate your debts,
- apply for a consolidation order under the Bankruptcy and Insolvency Act,
- make a consumer proposal under the Bankruptcy and Insolvency Act,
- declare bankruptcy, or
- take no action at all.
Your first option is to solve the problem yourself
Sometimes, you can cut back on non-essential monthly expenses so you have more money to pay off debts. You can also try to increase your income enough to make all your monthly payments. Maybe you can get a second or part-time job. Or your spouse or family may be able to help with a gift or loan. Meanwhile, stop using credit cards – they charge very high interest rates. If you need to borrow, get a loan from a conventional lending institution like a bank or credit union.
Another thing you can do is contact your creditors, outline your situation, and ask them to suggest ways to help solve your problem. They may agree to a better deal that still lets you pay your debts, for example, by charging a lower interest rate, or by giving you more time to pay. But be careful about agreeing to repayment schedules that may be too difficult. And make sure you’re not borrowing more money or putting off other creditors – and getting charged more interest – just to satisfy the creditors taking action against you.
Another option is to use a debt management program
A debt management program involves a written agreement between you and the lender, with the help of an agency such as the Credit Counselling Society of BC (contact information for this agency is given at the end of this script). Typically your debts are consolidated, or combined, into one affordable monthly payment so you can repay them in a reasonable time. Creditors usually support people who enter into debt management programs by reducing or eliminating interest charges.
A third option is to consolidate your debts
You may be able to get a consolidation loan through a bank or consumer finance company, which consolidates all your debts. You make just one payment each month. Be aware that the finance company will charge you a fee, and the interest may be higher. Also, you may have to use your personal possessions and household items as security for the loan.
A fourth option is a consolidation order under the Bankruptcy and Insolvency Act.
If you have money available after your monthly budget costs, you may be able to apply for a consolidation order under the orderly payment of debts provisions of the Bankruptcy and Insolvency Act. This involves a consolidation of your debts into one payment per month, determined according to your ability to pay. Certain restrictions apply, and certain debts are excluded. The advantage is that creditors cannot take legal action against you unless you default on your monthly payments. However, they may still be able to seize any property you used to secure the debt. A credit counselling agency or bankruptcy trustee will be able to explain this process to you.
A fifth option is to make a proposal under the Bankruptcy and Insolvency Act
If you receive a regular income and can make meaningful payments over time, you can obtain the help of a bankruptcy trustee to make a formal “proposal” to your creditors under the Bankruptcy and Insolvency Act. You can design the proposal to suit your circumstances and income. You may agree to pay in full, or you may agree to pay in some smaller amount that creditors are willing to accept. The repayment schedule can be as long as five years.
The advantage of a formal proposal over a debt management program or debt consolidation is that there’s an immediate “stay of proceedings” when you make the proposal. This means your creditors cannot start or continue any collection action against you. As long as the proposal is accepted – meaning that more than 50% of the unsecured creditors approve it – and you make your payments, the “stay” continues. Also, once you’ve successfully completed your proposal, none of the affected creditors have any remaining claims against you – even if they voted against the proposal.
As a last resort, you might want to declare personal bankruptcy
Sometimes, this is the only viable solution. Again, for this option, you need a trustee in bankruptcy. When you declare bankruptcy, you have to “assign” or give your assets to the trustee, with some exemptions. As well, bankruptcy stays on your credit rating and can affect your ability to obtain credit for six years.
In some very limited cases, you may not need to take any action at all
If you have no income or possessions, your creditors may not be able to collect any money from you to repay your debts. Or if your debts are more than six years old, or if you haven’t made any payments or admitted your debts in writing in the last six years, and creditors haven’t taken any legal action, they may have lost the right to sue you. But you should speak to a lawyer first before doing nothing.
How do you decide what to do?
Start by getting free advice and counselling. The Credit Counselling Society of BC is a non-profit debt counselling service. In addition to offering counselling about possible solutions to your financial problems and free debt management workshops, they can help you set up a personal budget to regain control of your finances. They can also set up a debt management or debt settlement program for you. The Society has offices in Vancouver, New Westminster, Surrey, Abbotsford, Nanaimo, Kelowna and Victoria. Generally, there’s no cost for their services. Their toll free phone number is 1.888.527.8999 and their website is www.nomoredebts.org.
You can also get professional help from a reputable, licensed credit counsellor or bankruptcy trustee. To find a credit counsellor, look in the Yellow Pages of your phone book under “credit and debt counselling.” For a bankruptcy trustee, look under “bankruptcy trustee.” Or go to the website of the Canadian Association of Insolvency and Restructuring Professionals at www.cip.ca, or phone them at (416) 204-3242. Most bankruptcy trustees will give a free initial consultation to assess your financial situation and explain your choices and their consequences.
Where can you find more information?
- Excellent information is given in the brochure “Dealing With Debt: A Consumer’s Guide,” published by the Office of the Superintendent of Bankruptcy Canada and available on their website at www.osb-bsf.gc.ca. Or you can call the Office at 604.666.5007 and ask for a copy of the brochure, or pick up a brochure from your local government agent office. You’ll also find other publications and information on the bankruptcy process, consumer debt and consumer proposals on this website.
- See the brochure on “Consumer Law and Credit/Debt Law,” published by the Legal Services Society of BC and available on their website at www.lss.bc.ca. To find it, click on “Publications,” then search under the subject of “Consumer Law.”
[updated July 2007]
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