Posted On: October 6, 2025

Bankruptcy in Ontario isn’t just a legal term—it’s a lifeline for people who feel like they’ve run out of options. If you’ve ever stared at a stack of bills wondering how you’ll make it through the month, or felt the dread of another collection call interrupting your day, you’re not alone. Financial stress can be isolating, but it’s more common than most people realize—and there is help.

For many Ontarians, debt builds slowly. A missed payment here, a payday loan there, and before long, the interest snowballs and the pressure becomes unbearable. It’s not always about poor choices—it’s often about life happening faster than your finances can keep up. Job loss, illness, separation, or simply trying to support a family on a modest income can push even the most responsible person into crisis.

That’s where filing bankruptcy in Ontario comes in. It’s a federally regulated process under the Bankruptcy and Insolvency Act (BIA) that’s designed to protect individuals—not punish them. When you file, you’re legally declaring that you can’t repay your debts, and in doing so, you activate a powerful tool called an “automatic stay.” This immediately stops most collection actions, wage garnishments, and legal proceedings. It’s not just financial relief—it’s emotional relief.

But the real turning point often comes before the paperwork. It starts with a conversation—with a Licensed Insolvency Trustee (LIT). These professionals are trained to listen without judgment, explain your options clearly, and help you choose the path that fits your life.

Whether you’re exploring personal bankruptcy in Ontario, considering a consumer proposal in Ontario, or just trying to understand what’s possible, taking the first step by reaching out can be the most empowering decision you make.

Why People File Bankruptcy

The decision to file for bankruptcy in Ontario is rarely impulsive. It’s often the result of months—or years—of mounting financial pressure. Common reasons include:

• Unmanageable consumer debt – Credit cards, payday loans, and lines of credit can spiral out of control.
• Job loss or reduced income – A sudden change in employment status can make it impossible to keep up with payments.
• Medical expenses or family emergencies – Unexpected costs can derail even the most careful budget.
• Divorce or separation – Splitting assets and income often leads to financial instability.

At its core, filing bankruptcy in Ontario is about acknowledging that repayment is no longer feasible. Facing debt can feel isolating, frustrating, and confusing. Many people hesitate to seek help because they worry about the stigma around bankruptcy or fear losing everything. But the truth is, the bankruptcy process is a legal tool designed to help people regain control when debt becomes unmanageable.

What Filing Bankruptcy in Ontario Really Does

Contrary to popular belief, choosing to file bankruptcy is not a punishment—it’s a legal remedy designed to help individuals regain control when debt becomes unmanageable. Here’s what it actually does:

• Stops Collection Actions
  Once you file, creditors must stop calling, suing, or garnishing your wages. The automatic stay is a unique feature that offers immediate creditor protection and peace of mind.

• Eliminates Most Unsecured Debts
  Credit card balances, payday loans, utility arrears, and personal loans are typically discharged. You’re no longer legally required to repay them.

• Offers a Fresh Financial Start
  After completing the bankruptcy process, you can rebuild your credit, budget more effectively, and move forward without the burden of old debts.

• Protects Basic Assets
  Under Ontario law, you’re allowed to keep essential items like clothing, furniture, tools of the trade, and a modest vehicle. You won’t lose everything.

What Bankruptcy in Ontario Doesn’t Do

While personal bankruptcy in Ontario offers significant relief, it’s not a magic wand. Here’s what it doesn’t do:

• Doesn’t Eliminate All Debts
  Bankruptcy does not erase secured debts like mortgages or car loans unless the asset is surrendered. It also doesn’t eliminate certain obligations like child support, alimony, court fines, and student loans (under specific conditions).

• Doesn’t Fix Spending Habits
  Bankruptcy clears past debts, but it doesn’t address the behaviors or circumstances that caused them. Financial counseling is often part of the process.

• Doesn’t Guarantee Immediate Credit Recovery
  Your credit score will take a hit, and bankruptcy stays on your credit report for up to seven years. However, many people begin rebuilding within months.

Who Bankruptcy in Ontario Helps Most

Filing bankruptcy in Ontario is designed to support people who are doing their best but feel like they’re falling behind—often through no fault of their own. It’s not just for those with massive credit card debt or payday loans. It’s for anyone whose financial situation has become unsustainable, and who needs a structured, compassionate way to reset.

It helps:

• Working professionals who’ve lost income or faced unexpected expenses
• Families juggling mortgage payments, childcare costs, and rising living expenses
• Seniors living on fixed pensions, struggling to keep up with bills
• Newcomers who’ve taken on debt while trying to establish a life in Canada
• Small business owners who’ve faced downturns, closures, or unmanageable overhead
• Students and young adults overwhelmed by early financial missteps or job instability

What these individuals have in common isn’t irresponsibility—it’s circumstance. Life happens. And when it does, personal bankruptcy in Ontario offers a legal and emotional safety net. It’s a way to stop the spiral, protect what matters, and begin again with dignity.

Many people hesitate to seek help because they fear judgment or don’t fully understand their options. That’s why speaking with a Licensed Insolvency Trustee (LIT) is so important. LITs are trained to listen, not lecture. They’ll walk you through your situation, explain every available solution—including consumer proposals in Ontario—and help you make a decision that fits your life, not just your balance sheet.

If you’ve been feeling stuck, stressed, or ashamed, know this: you’re not alone, and you’re not beyond help. Bankruptcy in Ontario exists to give people a second chance—and that chance starts with a conversation.

When Should Someone Consider Filing Bankruptcy in Ontario

Deciding to file bankruptcy is never easy—and it’s rarely anyone’s first choice. Most people try everything they can to stay afloat: cutting expenses, borrowing from friends or family, juggling multiple jobs, or consolidating debt. But when those efforts no longer work, and the stress begins to affect your health, relationships, or ability to function day to day, it may be time to consider filing bankruptcy in Ontario.

Here are some signs that bankruptcy might be the right step:

• You’re constantly behind on payments and can’t catch up
• You’re receiving collection calls, letters, or threats of legal action
• Your wages are being garnished or you’re facing a lawsuit from creditors
• You’re using credit to pay for basic necessities like groceries or rent
• You’ve tried other solutions—like consolidation or proposals—but they haven’t worked
• You feel emotionally exhausted, anxious, or ashamed about your financial situation

It’s important to know that these signs don’t mean you’ve failed—they mean you’re human. Life throws curveballs, and sometimes debt becomes a symptom of deeper challenges. That’s why the most empowering thing you can do is talk to someone who understands the system and can guide you through it.

A Licensed Insolvency Trustee (LIT) is your first and best resource. They’re not just financial experts—they’re compassionate professionals who will listen without judgment, explain your options clearly, and help you make a decision that fits your life. Whether you end up choosing personal bankruptcy in Ontario, a consumer proposal in Ontario, or another path entirely, that initial conversation can bring clarity, relief, and a renewed sense of control.

If you’ve been asking yourself, “How much longer can I live like this?”—it might be time to ask a different question: “What help is available to me right now?” And the answer starts with a Licensed Insolvency Trustee.

The Role of a LIT – Your Guide Through the Bankruptcy Process

One of the most important steps is to speak with a Licensed Insolvency Trustee (LIT). LITs are federally regulated professionals who administer the bankruptcy process and consumer proposal filings. But their role goes far beyond paperwork—they act as your trusted advisor. They:

• Review your financial situation.
• Explain your options (including consumer proposals).
• File the necessary paperwork.
• Communicate with creditors.
• Guide you through financial counseling.

Choosing the right trustee is crucial. Look for someone who offers empathy, clarity, and a personalized approach.

Real Help Is Available for Those Struggling with Debt in Ontario

Bankruptcy in Ontario isn’t a moral failing—it’s a legal tool for recovery. It’s designed to help people who are overwhelmed by debt find solid ground. It stops the chaos of debt in your life, gives you breathing room, and opens the way to a more secure financial future.

If you’re struggling, know that you’re not alone. According to the Office of the Superintendent of Bankruptcy Canada, 891 Ontarians filed for personal bankruptcy in July 2025, and 3,891 opted for consumer proposals. These federally regulated solutions are helping thousands take back control and start fresh. Many describe it as the beginning of a new chapter—one built on stability, clarity, and hope. Whether you choose filing bankruptcy in Ontario or explore alternatives like a consumer proposal in Ontario, the key is to take action.

It’s common to think you have to hit “rock bottom” before asking for help—but you don’t. In fact, the earlier you reach out, the more options you may have. Many people are surprised to learn they don’t need to file for bankruptcy at all—because their trustee helps them find a different, more flexible solution, like a consumer proposal.

Start by having a conversation. People can’t live indefinitely with un-payable debts. The creditors don’t just forget about money that’s owed to them. Would you? So when everything gets too stressful people call Richard Killen & Associates. It is often the “most stress-relieving call they ever make.”

That one phone call could be the first step toward peace of mind and a brighter financial future.

Your Recovery Starts with One Brave Step

If debt’s been weighing you down, let’s talk. Reach out to a Licensed Insolvency Trustee near you today and start your path to financial recovery.

Posted On: July 25, 2025

Financial struggles can feel overwhelming—but you’re not alone, and there is help. A Licensed Insolvency Trustee (LIT) is a trusted professional who can provide the guidance and legal solutions you need to regain control of your finances.

When bills pile up, credit cards are maxed out, or your business is losing money, it’s easy to feel stuck and unsure of what to do next. That’s where an LIT comes in. They’re federally regulated professionals in Canada who specialize in helping people and businesses through tough financial situations.

LITs are the only professionals legally authorized to file bankruptcies and consumer proposals, but their support goes well beyond that. They offer personalized advice, negotiate with creditors on your behalf, and help you explore all available options—whether that means avoiding bankruptcy, restructuring debt, or building healthier financial habits.

If you’re feeling the pressure, understanding what an LIT can do for you is the first step toward a fresh start. They’ll guide you through the process with solutions that are tailored to your situation, helping you regain financial control with confidence.

Services Provided by Licensed Insolvency Trustees

Licensed Insolvency Trustees (LITs) offer a range of services designed to address both personal and business financial challenges. Their expertise goes beyond just handling bankruptcy—they also provide financial counseling, debt management solutions, and guidance tailored to each client’s unique situation.

Here’s a closer look at the key services they provide:

Financial Assessment & Debt Consultation

One of the key roles of a Licensed Insolvency Trustee (LIT) is to assess your financial situation and provide expert, tailored advice on the best path forward. This process starts with a detailed review of your financial position, including:

• Your debts – credit cards, loans, unpaid bills, etc.
• Your income and expenses – to understand your cash flow
• Your assets – such as property, vehicles, or savings
• Your financial goals – both short- and long-term

Based on this analysis, the LIT will explain your available options, which may include:

• Filing for bankruptcy
• Proposing a consumer proposal to your creditors
• Considering alternatives such as debt consolidation or credit counseling

An LIT also helps you understand the pros and cons of each option, including:

• The long-term impact on your credit
• The legal protections available to you
• The costs and timelines involved in each solution

The first consultation is typically free, giving you a no-pressure opportunity to discuss your situation and get professional guidance.

Whether you’re overwhelmed by personal debt or struggling to manage business loans, an LIT can provide the clarity and support you need. Their goal is to help you avoid bankruptcy when possible and guide you towards alternative paths to financial recovery.

Consumer Proposal Filing & Administration

A consumer proposal is a service offered by a Licensed Insolvency Trustee as an alternative to bankruptcy. It allows individuals to negotiate directly with creditors to reduce their total debt and arrange manageable monthly payments over a period of up to five years. This option may be ideal for those looking to minimize the challenges and long-term effects of bankruptcy while still securing much-needed debt relief.

The LIT’s role in a consumer proposal includes:

• Assessing eligibility – The trustee will evaluate your income, debts, and assets to ensure that a consumer proposal is the right solution for you.
• Negotiating with creditors – Once the proposal is drafted, the LIT will work with your creditors to present the offer. This includes explaining the benefits of accepting the proposal for both parties.
• Filing the proposal – The trustee submits the proposal to the OSB and supervises its administration. If the creditors agree to the terms, the proposal is accepted, and you can begin making payments.
• Supervision and support – Throughout the process, the trustee ensures you are on track with payments, providing guidance and support in the event that issues arise.

Bankruptcy Filing & Administration

In cases where other debt-relief options are not viable, a Licensed Insolvency Trustee can guide individuals and businesses through the process of declaring bankruptcy. Bankruptcy is a legal process that can provide individuals or businesses relief from overwhelming debts by eliminating most types of unsecured debt, such as credit card balances, medical bills, and personal loans.

The role of the LIT in this process includes:

• Filing the paperwork – The trustee prepares and submits the bankruptcy documents to the OSB and creditors, ensuring everything complies with legal requirements.
• Securing protection – Once bankruptcy is filed, the individual or business is protected from collection actions, including creditor calls, lawsuits, garnishments, and wage freezes. The LIT ensures this protection is upheld throughout the bankruptcy process.
• Asset management – In some cases, the trustee may need to sell certain assets to pay off creditors. However, the LIT ensures that exemptions apply, meaning that you can retain essential assets like household goods, a vehicle, or retirement savings.
• Debt discharge – Upon completion of bankruptcy (which typically lasts 9 to 21 months for individuals), the trustee helps facilitate the discharge of your remaining debts, allowing you to start fresh

Corporate Insolvency Services

Licensed Insolvency Trustees (LITs) support both individuals and businesses facing financial challenges. They play a vital role in corporate insolvency, helping companies restructure debt, liquidate assets, or navigate the insolvency process effectively.

Some corporate insolvency services include:

• Corporate bankruptcy – When a business can no longer meet its financial obligations, an LIT facilitates the bankruptcy process, overseeing asset liquidation, fund distribution to creditors, and ensuring employee rights are upheld.
• Companies’ Creditors Arrangement Act (CCAA) – Under this Canadian federal law, businesses with debts exceeding $5 million can restructure financial obligations while continuing operations. An LIT, acting as a court-appointed monitor, ensures compliance and guides the recovery process.
• Debt restructuring – For businesses that remain operational but need to reorganize their finances, an LIT negotiates with creditors to establish a manageable repayment plan that supports long-term viability.
• Asset liquidation – When selling assets is necessary to settle debts, an LIT manages the process efficiently, handling sales and the fair distribution of proceeds to creditors.

Debt Settlement and Negotiation

Debt settlement and negotiation are other valuable services that Licensed Insolvency Trustees provide. Rather than resorting to bankruptcy or a consumer proposal, the LIT can help you negotiate with your creditors to settle your debts for a lower amount.

The LIT will:

• Negotiate with creditors – The trustee will communicate with creditors to negotiate a reduced lump-sum payment that satisfies the outstanding debt.
• Provide alternatives – The LIT may explore options like consolidating your debt into one manageable payment, potentially avoiding bankruptcy or a consumer proposal.
• Legal protections – If you are unable to reach a settlement, the LIT will guide you toward more formal options like filing a proposal or bankruptcy.

Financial Education and Credit Counseling

In addition to debt management services, LITs offer valuable financial education and credit counseling to help individuals avoid future financial issues. They provide insight into budgeting, managing credit, and saving for future needs, ensuring that their clients are better prepared to handle finances after insolvency.

Some of the educational services include:

• Budgeting tips – LITs offer guidance on creating a realistic budget that aligns with your income and financial obligations.
• Credit rebuilding – After bankruptcy or a consumer proposal, an LIT can help you understand how to rebuild your credit score by offering advice on responsible borrowing and improving your credit history.
• Financial planning – LITs provide strategies to help individuals and businesses manage their finances moving forward, promoting long-term financial health.

Post-Insolvency Support

Completing a bankruptcy or consumer proposal is just the beginning of financial recovery—continued support plays a vital role in achieving long-term stability. A Licensed Insolvency Trustee (LIT) may assist clients by providing expert guidance on rebuilding credit, monitoring financial progress, and offering strategic advice to prevent future setbacks. This support can include reviewing credit reports, recommending responsible credit-building practices, and ensuring individuals stay on track toward financial wellness. Additionally, an LIT can help individuals create a realistic budget tailored to their financial goals, enabling them to develop sustainable spending habits. By fostering financial literacy and proactive money management, clients can build a stronger foundation for long-term financial success.

Get a Fresh Financial Start Now

A Licensed Insolvency Trustee provides a wide array of services designed to help individuals and businesses navigate financial difficulties. Whether you are seeking to manage personal debt through a bankruptcy or consumer proposal, or need assistance with corporate insolvency, an LIT can help you explore your options and make informed decisions. They offer a vital combination of financial expertise, legal knowledge, and personalized support to help you regain control of your finances.

Debt doesn’t have to define your future. A Licensed Insolvency Trustee can guide you toward practical, legal, and effective solutions to regain financial stability. Whether you need debt restructuring, financial counseling, or insolvency proceedings, the right support can make all the difference.

Don’t wait—reach out to a Licensed Insolvency Trustee today and start your journey toward financial relief and a fresh start!

Posted On: June 12, 2025

Owing CRA tax debts can be overwhelming, especially since it is a known fact that the federal authority does have strong collection powers to collect the debt. A Licensed Insolvency Trustee (LIT) plays a crucial role in helping debtors navigate challenges in handling outstanding taxes owed to the Canada Revenue Agency (CRA).

Recent data shows that many Canadians are struggling with overdue tax obligations. As of March 31, 2023, the CRA reported a total receivable of $207.1 billion, encompassing various tax liabilities such as income taxes, GST/HST, and COVID-19-related debts. ​The report also indicates that tax debt write-offs and enforcement actions remain a major focus by the CRA to collect the outstanding debts. Additionally, financial challenges have led many Canadians to rely on tax refunds to manage their overall debt burden.

What Are CRA Tax Debts?

They refer to any amounts you owe to the Canada Revenue Agency, which can include:

• Personal Income Tax – If you owe after filing your return.
• Self-Employment Income Tax – Especially common for freelancers and contractors who are required by the government to make quarterly tax installment payments throughout the year instead of paying everything at once when filing their annual tax return.
• GST/HST – For businesses or self-employed individuals.
• Payroll Deductions – For employers who fail to remit deductions.
• COVID-19 Benefit Repayments – Like CERB or CEBA if ineligible or overpaid.

How Do You Incur CRA Tax Debts?

Individuals and businesses can accumulate tax debts for various reasons:

• Incorrect Tax Filings – Filing errors, underreporting income, or miscalculating deductions.
• Late or Missed Tax Payments – Not paying taxes on time, i.e. not remitting quarterly tax installment payments by the due dates, which applies to self-employed individuals (and some others).
• CRA Audits and Reassessments – An audit or reassessment may uncover discrepancies, resulting in additional tax liabilities and penalties.
• Business Tax Obligations – Businesses that fail to remit GST/HST or payroll source deductions can quickly accumulate CRA tax debts.
• Over-claimed Tax Credits and Benefits – Receiving tax refunds or benefits through incorrect claims, such as ineligible deductions or excessive credits, can lead to CRA demanding repayment.
• Accumulated penalties and interests on overdue amounts.
• Unexpected financial difficulties—such as job loss, business downturns, or economic struggles—can make it hard to meet tax obligations, leading to unpaid tax debts.

What Happens If You Owe the CRA?

Unpaid CRA tax debts can lead to serious financial and legal consequences. The CRA has strong collection powers, and unlike other creditors, the CRA does not need a court order to take enforcement action, making tax debt a serious financial burden.

• Penalties & Interests – Late payments accrue additional charges, increasing the total debt.
• Wage Garnishments & Bank Freezes – CRA can seize funds directly without a court order.
• Liens & Asset Seizures – Unpaid taxes may result in property liens or forced sales.
• Credit Impact – Legal actions or bankruptcy from tax debts can damage your credit score.
• Business Disruptions – Companies with tax arrears risk account freezes and operational restrictions.

How a Licensed Insolvency Trustee Helps

A Licensed Insolvency Trustee (LIT) is a federally regulated professional authorized to administer insolvency proceedings such as consumer proposals and bankruptcies. They are licensed by the Office of the Superintendent of Bankruptcy (OSB) and ensure compliance with Canada’s insolvency laws.

LITs assist individuals and businesses struggling with debt, including CRA tax arrears, by offering legally binding solutions to reduce or eliminate tax obligations while protecting assets and financial stability.

1. Assessing Financial Situation & Exploring Options

Before recommending a course of action, an LIT analyzes the debtor’s financial position, including:

• Total outstanding CRA tax debts
• Other liabilities and income sources
• Assets and available resources for repayment

The assessment will help determine if you’re insolvent—meaning you cannot meet your debt obligations. Based on this evaluation, the LIT explains legal debt relief options, which may include negotiation with creditors, filing a consumer proposal or bankruptcy. The LIT ensures that individuals understand their options and guides them through the process.

2. Negotiating with CRA

CRA is open to negotiating tax repayment plans, but they rarely reduce the principal owed. An LIT can communicate with CRA officials to seek payment arrangements that provide more manageable terms for debtors. These may include:

• Extended repayment schedules
• Temporary relief from enforcement actions (e.g., halting wage garnishments)
• Reduction of penalties and interest

While CRA does not formally accept reduced debt settlements like private creditors, negotiating terms through an LIT can offer significant financial relief.

3. Filing a Consumer Proposal to Reduce Tax Debt

A consumer proposal is a legally binding arrangement that allows individuals to pay a portion of their debts over a set period (up to 5 years). CRA tax debts are eligible for inclusion in consumer proposals, and LITs negotiate settlement terms on behalf of the debtor.

Benefits of a consumer proposal include:

• Reducing the total amount owed
• Stopping CRA collection actions immediately
• Preventing asset seizure or wage garnishment
• Offering structured payments without accruing further penalties

A consumer proposal must be approved by creditors, including CRA, and is administered entirely by the LIT.

4. Managing Business Insolvency & Corporate Tax Debts

Businesses with unpaid GST/HST and payroll taxes face aggressive collection efforts from CRA. An LIT helps companies resolve tax debts by:

• Negotiating repayment agreements
• Exploring restructuring strategies such as corporate proposals or bankruptcy
• Liquidating assets if necessary to settle tax obligations

Incorporated businesses may file proposals or bankruptcies to address tax debts; however, directors can still be held personally liable for unpaid payroll deductions. LITs guide business owners on how to handle these complexities.

5. Personal Bankruptcy as a Last Resort

If tax debts are insurmountable, bankruptcy may be the most viable option. Bankruptcy eliminates most CRA tax obligations, except for fraud-related debts, and stops collection actions immediately.

LITs oversee bankruptcy proceedings and ensure the fair distribution of assets, if applicable, while guiding debtors through financial recovery steps.

6. Stopping CRA Collection Actions & Legal Enforcement

One of the most significant benefits of working with an LIT is obtaining legal protection against CRA enforcement. Filing a consumer proposal or bankruptcy initiates an automatic stay of proceedings, which puts an immediate stop on:

• Wage garnishments
• Bank account freezes
• Liens on personal or business assets

This legal protection allows debtors time to restructure their finances without CRA interference.

Why Work with a Licensed Insolvency Trustee?

Handling CRA tax debts without professional guidance can be extremely difficult. An LIT provides:

• Expert legal advice on managing tax obligations
• Negotiation support with CRA for better repayment terms
• Financial restructuring solutions to avoid excessive tax penalties
• Debt relief options that align with federal insolvency laws

In Canada, Licensed Insolvency Trustees are the only professionals licensed by the federal government through the Office of the Superintendent of Bankruptcy (OSB) to administer:

• Consumer proposals
• Division I proposals
• Bankruptcies

While debt consultants or financial advisors may offer guidance or budgeting help, they cannot file or manage formal insolvency proceedings under Canadian law.  Managing CRA tax debts often require formal solutions—like proposals or bankruptcy, and LITs are the most qualified and legally authorized professionals to handle them.

Whether through negotiation, structured repayment plans, consumer proposals, or bankruptcy, an LIT ensures debtors receive legal protection and financial relief. If you’re struggling with tax arrears, seeking professional assistance from an LIT can provide the best path toward resolving CRA tax debts and regaining financial stability.

Posted On: April 1, 2025

Are you having financial difficulties and looking for an alternative to bankruptcy? A consumer proposal offers a way to resolve debt problems while avoiding the more severe consequences of declaring bankruptcy.

In a Consumer Proposal you work with a Licensed Insolvency Trustee to propose a fair settlement to creditors, based on what you can afford to pay. The flexibility it offers in allowing you to manage debt without significantly disrupting your life is what primarily makes it a popular option for debt relief. In fact, between 55% and 75% of all insolvency filings nowadays are consumer proposals.

In addition to this, there are other reasons why many people consider a Consumer Proposal a better choice:

Shorter Time Credit Impact

A Consumer Proposal has a lesser impact on your credit score because the negative effects last for a shorter period compared to bankruptcy.
An R7 Rating stays on your credit report for 3 years after completion of the proposal, or 6 years from the date of filing, whichever comes first. On the other hand, in a bankruptcy, an R9 rating stays on your credit report for 6 years after discharge. This shorter credit impact allows you to rebuild your flagging credit score sooner than after bankruptcy, which can mean a quicker financial recovery.

No Seizure of Assets

In bankruptcy, you will need to surrender many of your assets to your trustee who will take care of selling them and, following that, distribute the proceeds to repay creditors. In a Consumer Proposal, however, you can keep your house, car, investments, and personal belongings while still negotiating a repayment plan as long as you can continue making regular payments for them as they become due.

Manageable Debt Repayment

In a Consumer Proposal you pay only a proportion to what you can pay of your total debt, which can be much less than what you owe. The amount that creditors accept may be as little as 10% or 20% of what you owe, making it a more affordable option. In addition, the terms of the repayment plan are more manageable than what your regular payments are because you can arrange to make monthly payments over a period of 3 to 5 years.

Legal Protection from Creditors

As soon as a Consumer Proposal is filed, creditors are legally prevented from continuing collection efforts, including garnishments, lawsuits, and harassing calls. This provides immediate relief from the stress of dealing with debt collectors. You can get the same legal protection in a bankruptcy, but the personal and financial consequences of filing are more severe.

Debt Consolidation Without Borrowing

A Consumer Proposal consolidates all unsecured debts (credit card debt, personal loans, etc.) into a legal agreement that allows you to make one fixed monthly payment over a set period of time. You don’t need to take on a new loan to pay off your debt, which you will have to do in a traditional debt consolidation loan.

Eligibility and Accessibility

In a bankruptcy, you need to owe more than $1,000 and prove that you are insolvent to be eligible. A Consumer Proposal is more accessible in that you don’t need to show that you’re completely insolvent or hopelessly in debt. If you have a high amount of unsecured debt but need more time to pay them back, you can propose a realistic repayment plan to your creditors through a Licensed Insolvency Trustee. All you need is for the majority of creditors to agree to the proposal for it to be legally binding.

When to Consider a Consumer Proposal Over Bankruptcy

• You can afford to make payments – If you’re capable of making regular payments towards a reduced debt settlement but can’t pay everything in full, a Consumer Proposal may be the better option.
• You have assets you wish to protect – If you own assets like a home or a car that you want to keep, a Consumer Proposal will likely be a better alternative since bankruptcy may require you to surrender these assets.

For many reasons, a Consumer Proposal is a viable and less disruptive alternative to bankruptcy. It enables you to keep your assets, reduce your debts, and avoid the harsh consequences associated with bankruptcy, all while allowing you to achieve debt relief in a manageable way. However, each person’s financial situation is unique, so it’s important to consult with a licensed insolvency trustee who can help you determine the best solution to manage debt for your specific circumstances.

Call us at 1-888-545-5365 for a free consultation or book an appointment here.

Posted On: October 2, 2024

There are several key factors about bankruptcy and homeownership in Canada that can shed light on how financial insolvency impacts your property rights and ownership and the legal and economic considerations involved both immediately and in the long term.

If you’re drowning in debt and you’re starting to fall behind on your credit cards and other bills, and you worry that you may soon also fall behind on your mortgage payments, you start to worry that you may lose your home.

It costs a lot of money to own and manage a home. There are mortgage payments, property taxes and home insurance to consider. On top of this, you also have maintenance and repair expenses, utilities, and, in some cases, homeowners’ association fees to take into account. These ongoing and one-time costs are crucial for managing homeownership effectively.

However, if you’re experiencing severe financial stress, and the only solution may be a personal bankruptcy, you then find yourself asking the commonly asked question: What will happen to my house after filing bankruptcy?

Bankruptcy in Canada can significantly impact homeownership, and the effects vary depending on individual circumstances. Here’s a general overview:

Immediate Impact on Homeownership

Immediate impacts include the risk of losing your home if you can’t keep up with mortgage payments and potential equity claims by the bankruptcy trustee.

1. Impact on Mortgage

• Current Mortgage – Bankruptcy does not automatically discharge mortgage debt. If you’re up-to-date on your mortgage payments, filing for bankruptcy does not mean you will automatically lose your house. If you have very little equity in your home, (this will vary in each province’s Bankruptcy Exemptions laws), you might still be able to keep your house and continue making mortgage payments. This is possible if you can find a way to pay this amount on top of bankruptcy payments. For most people, the problem isn’t the mortgage itself but rather the credit cards, lines of credit, payday loans, and other bills. Keep note that bankruptcy can eliminate your unsecured debt and lower your debt payments enough each month, making it easier for you to meet monthly mortgage payments.
• Missed Payments – If you’ve missed mortgage payments before filing for bankruptcy, the lender might initiate foreclosure proceedings. Bankruptcy may not prevent a foreclosure if you’re already behind on payments. If you’re falling behind, it’s a good opportunity to consider whether you want to keep your existing mortgage. If you determine that even after filing bankruptcy you still cannot afford your house, you can choose not to keep the home and allow the bank to proceed with foreclosure. Any remaining debt after the home is seized and sold will be discharged as part of your personal bankruptcy.

2. Equity in Your Home

In Canada, there are exemption limits that allow you to keep some of the equity in your home when you file for bankruptcy.These exemptions for home equity vary by province.

You can check here – Bankruptcy Exemptions by Province

If your home is in Ontario, for instance, the exemption for a principal residence is $10,783. This means that your principal residence (the home where you live) is generally protected up to a value of $10,783. However, if your home’s equity exceeds the exemption limit, your Licensed Insolvency Trustee might require you to either sell the property or buy back the equity.

The basic premise is that if you have built up equity in your home the law requires you to use that equity to pay off some of the money you owe to your creditors. So, if your house has substantial equity, the Trustee will typically seize and sell it to satisfy your debts.

Still, in certain cases, if the equity in your home exceeds the provincial exemption amount, it doesn’t necessarily mean you’ll automatically lose your home if you declare bankruptcy.

This could be dealt with in a few ways, such as:

1. Even if you have significant equity in your home, you may still be able to keep your home by arranging to repay the equity. This could involve borrowing from friends or family, or securing a second mortgage to buy back the equity from the Trustee.
2. Filing a Consumer Proposal instead of a bankruptcy.
3. If a homeowner decides not to keep their home, they can choose to sell the property through the bankruptcy process. They will still be entitled to receive their exempt equity amount from the sale proceeds.

Protecting Your Home

1. Principal Residence Exemption
   If the equity in your home is equal or less than the provincial exemption limit, your home is considered exempt from seizure, meaning it cannot be taken as part of the bankruptcy proceedings. This exemption allows you to retain ownership of your property despite the bankruptcy.However, if the equity in your home exceeds the exemption limit, your home is not exempt from seizure. In this case, the excess equity may be subject to seizure by the LIT. The trustee may sell the property to recover the amount above the exemption limit to satisfy your debts.

2. Continuing Payments
   If you are able to make mortgage payments consistently and have sufficient income, you might be able to keep your home throughout the bankruptcy process.

3. Keep your House by Filing a Consumer Proposal
   One of the most effective ways to keep a home with substantial equity when facing financial difficulties is to file a consumer proposal.

In a consumer proposal, you present a repayment plan to your creditors that covers the equity value in your home. Unlike bankruptcy, a consumer proposal allows you to spread these payments over a longer period.

For instance, if bankruptcy would require you to pay $15,000 from your home equity, you could propose to pay $20,000 over 50 months at $400 per month. Creditors might accept this offer since it provides them with more than they would receive through bankruptcy. Meanwhile, you benefit by keeping your home and managing a more affordable monthly payment.

Impact on Future Homeownership

• Credit Score
  Bankruptcy significantly impacts your credit score, often dropping it below 500. This can make it challenging to secure new mortgages or obtain favorable interest rates. The bankruptcy will remain on your credit report for up to 6 to 7 years, which can affect your ability to buy a new home during this period.
• Rebuilding Credit
  After bankruptcy, rebuilding your credit is crucial if you plan to purchase a home in the future. This involves demonstrating responsible financial behavior, such as paying bills on time and managing credit responsibly.
• Mortgage Application
  Lenders will scrutinize your financial history and might be hesitant to approve a mortgage application for someone with a recent bankruptcy. You might need to provide a larger down payment or accept higher interest rates.

Long-Term Considerations

• Impact Duration
  Bankruptcy affects your credit for up to 7 years from the date of discharge (or 14 years if it’s your second bankruptcy). During this period, your ability to obtain new credit, including mortgages, can be limited.
• Legal Advice
  It’s wise to seek legal advice to understand the full implications of bankruptcy on your homeownership situation. A licensed insolvency trustee (LIT) can provide guidance on how to manage your home and any potential ramifications.
• Financial Planning
  Engaging in financial planning and credit counseling post-bankruptcy can help you rebuild your financial standing and help you work toward future homeownership goals.

Navigating bankruptcy and homeownership in Canada can be complex. It’s wise to consult with a licensed insolvency trustee before making any decisions. A trustee can provide guidance tailored to your specific situation and help you understand the implications to your home and overall financial health after filing bankruptcy. A trustee can also help you understand all your options, including perhaps if you can use a consumer proposal as an alternative to bankruptcy to allow you to keep your home.

Our licensed insolvency trustees at Richard Killen and Associates can give expert advice on all your options to a debt-free life and ensure you will not be making your financial situation any worse. Contact us today.

Posted On: August 15, 2024

When struggling to manage multiple debts and faced with a choice between debt consolidation vs consumer proposal, which option is the best way to get out of debt?

In today’s economic landscape, many Canadians find themselves facing overwhelming debt burdens. In fact, according to the latest statistics, about 45 percent of Canadians are just $200 away from failing to meet their financial obligations.

If debts are becoming overwhelming, it becomes crucial to find an effective way to regain financial control. Two common options that Canadian borrowers consider are debt consolidation and consumer proposals. Both offer pathways to debt relief, but they operate differently and suit different financial situations. Understanding the nuances between these options is essential for making informed decisions about managing your finances.

What is Debt Consolidation?

Debt consolidation involves combining multiple debts into a single, larger debt. This is typically achieved by taking out a new loan, often at a lower interest rate than the existing debts, and using it to pay off all outstanding balances. The main goal of debt consolidation is to simplify and lower the monthly payments, and potentially lower the overall interest rate, making it easier for the debtor to pay his or her way out of debt.

Pros of Debt Consolidation:

• Simplified Payments – Instead of managing multiple types of debts, with multiple creditors, due dates, repayment terms and interest rates, debt consolidation combines everything into one loan. You’ll only be making a single monthly payment, which makes it easier to manage the debt and make payments on time.
• Lower Interest Rates – If you qualify for a lower interest rate on the consolidation loan, you could save money on interest payments over time.
• Preservation of Credit Score – As long as you make payments on time, debt consolidation can help preserve your credit score.

Cons of Debt Consolidation:

• Requires Good Credit – Qualifying for a consolidation loan with favorable terms usually requires a decent credit score. According to Equifax, borrowers with a credit score of 740 or higher typically receive the best interest rates. For those with a credit score of under 670, debt consolidation may not be a good option because lenders may potentially give high interest rates to high-risk borrowers.
• Potential for Additional Debt – If you can’t consolidate ALL your debts you could simply be adding to your debt load and possibly worsen your financial situation.

What is a Consumer Proposal?

A Consumer Proposal works similarly to a debt consolidation loan by combining all debts into a single monthly payment that pays all the debts off gradually over time. However, unlike debt consolidation loans, a Consumer Proposal does not involve borrowing or taking on a new loan in order to consolidate debt. You just make an offer to your creditors to settle the whole amount you owe. They can accept it or negotiate the amount with you, but if you reach an agreement with them (as the vast majority of people do) it will get you out of debt.

The offer you make must be something you can actually do, otherwise the proposal settlement will fail. So most proposals are made for a percentage of your total debt. It’s what people can afford.

Consumer Proposals are usually arranged with monthly payments and can significantly decrease the total debt burden, sometimes by as much as 80% or more.

A Consumer Proposal is a formal agreement made between you and your creditors through a licensed insolvency trustee (LIT) and is ratified by the court, which ensures that it is legally binding.

Pros of Consumer Proposals:

• Legal Protection – A crucial aspect of a consumer proposal is the automatic stay of proceedings. This forces your creditors to respond to your consumer proposal. If they ignore it the proposal will be deemed accepted and ratified by the court.
• Stress Relief – The simple filing of the consumer proposal usually stops all collection calls and will stop any legal proceedings immediately.
• Fixed Amount – A consumer proposal is usually approved for a fixed sum. So you know exactly how much you have to pay to get out of debt.
• All Debts Included – Once a consumer proposal is accepted by the creditors and approved by the court, all your unsecured creditors are legally bound to the terms of the proposal.
• No Interest Charges – In a consumer proposal there are no interest charges. The costs of the proposal, such as the trustee’s fees, are paid from the amount you offer.
• Preservation of Assets – By proposing a structured repayment plan through a consumer proposal, you aim to satisfy creditors without resorting to selling off exempt assets such as an RRSP. This protects your essential possessions and allows you to maintain stability in your quality of life.

Cons of Consumer Proposals:

• Credit Impact – People often ask which is worse for my credit score: a consumer proposal or a bankruptcy. The answer is they both have a negative impact, but the proposal is usually somewhat less than a bankruptcy.
• Creditor Acceptance – For the consumer proposal to be accepted, creditors must agree to the proposal. Creditors representing at least 50% of your total debt must vote in favor of the proposal. Once accepted, the proposal becomes legally binding on all creditors, including those who voted against it. If they reject it, you may need to consider alternative debt relief options.
• Some Negotiation may be needed – You start a consumer proposal by make a settlement offer to all your unsecured creditors – usually basing your offer not on how much you owe, but how much can you afford to pay every month. Your creditors are not obligated to accept your offer, but because of the Stay of Proceedings and the alternative of a bankruptcy they do have some incentive to try to arrive at a mutually agreeable settlement. It may involve some negotiations (carried out by the trustee) but 96% of consumer proposals are eventually accepted.

Choosing Between Debt Consolidation and Consumer Proposals

The decision between debt consolidation and a consumer proposal depends on various factors, including your total debt amount, income level, credit score, and overall financial goals. The only way you can get all the information you may need to decide which is better for you is to obtain a proper assessment by a Licensed Insolvency Trustee.

Posted On: March 31, 2024

If you’ve recently filed bankruptcy or a consumer proposal, a secured credit card is a way to help you rebuild your credit rating and develop a stronger financial future. It’s not a fast track way to build credit or improve your score, but it’s a clear and simple step that can get you there over time.

A consumer proposal and bankruptcy are effective debt relief solutions that offer immediate relief from overwhelming debt as well as legal protection from creditors. However, they do have a negative impact on your credit score. In general, once you file a consumer proposal, you will have an R7 rating whereas declaring bankruptcy will give you an R9 rating – both very low scores as measured on a scale of R1 to R9 by the credit bureaus. Moreover, these low ratings will remain on your credit profile for three years from the date of a consumer proposal is fulfilled and for six years from the date of discharge from a bankruptcy.

How to rebuild after a Bankruptcy or Consumer Proposal

Although a low rating will stay on your profile for a few years, you don’t have to wait that long to rehabilitate your credit. You can begin immediately and start credit after a bankruptcy or consumer proposal by getting a new mortgage, car loan, credit card, bank loan, etc. In other words apply for some credit. It doesn’t have to be much. The point is to show you can handle the credit you get. In as little as two to three years you can re-establish credit and may even have a better credit rating than before you started!

Among the most crucial factors in rebuilding credit is developing a positive payment history and managing finances responsibly. You need to be able to demonstrate to lenders that you can pay back the money you borrowed on time consistently and prove that you can responsibly manage debt.

Credit behaviour matters as it reflects your track record of making timely payments on your loans and credit cards. Discipline is key as consistently paying on time demonstrates financial responsibility and can boost your score. Keeping a balanced credit utilisation ratio is also advisable for a positive impact. A good rule of thumb for credit usage is to never exceed 30% of your total available credit limit.

Working to rebuild your credit can feel nearly as daunting as getting out of debt, but with the right process and a clear sense of direction and commitment, you can get where you want to go. The most crucial factor is to carefully consider options and pick the right path. Not all paths to rebuilding your credit will suit your unique financial situation and goals.

How can I use a secured credit card to rebuild credit

A secured credit card is a great choice for someone looking to build or improve your credit history. If you use them responsibly, secured credit cards can help you increase your score over time. Many licensed insolvency trustees, debt counsellors and other financial professionals often suggest using a secured credit card to rebuild credit.

Secured credit cards are a special type of card typically designed for those who are looking to rebuild their credit. These cards are more accessible for people who have low credit scores.

A secured credit card requires a cash deposit from the cardholder. This deposit acts as collateral for transactions. In case you can’t make payments, the lender can use the deposit to pay the debt. The credit limit for the credit card is equal to the amount that you put down as deposit.

Use a secured debit card similar to how you would use a debit card, keeping in mind that you’re using your own money every time you make a purchase, rather than borrowing funds from a lender.

The key to building credit with a secured credit card is to practice three essential habits.

• Use your secured credit card wisely – Make sure to use the card each month for one or two small purchases without overspending or missing payments.
• Keep your balances low – Avoid maxing out your credit card and try to keep your balance low and aim to maintain your credit utilization below 30 percent ideally.
• Pay off your debts like clockwork – Show responsible credit habits by always paying your balance on time and in full every month.

Keep in mind that the goal is to demonstrate responsible credit use to increase your credit opportunities in the future.

Choosing the right secured credit card

One factor to help you build really strong credit is making sure you choose the right secured credit card that will meet your needs. These features are essential to ensure the card you use is a helpful tool for building and improving credit.

• Choose a card that reports to credit bureaus. Make sure you ask whether the issuer reports your repayment behaviour to Canada’s credit bureaus: TransUnion, Experian, or Equifax. Not all secured credit cards will do this, which defeats the purpose of opening an account. A prepaid credit card doesn’t usually report at all. If reporting is not available, look for a different secured credit card or another credit card option suitable for bad credit.
• Choose a card that requires a reasonable security deposit. In Canada, secured credit cards typically require deposits of $200 to $500 and can be as high as $10,000. There are also many secured cards that allow you to put down even less collateral, as low as $49 to start. Keep in mind that the cash deposit will not be accessible unless you close your account, so choose what you can afford to pay. A card with a low minimum required amount will work if you’re short on cash. A secured card with a higher deposit can help improve your credit utilization ratio and potentially boost your credit score faster, but it can also increase the temptation to overspend.
• Choose a secured card that doesn’t have outrageous fees. Watch out for large monthly or annual fees that can deplete your deposit. It’s also important to consider other helpful benefits, such as an opportunity to increase your credit line, an offer to upgrade to an unsecured credit card or refund your deposit if you can show that you manage your line of credit responsibly and make a series of payments on time.

If used strategically, a secured credit card can be a helpful tool for building and improving credit after bankruptcy or a consumer proposal. The right secured credit card can help you obtain new credit and re-establish a good payment history.

Talk to a Licensed Insolvency Trustee such as Richard Killen & Associates Ltd. about getting a secured credit card after bankruptcy or consumer proposal and get helpful strategies that can effectively repair your credit rating and help you avoid racking up new debt.

Posted On: June 16, 2020

Fewer Canadians seeking debt relief during COVID crisis, those struggling urged to seek help from licensed professionals.

According to a press release by the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) they suggest that many people who should be seeking the services of a Licensed Insolvency Trustee are not. It seems that between government relief programs and creditors offering payment deferrals many do not feel the urgency to deal with their debt problems. Read the release below.

TORONTO – May 11, 2020 – After consistently climbing higher over the last year, the number of Canadians who filed for insolvency in the first quarter of 2020 was down 5.5 per cent compared to the previous quarter, according to the latest official figures released today. In March alone consumer insolvencies decreased by 8.5 per cent compared to the same time last year.

The decline is largely the result of increased payment flexibility among creditors, landlords and administrators coupled with temporary income supports provided by the government. While these measures have allowed many to make ends meet, bankruptcy professionals agree that consumer insolvencies will spike in the wake of the coronavirus pandemic.

“For those who were already overstretched with more debt than they could reasonably afford, the government relief and short-term payment reprieve have allowed many to stay afloat. But their underlying debt is a gaping hole in the lifeboat,” says Mark Rosen, Chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). “The pandemic will magnify the debt problems Canadians were already facing and insolvency will be the way out for many.”

Prior to the widespread income shock and economic uncertainty brought on by COVID, consumer insolvencies were already on the rise in Canada. In spite of the dip in the first quarter, the total number of insolvencies for the 12-month period ending March 31 increased by 8.4 per cent compared to the same period last year.

With no clear end to the pandemic in sight, Rosen says that severely indebted Canadians should seek professional advice now from Licensed Insolvency Trustees before they find themselves even more in over their heads.

Licensed Insolvency Trustees are federally regulated debt professionals who can offer guidance regarding all of the debt-relief options available to Canadians. With solid accounting expertise and extensive knowledge of governing legislation, they are empowered to provide protection from creditors and can discharge people from debt. They take a customized approach to determine which restructuring option is most suitable based on individual circumstances.

If it is determined that bankruptcy or proposal is the best course of action, the dual role of the Licensed Insolvency Trustee is to ensure that the debtors’ rights are not abused while protecting the rights of creditors.

“For individuals and families in financial distress, the insolvency process is really about moving forward after hardship to focus on a brighter future. For creditors, the process formalizes negotiations and cushions losses,” says André Bolduc, executive board member of (CAIRP) and Licensed Insolvency Trustee.

He points out that as soon as an individual files for insolvency, they are protected from creditors, which can also include protection from collection agency calls and wage garnishment.

“It’s so easy to become paralyzed with fear or shame and let the bills pile up even more but that is the absolute worst thing you can do right now. You do not need to tough out this crisis on your own. Help is available,” adds Bolduc.

In an effort to maintain social distancing measures while continuing to support those in need of financial assistance, many Licensed Insolvency Trustees across the country are providing free contactless consultations virtually or by phone.

You may read the press release here.

If you are in debt, we are here to help you with a debt solution whether it be a consumer proposal or a bankruptcy. Talk to us. We offer a free consultation by phone or by video chat. Call us at 1-888-545-5365

Posted On: December 25, 2019

December is a very exciting and interesting time of year. From the official beginning of Winter to the various religious celebrations, such as Christmas and Hanukkah. It’s also a time for some philosophical pondering; reviewing the year past and formulating our resolutions for the coming year. Yes, December can be a very important month. It certainly is a good time to appreciate all the good things we are given, especially when they occur through no effort of our own.

True, not everything that happens to us is positive and easy to take. Everyone has the challenge of dealing with negative things like health problems and all the other personal trials life throws at us. Sometimes it feels like that’s all there is. But it isn’t, is it?

In the book I wrote, The Glass Is Half Full, I try to make the point that no matter how difficult our problems and challenges, the attitude with which we face them goes a long way to getting us through it and even turning these things around. Most importantly, we cannot let the bade things that happen to us define how we see ourselves.

I can’t think of a more valuable way to wind up the year. Maybe that’s why Christmas and Hanukkah take place at this time. For thousands of years these religious celebrations, and their cousins in other faiths, remind us of all the positive gifts life provides and how we should never take any of it for granted. They also encourage us to believe that facing up to our daily toil and turmoil courageously pays off for us in the end. That’s something we owe to ourselves and to those we love.

So with that thought, I’ll which all of you a very Merry Christmas and Happy Hanukkah and hope that you and yours are blessed with good health and happiness throughout 2020.

Posted On: September 9, 2019

According to Statistics Canada, Canadian families now roughly owe $1.78 for every $1 they earn. These debts include consumer credit, mortgage and non-mortgage loans. Yes, we’ve got too much debt and piled up credit card charges for home renovations and eating out, for long-term car loans to buy up new vehicles, and not to mention those home equity lines of credit that allowed us to borrow up to 65% of the value of our home.

Some of us are already feeling the pinch of owing too much debt, with almost a 10% increase in the number of consumer insolvencies compared to last year, according to the latest figures from the Office of the Superintendent of Bankruptcy Canada.

“Personal insolvency growth continues as a result of consumer credit stress, individuals and families are struggling with overwhelming debts,” says Chantal Gingras, Chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).

And it seems we’re not slowing down. Despite years of counselling from the Bank of Canada against rising debt levels, many Canadians still aren’t lightening their debt load even though interest rates are rising and borrowing costs are climbing.

“Oh, we can manage our payments, we’re all good,” we keep saying. At least for now you can, but all that can change with a few unexpected calamities.

“If there is a period of slow economic growth in the future, Canadians could face job losses or decreased income putting them in an even worse position to manage their increasing debt levels,” says Scott Hannah, the Founder of the Credit Counselling Society.

Look, we all want to have a new car, a new home, dine in fine restaurants and enjoy luxury vacations, and grand shopping sprees. Who doesn’t, right? It’s great if we can afford them, there’s absolutely nothing wrong with spending on these things — as long as we don’t swim in debt for them.

But how exactly do you figure out that you’re close to being in over your head with too much debt? Let’s take a look at what too much debt looks like:

What Too Much Debt Looks Like to Lenders

In general, banks and other lenders look at your Total Debt Service Ratio, or TDSR, which is the portion of your income needed to cover all of your debts. Lenders will look at all of your monthly debt payments plus heating costs and taxes if you own your house and divide this by your gross income. Standard TDSR should not be higher than 40% of your income. So when you add up all your monthly credit card payments (minimum or partial payments each month), line of credit payment, car payment, mortgage payment, alimony and payments for heat and taxes, the total amount of all of these should not be more than 40% of your monthly gross income (which is your income before taxes). In other words, banks will not lend you money if your TDSR exceeds 40%.

If you are applying for a mortgage, lenders will also take into consideration your Gross Debt Servicing Ratio or GDSR in addition to your TDSR. GDSR is the portion of your gross income that goes towards paying all of your monthly housing costs, which can include principal mortgage payment, interest, property taxes, and heating costs (PITH) plus+ 50% of condo fees if applicable. The standard is less than 32%. Lenders will not give you a mortgage if your GDSR is more than 32%.

What Too Much Debt Looks Like to Your Budget

First order of business, ask yourself: How much do you need to live a lifestyle that is comfortable and acceptable to you? For this, you need to figure out the amount of money you need to support your way of living now as well as allow you to save for the future.

Identify all your sources of income – take home pay and extra income from a side job.
Calculate the cost of living expenses (also called non-discretionary expenses) – jot down every cent you spend that you must pay each month, including food, rent, mortgage, utilities, credit card payments, car loans, insurance payments, taxes and personal necessities
Calculate financial goals – amount for investing or saving after paying all non-discretionary expenses
Calculate discretionary expenses – amount for spending on non-essential items, restaurant dining, vacation expenses, luxury clothes, entertainment, etc.

Obviously, if you have no money remaining after paying bills then your income cannot support your financial goals as well as your unnecessary spending habits. If you must incur debt to pay for discretionary expenses, then you have too much debt.

If you routinely carry on debt, use your credit cards to pay for grocery bills or other utilities, constantly overdrawing your line of credit account or go overboard with an overdraft, and always have to take on a payday loan or a consolidation loan, these are warning signs that your budget is too tight and that you may have too much debt and may be heading for trouble.

Budgeting is really one of the smartest things you can do to keep yourself from accumulating too much debt. A budget will help you manage your finances and help you see how much debt you can afford to make payments on based on your income each month. It can really help you to live within your means and not spend more than you earn.

Too much debt can mean different things to different people, but the key is to figure out the amount of debt you have to how much money you make a month. The general rule is that your debt level should not be more than 40% of your monthly income.

Use the guidelines:

Total Debt Service Ratio (TDSR) over 40% = too much debt
Gross Debt Service Ratio (GDSR) over 32% = too much debt
Personal budget – more than half of your income is used to pay your debts = too much debt

Ideally, the less debt you owe, the better off you are. A little bit of debt is unavoidable, even necessary, to help you meet financial goals. Always live with a spending plan so you can manage debt payments efficiently and avoid going into too much debt. If your budget is too tight, you are close to the edge of having too much debt. When a financial crisis hits you, your budget is wiped out and you’ll be forced to take on debt for everything you need to pay for. Tap on all the resources you can to get back in control right away before your debt levels get out of hand.

When your debt and bills exceed your income, needless to say, you’re in a debt crisis and you need to make a committed decision to get out of debt without delay. Check out your debt solutions and options here.