Graduating Into Debt

Graduating Into DebtGetting a student loan can be double-edged sword. Many kids can’t afford a higher education without one. But the downside is that a lot of students either they doctors, engineers or business students are graduating with huge debts that they many find hard and in some cases impossible to pay off.

The problem of student debt in Canada is on the rise. According to a September 2013 Globe and Mail article, accumulated student debt is now more than $15 billion nationally, and perhaps as high as $23 billion, if you take into account credit card debt, lines of credit and provincial loan programs.

The problem is worsening as government levels of funding for post-secondary education decrease and students are left with bearing more of the cost. The Globe article points out that the government share of funding has declined from 84 to 58 per cent, at the same time as tuition fees have jumped 12 to 15 per cent.

What if I simply can’t repay my student loans when the time comes?

Well, let’s hope this doesn’t happen, but if you have no other options bankruptcy may be necessary. The question then arises: “If I have a student loan, will bankruptcy take care of it for me?”

The answer is technical. When a person goes bankrupt, they are applying to the courts to simply “get rid” of their debts. It’s called getting discharged from the bankruptcy and therefore the debts. Whether your discharge would eliminate your student loans along with any other debts you had when you filed depends on time. When did you officially end your career as a full- or part-time student.

If you left school seven or more years before you filed your bankruptcy, then your student loans should be discharged. If you left school less then seven years before filing, they won’t be.

The definition of exactly when you “left school” has been the subject of at least three court cases with different results. The general and safest definition of when you left school is the last day of the month in which your class graduated. When you last physically attended classes doesn’t really matter. Finishing early or dropping out doesn’t change this date. At Richard Killen & Associates, we advise you to be as sure as you can about your school leaving date. You can usually get the correct info from the government by calling 1-888-815-4514, but some people may have to go back to their learning institution to find out.

How would all this apply to a consumer proposal?

Pretty much the same way, except you don’t actually get discharged from your debts when you do a consumer proposal. When you successfully complete your payments in a consumer proposal, you receive what’s called a Certificate of Full Performance to prove to the world that you succeeded in paying off your creditors. Since a consumer proposal captures all your unsecured creditors (and a student loan is an unsecured debt), the successful completion of the consumer proposal payments should get rid of the student loans, too, right? Yes, but only if you had been out of school seven years on the date you filed the proposal.

So what if I am in debt trouble but I haven’t yet been out of school for seven years?

Well, you still have the same legal option under the Bankruptcy and Insolvency Act: a bankruptcy or a proposal/consumer proposal. The difference is that when you get to the end of either one, your discharge or full-performance will not include the student loans. You will still need to pay them back.

But what if I’m still unable to pay the student loans?

If you were under the magic number seven when you filed, but still cannot handle the student loans after your discharge, there is another relief option. You have to wait until you have been out of school five years. Then you can apply to the bankruptcy court for an order to have your student loans covered by your bankruptcy discharge (or certificate of full-performance from the consumer proposal). You would need to hire a lawyer to get this done and it cannot be done before your bankruptcy or consumer proposal are successfully completed.

Pretty convoluted, eh? That’s why we simply say call us. At Richard Killen & Associates we can make it make sense to you in a way that will empower you to make the right decisions.

We also want to add that you can look for some student debt relief by going to the National Student Loans Service website and finding out about the Repayment Assistance Plan. Available on both Canada and Ontario portions of student loans, RAP offers both interest relief and debt reduction, which could include lowering monthly payments and extending you loan repayment period for up to 15 years.

How Much Is Too Much?

How Much Is Too MuchPeople sometimes ask: “If I go bankrupt will the trustee take all my income?” Well the simple answer is NO. But to understand that answer you need to wade through some layers of legal complexity.

While you go through bankruptcy, the trustee is required to monitor your income to see if maybe some part of it should go to your creditors. Remember, you have stopped making any payments directly to those creditors, so they are not getting anything from you. But, assuming you’re working and have  income, it’s fair to ask whether any portion of your income should go to the creditors.

In the old days this question had to be answered by the court on a case-by-case basis. But since the early 1990s, the courts couldn’t keep up with the rising number of  bankruptcies, so the government decided to let the trustee handle this question. After all, the trustee takes care of practically everything else. However, to ensure that consistency and fairness is maintained across the country, the government gave the trustees a strict formula that enables them to work out a solution that is fair and protects both your rights and your creditors’.

Every year, using the latest cost of living statistics, the federal government sets a “Standard” based on how many people live in a household. (Obviously the more people in the house, the more money these people need to get by.) This standard establishes a threshold. If your family income exceeds the applicable threshold, you are deemed to have “Surplus Income.” If you have a surplus, you may pay half  the amount to a trustee for the benefit of the creditors. The formula is  fair and most people have no problem with it.

Here’s an example:  You’re part of a family of two who has a total combined after-tax income of $2,908. This is exactly $400 more than the standard threshold for a two-person family ($2,508). So the bankruptcy law requires you to pay half of this $400 surplus income, $200, to the trustee for the creditors. The Industry Canada website has all the details.

While this formula is  fair,  it can get complicated, especially since everyone’s situation is different. For instance, you have the right to question and disagree with whatever number the formula comes up with. There is a mediation procedure in place that can help you to work out a compromise.

Since the issue of surplus income may  affect your decision about what course to take to solve your debt problems, you need to know the facts and your options. The best way to do this is have a trustee at Richard Killen & Associates explain them to you. It doesn’t matter how much surplus income you may or may not have, the consultation with us is truly FREE.

What Are the Alternatives in Coping With a Debt Crisis?

What Are the Alternatives in Coping With a Debt CrisisNo one wants to go bankrupt. It is the last resort when faced with insurmountable financial problems. But even if your payments are in arrears and you are getting collection calls, there are other options besides a bankruptcy, which we at Richard Killen & Associates are glad to explain. These include:

Getting a Consolidation Loan
If you can qualify for a consolidation loan, you can bundle all your debts into a single package and make a  monthly payment that will probably be lower than what you are faced with right now with all the individual payments. You can usually reduce interest and stretch out your repayment period. The trick is qualifying for the loan if your credit rating has taken a beating because of your financial difficulties. To get approved, you may need collateral, or a co-signor or guarantor – not always easy to find.

Making an Informal Arrangement

You can, perhaps, negotiate with creditors to reduce monthly payments. Or you might be able to get them to accept less than the full amount owed, if you have a lump sum payment you can make. In either case, you should use the services of a licensed trustee, lawyer, accountant or reputable credit counselling agency to do this, and beware of the many unscrupulous sorts out there poised to take advantage of your situation. Other pitfalls of this method include: the high degree of difficulty in conducting negotiations; creditors who can still sue you; no protection from garnishees; it doesn’t stop interest accumulation; and it needs to be accepted by all creditors before it can be effective.

Offering a Consumer Proposal
A consumer proposal is a legally binding agreement between you and your unsecured creditors to settle all your unsecured debts. It is filed with the government and managed by a licensed trustee, such as Richard Killen & Associates, under the supervision of the court. You will probably wind up paying back only a portion of what you owe – for instance 10, 20, or 30 per cent – and so get the debt relief you need without going bankrupt.

How this differ from the  two options above? The three main advantages are:

  1. You don’t have to negotiate with each creditor separately.
  2. You only need a simple majority of the debts to be in favour, not all of them, to get it accepted.
  3. The creditors have to listen  to you. If they ignore your offer they will be stuck with it, so you will have their attention.

In other words, you will be negotiating a settlement of all you unsecured debts from a position of more-or-less equality with your creditors. We usually don’t think of ourselves as being in that position with the banks and credit card companies, do we?

A proposal also stops all interest charges, halts lawsuits and garnishees, and does not require direct individual negotiations (the trustee handles this for you).

Everyone’s situation is different. To decide what is the best method of dealing with your debt problems, you need expert advice. At Richard Killen & Associates we offer a free assessment consultation, so you will have a clear picture of what your options are.

Five Things You Should Know About Credit Cards

Five Things You Should Know About Credit CardsToo often credit cards seem like easy money. Just hand it over to the clerk or type in the card number for your online purchase and, presto!, you have stuff. But you may pay to play. If you don’t take care of  your credit card balance on time, you can get penalized with late fees and bad credit scores.

While most of us know this on some level, it’s worth the reminder.  Canadians continue to fall further and further into debt, with their love of bank loans, car loans, lines of credit and credit cards leading the way. Last month the average Canadian consumer’s total debt rose $225 to $27,355 according to the latest analysis of credit trends by TransUnion.

So here’s five things you should know about the plastic plunderer in your pocket:

  1. Don’t Live Without Grace: When buying with a credit card you are basically taking out a loan, which means paying interest. Usually the interest is waived if you pay within a “grace” period. Check to see whether your card’s grace period is 30 days, 20 days or one of the lovely “specialty” cards that has no grace period at all.
  2. Minimum Payments Maximum Pain: What’s wrong with just paying the minimum balance cited on your credit card invoice? If you were to figure out how much time and money, in the form of interest payments, you would spend to pay off a balance with minimum payments, you would be staggered.
  3. Never Be Late: Not only does missing the deadline for a credit card payment carry a financial penalty, it may bump up your interest rate and damage your credit rating. Ouch!
  4. Dangers of Juggling: You might be tempted to transfer your balance to a credit card with a lower interest rate. This could be OK if  you pay off the balance during the period the low rate is offered. If not, check the fine print, because you may wind up paying  a higher rate than before.
  5. Doesn’t Advance Your Cause: Doing cash advances with a credit card at an ATM is not a good idea. Not only are you charged a high interest rate there is no grace period. As soon as the money leaves machine, the credit clock is ticking.

Surviving the End of the World

Surviving the End of the WorldThe fear is eating away your stomach lining. You can’t sleep. You can’t concentrate. You feel like a failure in the eyes of the world.

The envelopes of the unopened bills have changed to new ominous colours. The days you could juggle minimum payments between credit cards is coming to an end as you reach your limits. You stop answering the phone calls for fear of bill collectors . . . and then the phone stops working altogether.

Many people come to Toronto Licensed Insolvency Trustees gripped by the worst fear of their lives. They are looking at the end of their world, and who could be complacent in the face of that?

When people arrive at one of our offices for the first time, turning the handle of the front door feels as hard as moving a boulder. What our trustees try to convey at this meeting is that their visitors are not the first to have faced this situation. And while things might be dire, we are no longer a society that sends people to debtor prison. You can take concrete steps to deal with the crisis and begin the trip back to solvency and self-respect.

Of course, not all severe debt problems need to be dealt with by bankruptcy. But let’s assume you must face the worst. Does it mean that your world is over? No, absolutely not. While we cannot wave a magic wand and make everything go away, we can help you manage the process so that the road to recovery is seen clearly and followed sooner.

People ask if they will lose everything they have. No. Contrary to popular belief, you don’t lose all your assets when you go bankrupt. While there might be some things you have to give up, you will probably get to keep your furniture, personal effects, car and business tools.

What will stop the lawsuits and wage garnishees? some ask. A bankruptcy immediately stops anyone from suing or garnisheeing you, even the CRA. Only Family Responsibility Office Garnishees aren’t stopped.

Will my spouse and their property be affected by my bankruptcy? Probably not, except perhaps indirectly.

The above only touches on some of the issues a first free assessment covers. To get a full appraisal you need to come in and move the boulder on our front door. We guarantee that the knob will be a lot easier to turn on the way out.




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    About Richard Killen & Associates


    Since 1992, Richard Killen & Associates, a Licensed Insolvency Trustee, have helped thousands of people resolve their financial problems. With 25 years experience in this industry, our president, Richard Killen, and the rest of our team understand the difficulties that honest people can sometimes find themselves in. This expertise makes it possible to provide you with a service that effectively deals with the issues.


    Serving the GTA for 25 years