Posted On: February 24, 2015

After the expense of the holidays, many of us wonder how much debt is too much. Yes, Canadians are used to carrying record debt loads, but there comes a point where the burden may become too heavy.

 Here are 10 danger signs that could reveal your spending is out of control:

1. You are making only minimal payments on your credit card balances as you head towards maxing them out.

2. Even so, you continue to use them for everyday purchases, such as groceries or gas.

3. You are using one credit card to pay off another. The fact that you have more than one or two credit cards is in itself a danger signal.

4. You borrow money to make it from one payday to the next.

5. You miss payments and due dates for bills and loans.

6. Creditors are after you for payment, threaten to sue or repossess your car, furniture or television, or hire a collection agency to recover the money for them.

7. You argue a lot with family about money, or hide your spending habits from them.

8. The size of your debt grows month after month. Or it has grown so large that you are afraid to look at the real total.

9. Extra money earned through overtime, tips or bonuses is relied on as part of your regular monthly income.

10. Thoughts about money and debt crowd out all others and put your life under a cloud.

Although your situation may be dire, it is never hopeless.

If you feel your debt load is becoming too much, come into Richard Killen & Associates for a free assessment. As a federally licensed bankruptcy trustee in Toronto, we can take you through all the possible financial coping strategies – whether it is debt consolidation, negotiating with creditors, a consumer proposal or even a personal bankruptcy – and find out what works best for your particular situation. And you make all the decisions.

After all, we’re talking about your peace of mind, right?

Posted On: February 19, 2015

Divorce in Canada can be complicated when it comes to debt. Divorce can cause bankruptcy and bankruptcy can cause divorce. Study after study show that financial problems can lead to marital breakdown.

Filing for bankruptcy as you go through a divorce, or after, can make both processes more difficult and stressful.

Not off the Hook

If you are separated or divorced and have joint debt, you’re not let off the hook. Both of you are still liable for the money owed. If one of you files for bankruptcy, the creditors can go to the other ex-spouse and try to collect.

If you are in the process of going through a separation, one way of dealing with this is to have both of you take out new loans to pay off your old debt, so each of you know what you owe and aren’t affected by how your ex-spouse deals with the problem.

Of course, if you can’t get the loan and the two of you are overwhelmed by the debt, then you both may be forced to file for bankruptcy or a consumer proposal.

And Even if You Agree . .  .
Your ex might play nice and stipulate in  the separation agreement that he/she will be responsible for the joint debt. Problem solved? Not necessarily.

This agreement  is not binding on the creditor who gave the money in the first place. Unless the creditor actually signs the agreement, too, the court can’t give you a pass on debt that was jointly signed.

So to get such an agreement written into your separation requires the cooperation of your ex and creditor, as well as help from a lawyer.

Courts Like to Play Nice With Each Other
Family and bankruptcy courts tend to respect each other’s decisions and one won’t usually overrule the other. So if a family court order decrees that you sign over your share of the matrimonial home to your ex, the equity transfer isn’t likely to be attacked in bankruptcy court.

Conversely, if you file for bankruptcy, then your non-exempt assets, such as your equity in the house, are vested with the trustee. It is generally taken off the table and not considered in a divorce.

Trust Your Trustee
If you are dealing with joint debts and only one of you is declaring bankruptcy, it’s best to let the trustee know which ones are held in common. If you aren’t sure, get  a copy of your credit report or check with each of your creditors. If you situation is complicated, the trustee may also refer you to a lawyer to help you sort out the legal aspects.

The point is, when divorce and bankruptcy come together, there are a lot of thorny issues you must address. Come in for a free consultation at Richard Killen & Associates, and we’ll set you on the path to emotional and financial healing.

Posted On: February 6, 2015

Apparently you can’t win. Gas prices go down, saving consumers money, but then the commodity-based Canadian economy is hurt by the shortfall in oil revenues, shown in the dropping loonie. You’ll have more money to spend on you next trip to Buffalo but it won’t go as far as before.

While less costly fill-ups are leaving us with more cash, it’s not staying in our pockets as Canadians take on unprecedented levels of debt.

According to a Financial Post  article, the loss of oil revenues will hurt the housing market, which already saddled with “near-record levels of household leverage. . . . Canada’s ratio of household debt to disposable income rose to a record 162.6% between July and September, according to data released last month. Benchmark interest rates of 1% have fanned a house-buying frenzy that sent 2014 sales up 6.7% in Toronto and 16% in Vancouver.”

Then a Globe and Mail article points out: “Oil prices may be crashing and sparking fears of an economic downturn, but Canadian households continue to have few qualms about piling on debt. . . . Household credit grew by an annualized rate of 4.5% in November, a two-year high and the second month of strong gains, to top $1.8-trillion.”

Residential mortgage debt had the biggest jump, leaping 5.2% in November from the same month a year before. Other forms of credit, including credit cards, lines of credit and loans, grew by 3%.

Canadians have been able to service their high debt levels because of relatively low interest rates. But if the country’s unstable economic conditions lead to a spike in interest rates, then the load might become unbearable for many, leading to bankruptcies and other credit problems.

If you have any doubts about your own situation call Richard Killen & Associates and we’ll set up a free consultation to assess everything and review all your options. It is usually a good idea to get ahead of any potential problems that may lie just over the horizon.

Posted On: December 11, 2014

As the outlook gets rosier for the Canadian economy, those in deep dept may pay the price with bankruptcy.

With the U.S. economy expected to undergo a widespread recovery next year, Canada will likely fall suit, with rising interest rates as well. Normally this would be good news. However, Canadians are going into the biggest shopping season of the year staggering under the load of a record $1.51 trillion in debt.

Our debt levels significantly outstrip those of American consumers. Excluding mortgages, our average debt has increased 2.7 per cent to $20,891, a recent article in the Globe and Mail points out.

On the tipping point
Lulled by five years of rock-bottom interest rates, we have taken on mountains of debt. While an improvement in the economy would normally be accompanied by a fall in the number of bankruptcies, our financial situations are so precarious that a small rise in interest rates could have disastrous consequences.

“We might see bankruptcies rising alongside interest rates,” affirms CIBC economist Benjamin Tal in a Huffington Post article.

Holiday hangover
With a frenzied beginning to the holiday buying season – seen in the Canadian embrace of America’s Black Friday madness – all indications are that household debt will go even higher, as December’s credit card bills become due in January.

Homes and cars
Many Canadians have been lured into the housing market with low interest rates, even though house prices have soared in key markets. In Vancouver, for example, the average price of a single-family detached home is now close to, gulp!, $1 million.

Overall there has been a marked increase in mortgage debt that puts many at risk if we see an increase in interest rates.

Auto loans and installment loans have been responsible most of the debt increases, up 6.8 per cent and 5.8 per cent respectively, Equifax Canada points out. Installment loans are loans with fixed monthly payments, which can include loans us for cars, furniture or home renovations.

Not all bad news
While our debt levels have come up, delinquencies and bankruptcies have actually gone down in recent quarters. Perhaps people are more determined to live within their means, or they have become aware of how precarious their situation is.

If after the turkey leftovers are gone, and the bill statement begin to fill your mailbox and email inbox, you feel that your debt situation is getting out of hand, call us at Richard Killen & Associates.

As one of Toronto’s friendliest and most respected Licensed Insolvency Trustees, we’ll sit down with you for a free assessment. We will lay out your options, whether it is taking an amalgamation loan, negotiating with creditors, offering a consumer proposal or going into bankruptcy and starting again with a clean slate.

Let it be a very Happy New Year for everyone.

Posted On: November 10, 2014

Canadians like their stuff. They’re not afraid to go into debt for their new cars, homes, large-screen TVs, and other items, big-ticket and small.  As a result, many of us often ask the question, “Am I in too much debt?”

Moody’s, one of the world’s leading credit agencies,  recently gave Canada an AAA rating for its “relatively solid economic performance” and stable banking system. But at the same time, it warns that the country’s high household debt levels and soaring house prices pose “a potential risk” to those strengths.

Even though debt isn’t usually a good thing, sometimes it can be justified. Rather than simply buying something we can’t afford, debt can be a shrewd way to get ahead if you’re reasonably sure that you will have the means to pay it off.

For example, a graduating lawyer expecting to make $250,000 could probably take on a mortgage and expect to pay it off in a decade, whereas someone freelancing in a shakier industry might find themselves on the road to financial disaster owing this much money.

But how much debt is “too much debt”?

A recent Financial Post article reports:

Statistics Canada says that the average level of household credit market debt to disposable income was 163.6% between April and June. That means we owe almost $1.64 for every $1 that we make. . . . Economists have said that a more stable ratio would be between 110% and 120%. The ratio was closer to those figures in the early 2000s when the economy was on firmer ground, says Cris deRitis, senior director at Moody’s Analytics.

From the bank’s point of view, when you total your monthly debt payments along with heating and taxes for your house, this number should not exceed 40% of your income. Lenders call this the Total Debt Servicing Ratio (TDSR). If you exceed this ratio, then you will have a hard time borrowing money.

When you make out a budget, you can figure out what minimal amount you need to support your lifestyle. Once you know this number, you can figure out how much money you can put towards your debts. If you don’t have enough money left over to pay these, then your debt level is too high.

And keep in mind that the bank doesn’t know this number when they offer you more credit. Just because you’re eligible for increased credit doesn’t mean you can afford it.

Generally speaking, if you’re worried that your debt level is too high, it probably is. The fastest way of all to measure this is the 50% rule. If more than 50% of your income is going to servicing your debt load, your debt is too high. No question about it.

So in the end, if you’re having trouble servicing your debts and would like some help in assessing your prospects and options for dealing with the problem, call us at Richard Killen & Associates. We can help you sort it out and the debt consultation is free.

Posted On: October 9, 2014

Do you have a consumer proposal that you are struggling to pay and you are wondering “What happens if you default on a consumer proposal”? As a rule, it’s not good to default on any kind of debt.

A proposal for an individual – most commonly called a “consumer proposal” – is one of the two ways of addressing a severe debt issue under the Canadian Bankruptcy and Insolvency Act. The other, of course, is bankruptcy.

Using the services of a Licensed Insolvency Trustee, like Richard Killen & Associates, a consumer proposal is a deal that you strike with your creditors to pay back part or all of what you owe, according to your means, either through a lump-sum payment or, more likely, a series of monthly payments. As long as you make the required payments, your creditors can take no action against you.

Once all the payments are made, you are freed from the spectre of your debt.

However, what happens if you miss some of the payments agreed upon in the proposal?

Since the proposal is a legally binding agreement, this would be a serious situation. If you fail to meet the terms of your proposal, especially by missing three months of payments, the consumer proposal is annulled automatically. (You can miss up to two payments without triggering the consumer proposal annulment. The missing payments will be tacked to the end of your term.)

And what happens after a consumer proposal is annulled? Well, your creditors are free to once again start collections and/or take legal proceedings against you. And you may be faced with bankruptcy.

If you start falling behind in your proposal payments and you know that your shifting financial situation is going to make it hard to make them up, then you need to see your trustee and review your situation. You might be able to amend the proposal and solve the problem that way. You might have other options, but you’ll need to see the trustee. He or she can tell you what you need to know.

But fair warning: if you amend your consumer proposal, it will mean that your original one no longer applies. Your amended proposal will have to go through the creditor approval process again, and if your creditors refuse the amended version, you cannot just go back to the original terms.

This is why we at Richard Killen & Associates believe it is critical that we sit down with you at the beginning of the process and work out reasonable terms for a consumer proposal. That is the only way you can have peace of mind knowing that you are getting your financial life back on track – one payment at a time. If you are at the point where you are asking what happens if you default on a consumer proposal, it’s time to talk to a licensed trustee before you default.

Posted On: September 16, 2014

Apparently the wealth gap is growing in this country, as the rich get richer and the poor get poorer.

So says the Broadbent Institute, supporting its case with StatsCan numbers. Canada’s poorest 10%  saw their net worth plummet some 150% since 2005, while the top 10% jumped nearly 42% during the same time, with a median net worth of $2.1 million.

While a growing income gap has been well reported, the wealth gap is an even broader measure, taking  into account all assets, including housing and investment, minus debts.

“Contrary to rosy reports of rising net worth and a post-recession recovery, these new numbers sound the alarm on Canada’s wealth inequality problem,” says Rick Smith, executive director of the Ottawa-based think tank, in a Toronto Star article.

By 2012, the bottom 10%  saw their debts outweigh their assets by $5,100. Seven years earlier, this number was only  $2,000. The bottom 50% of Canadians own just 6% of the wealth, while the bottom 30% own just 1%, the institute says.

Posted On: August 29, 2014

Parents everywhere can breathe a sigh of relief as their kids go back to school. However their happiness at no longer having to keep young ones amused is tempered by the worry of school-related costs: supplies, class trips, clothing, etc.

We feel your pain. Here are some ways to lessen school sticker shock

Take Stock

Usually panicked about the approach of school, parents rush out to buy the things they think their kids need, racking up bills fast and furious.

Take a deep breath and take inventory. What in fact do your kids really need?

Check their closets and clothes drawers. Maybe some of their garments and shoes can be used again. They don’t need umpteen new outfits.

Call their teacher and see what supplies the students will require through the year. Don’t just guess. And again, check what your child already has. Perhaps you’ll find that she has kept notebooks she didn’t use last year.

Make a list and, when you go shopping, stick to it. Don’t make impulse buys.

Go Cheap or Go Home

Of course, look for sales. Don’t be afraid to go to thrift stores, used stores, outlet malls or massive department stores that buy a wide range of items in bulk, reducing price tags.

Do you have friends with kids about he same age? Perhaps they have extras of things you need and vice-versa. Do an exchange. Don’t feel ashamed. There are whole economies built on the barter system.

Speaking of swaps and sales, don’t forget web sources. Besides the usual online retailers there are sites like eBay, Craigslist and Kijiji, where parents can find bargains and do swaps.

If you do go to an online retailer, first google their name and “coupon” to see if there are any savings to be had.

Don’t Get Guilted into Overspending

When shopping don’t get guilted into buying a name brand or the item with the highest price tag. With backpacks, for example, there are a huge number of styles with some at the top end sporting eye-popping price tags. Take a breath, ignore the prices and look for ones that seem sturdy, look nice and will do the job. If among these there’s one for sale at a reasonable price, go for it – proudly.

Procrastination May Work in Your Favour

Perhaps you are already feeling guilty because you should have done your shopping earlier. Rejoice. Waiting a little works in your favour. After getting through the prime sales time of late August, retailers will start putting on sales in September to get rid of inventory. So you can save, save, save.

Also, why buy everything in one shot? Purchase the clothes that your child needs now but don’t buy a school year’s worth. Shop for clothes as the year goes on. That way you can get just what they need, when they need it, and you can keep your eye open for sales.

This way you can spread your pain around.

Posted On: July 25, 2014

If you don’t live in Egypt, being in denial is a bad thing.

Most of us carry some form of debt, whether it’s a car loan or a credit card balance that we just can’t manage to pay off this month. But when does debt load become dangerous?

Well, one sign is when you don’t want to think about it and are kept up nights with stomach-twisting anxiety. The problem scares you so much you put your head in the sand and keep spending as usual.

If you think you have a problem, you probably do. But here are 10 more telling signs that you are sinking too far into a financial morass:

1. You frequently pay bills after their due date, incurring secondary notices and penalty charges.
2. Creditors are calling about unpaid bills.
3. You regularly bounce cheques and overdraw your bank accounts, causing you embarrassment and triggering bank penalties.
4. You use one credit card to pay the balance on the other, or use it to pay other bills or to buy necessities.
5. You pay only the minimum balance on credit card bills.
6. You’ve been denied credit because your debt ratio is too high, or need a co-signor for a loan because you are too much of a risk by yourself.
7. You hit up family and friends for loans to make ends meet.
8. You don’t know how much debt you’re really in, because you’re afraid to hear the number.
9. You hide purchases and debt problems from your family, or you fight a lot with your spouse over debt issues.
10. An unexpected expense, such as a car repair, sends you into panic mode.

Of course, just not thinking about money problems, or running way from them, doesn’t work. They always manage to find you. The best way to deal with them is head on, using the advice of a trusted expert. At Richard Killen & Associates, we can lead you through the appropriate responses to your particular situation, whether it is debt consolidation, a consumer proposal or bankruptcy.

Contact us for a free consultation – it will be the most stress-relieving call you will ever make.

Posted On: June 30, 2014

Death and taxes are inevitable. For some they are the same thing.

Fear of the tax man may be justified. As a creditor he has super collection powers that ensure that most people don’t have a smile on their face when they receive a notice from the Canadian Revenue Agency (CRA).

Among the things the agency can do are charge penalties and interest on all overdue accounts, withhold child tax credits and GST credits, and garnishee your bank account and pay. Without your consent, it can register a lien against your home. And it can take actions without going through a court process, as other creditors are forced to do.

But the news is not all bleak. Some people labour under the misconception that tax debts are not included under a personal bankruptcy. They in fact are, so when you receive your bankruptcy discharge, back taxes are usually included.

This is, if you owe the government less than $200,000 in back taxes. If you owe more in personal income tax debt, representing 75% or more of your total unsecured debts, then you must appear in bankruptcy court to decide if any conditions should apply to your discharge.

If you are undergoing a bankruptcy, then some special handling of your income taxes is required. The trustee will prepare two tax for you during the course of a year. A pre-bankruptcy income tax return must be filed from January 1 to the date of bankruptcy. Then a post-bankruptcy return must be filed from this date to the end of December.

If there are any funds in a return from the post-bankruptcy filing, then they are paid to creditors. Any taxes owed prior to the bankruptcy are discharged. And if there is an amount owing the government on the post-bankruptcy tax return, then it is up to you pay it.

Negotiating the ins and outs of taxes and bankruptcy can be a tricky and delicate process. Consult an expert at Richard Killen & Associates so you can discover your options and keep the tax man off your back.