Hall Law School Alla Zhura, Osgoode Hall Law School. with Elaine Magil, WoodGreen Community

Transcription

1 Services Professionals Debt Management Guide: urce A Resource for Social for Social es Services Professionals Debt Management Guide: By: A Resource for Social Alla Zhura, Osgoode Hall Law School with Services Elaine Magil, WoodGreen Community Professionals Services By: (Resources used include Office of Consumer Affairs, Industry Canada; Office of the Superintendent of Bankruptcy Canada, Industry Canada; Financial Consumer Agency of Canada; and Ministry of Consumer Services, Ontario) Hall Law School Alla Zhura, Osgoode Hall Law School with reen Community Elaine Magil, Services WoodGreen Community Services Office of Consumer (Resources Affairs, used include Industry Office of Consumer Canada; Affairs, Office Industry of the Canada; Office of the ruptcy Canada, Superintendent Industry of Canada; Bankruptcy Financial Canada, Industry Consumer Canada; Financial Agency Consumer of Agency of Consumer Services, Canada; and Ontario) Ministry of Consumer Services, Ontario)

2 TABLE OF CONTENTS Introduction... 3 Personal Steps to Reduce Debt... 4 Making a Budget... 5 Contacting Creditors... 6 Selling Personal Assets and Possessions... 8 Dealing with Collection Agencies... 8 Professional Assistance to Reduce Debt... Credit Counselling... Debt Management Programs... Debt Consolidation Loans... Legal Assistance to Reduce Debt... Consumer Proposal... Bankruptcy Waiting to Respond to Collection Efforts... Conclusion

3 INTRODUCTION Debt and money are a constant concern for many people living on low or based agencies are called upon to inform and counsel clients who struggle with debt. It is crucial that we, on the front lines of this issue, have at least a basic understanding of the debt and collections systems, and of a debtor s options and rights. We are the most trusted source of information for many low-income debtors. Social service providers advice and referrals may have long-term HOW TO USE THIS GUIDE We need to know what we re talking about. This Guide can help. This Debt Management Guide was created to assist volunteers at WoodGreen s groundbreaking Debt Management Clinic, who meet one-on-one with community members to educate them on their options. It is now available for social services staff who want to know how to help clients deal with debt. This Guide provides a comprehensive explanation of the options available to any debtor in Ontario, with practical advice about what may make the most sense for low-income debtors. It starts with a chart outlining options, and later explains these options in detail. Wherever this Guide isn t exhaustive, it will direct you to other sources that may provide further and more detailed information on any given topic. It s wise to check web resources when working with clients on debt management, as policies, amounts, and rights may change from time to time. This Guide is accurate as of March Elaine Magil WoodGreen Community Services March 2012 WoodGreen s Debt Management Clinic and this Guide are made possible by the generous support of our funder, the TD/SEDI Financial Literacy Grant Fund. 3

4 WoodGreen Community Services Personal Steps to Reduce Debt Can you manage repaying this debt on your own? 1. partial or reduced partial repayment or reduced repayment Budgeting... - People with at least some money 6 linguistic barriers in communicating (tracking expenses and ensuring they are within the person s means) ADVANTAGES WoodGreen Community Services Personal Steps Steps to Reduce to Reduce Debt Deb Can you you manage manage repaying repaying this debt on this your debt own? o 1. Budgeting... 6 (tracking expenses expenses and ensuring and they ensuring are within they person s are within means) the person s means) ADVANTAGES - Informal - May not be able - to May achieve not the be able to - achieve Individuals the who usually make most - Ind - Low cost cost desired results in reducing desired debt results in reducing or all of their debt required payments, or a results (contacting creditors - Creditors may be unwilling to accept but - Quick results (contacting creditors - Creditors may be unwilling accept but are temporarily having setbacks) DISADVANTAGES DISADVANTAGES MOST SUITABLE FOR MO - Debtor may feel - anxious Debtor have may feel anxious or have linguistic barriers in available communicating to use towards debt with creditors with creditors repayment - Creditors will retain - Creditors the information will retain the information the debtor provides them debtor with and provides them with and may limit or refuse may future limit credit or refuse future credit based on it - Overall payment - may Overall actually payment be may actually be increased if the repayment increased period if is the repayment period is based on it DISADVANTAGES MOST SUITABLE FOR - Peo ava repa - Informal - May extended not be without able to achieve extended lowering the the without - lowering Individuals the who usually make most - Low cost desired interest results rate in reducing interest debt rate or all of their required payments, Quick results (contacting creditors - Creditors may be unwilling to accept but are temporarily having administrative fees administrative be charged) fees will be charged) partial or reduced repayment setbacks) - Debtor may feel anxious or have - People with at least some money Contacting Creditors Creditors... linguistic barriers in communicating available to use towards debt 7 2. (debtor makes makes special arrangements special arrangements with creditors repayment regarding his/her his/her debt) debt) - Creditors will retain the information Selling Personal Personal Assets and the Assets debtor Possessions provides and them... Possessions with and 9 3. (in (in order order to pay to off pay debt) off debt) may limit or refuse future credit Dealing with with Collection Collection Agencies based on it to Agencies... to 9 4. arrange settlements settlements or payment - Overall payment or plans payment may actually be plans increased if the repayment period is extended without lowering the interest rate 4-5

5 sonal Steps to Reduce Debt Personal 2 Steps to Reduce Personal Debt 2 Steps to Reduce Pers Deb 1. Making a Budget 1. Making a Budget1. Making a Budg obligations exceed his means, it can be helpful obligations to create exceed a budget his (or means, it can be helpful obligations to create exceed a budget his means, (or it can b spending There are plan). many This can budgeting help the person identify spending There areas plan). many of overspending This budgeting can help the person There identify spending are areas plan). many of This overspending budgeting can help the per and possibly put that money towards paying and off possibly their debts. put that money towards paying and off possibly their debts. put that money towards tools available on the tools available on the tools available on the Steps to Follow: internet. Check websites 1) such as OSB Canada, a. What are the person s needs? of Consumer b. Affairs, Steps to Follow: internet. Check websites 1) such as OSB Canada, a. What are the person s needs? of Consumer b. Affairs, Steps to Follow: internet. Check websites such 1) as OSB Canada, a. What are the person s needs? of Consumer b. Affairs, and c. What Canadian is the person s Banker s attitude towards and money? c. Canadian What is the Banker s person s attitude towards and money? Canadian c. What is the Banker s person s attitude to Association. Association. Association. 2) 2) 2) a. This involves setting short-term, mid-term a. and This long-term involves setting goals and short-term, mid-term a. This and involves long-term setting goals short-term and placing them in order of priority. placing them in order of priority. placing them in order of priori b. The goals must be realistic, have a determined b. The time goals frame, must be and realistic, be have a determined b. The goals time must frame, be and realistic, be hav c. Essentially, the three sub steps here are: c. Essentially, the three sub steps here are: c. Essentially, the three sub steps i. Identify the objectives, i. Identify the objectives, i. Identify the objectives, ii. Prioritize the objectives, ii. Prioritize the objectives, ii. Prioritize the objectives, iii. Establish the necessary actions to achieve iii. these Establish objectives. the necessary actions to achieve iii. Establish these objectives. the necessary ac 3) Establish the budget: 3) Establish the budget: 3) Establish the budget: a. The person should plan his/her income and a. The expenses person for should a set plan his/her income a. and The expenses person should for a set plan his/he period of time (can be done daily, weekly or period monthly). of time (can be done daily, weekly period or monthly). of time (can be done da b. It is important that the budget is realistic. b. It is important that the budget is realistic. b. It is important that the budget 4) Track one s expenses: 4) Track one s expenses: 4) Track one s expenses: a. This can be done over a one month period a. (all This expenses, can be done big and over a one month period a. This (all can expenses, be done big over and a one m small) or ideally even longer. b. It may be helpful to keep all receipts. small) or ideally even longer. b. It may be helpful to keep all receipts. small) or ideally even longer. b. It may be helpful to keep all re 5) Compare the budget with the real expenditures: 5) Compare the budget with the real expenditures: 5) Compare the budget with the re 2 a. Any discrepancies should be carefully reviewed a. Any discrepancies and addressed. should be carefully reviewed a. Any discrepancies and addressed. should be c 2 2 For more information see Industry Canada, For more information see Industry Canada, For example, if a budget shows expenses less For than example, income, if a ask budget the shows expenses less For than example, income, if a budget ask the shows client whether they actually end the ic.gc.ca/eic/site/oca-bc.nsf/eng/h_ca02145.html>. month client with whether money left they over. actually end ic.gc.ca/eic/site/oca-bc.nsf/eng/h_ca02145.html>. the month client with whether money they left over. actually e For more information see Industry Canada, ic.gc.ca/eic/site/oca-bc.nsf/eng/h_ca02145.html>

6 Personal Steps to Reduce Debt c. If there are any creditors who have contacted the debtor already in regards to defaults on their payments, the debtor may choose to reality of their situation. d. If there is default on essential services such as hydro, heat, or rent, b. This helps in identifying where the person overspends, and it also helps possible in making service cuts the budget or loss of more their realistic home. and accurate. e. The debtor can try to make new payment arrangements for all 6) Review types the of debts budget except regularly: mortgages, although even these may a. By constantly being aware of the budget the person learns to control 3 < br02049.html#steps>. 4 Supra note 2. 5 < saving-investing/57-managing-money>. 6 online: < eng/ca02155.html>. payment relief period of up to six months There are (deferred many budgeting payment of tools principal). available on the internet. Check websites such as OSB Canada 3 4, and Canadian f. Banker s Association 5. debts, since they will increase faster than others. 2) When contacting creditors by telephone, remind clients to write down the name and contact information of anyone they speak with, as well as 2. any Contacting details about the debt Creditors that the creditor provides (interest rate, balance, status). The debtor may also wish to use registered mail for anything sent via Canada Post, and/or keep receipts or photocopies of Another anything way mailed. to ease debt repayment is by making arrangements with the creditors for one or more of the following: 3) The debtor can offer a proposal based on his/her budget and how much Lower monthly payments Longer time period to make the payments If a client can demonstrate that his/her only source of income is social Lower assistance, rate of for interest example, the creditor may be more able to accept a lower This repayment option is most amount. suitable for individuals who can commit to paying off some a. amount, The budget either can in be a lump-sum used to show or ongoing. the creditors Someone how much with absolutely the debtor no money is able available to pay for until debt his/her shouldn t situation bother improves. contacting It is creditors important because to there s nothing realistic to and arrange. propose If a the payment total debt plan load that and is feasible. the number The creditor of is creditors unlikely that the to person be understanding owes money if to the is excessive, debtor defaults the creditors on his/her may new not be willing payment to make plan. any arrangements and other debt management options (such as those laid out in the rest of this Guide) may be more suitable. b. It is in the creditors interest to negotiate with the debtor since they Steps to really follow: want to recover the money owed to them. However, the 1) First creditors step is to are make not a legally list of the obliged creditors make to contact. any special Reviewing arrangements the budget with may the reveal debtor, which nor are creditors they required need to to be abide contacted by them. in order Their to make ongoing the debt cooperation repayment is more completely manageable. voluntary 6. a. c. If The reducing debtor the should monthly be polite payment but persistent. for a single Creditors debt is will enough, probably it be won t less inclined be necessary to help to if contact the individual all of the is creditors. aggressive. 4) b. If there is a need to contact more than one creditor, the debtor a. could The debtor contact can the prepare creditors a brief to whom summary they of owe his/her the largest telephone amounts of conversation money. This with will the have creditors a greater and impact send on it to the them monthly (by fax budget. or 86 7

7 rsonal Steps to Reduce Personal Debt Steps to Reduce Personal Debt Steps to Reduce Per De c. If there are any creditors who have contacted c. If there are debtor any creditors already in who have contacted c. If there are debtor any already creditors in who h regards to defaults on their payments, the regards debtor to may defaults choose on to their payments, the regards debtor may to defaults choose on to their paym d. If there is default on essential services d. such If there as hydro, is default heat, on or rent, essential services d. such If there as hydro, is default heat, or on rent, essential se possible service cuts or loss of their home. possible service cuts or loss of their home. possible service cuts or loss of th e. The debtor can try to make new payment e. The arrangements debtor can try for to all make new payment e. The arrangements debtor can for try all to make new types of debts except mortgages, although types even of these debts may except mortgages, although types even of these debts may except mortgages payment relief period of up to six months payment relief period of up to six months payment relief period of up to si (deferred payment of principal). (deferred payment of principal). (deferred payment of principal) f. f. f. debts, since they will increase faster than debts, others. since they will increase faster than debts, others. since they will increase fa 2) When contacting creditors by telephone, 2) When remind contacting clients to creditors write down by telephone, 2) remind When contacting clients to write creditors down by telep the name and contact information of anyone the name they speak and contact with, as information well as of anyone the name they speak and contact with, as information well as any details about the debt that the creditor any provides details about (interest the rate, debt that the creditor any provides details (interest about the rate, debt that the c balance, status). The debtor may also wish balance, to use registered status). The mail debtor for may also wish balance, to use registered status). The mail debtor for may als anything sent via Canada Post, and/or keep anything receipts sent or photocopies via Canada Post, of and/or keep anything receipts sent or photocopies via Canada of Post, and anything mailed. anything mailed. anything mailed. 3) The debtor can offer a proposal based on 3) his/her The debtor budget can and offer how a proposal much based on 3) his/her The debtor budget can and offer how a proposal much base 6 If a client can demonstrate that his/her only If a client source can of income demonstrate is social that his/her only If a source client can of income demonstrate is social that his/ assistance, for example, the creditor may assistance, be more able for to example, accept a the lower creditor may be assistance, more able for to example, accept a lower the creditor repayment amount. repayment amount. repayment amount. a. The budget can be used to show the creditors a. The budget how much can be the used debtor show the creditors a. The how budget much can the be used debtor show is able to pay until his/her situation improves. is able It to is pay important until his/her to be situation improves. is able It to is pay important until his/her to be situa realistic and propose a payment plan that realistic feasible. and The propose creditor a payment is plan that realistic feasible. and The propose creditor a payment is unlikely to be understanding if the debtor unlikely defaults to on be his/her understanding new if the debtor unlikely defaults to on be his/her understanding new if payment plan. payment plan. payment plan. b. It is in the creditors interest to negotiate b. with It is in the the debtor creditors since interest they to negotiate b. with It is in the the debtor creditors since interest they to n really want to recover the money owed to really them. want However, to recover the the money owed to really them. want However, to recover the the mone creditors are not legally obliged to make any creditors special are arrangements not legally obliged to make any creditors special are arrangements not legally obliged with the debtor, nor are they required to abide with the by them. debtor, Their nor are they required to abide with the by them. debtor, Their nor are they req ongoing cooperation is completely voluntary ongoing 6. cooperation is completely voluntary ongoing 6. cooperation is complet c. The debtor should be polite but persistent. c. The Creditors debtor will should probably be polite be but persistent. c. The Creditors debtor will should probably be polite be but less inclined to help if the individual is aggressive. less inclined to help if the individual is aggressive. less inclined to help if the indiv 4) 4) 4) a. The debtor can prepare a brief summary a. of The his/her debtor telephone can prepare a brief summary a. of The his/her debtor telephone can prepare a brief su online: < online: < conversation with the creditors and eng/ca02155.html>. send conversation it to them (by with fax or the creditors and eng/ca02155.html>. send conversation it to them (by with fax or the creditors online: < eng/ca02155.html>

8 Personal Steps to Reduce Debt Collectors have a great deal of they accept. Less than 50% of the amount owed is not common, although certainly possible. Because the collectors have such leeway in determining what the settlement amount will be, debtors would be wise to consider their own negotiation skills in this process. Some debtors, for example those with limited English-speaking skills, may wish to enlist the assistance of a trusted ally to help negotiate If an individual a fair and feels manageable that settlement amount. try to determine whether there s been a recent change of address, or whether mail was received but not repayment, by registered either mail). in a lump-sum If the creditors a series do not of honour monthly the payments. commitments As always, they it s made, wise having to document a copy of this the in letter writing of agreement and, if possible, may facilitate enclose a good their faith rectifying payment. the situation. 3) b. The The payments creditor should may offer, be made or the in debtor a manner may that ask for, provides a settlement proof of of a payment debt: the (and creditor never would in cash). reduce the total debt (for example, from 4) $5000 to $4000) on the condition that it s paid with a lump-sum the amount debtor will within be dealing a short only time with frame. that If such agency a proposal when making is agreed arrangements upon, the debtor for payment. should get There the is agreement no need to in contact writing, the stating original the creditor terms as (that this there may create is no outstanding confusion, unless debt due there s and an that error the in debt the is account now in which cleared case with the this debtor creditor). should advise both, the creditor and the c. collection After a settlement agency. payment has been sent, a debtor may wish to check that the information has been accurately updated on his/her Limitations credit report. on the Actions of Creditors and Collection Agencies 5) If, after making the arrangements, the debtor cannot honour his/her part of the agreement, he should contact the creditor as soon as possible include and explain the name the of new the situation. creditor; the amount the creditor claims the debtor owes; and the name of the collection agency and its authority to demand payment on behalf of the creditor. After sending the notice, the agency must wait 6 days before it can contact the debtor in person or by phone. 3. Selling Assets/Possessions The agency cannot continue to contact the individual if: While not always easy to do, selling an asset is one way to alleviate a The individual sends a registered letter to the agency saying that he/she she disputes owns (but the does debt not and owe suggests money the on). matter be taken to court; There The are individual usually no (or costs his/her involved lawyer) in sends selling a most registered assets. letter However, to the the agency debtor providing may incur the costs lawyer s if he/she contact has information to hire a professional and notifying or has the certain agency to communicate only with the lawyer; The individual has told the collection agency s representatives that he/she is not the person they are looking for, unless they take reasonable precautions to ensure the individual is that person. 4. Dealing with Collection Agencies Other Restrictions on the Collection Agencies A collection agency is a person or company hired to obtain or arrange for payment 1) After the of money initial owed contact to between a third party the agency s (creditor). representative If a collection and agency the contacts debtor, the the debtor agency regarding cannot an contact outstanding the debtor debt, more the than following 3 times steps in a may 7 be taken: day period unless it is by regular mail, or they obtain consent of the debtor. Contact means the agents must actually speak with the debtor, 1) If him/her, possible, or the leave payment a voice of mail. the debt If the should debtor be doesn t made answer immediately the phone to avoid and further the agents interest don t charges. leave a The message, agency it doesn t will stop count contacting as a contact. the individual once the account has been cleared. 2) The agency CANNOT: 2) If it is impossible to pay the full amount at once, the debtor should contact a. contact the agency the debtor explain on Sunday, why except and to between offer some the alternative hours of 1 method pm of and 5 pm;

9 ersonal Steps to Reduce Personal Debt Steps to Reduce Debt Personal Steps to Reduce Per De repayment, either in a lump-sum or a series repayment, of monthly either payments. in a lump-sum As or a series repayment, of monthly either payments. in a lump-sum As or a always, it s wise to document this in writing always, and, it s if wise possible, to document enclose a this in writing always, and, if it s possible, wise to enclose document a this in w good faith payment. good faith payment. good faith payment. 3) The payments should be made in a manner 3) The that payments provides should proof be of made in a manner 3) The that payments provides should proof of be made in a m payment (and never in cash). payment (and never in cash). payment (and never in cash). 4) 4) 4) the debtor will be dealing only with that the agency debtor when will be making dealing only with that agency the debtor when will making be dealing only with t arrangements for payment. There is no need arrangements to contact for the payment. original There is no need arrangements to contact the for original payment. There is n creditor as this may create confusion, unless creditor there s as this an error may create in the confusion, account unless creditor there s as an this error may in create the account confusion, in which case the debtor should advise both, in which the creditor case the and debtor the should advise both, in which the creditor case the and debtor the should advis collection agency. collection agency. collection agency. Limitations on the Actions of Creditors Limitations and Collection on the Actions Agencies of Creditors Limitations and Collection on the Actions Agencies of Cred If an individual feels that If an individual feels that If an individual feels that include the name of the creditor; the amount include the the creditor name claims of the creditor; the debtor the amount include the creditor the name claims of the the creditor; debtor the amo owes; try to and determine the name whether of collection agency owes; try and to its determine the authority name of whether to demand collection agency owes; try and and to its determine the authority name of to whether demand collection age payment there s been on behalf a recent of the change creditor. After payment sending there s the on been behalf notice, a recent of the the agency creditor. change must After sending payment there s the on been notice, behalf a recent the of the agency change creditor. must After wait of address, 6 days before whether it can contact mail the debtor wait of in 6 address, person days before by whether it phone. can contact mail the debtor wait in of person 6 address, days before by phone. whether it can contact mail the debt was received but not was received but not was received but not The agency cannot continue to contact the The individual agency cannot if: continue to contact the The individual agency cannot if: continue to contact th The individual sends a registered letter to The the individual agency saying sends that a registered he/she letter to The the agency individual saying sends that a registered he/she lette disputes the debt and suggests the matter disputes be taken the to debt court; and suggests the matter disputes be taken the to court; debt and suggests the ma The individual (or his/her lawyer) sends The a registered individual letter (or to his/her the agency lawyer) sends a The registered individual letter (or to his/her the agency lawyer) sen providing the lawyer s contact information providing and notifying the lawyer s the agency contact to information providing and notifying the lawyer s the agency contact to inform communicate only with the lawyer; communicate only with the lawyer; communicate only with the lawyer; The individual has told the collection agency s The individual representatives has told that the collection he/she agency s The individual representatives has told that the he/she collection is not the person they are looking for, unless is not they person take reasonable they are looking for, unless is not they the take person reasonable they are looking for, precautions to ensure the individual is that precautions person. to ensure the individual is that precautions person. to ensure the individual Other Restrictions on the Collection Other Agencies Restrictions on the Collection Other Agencies Restrictions on the Collecti 1) After the initial contact between the 1) agency s After the representative initial contact and between the the agency s 1) After representative the initial contact and the between the a debtor, the agency cannot contact the debtor, more the than agency 3 times cannot in contact a 7 the debtor debtor, more the than agency 3 times cannot in a 7 contact the day period unless it is by regular mail, or day they period obtain unless consent it is of by the regular debtor. mail, or they day period obtain unless consent it of is by the regular debtor. mail Contact means the agents must actually Contact speak with means the the debtor, agents must actually Contact speak with means the debtor, the agents must actu him/her, or leave a voice mail. If the debtor him/her, doesn t or answer leave a voice the phone mail. and If the debtor him/her, doesn t or answer leave the a voice phone mail. and If the d the agents don t leave a message, it doesn t the count agents as don t a contact. leave a message, it doesn t the count agents as a don t contact. leave a message, it do 2) The agency CANNOT: 2) The agency CANNOT: 2) The agency CANNOT: a. contact the debtor on Sunday, except between a. contact the hours debtor of on 1 pm Sunday, except between a. contact the the hours debtor of 1 on pm Sunday, exc and 5 pm; and 5 pm; and 5 pm;

10 Personal Steps to Reduce Debt If an individual feels that try to determine whether there s been a recent change of address, or whether mail was received but not repayment, b. contact either debtor in a on lump-sum any other or day a series of the of week monthly between payments. the hours As always, of 9 pm it s wise and 7 to am; document this in writing and, if possible, enclose a good faith payment. c. contact the debtor on a statutory holiday; 3) The payments should be made in a manner that provides proof of d. use threatening, profane, intimidating or coercive language; payment (and never in cash). e. use undue, excessive or unreasonable pressure; 4) the f. debtor give false will or be misleading dealing only information with that to agency any person when regarding making the arrangements debtor; for payment. There is no need to contact the original creditor g. recommend as this may to a create creditor confusion, that a legal unless action there s be commenced an error in the against account the in which case the debtor should advise both, the creditor and the collection agency. h. charge extra fees above the outstanding debt which the debtor owes to the creditor and the collection agency is attempting to recover. Limitations on the Actions of Creditors and Collection Agencies 3) In general, a collection agency can contact the debtor s employer once to obtain debtor s employment information. Otherwise, they cannot contact the employer unless: include the name of the creditor; the amount the creditor claims the debtor owes; a. and employer the name has of guaranteed the collection the agency debt; and its authority to demand payment b. the on call behalf is in of respect the creditor. of a court After order sending or wage the assignment notice, the given agency to must a wait 6 days credit before union; it can contact the debtor in person or by phone. c. the debtor provided written authorization to contact his/her employer. The agency cannot continue to contact the individual if: 4) A collection agency cannot contact the debtor s spouse, a member of the The debtor s individual family sends or household, a registered or a letter relative, to the neighbour agency saying or acquaintance that he/she disputes except to the obtain debt the and debtor s suggests address the matter and telephone be taken to number, court; unless: The a. the individual person contacted (or his/her has lawyer) guaranteed sends a the registered debt; letter to the agency providing the lawyer s contact information and notifying the agency to b. the debtor gave permission for the person to be contacted. communicate only with the lawyer; The individual has told the collection agency s representatives that he/she If the collection agency has breached any of the above, the is not the person they are looking for, unless they take reasonable debtor can: precautions to ensure the individual is that person. send the agency a letter outlining why the debtor believes they have acted inappropriately and notifying them that he/she expects them to Other comply Restrictions with the law; on the Collection Agencies 1) After ministry the initial contact between the agency s representative and the debtor, the agency cannot contact the debtor more than 3 times in a 7 day period unless it is by regular mail, or they obtain consent of the debtor. Contact means the agents must actually speak with the debtor, him/her, or leave a voice mail. If the debtor doesn t answer the phone and the agents don t leave a message, it doesn t count as a contact. 2) The agency CANNOT: a. contact the debtor on Sunday, except between the hours of 1 pm and 5 pm; 10

11 oodgreen Community WoodGreen Services Community Services WoodGreen Community Services Professional ssistance Assistance In In Reducing Debt Professional Assistance In Reducing Debt Credit Counselling advice (professional on dealing education with and debt) advice on dealing with debt) ograms Debt Management Programs akes special (when a credit debt counsellor repayment makes special arrangements debt repayment with arrangements creditors with creditors on on behalf of the debtor) 1. Credit Counselling DISADVANTAGES (professional education and advice DISADVANTAGES on dealing with MOST debt) MOST SUITABLE FOR - Counsellor - may achieve better - - Individuals that - Individuals can that can demonstrate an an results than the debtor when ability to make ability the to monthly make the monthly contacting regular creditors expenses plus the arranged regular expenses plus the arranged payments on the payments plan, on the in plan, addition in addition to to - Saves payment the debtor a on lot of debt) time (and payment on debt) paying for their paying regular for their monthly regular monthly possibly - Credit stress) counsellors as the may not have the 2. makes all the phone calls and does all the negotiating debt is a primary debt is or a primary major or issue major issue - Only highly have to make unregulated a single monthly payment - High cost (fees, interest charges) - Credit counsellors may not have bills the and expenses bills and expenses Debt Management Programs... - People who feel - People that who the feel that stress the stress of of 14 highly unregulated (when a credit counsellor makes special debt repayment arrangements with creditors on - High cost (fees, interest charges) behalf of the debtor) - Strict monthly repayment schedules - Strict monthly repayment schedules - Debtor cannot incur other debt - Debtor cannot incur other debt ADVANTAGES - Counsellor may achieve better results than the debtor when ADVANTAGES contacting creditors - Saves the debtor a lot of time (and possibly stress) as the counsellor makes all the phone calls and does payment all the negotiating - Only have to make a single monthly of security on the loan payment DISADVANTAGES - regular expenses plus the arranged payment on debt) highly unregulated - High cost (fees, interest charges) - of Strict credit monthly to ensure repayment the debtor schedules does not - Debtor cannot incur other debt MOST SUITABLE FOR ans Debt Consolidation Loans Individuals that can demonstrate an ability to make the monthly payments on the plan, in addition to paying for their regular monthly bills and expenses DISADVANTAGES DISADVANTAGES MOST MOST SUITABLE FOR - Lower interest rate than credit card debt - No reduction in overall debt (still - No reduction have to in overall debt - (still Individuals have to that - Individuals have that an have an acceptable - All pay creditors the will entire promptly amount be paid in full back over pay time) the entire amount back over time) - Credit counsellors may not have demonstrate the that demonstrate they that will they be will able be able to to - A - chance Financial to maintain institution a good credit rating may not - be Financial as institution may not manage be as the loan manage the loan - Only have to make a single monthly (default on payments may result (default in on payments may result in - Interest on loan may be lower than interest - Debtor otherwise may accruing be required on the debts to give - Debtor some may form be required to give some form of security on the loan - Financial institution may cancel - Financial the institution may cancel the debtor s credit cards and other sources debtor s credit cards and other sources of credit to ensure the debtor does not accumulate any further debt accumulate any further debt - People who feel that the stress of debt is a primary or major issue 11 13

12 Professional Assistance In Reducing Debt 1. Credit Counselling Some agencies offer assistance by providing the debtor with credit counselling services. These agencies may be community based and may not charge for their services, or they may have fees for helping the debtor make a budget and helping him/her get out of debt. Some of these agencies actually do relatively little counselling, and instead engage in administering debt management or debt consolidation plans (described below). Since the agencies often get monetary incentives from the creditors for administering these plans, they have a vested interest in servicing only debtors that qualify for such plans. This means income to qualify for such a plan will not receive any credit counselling. these plans onto their clients, they may not provide the debtors with other viable or even better options, such as bankruptcy or no action at all. 2. Debt Management Programs counselling is rarely free. Before agreeing to work with a credit counselling agency on debt repayment, it is wise understanding of the fees and costs The debtor can register for a debt management plan through a not-forauthorizes a counsellor to speak to creditors on his/her behalf in order to make special arrangements regarding his/her outstanding debt. The counsellor may be able to negotiate a better payment schedule and lower budget. Essentially, the counsellor sets up and administers a debt management plan for the debtor. In most cases, the plan involves the debtor making one regular payment to the agency, and the counsellor then divides the agreed upon amounts among the creditors. The debtor decides, with the help of the counsellor, which creditors the agency contacts on his/her behalf in order to accomplish debt settlement. Once again, the budget is helpful in making this determination

13 Professional Assistance In Reducing Debt Cost of Debt Management Plans Depending on the organization, this service may be free, but in most cases it involves a fee. The fees vary based on the services offered. It may combination of all three. It is best to contact the organization offering these services directly and ask for their fee schedule. Before signing any contracts the debtor should make sure it includes all the services discussed and the exact costs he/she will have to pay. It may be a good idea to shop around for an agency before committing to anything. Main Credit Counselling Agencies Servicing Ontario 1. Credit Counselling Canada (CCC) a. agencies. It provides contact information for agencies throughout Canada. b. Phone: c. Website: 2. Ontario Association of Credit Counselling Services (OACCS) a. agencies. It provides contact information for agencies in Ontario. b. Phone: IN DEBT c. Website: 3. Consolidated Credit Counselling Services of Canada, Inc. a. Toll Free: b. Website: 4. Credit Canada a. Toll Free: b. Website: 5. InCharge Canada a. Phone: b. Website:

14 Professional Assistance In Reducing Debt 3. Debt Consolidation Loans new loan (not all debts can be combined into a consolidation loan, for example a mortgage or a car loan cannot be included). The debtor must then pay off this loan saving money because the interest rate on the loan tends to be lower than other types of debt such as credit cards. The debtor is therefore able to pay off the debt faster, as well. institutions. In order to qualify for a consolidation loan, a consumer usually needs to have an to manage repaying the loan on top of paying for their regular monthly bills and expenses. A debtor may also be more likely to be approved for a consolidation loan from the institution with whom they do most of their banking. A solid banking relationship can be very helpful for a consumer in this situation. Once someone has debts that have gone unpaid for a long period of time or been at reasonable interest rates. Cost of Debt Consolidation Loans It does not cost anything to apply for a loan in order to consolidate all the debts. However, there may be some administrative fees. Arranging a consolidation loan does not cause any additional damage to debtor s credit rating so long as he/she continues to make the monthly payment. Steps to Follow: 1) draw up a complete list of his/her current debts to determine the total amount of the outstanding debt. Though the debtor doesn t have to include all debts, he/she anyways when they check the debtor s credit history). 2) The debtor can try to negotiate a better interest rate on the loan by shopping credit is already somewhat damaged, mainstream banks may not approve the request but other lenders may, at higher rates of interest

15 Professional Assistance In Reducing Debt 3) The debtor should carefully review the terms and conditions of the loan (loan term, interest rate, special conditions, application or service fees, etc.) so that he/she knows exactly how much the loan will end up costing altogether. 4) 5) will pay off the outstanding debts to the creditors. close all other accounts that the debtor has (e.g.: with stores, businesses or credit card issuers), to make sure that the debtor doesn t increase the debts while paying off the consolidation loan. 4. Dealing with Mortgage The Canada Mortgage and Housing Corporation (CMHC) suggests that in ability to make regular mortgage payments (for example job loss or family income reduction), the mortgagee should contact his/her mortgage lender Steps to Follow: 1) Talk to the mortgage professional: a. situation through early intervention, the borrower should call his/ b. The borrower should ask the mortgage professional about 2) situation; and c. Keep the mortgage professional informed as circumstances evolve. a. Before meeting with the mortgage professional, the borrower any credit cards, loans, and household bills with the amounts owing and their due dates, plus information about current income, savings accounts, investments, and any other assets

16 Professional Assistance In Reducing Debt 3) Stay informed: a. The more information the borrower has at his/her disposal on decisions. For mortgages insured by Canada Mortgage and Housing Corporation (CMHC), CMHC provides mortgage professionals with tools and the mortgage in order to protect the borrower from a sudden interest rate increase, should one occur. Offering a temporary short-term payment deferral. The mortgage particularly if previous lump sum prepayments have been made, or if the borrower has previously chosen an accelerated payment schedule. Extending the original repayment period (amortization) in order to lower the monthly mortgage payments. Making a loan last longer means less is owed at each payment. Adding any missed payments (arrears) to the mortgage balance and spreading them over the remaining mortgage repayment period. Offering a special payment arrangement unique to the individual s CMHC is also willing to consider other alternatives proposed by the mortgage professional to resolve or avoid mortgage payment default. In circumstances. A homeowner having trouble making mortgage payments will generally rather than after several payments have been missed

17 oodgreen Community WoodGreen Services Community Services WoodGreen Community Services ce Legal To Assistance Reduce To Reduce Debt Debt Legal Assistance To Reduce Debt 1. creditors to pay off only a portion of the unsecured debt and to be Consumer Proposal (negotiated agreement with creditors to pay off only a portion of the unsecured debt and to be r of the released debt) from the remainder of the debt) DISADVANTAGES DISADVANTAGES MOST MOST SUITABLE FOR - Interest - Debtor on debt cannot stops accumulating choose and which debts - Debtor to cannot be choose which - debts Individual s to be - total Individual s debt total does debt not does not exceed only included part of debt to in creditors the proposal needs to be included in the proposal $250,000, not including $250,000, not including debts debts secured by paid - Debtor cannot eliminate support - Debtor cannot eliminate support their principal their residence principal residence - Debtor and retains alimony all of his/her obligations, assets student and alimony loan obligations, student - Individual loan is - insolvent Individual is insolvent (unable (unable to to make - Actions obligations, against the debtor and by secured unsecured debts such obligations, as a and secured debts payments such as a and payments selling and the selling net the assets net assets creditors, house such mortgage as wage garnishments, and a car loanhouse mortgage and a car loanwould not cover would the not debts) cover the debts) will - Debtor be stoppedmust still pay a portion - Debtor of his/her must still pay a portion - Individual of his/her has - Individual income has to income make to make some - Debtor can solve his/her money outstanding debt payment to the payment creditors the creditors problems - All credit without accounts having to must be cancelled - All credit accounts must be - cancelled Bankruptcy for - Bankruptcy this individual for this individual would declare - Credit Consumer bankruptcy rating reduced Proposal to an... R7 - (as Credit opposed rating reduced to an R7 (as opposed 22 payments, and/or payments, the and/or individual the individual - Credit to rating no effect reduced on to an credit R7 (compared rating) to R9 for a bankrupt) bankruptcy (such bankruptcy as equity (such as equity in a in a house or outstanding debt 1. no effect on credit rating) has assets that has would assets that be would lost be in lost a in a (negotiated agreement with creditors to pay off only a portion of the unsecured debt and to be a car) a car) released from the remainder of the debt) Bankruptcy hich the (a formal debtor legal declares process in which bankruptcy the debtor declares and surrenders bankruptcy and surrenders his/her his/her ruptcy, assets who to then trustee sells in bankruptcy, them and who distributes then sells them and the distributes money the among money among ADVANTAGES the creditors) DISADVANTAGES DISADVANTAGES MOST MOST SUITABLE FOR - The Interest - Expensive debtor on is debt released stops from accumulating the legal and -- Expensive Debtor cannot choose which - Individual debts to be has - - Individual Individual s attempted has total attempted other debt does other debt not debt exceed obligation only - Bankruptcies to repay the debts part of debt to creditors generally he/she had needs to be do not - affect Bankruptcies included the in the generally proposal do not management affect the management options and options has and not has not been at the $250,000, not including debts secured by rights date of of bankruptcy, secured except creditors for (for example rights of secured car creditors (for example car certain paid loans, types mortgages, of debts that are excluded etc) loans, mortgages, etc) - Individual has - Individual - Debtor cannot eliminate support their a large principal has amount a residence large amount of debt of debt - Once - Bankruptcy the debtor is bankrupt, does actions not absolve - the Bankruptcy debtor does not absolve - the Majority debtor of the - Majority debt of is the unsecured debt is unsecured against of alimony him/her by unsecured payments creditors, and spousal of alimony or payments and spousal or - such Debtor retains all of his/her assets and obligations, student loan - is insolvent (unable to make child as wage support garnishments, payments, will be - Individual has - Individual a small has amount a small amount of of assets student child loans, support payments, student loans, stopped that would be that seized would during be seized during bankruptcy - Actions against the debtor by unsecured obligations, and secured debts such as a payments and selling the net assets and debt arising from fraud or misleading and debt arising from fraud - or Individual s misleading - credit Individual s rating credit is rating already is already poor representation representation creditors, such as wage garnishments, house mortgage and a car - loan The potential - adverse The would potential not effects cover adverse the effects of debts) of - Credit rating reduced to R9 (the - Credit worst rating reduced to R9 (the bankruptcyon worst bankruptcyon the individual s the individual s possible) and remains on the credit possible) and remains on the credit spouse and/or spouse family and/or members family members must must be be will report be stopped for at least 6 years from - the report Debtor date for must least still 6 pay years a portion from considered the of date his/her - considered Individual has income to make some of discharge, which will occur at of discharge, least 9 which will occur at least 9 outstanding debt payment to the creditors - Debtor can solve his/her money problems without having to declare bankruptcy - All credit accounts must be cancelled - Bankruptcy for this individual would - Credit rating reduced to an R7 (compared DISADVANTAGES - Credit rating reduced to an R7 (as opposed to no effect on credit rating) MOST SUITABLE FOR payments, and/or the individual has assets that would be lost in a 17 21

18 Legal Assistance To Reduce Debt 1. Consumer Proposals A consumer proposal is a formal procedure governed by the Bankruptcy and Insolvency Act where the debtor works with a trustee in bankruptcy 8 to put together an offer to pay his/her creditors a percentage of what is debtor has to pay off the debt, or a combination of both. Payments are made through the trustee, and the trustee uses that money to pay each of the creditors. The debt must be paid off within 5 years. This option is available to individuals 8 whose total unsecured debts do not exceed $250,000, not including debts secured by their principal residence. A consumer proposal will not allow the debtor to: pick and choose the debts to be included eliminate support and alimony obligations eliminate student loan obligations deal with secured debts, such as a house mortgage and a car loan The unsecured creditors will not be able to take legal steps to recover their debt (such as seizing assets or garnishing wages) unless the proposal is withdrawn, rejected or annulled, or if the administrator is discharged before the proposal was fully performed. Creditors will accept a consumer proposal if they see that they will lose more if the debtor declares bankruptcy. Steps to Follow: 1) Debtor should contact a person who is either a trustee in bankruptcy or a person appointed by the Superintendent of Bankruptcy to administer proposals. This administrator will assess the debtor s 8 The trustee can be found in the Trustee Bankruptcy (OSB), online: eic/site/bsf-osb.nsf/eng/h_br01993.html, or by searching trustee bankruptcy in the Yellow Pages. 9 Not available to businesses. Division I Proposals are available for both individuals and businesses. 10 duties under the Bankruptcy and Insolvency Act. bankruptcies, examines bankrupt people under oath, and chairs meetings of creditors. 2) 8. At that time: a. Debtor stops making payments to his/her unsecured creditors (will still need to make payments on the mortgage, car, and other property that can be repossessed), b. Wage garnishments will stop, c. Lawsuits against the debtor by his/her creditors will be put on hold

19 Legal Assistance To Reduce Debt 3) the proposal is fair and reasonable, and whether the debtor will be able to perform it. 4) At the same time the administrator submits the proposal to the creditors. The administrator will also give them: a. A statement of the debtor s affairs (including a list of assets and liabilities, a list of creditors, information about debtor s personal affairs, and debtor s budget), b. Administrator s report on debtor s personal situation. 5) The creditors have 45 days to accept or reject the proposal, during this time: a. One or more creditors with 25% or more of the outstanding debt can call for a creditor s meeting: i. Each creditor is given votes equal to the dollar value of the debt owed to them. ii. If 50% plus one vote in favour of the proposal, the proposal is accepted and applies to all creditors. b. Any creditors that do not respond will be considered to have accepted the proposal. c. The OSB can also direct the trustee to call a meeting of creditors at any time within this 45-day period. A meeting of creditors will be held within 21 days after being called. d. the proposal, the proposal will be deemed to have been accepted by the creditors, regardless of any objections received. 6) After another 15 days, if none of the creditors try to block the proposal in the courts, then the proposal is considered to have been approved by the court. a. (which are arranged by the trustee). b. Debtor is now responsible for paying either a lump sum or periodic payments to the trustee and adhering to any other conditions in the proposal

20 Legal Assistance To Reduce Debt 7) Note, if the proposal is rejected, the debtor will no longer be protected by the Bankruptcy and Insolvency Act. The administrator will notify 5 days. The creditors will now be able to take legal steps to recover their debts. a. Debtor may choose to make changes to the proposal and resubmit 8) declare bankruptcy. will be legally released from the debts included in the proposal. a. However, if the debtor misses three payments, or if the last payment is more than three months past due, the proposal will be deemed annulled. This means the creditors will be able take action to collect the money owed to them, unless the court has ordered otherwise, or an amendment to the consumer proposal has b. If the proposal is annulled and full debt load is restored, interest will have accumulated at the original rate of interest that applied to each debt. c. An administrator can revive the proposal by providing notice to creditors about a temporary inability to make payment (for example due to an illness or temporary unemployment). Cost of Consumer Proposals The total cost of a consumer proposal is the sum of the payments agreed to in the proposal. The higher the payment and the longer the payment schedule, the more the overall cost. The amount can be paid as a lump sum or in regular instalments over a number of years as set out in the proposal. The payment plan for a consumer proposal cannot exceed 5 years; however, 5 year proposals often end up failing and wind up in bankruptcy. Generally, a manageable consumer proposal with a good chance of success has a term of 3 years or less. Unlike in bankruptcy, a debtor can keep his/her assets so long as the payments are being made to both: a) the trustee as set out in the proposal, and b) other creditors with the right to repossess debtor s property (secured creditors)