In early 2018, many Canadians carried an average of $22,837 in consumer debt, not including mortgages. Unfortunately, data from Equifax, one of Canada’s two credit reporting agencies, shows that consumers in Newfoundland and Labrador are faring a little poorer than the average Canadian. Consumers in this province are carrying slightly higher debt and struggling with a higher rate of delinquencies (payments more than 3 months late) and a higher number of bankruptcies.
Read this to know more about loans, credit, mortgages and financing in Newfoundland and Labrador.
Having some debt isn’t inherently bad. It can even help the economy in certain situations. However, carrying a high amount of personal debt becomes a problem when you can no longer make your payments on time, creditors are harassing you, and the financial stress is negatively affecting your life.
What happens when you can’t make your loan payments on time? Find out here.
What is Consumer Debt?
When you take out loans or purchase items with a credit card or line of credit, you are accruing consumer debt. In some cases, your debt may be secured, requiring collateral. In other cases, it may be unsecured. If you default on secured debts, you might lose the financed item, such as your home or vehicle. When you default on unsecured debt, you may have to deal with the legal repercussions. When the amount of consumer debt becomes overwhelming, you may find yourself considering bankruptcy.
For a more detailed explanation of consumer debt, click here.
Why Do People File for Bankruptcy?
Bankruptcy often comes with a stigma because people assume that those who file for it have been spending recklessly. While lack of budgeting or overspending can lead to financial trouble, this isn’t usually the most common reason for bankruptcy. More often, people find themselves in severe debt because of:
- Reduced or lost income due to health issues or injury
- Unexpected unemployment or salary cuts
- Divorce or separation
- Rising cost of living
In Newfoundland and Labrador, bankruptcies are more common than the national average, perhaps due in part to fewer jobs and lower housing prices. Whatever the reason, bankruptcy in NL is a reality. However, just because you’ve gone bankrupt at one point or another, it doesn’t mean that you are a failure. It does mean that you can begin again with a clean slate and get back on track with your finances.
When Should I Consider Bankruptcy?
- When More Income Isn’t an Option – Sometimes, you can make more money by picking up a second (or third) job or selling off your assets. Perhaps you’ve already done these things and you are still unable to make your payments.
- When You Can’t Scrimp and Save Anymore – Maybe you’ve already been through credit counselling, created a budget, and cut spending in every area, but you are still struggling at the end of the month.
- When Your Credit Debt Level is Rising Constantly – You might find yourself needing to use credit for everyday expenses such as groceries, rent, and utility bills, or using one credit account to pay another, all the while increasing your debt level.
- When You Are Defaulting on Loans – Maybe you are unable to make payments and your interest rates are rising because of unpaid bills.
- When You Are Unable to Manage the Stress Caused by Your Financial Situation – In many cases, looming bills, collection harassment phone calls, money arguments, and constant worry can cause a great deal of stress in relationships and may have a negative impact on your health.
When your debt load seems unmanageable, filing for bankruptcy may be your best option. Bankruptcy may seem daunting and it’s a decision that requires serious consideration, but it can offer a much-needed fresh start for people overwhelmed by their debt.
Still having trouble understanding personal bankruptcy? Check out this video.
Filing for Bankruptcy vs Filing a Consumer Proposal in NL
If you are under financial duress, you’ll want to consider all your options. The earlier you start to deal with your debt, the more options will be open to you. There are several steps you can take to deal with your debt early on, such as negotiating with creditors for lower interest rates or lower payments. If you are still able to obtain credit, you might be able to consolidate your debt into one large loan that requires a single manageable payment, at an interest rate that is a bit lower than you are currently paying.
Did your debt consolidation loan application get denied? Try reading this.
If you’ve tried these other options but you can’t seem to make a difference on your own, your next step could be to hire a credit counsellor to go to bat for you. They might be able to help you negotiate with your creditors through a Debt Management Program or negotiate lump sum payments through a Debt Settlement Plan.
To discover the differences between a debt management plan and a consumer proposal, click here.
If you still need help after exhausting these options, your best bet is to hire a Licensed Insolvency Trustee (LIT) who is professionally trained and regulated by the federal government. A LIT can crunch your numbers with you and help you decide whether to file a Consumer Proposal or file for Bankruptcy.
In Newfoundland and Labrador, bankruptcies and consumer proposals are both legal proceedings that will have a negative impact on your credit score. However, both proceedings are legally binding, will protect you from your creditors through the courts, and will result in positive solutions that will help you reduce or eliminate your debt and start moving forward in a positive direction. There are some key differences between a Consumer Proposal and Bankruptcy:
- Consumer Proposal – You’ll be expected to pay at least a portion of the debt you owe. You will make a regular payment that is consistent throughout the term of your proposal. You will be able to keep your assets. Once your proposal is filed, you will no longer need to provide financial information.
- Bankruptcy – You will be able to eliminate all your unsecured debt. Your payments may vary, depending on your income throughout the bankruptcy period. You may need to surrender some of your assets to the bankruptcy trustee, including tax refunds. You will need to continue to provide financial information throughout the bankruptcy period.
To read more about consumer proposals in Newfoundland and Labrador, click here.
How Does Bankruptcy Work in Newfoundland and Labrador?
In Newfoundland and Labrador, bankruptcy proceedings can begin if you have at least $1000 in unsecured debts and those debts are worth more than the value of your assets. At that point, you are considered insolvent.
To file bankruptcy in NL, you will need to hire a Licensed Insolvency Trustee (also called a Bankruptcy Trustee). He or she will guide you through the process and assist you with:
- gathering necessary documents
- filing the paperwork to begin court proceedings
- arranging credit counselling
- setting up trust accounts and payment schedules
- meeting with you regularly until your bankruptcy is discharged
You will be able to eliminate all unsecured debt including credit cards, lines of credit, personal loans and income tax. You will still be responsible for secured debt such as mortgages, car loans, alimony and child support. However, these will become more manageable when you owe less overall. Talk to your LIT about which debts you can eliminate in your situation. Unless there are extenuating circumstances, bankruptcies are normally discharged in about 9 months.
Want to know what can and can’t be included in a bankruptcy? Find out here.
What Assets are Affected When Declaring Bankruptcy in NL?
Your Insolvency Trustee will help you sort through the rules and regulations when filing bankruptcy, but there are some ballpark figures to help you understand what you are allowed to keep. Each province sets its own exemptions. When you declare bankruptcy in Newfoundland and Labrador, you can keep the following, where the dollar amounts represent equity (the value of the asset minus the amount owing):
- Up to $10,000 of equity in your home
- Enough food and fuel for your family for up to a year
- Clothing for you and your family, up to $4,000
- Household furnishings and appliances up to $4,000
- An automobile up to $2,000
- Medical and dental aids, as needed for your family
- Sentimental items up to $500
- Tools for employment up to $10,000
If you are employed in farming, fishing, and aquaculture in NL, you might be entitled to keep the property you use to earn income up to $10,000.
Want to know what else can and can’t be included in a bankruptcy? Find out here.
Contrary to popular belief, bankruptcy doesn’t necessarily mean you will “lose everything”. In fact, when you are in over your head, bankruptcy might mean you will regain your freedom. If you take it easy with your spending and use credit wisely, you’ll be able to rebuild your credit and control your finances instead of having them control you.