Consumer debt is becoming an increasingly serious issue in Canada, with the average non-mortgage debt in the country hovering around the $22,125 mark. Carrying a heavy debt load often creates a higher risk of defaulting on loan obligations. When that happens, Canadians are vulnerable to being hounded by collections agencies, losing their homes, and even having to file for bankruptcy.
Want to know more about loan default? Read this.
In Saskatchewan, the average consumer debt load is $24,217, which is slightly above the national average. While many SK residents are able to keep up with their bills, a debt load that high can easily cause financial distress should there be a job loss, divorce, death in the family, surprise expense, or any other event that can make paying debt payments on time much more difficult.
Even those who are able to keep up with their bills might find it hard to pay down their debt. And those who struggle to even make their monthly payments are often faced with the worst case scenario: bankruptcy.
What is Consumer Debt?
Simply put, consumer debt is the amount of money that consumers owe to their creditors. It’s money that’s been borrowed on credit to finance a variety of different types of purchases for goods that usually don’t appreciate in value. This can include things such as credit card debt, auto loans, student loans, and personal installment loans.
While carrying a reasonable amount of consumer debt can actually be a good thing for the economy and stimulate consumer spending, too much consumer debt can put a great deal of stress on finances and make it more difficult to make payments on time and in full.
If you are able to make all of your payments when they’re due, you might still find that such contributions barely make a dent in your overall debt. In this case, you may want to seek out options to help you pay it down. The longer you hold onto debt, the longer it will take you to achieve financial freedom.
After taking out debt, the goal is to pay it off within a reasonable amount of time. If this isn’t happening, consumers would be well-advised to take measures to reduce their overall debt. If credit counselling and debt settlement options aren’t enough, perhaps bankruptcy may be the only option to alleviate all debt.
Click here to find out how much it costs to declare bankruptcy in Canada.
How Does Bankruptcy Work?
The process of bankruptcy is designed to help consumers eliminate their debt obligations. Consumers who have so much debt that they are unable to make their payments on time may opt to file for bankruptcy. In the province of Saskatchewan, bankruptcy can be filed even with debt as little as $1,000. That said, residents of Saskatchewan must be able to prove that they are unable to make their payments to pay down their debt, despite their best efforts.
Filing for bankruptcy is rather straightforward. All residents have to do is get in touch with a licensed bankruptcy trustee in the province to get the process started. This assigned trustee will set up a trust account, which is used to pay back any creditors that are still owed money from the consumer. Ideally, creditors will receive their full entitled amount. However, many times they are only repaid a portion of what is rightfully owed to them.
Bankruptcy is designed in such a way that it helps alleviate consumers of their debt while treating creditors fairly at the same time. Any assets you possess – including your home and car – are deposited into the established trust account and the trustee pays off your creditors from it.
While the trust account will claim all of your assets, there are certain exemptions in Saskatchewan, including the following:
- Up to $32,000 in home equity
- Home furniture up to $4,500
- Any tools and equipment needed for work up to $4,500
- Medical equipment and devices
- One vehicle necessary for work or business
- RRSPs, minus any contributions made over the past twelve months
Reasons Why Someone Might Need to File for Bankruptcy
Bankruptcy can be a scary thing to consider. But sometimes financial situations are so dire that there are often few other alternatives available. There can be any number of different reasons why SK residents would consider filing for bankruptcy, including the following:
- Only minimum payments are made on credit cards
- Collections calls are frequent
- Bill payments have been missed
- Credit cards are being used to pay for necessities
Whether you lost your job, took a pay cut, suffered a medical emergency, or have found yourself in any other situation that has affected your income and ability to pay your bills, your debt may be mounting with no end in sight. Sometimes the only option to get rid of debt for good is to file for bankruptcy. It should be noted that all other options should be exhausted first before considering this route.
To discover some better options before you decide to file for bankruptcy, look here.
Filing for Bankruptcy vs Filing a Consumer Proposal in Saskatchewan
With bankruptcy, all collection efforts from creditors stops and creditors are usually forced to take less money for the debts that are owed to them. On the other hand, a consumer proposal involves offering creditors a certain amount of money to settle all debts. The proposal is basically an offer to pay creditors a portion of what they are owed or to extend the amount of time needed to pay off the debts, or a combination of the two.
Bankruptcy and consumer proposals are regulated by both the federal Bankruptcy and Insolvency Act and laws of the province. These governing bodies are meant to protect insolvent consumers from being taken to court in order to pay off their debts in full.
One of the biggest differences between bankruptcy and consumer proposals is how they affect your property. With bankruptcy, your home will be factored into the trustee’s calculation of your assets. On the other hand, your home doesn’t have to be sold off in order to gain access to its equity. Instead, you’ll have some time – up to five years – to pay back your creditors while still retaining your home.
How will a consumer proposal affect your credit? Find out here.
Bankruptcy certainly is not an ideal financial situation, but sometimes it may be the only way to be absolved of consumer debt loads. If you’re currently struggling with your debt, we can help connect you with a financial advisor or bankruptcy counsellor to assess your current finances and explore all options available to you.