COVID Debt Solutions

May 1, 2020

The great COVID lockdown has presented all of us with many challenges – some familiar and some very novel.  Federal and Provincial Governments have enacted Laws, Rules and Regulations designed to address the health and financial problems that Canadians are facing.

Insolvency services have been deemed to be essential services and Licensed Insolvency Trustees (“LITs”) have been encouraged to continue to offer services while respecting physical distancing regulations.  We are able to use a combination of telecom and internet services to be able to service clients.

A number of programmes have been implemented to absorb the economic shock including the CERB, CEWS and a series of other payment deferral regimes.   Unfortunately, there is no “gatekeeper” on application, and we have heard of instances of people receiving benefits they were not properly entitled to.  For many poor people this may seem helpful, at least until they file their 2020 income tax returns and find they have to pay taxes on the money received and must also repay the amounts they received that they ought not to have had.

Our advice – talk to an accountant, make sure that you properly qualify before applying, read the fine print, the whole document, on government websites.  Try to make it through without assistance if you can.  Some people are receiving additional benefits even when their financial situation has been unchanged – bonus HST and CCB payments, money for unemployed students, and the easily available CERB.

Landlords are (temporarily) unable to evict tenants for non-payment of rent, but that is not the same as having “free rent” – if your finances haven’t changed pay your rent, if they have changed try to work out an alternative arrangement with your landlord.  Not paying rent means creating a bigger debt for the future. Even paying a lesser amount for the short term with a longer term plan for making up the difference is advisable.

Mortgage deferrals involve pushing off the principal amount of the payment until a later date.  The principal will continue to accrue interest over the life of your mortgage.  As with deferring rent payments this should be a last resort and not the first thing you do.  Deferring mortgage payments also means increasing your debt in the long run.

Budget smarter, many people have been forced to reduce unnecessary, impulse, spending.  Credit card spending is actually trending downward.  But stay the course – you have already found out that you don’t need to eat out as much and that you don’t need a lot of the stuff that you want.

If you must miss any payments miss them on non-essentials first.  Skipping a few payments on credit cards will not hurt your credit rating if you talk to the lender.  If you simply can’t pay all of your bills pay the important stuff first, rent/mortgage, utility accounts, food and groceries and prioritize necessary secured creditors over non-essential ones and unsecured creditors such as credit cards and lines of credit.

If you had to file a proposal or bankruptcy what would you need to keep?  Usually the answer is “house and car”, other assets such as recreational equipment are far less important.  You can keep assets that have been pledged as security for loans when you file for bankruptcy, but you must maintain payments.  A significant number of bankrupts keep their homes and their cars, most are O.K.  with saying goodbye to the boat or RV right along with the payments.

Filing for bankruptcy at a time when you know you will have an extended period of low income avoids the payment of surplus income which can extend the duration and cost of bankruptcy.  Proposal payments are always, or more accurately should always be, predicated on the recoveries available to creditors under a bankruptcy (liquidation).  That said, if you are making a proposal to your creditors at a time when you have low and uncertain income you are more likely to be able to negotiate a more favourable payment regimen than at a time when your income is more stable and established at a higher level.

Avoid self-liquidation, cashing out RSPs and insurance policies to repay debts, the longer-term implications can be severe.  You can go bankrupt and keep many of your investment assets for your retirement and future security.  Before you do cash in your investments talk to a LIT and explore all of your options. 519-646-2222