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Are You the Chicago Cubs?
A Consumer Proposal Can Prevent You From Having to Wait a Century to Pay off Your Debt
108 years! That’s how many years passed between World Series victories for the Chicago Cubs. It’s an astonishing number when you consider that someone born in 1916 will have lived 100 years and never seen the Cubs win a world series…until November 3rd of this year. Unreal!
What on earth does this have to do with debt?
Do you have a credit card statement handy? If not, please retrieve one…I’ll wait, promise. Got it? Ok, is there a balance on the card? Great! Now, every statement is a little bit different, but you want to find the spot that explains to you how long it’ll take you to pay off your credit card if you make only minimum payments and never use the card again.
Did you find it? What was the number?
I can’t see your statement, but I’ll bet the explanation went something like this…
You owe $34,536.78, if you make only minimum payments you will pay off your balance in 213 years
Yes, you read that correctly.
I’m going to go out on a limb here and suggest that you’re not going to live another 213 years. I know, you exercise every day and you eat nothing but kale sandwiches topped with organic wheat germ, but I’m just saying…I don’t think you have another couple of centuries left in you. Think about it…the Cubs could win another 2 World Series in that span of time!
You know what’s going on here, right? This is the glory of revolving, high interest payments. Banks make money off of credit cards in many ways. They make money from transactions, they make money from annual/monthly fees (if applicable), and they make a lot of money through interest on balances people carry month to month.
Most people I meet who are struggling with debt understand that the money they’re spending on their debt is effectively paying little or none of the principal amount they owe. However, there are a few folks I meet every month who insist to me that despite all indications otherwise that they can “handle their debt”. When I press people to explain what they mean by “handle” they tell me…
“I’m able to pay the bill every month. I never miss”
Ok, I’ll grant them that. They’re able to pay enough to keep the creditors off their back…but that’s all they’re doing. At this rate, the Cubs will win another World Series before the tiniest dent is placed in the principal of the debt. These people are effectively paying someone to NOT call them. This is money out the window. Instead of saying “I’m able to pay the bill”, people in this situation need to understand that they’re really just paying ransom. They’re paying just enough that the creditors will leave them alone and they can continue to pay for another couple of centuries.
I’m as thrilled as any baseball fan to see the Cubs win a World Series for the first time in 108 years. Hopefully, for the sake of their fans, it won’t be another 108 years until the Cubs win again. In the case of debt, trying to match the Cubs in terms of futility is not an effective debt management strategy.
A carefully structured Consumer Proposal by someone solely looking out for your interest can help significantly lower the debt, remove the interest, and allow you to make manageable payments that will only last for five years maximum, not 213 years.
If you’re currently competing with the Cubs for a new standard in futility, please contact 4 Pillars. We can’t help you win a World Series (well, I can’t…maybe one of the other offices can), but we can get you out of debt and it won’t take 108 years.
Think Bankruptcy is Free? Think Again!
Bankruptcy! Yeah, I know what that is…you get rid of all your debts, you walk away, your creditors get zilch, and you’ll never get a credit card again as long as you live!
Your brother in law has spoken! Case closed.
Well, that is unless you’d actually like to learn about what really happens in a Bankruptcy? There are many facets to a Bankruptcy and the Bankruptcy process. For now, I’m going to discuss what is possibly the most commonly held assumption about Bankruptcy – that it’s Free!
Bankruptcy is NOT Free.
Let me repeat that…
Bankruptcy is NOT Free. Everyone is worth something in a bankruptcy. Sometimes, a person’s value in a Bankruptcy is miniscule. Other times, the value is enormous.
If I had to sum up Bankruptcy in one phrase it would be this: “What’ve you got?”
A personal Bankruptcy is a legal process available to individuals who are insolvent – they are unable to pay their bills as they come due, cannot obtain loans to pay off their debts, and do not possess sufficient income or assets to offset the amounts they owe. They’re legally broke.
A person who goes Bankrupt is essentially signalling to his/her creditors that a fresh start is required, and they’re prepared to disclose all income, assets, liabilities, etc. in order to get out of debt. This comes at a cost.
In a Bankruptcy, income and assets determine what is paid to creditors. Even though the bankrupt individual is legally broke, creditors are still entitled to certain amounts of money. Income and Assets help determine how much is taken.
Income
Under the rules of Bankruptcy, your income is compared to a standard. This standard is determined by the size of your household. Do you live alone? Perhaps you’re married and there are two people in your home? Perhaps you’re married with children…3, 4, or more people in the home. If your income exceeds the standard then you are required to pay a certain amount of the excess to a Trustee in Bankruptcy. The trustee then takes a portion of this money for himself (the Trustee’s Tariff) and the remainder is distributed to creditors.
The more you make, the more the trustee is entitled to take. The more the trustee receives and the more your creditors receive.
Got that?
So, you work overtime and make more money! The trustee can take a portion of that.
You receive a bonus at work! The trustee can take a portion of that.
You receive a tax refund! The trustee takes all of that.
You inherit money! The trustee takes all of it or at least as much as he can until the debt is paid.
As you’ve no doubt realized at this point, going the extra mile to earn more or seeking cash win-falls is not advantageous in a bankruptcy. Why would you work overtime just to pay more money?
How much can these payments be? They can get mighty expensive. A single individual who lives alone and makes $60,000/year will pay approximately $815/month in a Bankruptcy! This lasts for 21 months in the case of a first time Bankruptcy. In that case, 21 months x $815 = $17,115
That’s hardly free…but it gets better…
Assets
The trustee still has to consider assets. Examples of assets include:
In a Bankruptcy, the bankrupt individual’s assets vest with the trustee. That’s a fancy way of saying the trustee is entitled to seize your assets and distribute the proceeds to creditors. An individual who goes bankrupt will either have to turn over assets, or ‘settle’ on the assets by providing an acceptable amount of cash to creditors.
Let’s stick with our example above, the single guy who makes $60,000/year and has to pay $815/month. If this guy has $5,000 in mutual funds and made $1200 worth of contributions to his RRSP over the last year, he now has to fork over $6,200.
$17,115 + $6,200 = $23,315
This individual will pay $23,315 in a Bankruptcy.
Now, the good news is that if this guy owed $75,000, he now only owes $23,315. This is obviously much lower than $75,000. However, $23,315 is a far cry from “Free”. Moreover, the monthly payments of $815 are still very high as they represent approximately 22% of his income. It’s no wonder that many people who enter into a Bankruptcy find themselves remaining in Bankruptcy several months after their 21 month term has expired.
Sometimes, a Bankruptcy is the best option. Every year, many individuals will find themselves in a situation where their debt is so immense, there is no other option but to take the Bankruptcy route. However, there are many situations where a carefully structured Consumer Proposal done with the debtors interests as the priority is a more reasonable, palatable, and feasible option. In either case, 4 Pillars can help clients determine which option works best for them, and we can work with clients to ensure they pay only what’s required and avoid pitfalls that would result in them having to pay more.
Oh…and you can also get a credit after going Bankrupt…it just takes some time. 4 Pillars can help with that as well.
Who does your taxes?
While there are a few folks who take the time to complete their tax returns all by themselves, most people opt to use an accountant. I certainly don’t blame them. Tax preparation is often more art than science, and having an amateur or passerby complete your taxes will at best produce lousy art – at worst, the result will be a complete disaster.
An astute accountant will actively seek out ways to minimize his client’s tax burden. This requires a shrewd understanding of the tax code and how it relates to the client’s unique situation. The accountant can’t lie, cheat, or steal, mind you. The creativity inherent in tax preparation comes from being able to work within the boundaries set out by the tax code, all the while looking for advantages and opportunities to reduce taxes owed. By acting as intermediaries between the client and CRA, accountants help their clients achieve optimal results.
I like the tax preparation scenario because I believe Debt Consultants have to take a similar approach to reducing debt. I’m often asked whether there is an advantage to working with a Debt Consultant. It’s easy to assume that a Debt Consultant is simply shuffling a few papers and sending clients off to a Licensed Insolvency Trustee (LIT) to have a Consumer Proposal or Bankruptcy filed.
The role of a true intermediary is not even close to that!
Imagine for a moment if CRA offered to complete your taxes for free. Would you accept their generous offer? If you haven’t completely recoiled in horror at this point, then it’s possible you’re frozen with fear. I don’t think I’ve ever met anyone who answered that last question in the affirmative, and the reason should be obvious. Simply put, CRA does not Act, Advise, or Advocate on your behalf. If CRA completed your taxes the aforementioned creative side of tax preparation would disappear. CRA would not look for applicable write offs, deductions, or deferrals. At best, CRA would look to minimize the amount of work required to complete your tax return, and a garden variety return would be the result. At worst, CRA would look to have you pay more tax. This isn’t the result of malice or hostility towards the client. Who has time for that? CRA simply has no incentive or obligation to help someone find ways to reduce their tax burden.
With Debt Restructuring, having an intermediary work on your behalf to structure a consumer proposal and carefully select the LIT can work in the same way as your accountant working as an intermediary between you and CRA. LIT’s are professionals who provide a very necessary and important service and are integral in the debt restructuring process. They’re the reason the Bankruptcy and Insolvency Act (BIA) is able to function properly. That being said, LIT’s do not exist to Act, Advise, or Advocate on behalf of the debtor and have a conflict if interest if they do so, the introduction of an intermediary helps remove this conflict by working solely for the debtor.
Debt Consultants, by acting as intermediaries, work within the boundaries of the BIA to find advantages for their clients. There are all kinds of ways to help clients save money – too many to mention here actually. However, a consultant will look at a client’s income, assets, living arrangements, budget, etc. in order to find ways to provide clients with the best arrangement possible. Like Accountants, Debt Consultants are incentivized to achieve optimal results for their clients. By working with an intermediary clients receive advice and guidance that is presented with their best interests in mind. We believe such advice is invaluable and unavailable elsewhere in the market.
When it comes to restructuring debt, intermediaries have a unique position as they are able to act solely in the interests of the debtor and can provide ongoing financial rehabilitation programs to help rebuild credit and make sure a debt plan brings long term financial goals closer vs push them further away.
All 4 Pillars offices provide a free 1-hour information session, educating you about all the options available; Learn more about how to deal with overwhelming debt and bankruptcy alternatives.
These sessions can happen in your local 4 Pillars office (we have offices across Canada) or via skype or telephone.
4 Pillars fees are very reasonable and affordable. The fee will be determined by the complexities of your particular situation. You can rest assured that in your free consultation you will be fully informed as to the total fee and what services the fee includes.
Different restructuring options have different effects on your credit rating. As a general rule, any time you settle your debts at less than 100 cents on the dollar or you do not pay back the debts on the original terms and conditions, it will have a negative effect on your credit rating
Making the decision to restructure can be a difficult one for some people and it is important to understand both the benefits and implications of doing so.
Restructuring can significantly reduce the debt owed and vastly reduce your monthly payments by removing the financial pressure you face. It will also allow you to repay debt which you probably feel you will never repay. You need to look at dealing with debt as part of your long-term plan and calculate the cost of servicing the debt you have. Is it stopping you from contributing to your children’s RESP’s or your own RSP’s? Is the debt being paid down aggressively or will it be carried out for years before ever being paid off? If you choose to deal with your debt and stop living paycheque to paycheque, the trade-off is you will take a hit on your credit rating. But with the proper plan, this can be minimized and the short-term hit is often worth it, as it allows you to actually meet your long-term financial goals and reduces the constant stress you feel from the debt you carry.
This largely depends on the type of restructuring used. If you file a Bankruptcy, then you cannot obtain or have any credit during this process. In other restructuring options, you can keep the credit card if it has a zero balance
We are committed to protecting your privacy. Our privacy policy provides an overview of how we collect, use and disclose the personal information of our clients. “Personal Information” means any information about an identifiable individual. We recognize the importance of privacy and the sensitivity of personal information received by us in the course of our business. This policy has been developed with those obligations in mind.
Our Need for Personal Information
In order to be able to assist our clients, we need access to all relevant facts and information that relate to the financial situation of our clients. This information will necessarily include personal information about our clients and about individuals other than our clients.
Consent
We do not, except where otherwise permitted by law, collect, use or disclose personal information unless the client is aware of the purposes for which the information will be used or disclosed, and has given his or her consent to such use or disclosure.
Collection
Where practical, we endeavor to collect personal information directly from the person to whom the information relates. When necessary, we will collect personal information from other sources. We limit our collection of personal information to include only what is necessary to assist our clients. In the course of providing services to you we will be required, in certain circumstances, to obtain information or assets from third parties, for example credit checking organizations.
Use and Disclosure
We limit our use of personal information to those purposes which have been disclosed to our clients, or for purposes which are otherwise permitted by law. We use and disclose personal information in compliance with all applicable federal and provincial privacy legislation.
Specifically, we use and disclose personal information in the following circumstances:
If we discuss an informal proposal with some or all of your creditors and collection agencies, we may disclose certain personal and financial information to your creditors and collection agencies. We will disclose to each creditor or collection agency only as much information as is needed to perform our services.
If you decide to enter into a formal proposal with the assistance of a licensed Trustee, we will provide certain documents containing personal and financial information to the Trustee. The Trustee will file this information with the Office of the Superintendent of Bankruptcy, a federal government agency, to initiate protection for you under the Bankruptcy and Insolvency Act (the “Act”). It will be necessary to notify your creditors of your legal status as a debtor under the provisions of the Act. They will also have access to certain documents, including your Statement of Affairs.
Your personal information may be shared among the InSync Financial Group of Companies including but not limited to eCreditBuilder, Credence Financial Services and CreditPoint Mortgage. This will always be done with your consent.
Security of Personal Information
We recognize our obligation to protect the confidential information of our clients. We recognize as well our obligation to protect the personal information we have gathered about our clients and about other individuals as part of providing our services. We have therefore made arrangements to secure against the unauthorized access, collection, use, disclosure, copying, modification, disposal or destruction of personal information.
Accuracy and Access
When working with clients we highlight the importance of providing us with accurate and complete information. Our clients can always access the personal information they provide us in compliance with relevant privacy laws.
Retention
We retain your personal information as long as necessary to provide the services that you require and in accordance with relevant legislation.
On-line Privacy
By using our Website or related services, you consent to the collection, use and disclosure of your personal information in accordance with this Privacy Policy. In addition, to any information the consumer may provide cookies may also be collected. “Cookies” are small text files offered to a user’s computer by web servers in order to keep track of the user’s browser as a website is navigated.
Contacting or Communicating with Us
If you have any questions with respect to our policies concerning the handling of your personal information, or if you wish to request access to, or correction of, your personal information under our care and control, please contact our Privacy Officer at:
4 Pillars Consulting Group Inc.
2300 – 2850 Shaughnessey St.
Port Coquitlam , BC V3C 6K5
Attention: Privacy Officer
If you are dissatisfied with our handling of your personal information, we invite you to contact our Privacy Officer in writing, setting out the reasons for your concern.
Changes to this Privacy Policy
We reserve the right to modify this Privacy Policy at anytime without notice. The Privacy Policy posted at any time or from time to time via this website shall be deemed to be the Privacy Policy then in effect.
Last revised: May 01, 2012