Debt FAQ

No, your credit card company needs your permission, either verbally or in writing, before increasing your credit limit. If you agree verbally to an increase, your credit card company will confirm the change in writing before your next credit card statement.

There is no right answer to this question. If you are paying off your balance in full every month and are aware of the risks of adding more credit card debt, you can have as many credit cards as you like. Having at least two credit cards can be useful, however, especially if one card doesn’t work when you really need one. But with more than two or three credit cards, you need to ensure you have responsible repayment habits.

Sometimes, when you realize the dangers and risks associated with credit card debt, you may want to eliminate the temptation altogether and close your credit card account. But your credit cards are often the oldest accounts in your credit report. If you close the account, you risk deleting a substantial part of your credit history. The best course of action would be to find ways to avoid using your credit card, like keeping it in a safe spot that is less accessible than your wallet, or to continue using the card, but only for monthly automated payments.

When you receive an offer for a new credit card, it can be tempting to add another card to your wallet, even if you don’t really need it. First, you need to be aware of the risks associated with credit card debt. Second, ask yourself what do you plan on doing with your credit over the next three to six months? If you have major purchases planned, try to put unnecessary credit applications on hold, as they may lower your credit score.

Deciding whether or not to increase your credit limit depends on your own personal situation. If you’re frequently carrying a balance on your credit card and are only paying the minimum payment, a higher limit could entice you into adding more debt. However, if you want to improve your credit score and plan on reducing your credit card balance, a higher limit can improve your credit utilization ratio and come in handy if ever you run into an emergency.

When you miss a payment, you’re in breach of your contract with the credit card company. If you can, call your financial institution in advance and agree on an alternative payment schedule. If you miss a payment without notifying your credit card company, you risk damaging your credit score and facing a higher interest rate—often an increase of 5%.

Most financial institutions won’t allow you to pay your credit card balance with another credit card. It is possible to take a cash advance from one credit card to make a payment on another credit card, but this is an expensive transaction and will leave you further in debt.

When you take out a cash advance on your credit card, you are withdrawing money from the credit limit on your credit card. Cash advances carry higher interest rates than credit card purchases, often around 25%. There may also be cash advance fees, ranging from 3–5%, and there is no grace period, which means interest starts accruing from the date you withdraw the funds.

You may qualify for a debt consolidation loan if you have a job or a source of income to allow you to repay it. But keep in mind that qualifying for a debt consolidation loan might not be possible for everybody. A bank will take into account your total debt load, percentage of credit used, and your history of making minimum payments. Depending on how you rank in these categories, your credit score may already be impaired, which would prevent you from qualifying. But this is still only one of many debt relief options.

No. With a debt management plan, you pay the credit counsellor who negotiates with your creditors to reduce the interest rate on your debts and then distributes payments to your creditors on your behalf. With a debt consolidation loan, you pay the bank directly at a lowered interest rate.

Through debt consolidation, you can lower your monthly credit payments by making one payment to your bank at a lowered interest rate, instead of multiple. Make sure that the interest rate on your newly consolidated loan is lower than your other debts. If you don’t qualify for a debt consolidation loan, contact a BDO Licensed Insolvency Trustee who will take the time to explain all of your debt relief options so you can choose the best course of action for paying off your debts.

You might be eligible to enter into an agreement with the Canada Revenue Agency (CRA) to make a payment arrangement, which would allow you to make smaller payments to them over time until you have paid your entire debt. To learn more about this process, visit the Canada Revenue Agency website.

If you don’t pay your taxes, depending on your case, the CRA can take a number of measures against you including a wage garnishment, seizing your bank accounts, registering on your home and seizing or selling your other assets. If you are having a hard time repaying your tax debt, a BDO Licensed Insolvency Trustee can negotiate with the CRA on your behalf to create an affordable repayment plan and stop any legal action taken against you. Request a call today.

You can check online with your province’s regulations on the payday loan industry for a breakdown of your rights. But, if you’re finding yourself in a never-ending payment cycle, contact one of our Licensed Insolvency Trustees who will walk you through your options to paying off a payday loan. Request a call by filling out our online form.

In Alberta, Saskatchewan, and British Columbia, you can be charged up to a maximum of $23 per $100 borrowed. In Ontario, it is a maximum of $21 per $100 borrowed. In Manitoba, you can be charged a maximum $17 per $100 borrowed. In Nova Scotia, it costs $22 per $100 dollars borrowed. In the provinces of Newfoundland and Labrador and New Brunswick, no provincial regulations have been set as of yet, so the restriction is up to the federal government’s cap of 60 per cent interest on a payday loan per year.

To verify your last date of study, contact your federal and provincial loan providers. For Canada Student Loans, you can call 1-888-815-4514.

Student loans generally have better interest rates than most debt consolidation loans, so it might not make sense to consolidate student loan debt. However, if you have other forms of high-interest debt, a debt consolidation loan is always a good option to consider. 

Failing to make your student loan payments will have a negative effect on your credit score. Both Canada Student loans and private lenders will report late payments to the credit bureaus.  

If you don’t make the required loan repayment on student lines of credit or credit cards, the bank can apply to the court to garnish your wages. Both federal and provincial governments also have the power to take your tax refunds and garnish your wages.  

If you’re having trouble keeping up with your Canada Student Loans you can apply for a revision of terms, which will allow you to lower your monthly payment and extend the length of time it will take to repay your loan up to a maximum of 15 years. You can also see if you qualify for income-based repayment adjustments through the federal Repayment Assistance Program.

For government-sponsored student loans, you must wait at least seven years after completing your studies before you can apply for a debt forgiveness program, like a consumer proposal or bankruptcy. After this waiting period, a Licensed Insolvency Trustee may renegotiate or eliminate your student loan debt. Private student loans issued by a bank, however, like student lines of credit or student credit cards, can be forgiven at any point and are treated like any other type of unsecured debt.

In certain situations, a bankruptcy can eliminate your student loans before the seven-year waiting period by applying for the financial hardship provision. If approved, your student loans can be discharged five years after the completion of your studies. Your Licensed Insolvency Trustee can help you determine your eligibility.

Unlike government-sponsored student loans that give you a grace period before you need to make payments, private loans issued by a bank require that you pay the interest charges every month.

Student loan debt can only be included in a consumer proposal if you have been out of school for longer than seven years. Otherwise, you will still be responsible for student loan payments if you file a consumer proposal.

Unfortunately, you cannot use a consumer proposal to reduce your mortgage or car loan debt obligations. These are considered secured debts, meaning your creditors can repossess your home or car if you are unable to make payments. If you file a consumer proposal to pay off your unsecured debts, you will need to continue to make payments on your mortgage and car loan, or else you would run the risk of having your home or car repossessed. If your car and mortgage payments are in good standing, however, they will not be affected by a consumer proposal. All your possessions and belongings, including your car and home, are protected from your creditors when you file a consumer proposal. And by using a consumer proposal to consolidate and pay off all your unsecured debts, you might find it easier to continue making car and mortgage payments. Your LIT will work with you to determine a budget that allows you to meet all your obligations.

In this example, a woman named Mary is carrying $25,000 in credit card debt. She files a consumer proposal, and a Licensed Insolvency Trustee negotiates with her creditors so that she only must repay 60 per cent of her debt, or $15,000, over a period of five years. Here’s how her consumer proposal compares to other debt relief solutions: 

	Mary’s Consumer Proposal	Credit Counselling	Debt Consolidation Loan	“Do-it-yourself” Budgeting
Monthly   payment	$250	$458.88	$734.67	$994.34
Terms	Pay back 60% of original amount owed	Pay back debt in full with no interest, plus a “fair share fee” equal to 10% of debt	Pay debt in full at 12% interest, compounded annually	Pay back debt in full at 19% interest, compounded annually
Repayment  period	Five years	Five years	Five years	Five years

 

While the exact length would depend on your individual circumstances, a consumer proposal cannot last more than five years.

If you choose to file a consumer proposal, there are a few terms that you’ll agree to. Once your LIT negotiates with your creditors to repay a portion of your debt, you would enter into a proposal with a fixed monthly payment over a set period of time—usually between three and five years. You must make that same monthly payment to your LIT every month for the duration of the proposal. Your LIT will then distribute the money to your creditors as set out in the proposal.

With a consumer proposal, you only make one equal monthly payment every month. Any fees you would pay are included in the monthly payment you make to your LIT.

If you file a consumer proposal (or file for bankruptcy), your co-signer will be responsible for repaying these debts; the debt will not be eliminated unless you file a joint consumer proposal.

You must work with your LIT to make all of your monthly payments. If you miss three monthly payments, your consumer proposal will be cancelled. It may be possible to file an amended proposal before this happens, but if an amended proposal is not accepted by your creditors, your debts will not be discharged. You also won’t be able to file another consumer proposal for those debts and might have to consider filing for bankruptcy.

When you file a consumer proposal, you will need to hand over your credit cards to your LIT. You won’t be able to apply for a new credit card while you’re making payments on your proposal—unless it’s a prepaid or secured credit card.

When you file a consumer proposal, you will receive an R7 rating, which shows you have made a settlement with your creditors. This rating will stay on your credit report for three years after your proposal has been completed. Learn more about how a consumer proposal affects your credit.

Any form of unsecured debt (debt that is not backed, or secured, by an asset you own—like how a mortgage loan is secured by your house) can be included in a consumer proposal. Types of unsecured debt include: 

• Credit cards 

• Lines of credit 

• Personal loans 

• Payday loans 

• Income taxes 

While both a consumer proposal and a bankruptcy can give you a fresh financial start, there are a few key differences, as follows:  

1. When you a file a consumer proposal, you cannot have more than $250,000 in debt. There is no maximum when you file for bankruptcy. 

2. With a consumer proposal, you will pay the same amount to your Licensed Insolvency Trustee (LIT) every month; in bankruptcy, the monthly amount you pay can vary based on your surplus income. 

3. Most importantly, when you file a consumer proposal, you will not lose any of your assets. By filing bankruptcy, some of your assets will likely be sold to repay a portion of the debt owed to your creditors.

Yes. Once your consumer proposal has been filled, collection agencies are not allowed to contact you.

Yes. Once you file a consumer proposal, all legal action against you, including wage garnishments, will cease.

No, you will not. When you file a consumer proposal, all your assets are protected from your unsecured creditors. If you own a home or a car, you will need to continue to make payments on your mortgage or car loan in order to keep them, as these debts cannot be included in a consumer proposal

If you file a consumer proposal, it will not go on your spouse’s credit report. However, if you have joint debts, your spouse could be held responsible for the entire debt after you file a consumer proposal. Learn more about when you may or may not be responsible for your spouse’s debt.

Filing for bankruptcy is usually only considered after all other debt solutions have been ruled out. Many people are able to resolve their debt problems with alternative solutions, such as a consumer proposal. A Licensed Insolvency Trustee will carefully review your situation and explain all available debt relief options to help find the best solution available to you.

There are some debts that cannot be forgiven through bankruptcy. Even if you file for bankruptcy, you will still be responsible for the following debts: 

• Mortgage 

• Secured loans such as a car loan 

• Spousal or child support payments 

• Alimony 

• A debt arising out of fraud 

• Any court-imposed fines and penalties including traffic and parking tickets 

• Student loans if you have not been out of school for seven years 

• Restitution orders 

• In some instances, gambling debts 

While these debts cannot be included in a bankruptcy filing, bankruptcy can alleviate the stress caused by your unsecured debts and may make it easier to keep up with your secured debt payments.

Filing for bankruptcy automatically eliminates student loan debt if you have been out of school for at least seven years. If you have attended school in the last seven years you may still be able to eliminate those debts under hardship provisions. A Licensed Insolvency Trustee can explain all your options for dealing with student debt. Learn more about student loans and bankruptcy here. 

When you file for bankruptcy, you must hand over your credit cards to your LIT. An LIT will also explain credit rebuilding strategies and programs to you. You can apply for a credit card after you’re discharged from bankruptcy and will likely need to start with a secured credit card, where you would pay a deposit to guarantee your credit limit. 
 
Using a credit card responsibly is one of the most effective ways to rebuild your credit score. If you obtain a secured credit card, use it to charge a few reasonable amounts, and pay off the balance in full and on time each month, you're establishing that you're a responsible borrower.

Your home is likely your most valued possession and worrying about your home and your family is a common fear when discussing bankruptcy. Most provinces have exemptions that allow you to keep some of the equity in your home when you file for bankruptcy, however, if you’ve already paid off a large portion of your mortgage (i.e., you have built up equity in your home), filing for bankruptcy might not be the best solution for you. Bankruptcy law requires you to use that equity to pay off some of the money you owe to your creditors. 

To keep your home when filing a bankruptcy, you would need to pay a Licensed Insolvency Trustee (LIT) the amount of equity you have in your home, minus any provincial exemptions. Home equity is calculated by subtracting the remaining amount of your mortgage, along with any outstanding taxes you owe, from what your house is currently worth on the market.

Your discharge could be opposed by a creditor, an LIT, or the Superintendent of Bankruptcy. Generally, a bankruptcy discharge is opposed when the debtor has not fulfilled the requirements of the bankruptcy process. This might be due to: 

• Not making the required monthly payments  

• Failing to attend two mandatory credit counselling sessions 

• Committing an offence related to the bankruptcy claim 

There are a few other reasons why a bankruptcy claim could be opposed. For instance, if the bankruptcy was caused by gambling or a creditor suspects fraudulent activity, the bankruptcy could be opposed by the creditor. 

If the bankruptcy discharge was opposed, the debtor would have to attend a court hearing to determine the conditions they would need to fulfil in order to be discharged from bankruptcy.

Relationship breakdown is one of the many life events that can lead to financial stress and overwhelming debt. While filing for bankruptcy will eliminate your unsecured debts, any alimony and child support payments will still have to be paid if you file for bankruptcy.

A Licensed Insolvency Trustee (LIT) is an officer of the court, who acts as a mediator between debtors and creditors. An LIT is obligated to make sure that the bankruptcy process is fair for all parties.

Once you have filed for bankruptcy, it is a legally binding agreement that will stop all harassing phone calls and threats of legal action from debt collectors. On your behalf, your Licensed Insolvency Trustee will address this with all your creditors and inform them that they are no longer allowed to contact you.

Two major factors will determine the length of the bankruptcy process: whether it’s your first filing and whether you have what is known as ‘surplus income.’ A person who files for bankruptcy for the first time without surplus income can be discharged from bankruptcy after nine months. If you do have surplus income, it can take 21 months for you to be discharged from bankruptcy.   

A second bankruptcy takes 24 months to receive a discharge if you don’t have surplus income, or 36 months with surplus income. In any case, the bankruptcy process could take longer than expected if the bankruptcy is opposed by a creditor or the court. 

If you file for bankruptcy three or more times, the length of the bankruptcy will vary depending on your circumstances. 

In most provinces, an individual filing for bankruptcy is entitled to keep one vehicle worth up to a certain amount. Leased or financed vehicles are not included in your bankruptcy unless they have significant equity value over the loan amount. If you have multiple vehicles or other assets that you would like to keep, talk to your Licensed Insolvency Trustee about your options.

A wage garnishment is a legal action that allows a creditor to take money directly from your paycheque before you receive it. A creditor would need to file a lawsuit, receive a court decision that you owe them money, and then apply for a wage garnishment. 

If your wages are being garnished by a creditor, you can stop wage garnishments by repaying the debt you owe, appealing to the court to release the garnishment, or appointing a Licensed Insolvency Trustee to file a consumer proposal or bankruptcy. Both a consumer proposal and bankruptcy put a stop to wage garnishments from the date they are filed. No other debt relief strategies can legally stop a wage garnishment. 

If you have co-signed a loan with someone, whether it’s your spouse, a friend or a relative, that person will assume responsibility for paying that debt when you file for bankruptcy. You should inform them of your situation and ideally have them attend a meeting with you and your Licensed Insolvency Trustee.

If you are owed child support and/or alimony from a former spouse, and that person declares bankruptcy, you are still entitled to receive payments and will be considered a “preferred creditor” in the process. Under the Bankruptcy and Insolvency Act, you can claim missed child support or alimony payments for the previous 12 months before your ex-partner filed for bankruptcy. It would be best to speak to a family lawyer or the Licensed Insolvency Trustee handling your ex’s bankruptcy for more information.

It’s important to note that if you have been missing bill payments, have used up all or most of your available credit, or your debt has become unmanageable and you’re thinking about filing for bankruptcy, your credit rating will most likely already be negatively affected. Filing for bankruptcy will impact your credit score, giving you an R9 rating, which will stay on your file for approximately seven years. However, bankruptcy can offer you a fresh start, and help you to rebuild your credit faster than some other debt relief solutions.

Once you’ve been fully discharged from bankruptcy, you will receive a legal document called a Certificate of Discharge or an Order of Absolute Discharge. This document states that your debt has been permanently erased, and you are no longer responsible for the debts listed on your bankruptcy application. It is possible that you could receive a conditional discharge, which requires certain conditions to be met, or a suspended discharge, which does not take effect until a later date.

A Licensed Insolvency Trustee (LIT) is licensed by the Office of the Superintendent of Bankruptcy to help people who are struggling to pay their debts. An LIT is a debt solutions expert who will work with you, offering one-on-one support to find the right debt solution to help you find a path forward.
 
LITs are also the only federally regulated debt advisors in Canada. Their fees are set by the Office of the Superintendent of Bankruptcy and they operate within the Bankruptcy and Insolvency Act of Canada to protect the rights of both debtors and creditors. An LIT is a debt solutions expert whose job is to help people fix their debt problems.

When you file for bankruptcy it allows you to eliminate most if not all of your unsecured debts, including credit cards, lines of credit, bank loans, payday loans and income tax debts. Student loans can only be eliminated in bankruptcy if you have been out of school for more than seven years. If you have been out of school for less than seven years you may still be able to eliminate student loans under certain hardship conditions. Your LIT can review those conditions with you.

If you file for bankruptcy, it will not go on your spouse’s credit report or affect their credit rating. However, if you have co-signed any loan agreements with your spouse—or anyone else, for that matter—that person will then assume full responsibility for repaying the loan if you file for bankruptcy. In these circumstances, it is best for you and your co-signor to seek the help of a Licensed Insolvency Trustee at the same time, to make sure both of your needs are addressed.

Losing everything is one of the most common misconceptions about bankruptcy.  You will not lose everything when you file for bankruptcy in Canada. Each province and territory has exemptions to the bankruptcy law that allows you to keep some of your belongings. Learn more about what is exempt in your province. 

The vast majority of personal (non-business) bankruptcy filings are not advertised in the newspaper. While bankruptcies are in the public record, someone would usually have to pay a fee to access that information, which does not commonly occur. In most cases, no one is aware that you have filed for bankruptcy.

Only unsecured debts can be eliminated in a bankruptcy. Since a mortgage is a secured loan it is not included. If you are not behind on your payments your mortgage lender cannot cancel your mortgage or foreclose on your home because you file for bankruptcy. Also, if you are up to date on your mortgage payments most lenders will renew your mortgage even if you are bankrupt or in a consumer proposal.