You may be in the unfortunate position of having significant credit card debt; an outstanding tax liability; and arrears on your automobile loan and/or mortgage. Although it is difficult to self assess your situation and seek alternatives to deal with your debt problem, the perils of not facing your debt problem early can be devastating.
The collection letters and telephone calls may eventually lead to more aggressive collection action by your creditors. Consider these possible scenarios.
At some point Canada Revenue Agency will step up the collection action against you to recover the outstanding taxes, which may include obtaining a certificate of judgment and registering the judgment against your home and your other assets. Once this occurs, you will have lost any chance of settling with CRA even through a proposal under the Bankruptcy and Insolvency Act.
Upon registration of the judgment, CRA becomes a secured creditor, which cannot be reversed by a proposal or a bankruptcy. The equity that you have in your home becomes CRA’s equity until the tax debt is paid in full.
Consider another scenario. Your high credit card debts have forced you into the debt servicing game of "paying Peter this month and Paul the next month." The result is you may have missed payments on your automobile loan. Your lender will only be patient for so long and then they may choose to enforce their security and seize the vehicle. Now you have a new problem of no means of transportation to get to your job, which may result in a loss of income.
A final scenario involves your credit card debt. Eventually, the credit card company may commence legal action against you to seek a judgment for the amounts owed. This judgment is then enforced through the seizure of funds in your bank account or a garnishee of your wages. This may affect your ability to meet your mortgage or automobile loan payments.
Any one of the above scenarios could be a trigger to the perfect storm that results in financial disaster.
This, however, need not be the case if you take a realistic look at your financial situation and look for potential solutions before disaster strikes.
Alternative solutions may include obtaining a consolidation loan to pay out the tax liability and credit card debts. This can improve your household cash flow such that you will be able to meet your mortgage and automobile loan payments.
If a consolidation loan is not possible, you may wish to consider filing a proposal under the BIA to compromise your debts or extend the time period to pay your debt to CRA and your credit card debt. This would have to be filed before CRA obtains and registers its certificate of judgment against your home.
The final alternative that you may have to consider is a bankruptcy. Again, this would have to be filed before CRA registers a certificate of judgment to provide you with the relief from this debt burden.
Facing your debt problems is difficult but the earlier you take this step the better off you will be financially in the short and long term. Your financial advisor or a trustee in bankruptcy would be able to provide you with an assessment of your financial affairs and provide you with alternatives to resolve your debt problem.
Republished from the Brandon Sun print edition May 3, 2014