More than half of Canadians were living paycheque to paycheque, and then the COVID-19 pandemic sent even more families spiralling into financial trouble from lay-offs, pay cuts and reduced hours.
Nancy Snedden, Senior Vice President in BDO Canada’s St. John’s Financial Recovery Services office, says lenders have done a good job of helping out — offering mortgage and car payment deferrals, reduced interest rates and interest-only payments — but it’s “a band-aid solution” for most people.
“Even though no one’s coming to collect now, because of those deferrals, the debt is not going away. The interest continues to build,” says Snedden. “In six months, people may find themselves in a position where they owe even more than they did before COVID-19.”
Snedden says deferring their minimum payments helps out for a while, but the payments will be larger when they return. And while the Canada Emergency Response Benefit (CERB) of $2,000 a month has been keeping many families afloat, she says it’s going to be painful for those who aren’t socking a bit away for taxes.
Between deferred payments, a looming CERB tax bill and possibly using credit to supplement their lower monthly income right now, Snedden says it’s going to create “a perfect storm” of stressful financial conditions for many families.
She says people sometimes think bankruptcy is their only option so they’re hesitant to approach a Licensed Insolvency Trustee like BDO Canada, but there are many other solutions that might fit their unique situation.
It all starts with scheduling a free consultation. Snedden or one of her colleagues sit down with them to talk about assets, debts, income and expenses in order to get a full understanding of the person’s financial situation and discuss their options.
In some cases, their best option might be to use a lender to refinance the equity in their home or apply for a consolidation loan. In other cases, a person might be able to pay back the full amount over a short period of time — and BDO may connect them with a credit counsellor.
If those don’t seem like viable options, Snedden says they can discuss other ideas that might be better for them — like a consumer proposal or bankruptcy.
“Most people choose a consumer proposal. It’s the best option if you can make it work, since there’s less of an impact on your overall credit rating and it’s easier to rebuild your credit,” explains Snedden. “You’re not necessarily waiting until the consumer proposal is finished to see an improvement in your credit rating.
In a traditional bankruptcy, a person’s payment can fluctuate from month to month depending on their income. With a consumer proposal, the monthly repayment amount is set at the beginning and doesn’t change. Snedden says this makes it much easier to build the payment into your new budget.
In some cases, the consumer proposal may be to pay as little as eight cents on every dollar you owe.
Consumer proposals aren’t new, but many people either haven’t heard of them or have misconceptions about them. Just the other day, Snedden had a new client email to cancel their appointment because they’d heard they wouldn’t qualify for a consumer proposal if there was equity in their home. Snedden assured them that isn’t the case, and they gratefully kept their appointment.
Every single situation is different, which is why Snedden says it’s important for people to speak with a Licensed Insolvency Trustee if they’re struggling.
She says there used to be a stigma around insolvency but it’s relaxed over the years because of the sheer number of people who have found themselves with financial difficulties.
“More people are feeling comfortable talking about their finances, and there’s a comfort in finding out that you’re not alone — that other people have gone through the same troubles,” says Snedden. “And once you know there’s a plan, it really helps.”
She encourages people to reach out for a free consultation and explore their options. BDO has counsellors all across Newfoundland and Labrador, and they’re available for phone and video calls if people can’t meet in person because of pandemic restrictions.
Snedden says the hardest part is picking up the phone to ask for the initial appointment, but it gets “so much easier” from there. When people arrive, she can usually see the stress they’re under — but by the end of the appointment, they look visibly lighter and more relaxed.
“It’s like we’re looking at a different person. The way they’re sitting, their tone of voice, it’s just complete relief,” says Snedden. “Clients tell us they wish they’d called months ago or years ago, because they’ve been struggling for so long.”
To learn more about your debt options and schedule a free, no-obligation consultation, call BDO Canada at 1-800-536-8337, visit debtsolutions.bdo.ca or email Nancy Snedden directly ([email protected]).
