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Debt Advice: Canadian Seniors Retiring with High Levels of Debt

No matter a person’s age, debt can be a stressful financial burden to deal with. Once that debt becomes unmanageable, it is even more overwhelming. However, when one is working, or has the ability to take on work to increase monthly income, things may seem a bit easier compared to someone who has retired and is relying on RRSPs and pensions to get by, and often a little debt advice goes a long way. For retiring seniors, debt is often a more pressing and troublesome issue.

According to a recent Globe and Mail article which references Statistics Canada numbers, “the total amount of debt held in households led by people aged 55 to 64 almost quadrupled between 1999 and 2012, while the level for the overall population did little more than double (these are inflation-adjusted numbers). One third of households led by people aged 55 to 64 still had a mortgage and 38 per cent had credit-card or instalment debt (basically a payment plan for purchasing an item).” That amounts to significant debt carried into retirement!

When you factor in how low old age pensions are in Canada, a significant debt load can really hinder an individual’s ability to meet their monthly financial obligations.

According to the Government of Canada, these are the payment amounts/month for Old Age Security Pension (OSA):

  • single, widowed or divorced pensioner = $864.09
  • If spouse/common-law partner receives the full OAS pension = $520.17
  • If spouse/common-law partner does not receive an OAS pension = $864.09
  • If spouse/common-law partner receives the Allowance =$520.17

Retirement should not come with stress. After working so hard, for so many years, retirement should be a time for relaxing. The last thing we want is for our senior parents and grandparents to struggle with financial pressure as they age.

While some may argue that, as we age, credit takes on a different level of importance, and overall quality of life should be most important, it is essential to note that different types of debt can dictate more severe consequences. For example, while credit card debt may not make falling asleep at night difficult, tax debt is serious and CRA can garnish up to 100% of pension income, leaving a person with very little (if anything at all) to live on.

Financial options vary depending on a person’s financial situation – many things have to be considered, including assets, debt, types of debt, future plans, and the overall quality of life a person expects. It is important to sit down with a financial professional and work through everything.

This is something Spergel is sensitive to and we treat your parents like our own. This isn’t a one-size-fits-all scenario – everyone’s situation is different. We will look at all the variables and craft a plan that leaves your senior family member with reasonable monthly payments and protects them against action from creditors.

Call us today for a free consultation and real debt advice you can depend on: toll-free at 310-4321.

Sources:

http://www.theglobeandmail.com/globe-investor/personal-finance/genymoney/this-is-how-millennials-could-end-up-paying-the-bills-for-baby-boomers/article34931357/

 

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Business Tax Debt, CRA Collections and You – A Whole New Ball Game

If you are a sole proprietor or in a partnership, then June 15th is a date quite relevant to you. June 15th is your tax deadline. For some business owners, this day represents just another day of paperwork. For others, however, it represents the reality of new tax debt and the potential of having to deal with CRA collections.

We know that it can be incredibly tough, especially for small business owners, to manage the business and still stay on top of the books and receipts. So much paper and never enough time!

With regard to tax debt, part of the problem often stems from business owners trying to estimate what they will owe on company tax and HST, but not setting aside money throughout the year. The hope is that when the time comes, they will be able to pay. Often this stems from overestimating potential deductible expenses and putting aside money based on those calculations. Any changes to revenue at year-end, can lead to an unanticipated tax debt – one that, if you can’t pay right away, will leave you dealing with CRA collections. One of the toughest things about owing CRA money is that there is no grace period. CRA is not interested in waiting to receive the money – especially where trust monies like HST are concerned. This is especially true if you were behind and have filed for the first time in years.

It is not illegal to have tax debt owing to the government. However, failing to file your tax returns and failing to declare your income is tax evasion. This leaves you vulnerable to penalties, interest and even prosecution. Some people delay filing thinking that this will buy them time to pay. Delaying filing only causes your tax debt to balloon in size and can land you in real trouble. CRA can even notionally assess you and tell you what taxes you owe, and assess penalties and interest based on that, then proceeding to attempt to collect that money from you.

If you don’t have the money to pay your taxes in full, you need an alternative strategy for dealing with CRA that includes both a payment schedule that you can afford and a plan that protects you from CRA enforcement action.

When CRA collections comes calling, be prepared to answer the call. The Licensed Insolvency Trustees at Spergel can help you get your tax issues straightened out.

Please reach out for a free consultation to review your finances to come up with the best solution: toll-free at 310-4321.

 

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Affordable Housing: What Does the Ontario Government’s 16 Point Plan Mean to You?

Affordable housing continues to be a major concern for many families in the GTA. With the housing market as hot as ever, property values continue to skyrocket, making it very expensive for some to enter the market. This, in turn, has led many landlords to increase rent accordingly to make their investments as profitable as possible. Unfortunately, such increases often impact the most vulnerable in society, as many renters are renting because they cannot afford to own a home.

While some landlords have been moderate with their increases, others have gone far above what is reasonable. For example, back in April, tenants of a condo in Toronto received notice that their rents were going up April 1st – by $1650. That’s double what they were previously paying. Read more on this story from CTV News here: http://www.ctvnews.ca/business/we-didn-t-take-it-seriously-tenant-shocked-by-doubling-of-condo-rent-1.3354229.

In an effort to create some balance in the market and help ease the burden faced by those in the most affected areas, the Ontario government has taken action with a 16-point plan aimed at affordable housing. While some reforms are aimed specifically at cooling the market, others are focused on addressing the demand for housing and increasing supply while taking action to protect renters.

Here are some highlights:

  • Expanding rent control to all private units in Ontario, including those built after 1991
  • Legislation to further protect tenants: standard lease in multiple languages, tightening provisions for landlords’ “own use” evictions and tightening compensation for tenants who are violated, etc.
  • Leveraging surplus provincial land assets to develop a mix of market housing and new, permanent, affordable housing supply
  • Enabling the city to tax vacant homes to motivate property owners to rent them out
  • Ensuring property tax on new multi-residential apartment buildings is in-line with other residential properties
  • A new, 5 year, $125 million program to encourage the construction of new rental apartment buildings
  • A new housing supply team with dedicated employees whose role it will be to identify barriers to specific development programs to help find solutions

Read more about the plan in its entirety here: https://news.ontario.ca/mof/en/2017/04/ontarios-fair-housing-plan.html.

This plan focuses on measures to create more rental housing while also working to protect renters from massive rent increases.

If you’re finding rent and other household bills difficult to manage, call us for an assessment of your budget to identify solutions to ease some of the financial burden.

At Spergel, we’re committed to you. Call us toll-free at 310-4321.

 

 

 

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Consumer Proposal FAQ and You – Let’s Deal with the Facts!

Have a question about consumer proposals? This consumer proposal FAQ should help!

  1. Is a consumer proposal the same as bankruptcy? No. While they are similar, a consumer proposal is not the same as bankruptcy. There are distinct differences. You can find out more about those differences here.
  2. Is a consumer proposal a debt consolidation loan? No. A consumer proposal is not a loan. It involves a proposal made to your creditors, proposing an amount (usually less than what you owe) that you will repay over a maximum of five years. Once accepted, you begin paying in accordance with the repayment terms of the proposal. A debt consolidation loan consolidates your debts but does not reduce the total debt owing.
  3. Is a consumer proposal a debt settlement? It is a negotiated legally binding agreement with your creditors that leaves you repaying an often-reduced amount of debt with a single monthly payment. Only a Licensed Insolvency Trustee can file a consumer proposal on your behalf.
  4. Will I have a single monthly payment? Once accepted, you will make a single monthly payment.
  5. Will I keep having to pay interest? All interest stops accumulating once the proposal is accepted.
  6. Who do I pay? In a consumer proposal, you make the monthly payment to your trustee. The trustee then pays your creditors.
  7. Can I keep my house and my vehicle? This largely depends on equity and value, so a free, no obligation consultation with a trustee is best.
  8. Will a consumer proposal ruin my credit? While it is reported to your credit report, it is removed from your report 3 years from when it is paid in full. However, you can begin to rebuild your credit rating with in a consumer proposal. Your trustee can give you some credit rebuilding best practices.
  9. Who files and administers the consumer proposal? Only a Licensed Insolvency Trustee can file and administer a consumer proposal.
  10. Does it reduce my debt? Yes, in most cases a consumer proposal can significantly reduce your overall debt.

Have another consumer proposal FAQ that we didn’t cover here? Ask it on our social media – we’d be happy to answer all of your questions.

 

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Understanding your Canadian Credit Report is the Best Way to Ensure it is Correct

Your credit report is very important. It is used not only by lenders whom you’ve applied to for credit, it can also be used by employers or even various service providers to validate your level of risk. Understanding your credit report is the best way to ensure it is updated and correct.

There are two important aspects of your credit report, both regarding credit behaviour: how much credit you’ve used and how you pay your credit.

  1. How much credit you’ve used

If you have a lot of credit at their maximum balances, this can negatively impact your credit score. For example, if your credit balances are close to, at, or over the credit limits, this will damage credit and trigger a message: “proportion of balances are too high to credit limits”. Simply having too many credit cards and loans can even have an impact. Trying to maintain a balance of less that 50% of your available credit is a smart way to avoid this.

Too many credit applications in a calendar year can also hurt your credit. Applying for credit on a regular basis implies that you are a credit seeker, someone living outside their means. This is often a major red flag for lenders.

  1. How you pay your credit

Making payments on time is critical – all the time. Any late payments are reflected on your report.

If you are 1-5 months behind and then you pay up to date, your overall rating will be restored to ‘up to date’ and in good standing – but the record of the late payment will remain on your credit report for 6 years from the date of last activity.

However, if you are behind 6 months or more and there is a repossession, the rating remains bad for 6 years from the date of last activity – whether you pay it up to date or not.

These behaviours impact your credit score – a number that lenders use as partial validation regarding your level of risk. Your credit score is a number that is calculated based on all the activity on your credit report.

Here are some of the best ways to maintain credit:

  • Don’t apply too often for a credit report – gym memberships, store cards, opening bank accounts and even insurance companies can ask you to provide a credit report. Only let companies run a credit report if you need the credit (not because you want that free blender promo at the mall).
  • Pay your bills on time – all the time. Even one late payment can have an impact.
  • Don’t overdo it with the credit cards. If you have too many already, look at paying some off and as each is paid off, begin closing out the accounts. Even if you don’t use all the cards, having a wallet-full can be detrimental.
  • Only use your cards to spend as much as you can pay in full each month – do not run up high balances on credit cards.
  • Loans are better credit products for your credit report than credit cards because they are not revolving and have a fixed repayment term.

If you have damaged your credit, the only way to fix it is to clear up the bad credit and rebuild. Step one is getting your credit report from Equifax AND TransUnion and creating a plan to get rid of those overhanging debts and rebuild.

At Spergel, we can help you deal with problem debts and advise you on the best route to rebuilding a strong financial future.

Find out more by visiting www.spergel.ca today or call 310-4321.

 

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Is a Debt Consolidation Loan the Right Solution? Ask Our Experts

When considering whether a debt consolidation loan is the right solution to your debt problem, it is important to understand the different solutions available as well as which solution is a loan and which actually reduces your debt.

Debt consolidation loans are loans that consolidate your debt with one institution. Unsecured credit such as loans, credit cards and some lines of credit are the typical products that can be consolidated with this type of loan. The benefits are reduced interest and a single monthly payment. However, there are cons as well:

  • Usually you need good credit to be approved – and if you have bad credit your interest could be very high.
  • Often the interest is higher than a mortgage, so it may make more sense to refinance your house.

Mortgage loans – mortgages and home equity lines of credit. This is another popular option for consolidating debt, one that can help you regain control through a single monthly payment. First mortgages offer lower interest than second mortgages and lines of credit. As with a traditional debt consolidation loan though, there are negatives:

  • Approval is difficult with less than stellar credit.
  • Often the debt is extended over 15, 20, 25 years (the life of the mortgage), stretching out your debt repayment schedule.
  • Administrative costs can add up: you may need to incur legal fees and/or administrative fees to renegotiate before the end of the current mortgage term.

However, a consumer proposal is one option that actually reduces your total debt. It is negotiated through a Licensed Insolvency Trustee, an individual who will present a proposal to your creditors that, when accepted, results in a reduction of your overall debt and a single monthly payment. Interest stops accumulating at once and you can pay it off over the course of five years or sooner. A consumer proposal term is often far shorter than those listed above, meaning you will have the debt paid off rather quickly. While it may impact your credit, if you’re struggling as it stands, this has likely already happened.

Bankruptcy is another option for reducing your total overall debt. Like a consumer proposal, a bankruptcy is filed through a Licensed Insolvency Trustee. It involves making a single monthly payment to a trustee (first-time bankruptcy), over a term of typically 9-21 months. Interest and most collection action is stopped.

When you’re struggling with various monthly payments, payments that seem to get you nowhere, you may be thinking that a debt consolidation loan is the way to go. If this is the case, you should talk to a professional to understand all of your options. Remember, a debt consolidation loan does not reduce your overall debt – only a consumer proposal and bankruptcy can do that.

For more on dealing with debt that is keeping you up at night, please visit www.spergel.ca today or call 310-4321.

 

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There is Only One Way to Actually Reduce Your Principal Tax Debt

Do you owe money to the Canada Revenue Agency (CRA)? Then you are one of thousands of Canadians – it is a more common problem than you might think.

A tax debt can be scary because it is the one type of debt that can grow exponentially in a short time frame. By the time CRA adds penalties and interest, a tax debt can quickly double and triple in size, making it even more difficult to pay off. Even without penalties and interest, many Canadians find the prospect of paying their tax debt a challenging one.

Penalties and interest are one problem, but what can you do if you need to reduce your principal tax debt in order to be able to enter into a payment arrangement that doesn’t ruin you financially? Unfortunately, CRA does not make settlements on principal tax debts with taxpayers or private organizations. In fact, even those programs that do offer relief from interest and penalties, programs which may be difficult to get approved under, they also do not actually reduce the principal debt.

The only possible way to reduce the principal on a tax debt is through a bankruptcy or proposal.

Here is how a bankruptcy or proposal works:

  • Step 1 – The Licensed Insolvency Trustee assesses your income, debts, assets, liabilities and family composition, among other financial criteria.
  • Step 2 – Based on various calculations, the trustee will determine whether a bankruptcy or proposal makes the most sense. Typically, a bankruptcy is better suited to an individual who has limited to no equity in assets and very limited income, whereas proposals are geared more towards individuals with steady income or individuals with equity in assets.
  • Step 3 – Once you choose a debt solution, your trustee will complete the necessary paperwork and will send notice to CRA and your other creditors.
  • Step 4 – Any unsecured creditors taking collection action against you must stop. Interest on your debt also stops.
  • Step 5 – If your consumer proposal is accepted or once a bankruptcy is filed, you begin making a single reduced monthly payment to your trustee which is then dispersed to your creditors.

Not only do these two options help you reduce your principal tax debt, both can offer a reduced total debt load, making life far more manageable from a financial perspective.

If you’re concerned about your ability to pay the amount listed on your Notice of Assessment from CRA, we can help. While it may be overwhelming now, Spergel can help you regain your financial footing and give you a fresh start.

Find out more today by visiting www.spergel.ca or call 310-4321.

 

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Under Threat of a CRA Lien on Property? Act Fast – A Court Order Isn’t Required!

Since we are well into tax season, we have dedicated several posts over the last few weeks to covering various aspects of dealing with a tax debt. So far we’ve covered the various penalties and interest as well as wage garnishments and frozen bank accounts, and so we’d be remiss not to cover the third type of enforcement action utilized by the Canada Revenue Agency (CRA): a CRA lien on property.

CRA uses property liens as an effective way to collect on an outstanding tax debt. When you owe CRA money, CRA will leverage all of its available options to collect, including placing a lien on your home.

Why is a CRA lien on property such a big deal? As soon as a property lien is in place, CRA becomes a secured creditor in a bankruptcy or consumer proposal, meaning you have less negotiating power. A property lien can cause your mortgage holders to question your level of risk and whether or not to renew your mortgage, interfering with your ability to refinance your home. Furthermore, if the tax debt is greater than your property equity, and you’re planning to sell in the near future, this will result in you not having any money left to cover the transaction fees (i.e. legal and real estate fees). This could make that long-dreamt of move an impossibility.

A CRA lien on property can be difficult to deal with.

Does this mean you’ve lost title to your home? No, title remains in your name. A lien is actually a registration on the title of the property which prevents you from selling or refinancing that property until the tax debt owing is paid in full.

How can CRA find out what you own? It’s simple. Land records are electronic and anyone, including CRA, can simply run a search to find out what properties are in your name.

The most important thing to do if you are under threat of a property lien, or if a lien is already in place, is to contact a professional for advice on how to deal with your tax debt before a lien is put in place. If you can deal with the tax debt before a lien is in place you have more options.

Having a tax debt hanging over your head can be stressful. As you can see, it isn’t something you can ignore as the repercussions can be quite severe.

If you’re concerned about a CRA lien on property, get in touch with the professionals at Spergel today – we can help you sort out your finances and deal with your tax debt.

Find out more by visiting www.spergel.ca or call 310-4321.

 

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Tax Debt Info: What Can CRA Garnish?

As with any creditor, if you owe a tax debt to the Canada Revenue Agency (CRA), there are various forms of enforcement action that may be imposed in an effort to collect. Two of the most popular are garnishing your wages or freezing your bank account. Both are very effective methods – methods that can really wreak havoc on your finances. So, how much can CRA garnish and what options are available to deal with these enforcement actions?

If CRA chooses to impose a wage garnishment, they can garnish your employment income or secondary income like your pension or subcontractor income. That could be a significant amount of money. As we have mentioned previously, CRA does not need a court order to issue a wage garnishment. They simply send a Notice of Garnishment to your employer or your clients and the money is then sent directly to pay off the debt.

If CRA chooses to freeze your bank account, a Requirement to Pay is sent to your bank(s) and the bank is required, by law, to immediately put a hold on your account. This means that you will not be able to access any funds in the account. This also means that any pre-authorized payments won’t come out either. Once the bank has forwarded the amount listed in the Requirement to Pay to CRA, your account(s) is unfrozen. However, if the tax debt is significant, this could take months or even years.

Both of these enforcement measures can have far-reaching consequences. Both can be very embarrassing – your employer/clients will learn of the tax debt, and if your account is frozen you can seriously damage your relationship with your bank. Your credit may also take a hit – if you are missing a significant portion of your monthly income, or have no access to it, those monthly financial obligations may inevitably get missed as well.

If you are being threatened with CRA enforcement action or are already being garnished, you should consider taking action immediately. You have a few options available to you. You can take the matter to court – a costly option with no guarantee of success. You can pay off the debt in its entirety – this will remove both a garnishment and a frozen bank account – but this only works if you have the funds available. The third option is filing a consumer proposal or bankruptcy with a Licensed Insolvency Trustee, both of which will stop the action, can reduce the amount owing, and can give you a fresh financial start.

If you are concerned about a tax debt and the forthcoming enforcement action, we can help.

Get in touch with our Licensed Insolvency Trustees today to find out about the various solutions: www.spergel.ca or 310-4321.

 

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Complete Guide to CRA Penalties

Last week, in preparation for the approaching 2017 tax deadline, we discussed the importance of filing your taxes, even if you are nervous about a looming tax debt. This week our blog focuses exclusively on the various Canada Revenue Agency (CRA) penalties associated with a tax debt. If you have questions about CRA penalties, this blog should help you find some answers.

If you missed last week’s post, it focused on filing your taxes even if you anticipate a tax debt, and the ways in which you can deal with it. For more on that, check it out here. http://www.spergel.ca/2017-tax-deadline-approaching-need-know-anticipate-tax-debt/

CRA interest

If you file your taxes and end up owing tax debt for 2016, the CRA will charge compound daily interest the day after the deadline (May 1st). The CRA rate of interest can change every three months – you can check out current interest rates here: http://www.cra-arc.gc.ca/tx/fq/ntrst_rts/menu-eng.html.

Furthermore, if you have a debt owing from previous years, the CRA will continue to charge daily interest on those amounts as well. Any payments you make will be applied to those balances first.

Late-filing penalty

If you owe a tax debt for 2016 but do not file on time, you will be charged a late-filing penalty. The current penalty is 5% of your 2016 balance. In addition to this, you will be charged 1% of your balance for each month you are behind filing, for a maximum of one year.

If you were late in previous years, the late-filing penalty increases to 10% of your 2016 balance. You will also be charged 2% of your 2016 balance for each month you are behind filing, for a maximum of 20 months.

Repeated failure to report income penalty

If you file but fail to report an amount of income of $500 or more on your 2016 return and you also failed to report said amount on your return for 2013, 2014, or 2015, you may find yourself saddled with a repeated failure to report income penalty.

The penalty is as follows:

  • 10% of the amount you failed to report on your 2016 return, and
  • 50% of the difference between the understated tax related to the amount you failed to report and the amount of tax withheld related to the amount you failed to report.

Gross negligence penalties

If you, knowingly or under circumstances amounting to gross negligence, make a false statement or omission on a tax return, you may also have to pay a gross negligence penalty. The penalty is equal to the greater of $100 and 50% of the understated tax and/or the overstated credits related to the false statement or omission.

A tax problem can have a significant impact on your financial stability. When you owe taxes, enforcement action from CRA will follow, and a wage garnishment or frozen bank account can make meeting your monthly financial obligations difficult, if not impossible. It is crucial to settle a tax debt as soon as possible.

At Spergel, we can help you develop a plan to deal with a tax debt before those CRA penalties are levied.

Get in touch today by visiting www.spergel.ca or call 310-4321.

 

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