Am I insolvent? While you may not be making any real headway on your debt (“hello, minimum monthly payments”), you aren’t behind on payments, and your credit score is in fair shape – can I really be insolvent?
The answer, without question, is YES!
Whether you are Insolvent or not, does not depend on whether you haven’t missed any payments. It’s a legal definition out of the Bankruptcy and Insolvency Act. The same Canadian law that gives Licensed Insolvency Trustees, and ONLY Licensed Insolvency Trustees, the know-how and means to give you the best advice on how to deal with your financial situation. Don’t accept any substitutes!
What Is Insolvency?
The Bankruptcy and Insolvency Act is one of the statutes that regulate the law on Bankruptcy and Insolvency in Canada. It governs Bankruptcies, Consumer and Commercial Proposals, and Receiverships in Canada. It also governs the Office of the Superintendent of Bankruptcy – a federal agency responsible for ensuring that bankruptcies are administered in a fair and orderly manner with the help of a Trustee.
Here’s what the Bankruptcy and Insolvency Act says about Insolvency:
A person is insolvent if that person either can’t pay their financial obligations, or debts, as they become due OR if that person, if everything that a person had were sold under a legal process, wouldn’t be enough to cover all of their debts.
You can see that there are in fact, two ways in which someone can be considered Insolvent:
1. The first is what we probably think of more often – not having the cashflow to pay your bills on time. It’s what we call “Robbing Peter to pay Paul.” Using cash you have for other bills to pay what you can, and not others.
2. The second is simply someone with a negative net worth, that is, more debts than assets that can be sold to pay those debts.
That covers a lot of people. I know, because I meet them every day to map out a fresh start – to break the old spending patterns and turn them into saving patterns; to pay their bills on time and still have money left over before the next payday.
Ok, If this sounds like you, take a deep breath. A lot of Canadians are actually insolvent. Does that mean that you need to get professional advice from a Licensed Insolvency Trustee to help with your financial situation? Maybe. Consider the following:
1. Is It a Temporary Insolvency?
If you’re just going through what we call a “temporary insolvency” where your cash flow is tight and the minimum payments ARE all that you can afford for the time being – sitting tight until the cash flow increases may be all that you have to do.
Maybe you’ve been laid off but will be called back shortly, or maybe there’s another job coming up, or you’re expecting a raise. I see these “temporary” insolvencies, as a wake-up call that your finances aren’t in the best shape.
Give us a call and we’ll discuss budgeting and setting priorities. Keep in mind that increasing your cash flow doesn’t always mean making more money. It also means cutting expenses. Either having more money coming in or less money going out helps most Canadians with their cash flow problems.
2. Is It a True Financial Insolvency?
What about those situations where it’s only a matter of time until the credit cards or lines of credit are maxed out and then there’s no more credit? Or when another job isn’t on the horizon? Or when the Canada Revenue Agency sends you a love letter telling you that you owe a CERB repayment or income taxes?
These are the situations that cause us to lay awake at night and wonder what to do. This is, in fact, a time you can benefit from a Licensed Insolvency Trustee helping you. We’ll discuss the options available to you through the Bankruptcy and Insolvency Act, such as a Consumer Proposal (debt settlement plan) or a Bankruptcy (writing off the debt). And we’ll give you the keys to successful budgeting and the tools to rebuild your credit score along the way.
I’ll sign off with a little advice. There are a lot of businesses in the marketplace these days that are claiming to be able to navigate you through a Consumer Proposal and/or a Bankruptcy. Unless they are licensed by the Office of the Superintendent of Bankruptcy and have the credentials of “LIT,” for Licensed Insolvency Trustee, they simply cannot. Be a savvy consumer. Reach out to us – we can help.
Definition of an “Insolvent Person” may be found at s. 2 of the Bankruptcy and Insolvency Act.