Each year over 120,000 Canadians file for bankruptcy or a consumer proposal. Although you may feel like you are alone when you are experiencing financial problems, you are not. There are many other people going through similar problems. We are here to help you understand the reason these problems happen and work towards the solution. Identifying the causes early may result in you being able to avoid bankruptcy.
According to Statistics Canada, approximately 38% of all marriages end in divorce. This number does not account for the many other co-habiting relationships that breakdown or those who separate and never divorce.
When relationships end, financial difficulties often begin. Debt and expenses that were being carried by two incomes, are now being carried by one. Alternatively both parties try to carry the matrimonial debt but there are now two sets of household expenses. People often turn to credit for the money to set up their new homes. Factor in legal fees and support payments and it becomes clear why financial problems often accompany relationship breakdowns.
Loss of employment can have devastating consequences. Employment Insurance can help, but it does not fully replace the income lost. People turn to credit to replace the lost income. This in turn results in less coming in each month and increasing amounts to be paid on debt.
Having an emergency fund to cover the waiting period or top up the EI can help people avoid financial difficulty as a result of job loss. However, many people live pay cheque to pay cheque and have not built up such a fund.
As Canadians we are fortunate that we have a health care system, but unfortunately illness can still have harsh financial consequences. Even if you qualify for disability benefits, these benefits are normally much less than employment income. Prescription expenses, expenses from travelling to medical appointments, dietary restrictions and non-prescription medical items all add up quickly. These expenses alone can be overwhelming but then add the stress of reduced income due to time lost from work and medical issues turn into financial issues.
Life often does not go as planned. People cope with many small, unexpected expenses that happen in daily life such as minor car repairs or vet bills. However, sometimes things happen that are so big that people cannot deal with the financial ramifications. Uninsured automobile accidents, major house repairs and death of a family member can all have financial consequences beyond one’s ability to recover from without help.
Entrepreneurs take a chance starting a business. There are many risks involved. Banks normally ask for personal guarantees for start up loans. For incorporated companies, director’s liability for tax issues can also be an issue when businesses fail. Some businesses never take off and others are successful for many years but then the market changes.
Having a business plan and thinking through as many of the possible pitfalls can help keep a business on track. Utilizing your local Business Development Corporation can provide a new business owner some invaluable tools and resources.
Debts to the Canada Revenue Agency can add up quickly. This can happen to both self employed individuals and people employed by others. Working more than one job can result in an unexpected tax liability at the end of the year. RRSP withdrawals and receiving spousal support can also result in tax liabilities.
Some self-employed people are wonderful at what they do, but are lacking in knowledge of bookkeeping and in turn find themselves in tax trouble. Personal income taxes, GST/ HST and source deductions must all be remitted to CRA regularly.
The Canada Revenue Agency can freeze bank accounts, garnishee wages and put liens on property without getting a Court order like other creditors.
Business owners need to keep their bookkeeping up to date and in turn ensure remittances of HST and source deductions are kept in a separate bank account and made when due to avoid penalties and interest. Installment payments of personal income tax can help avoid large liabilities at the end of the year.
Atlantic Canada has the highest rate of seasonal employment in Canada. Approximately 5.5% of all jobs in Nova Scotia are seasonal. Seasonal employment prevents significant financial challenges. Seasonal employees must have excellent budgeting skills – better than average. However, a large number of people do not have the knowledge to do this. Seasonal employees need to set aside money during there employment months to cover the months they are unemployed. Many find themselves using credit during the off months then playing catch up during the months they are working. This cycle continues for years until it reaches a breaking point.
One of the most frequent comments I hear from people is that they wish they had learned how to manage money and budget earlier. There is simply not enough focus on money management in schools. Money was a subject parents did not discuss with children. People graduate and lack the skills to manage their finances. Some go off to post-secondary education and start accumulating significant debt right away via student loans with no real concept of what it will take to repay those loans. Others enter the work force but have no idea of how to track expenses and structure a budget.
There are a wealth of wonderful resources out there to improve your money management skills. One great tool is apps such as Mint that help you track your expenses and plan for upcoming expenses.
Another important point is only you can set your kids up for success and teach them about money. No one else is going to. Teach them about the costs of running a household and about saving.
Over extension of credit is a situation where a person’s financial obligations are beyond their ability to repay the debt. This often accompanies money management issues but it can happen for other reasons such a change in circumstances. Many people do not understand the impact of interest and repayment structures like minimum payments on credit cards. They lack the knowledge to understand how much interest they are repaying. A prime example of this is when people are already struggling financially and then take on payday loans thinking it will help get through a tough spot. In reality the extremely high interest rates are simply making a bad situation worse. Credit cards are also a big reason for over-extension of credit. People make the minimum payments for years and have multiple cards and one day realize they cannot repay the debt.
According to the Canadian Mental Health Association, it is estimated that approximately 21% of the population will meet the criteria for addiction in their lifetime. There are a broad range of addictions issues – drugs, alcohol, shopping and gambling to name a few. A common theme to addiction issues is that financial problems are typically one of the results.
It is imperative the people recognize the cause of their insolvency when addiction issues are involved and get the help and support they need to address the issue. Filing for bankruptcy solves the financial problem, but does not address the root of the issue.
It does not matter what the cause is—financial problems are a very difficult time in anyone’s life. We understand that no one wants to struggle with debt and asking for help is difficult. It is important to get professional help from a licensed insolvency trustee who will help you understand your options. Often asking for help sooner can help you avoid bankruptcy. However, if you need to file a bankruptcy or consumer proposal we can help you on a path to a positive financial future. Time is a resource and the longer you are buried in debt, the less time you have to build a strong, stable financial position.