When to consider a Consumer Proposal or Bankruptcy during COVID-19

You may have heard of the saying “keep calm and carry on”. While it’s typically known for being a motivational phrase during World War II or for being plastered on everything from shirts to wall art, it can now also be used to describe how we should approach our debt and finances during the COVID 19 crisis.

This pandemic will have some sort of financial impact on everyone, and if you were dealing with overwhelming debt before COVID-19 and are now struggling further to make ends meet, you may be considering a debt solution such as a consumer proposal or a bankruptcy. While it may feel like an insolvency proceeding is your only option at this time, there are many things you should consider before deciding to file.

First, take stock of your emotional state and don’t rush into a decision. On top of all the anxiety surrounding the pandemic and the spread of COVID-19, we’ve also been social distancing from our loved ones, experiencing job loss or loss of income and facing an abundance of societal changes that can cause a lot of emotions as well. It’s understandable to feel overwhelmed, however, it may lead you towards making quick financial decisions out of desperation.

So, what do you do? Try acknowledging your stress and telling yourself that you’re human and it’s okay to feel the way that you do. Then do something to help ease those emotions, like mindful breathing to bring yourself to a calm and focused state. 

Second, remember this is a temporary situation.  Before you decide to go bankrupt or reduce your debts under a consumer proposal, determine if your situation is only temporary.  If you have been laid off but know you will be returning to work once your place of employment re-opens or your paycheque has been reduced due to a temporary reduction in work hours, it is best to focus on making a plan to bridge the loss of income until things return to normal, or at least a new normal.  Here are some ways to do that:

Tap into your savings – Remember the excruciating amount of time it took to save up your emergency fund?  You have now given yourself the gift of having available dollars that you can use to create your emergency budget. In your emergency budget, try to reduce areas of spending where possible in addition to expenses like eating out, gym memberships and fuel for your vehicle, which should all decrease given the government-imposed guideline of staying home.  If you’ve considered reducing your cigarette costs or satellite TV bill in the past, there is no better time than the present to take the step to make it happen and save yourself dollars.

If you have no savings, cutting your expenses is even more critical and it is never too late to create a new budget for your household.

Research deferral programs – Canada’s major banks have programs in place to provide temporary relief to consumers with their mortgage, line of credit or loan payment by allowing for the deferral of payments from 3-6 months*.  Credit card and utility companies are also offering deferrals of payments that are otherwise due on a monthly basis.  It’s important that you understand, however, that deferrals do not mean “forgiveness of debt”.  

*Note: Many of these deferral programs have ended as of Fall 2020. If you are still struggling to make your payments when they become due, there are debt solution services available to you.

These are temporary and short-term relief measures.  Interest charges will continue to accrue on your accounts and there will be an expectation that you not only pay back the deferred payments but also the accrued interest. 

Apply for government funding – There are several federal and provincial government emergency support measures in place to help people cover basic living and personal expenses during this time.  For example, the Canada Emergency Response Benefit** provides $2,000/month for up to 4 months for people who lost their income as a result of being sick, quarantined or taking care of someone who is sick with COVID19, and working parents who need to stay home without pay to care for children who are sick or due to school/daycare closures.  Research your eligibility under the various programs by visiting the federal and provincial government websites. 

**Note: the Canada Emergency Response Benefit (CERB) ended as of September 27, 2020. For post-CERB information, read our blogs on the transition to Employment Insurance (EI) and CERB overpayments.

Lastly, filing a bankruptcy or consumer proposal should be based on facts and numbers.  The reality of your financial situation will dictate whether a formal proceeding to discharge or wipe out your debt is warranted.  If any of the below facts hold true, they are clear warning signs that you might need to seriously consider seeking the assistance of a Licensed Insolvency Trustee (LIT) to review your options.

• Creditors have not stopped aggressive collection action.
• You are continuing to work, but a creditor who obtained a judgment against you before the pandemic has begun wage garnishments.
• You are uncertain of whether you will be returning to work and your income has reduced to employment insurance benefits.
• You have already missed payments and a reworked budget cannot get you caught up.
• You have exhausted the above tips in bridging your loss of income.
• You have started to turn to high-cost loans such as payday loans.

There is no shame in asking for help.  During these tough and uncertain times, consider seeking the advice of a Licensed Insolvency Trustee, at no cost or commitment, to analyze your financial situation and review the solutions available to resolve your debts.  

Keep calm, remain optimistic and be well.