A financial crisis usually doesn’t happen all at once – it happens over time, when your credit catches up with you and you find you can no longer keep up with payments. Below are five of the most common causes for insolvency, and ways that you can prepare for them.
#1 Job Loss
As middle class Canadians increasingly live paycheque to paycheque, job loss has become a major cause of debt for many. Unemployment typically does not lead directly to bankruptcy, with 9 in 10 persons filing having some form of income, but during a period of unemployment, many people turn to credit to cover their living expenses. Once they get back to work, they are saddled with debt they often cannot afford to repay.
Credit has never been intended to be a means of income replacement, and it’s easy to get into trouble if you depend on it for your ordinary expenses. Saving for unemployment or an illness that keeps you from working is the best way to keep yourself from going into debt while you get back on your feet.
Going through a divorce is always a difficult emotional experience, and it can put a strain on your finances as well. Not only do you split your assets and potentially begin paying alimony and/or child support, you can also no longer split the costs of running a household. Plan to stretch your income further and reduce your living expenses, and if possible, share costs while keeping your finances separate.
#3 Excessive Credit
If you have built up excessive credit through lines of credit, credit cards, or other unsecured loans, a Licensed Insolvency Trustee can help you by filing a consumer proposal. A consumer proposal in Ontario is an agreement between a debtor and their creditors to restructure the debt, potentially reducing the amount and agreeing to a new timeline.
In addition to filing consumer proposals in Ontario, Licensed Insolvency Trustees like David Sklar & Associates can also provide you with credit counselling to learn how to better manage your credit in the future.
#4 Student Debt
In Ontario, 13% of people who filed for bankruptcy still had student debt at the time. As the cost of tuition increases while salaries stagnate and relevant employment becomes harder for graduates to find, student debt quickly spirals out of control. Student debt is one of the forms of debt that is not erased by bankruptcy, (until seven years have passed since the date you last attended school, though a Trustee will explain this in further detail).
Although mortgages are not covered by consumer proposals Ontario residents are not entirely out of luck if they struggle with mortgage payments. A consumer proposal can help them reduce payments on other, unsecured debts so that they can focus on paying their mortgage.
If you’re underwater, or upside down on your home (which means that you owe more on your mortgage than the market value of your home), you should look carefully at your options. Bankruptcy may work as a last resort to protect your other assets, but you should first consult with a Licensed Insolvency Trustee like David Sklar & Associates to discuss your other options.
You can find out if a consumer proposal in Ontario is the right solution to help you manage your debt by having your situation reviewed by a Licensed Insolvency Trustee. You can find a quick assessment form at Davidsklar.com to begin the review process. Don’t let debt run your life; you can recover from any financial crisis with the right plan and the right help.