In keeping with November being Financial Literacy Month in Canada, Blair Mantin joined Vancouver’s Breakfast Television for a segment debunking his top four myths and misconceptions about debt, and shares how they can end up costing consumers money.
Licensed Insolvency Trustee Blair Mantin’s Top 4 Myths and Misconceptions about Debt:
Myth #1 – “When you marry someone, you also marry their debt.”
- Many people think that spouses automatically become responsible for each other’s debts, based on getting married or being classified as in a common law relationship if they have cohabited for more than 2 years…but there is actually no automatic liability created solely by virtue of marriage / common law status!
- The only way you end up owing your spouse’s debts, is if you legally sign to be responsible for them, so be sure to always read the fine print. For example, many people get caught unaware that getting a supplementary card on a credit account can create a joint liability.
- It’s very possible for one spouse to deal with his or her financial issues while having zero impact on the assets and credit rating of the other spouse.
- Even if one spouse files a bankruptcy in Canada, this does not mean their partner must do the same!
- Often the worst possible decision for a couple is to use the assets of one partner to pay off debt of the other. Essentially the couple has then given the creditor access to funds they would otherwise have had no claim to!
- Always carefully consider the long-term impact of using assets to pay off debt – they may be needed in future to invest in the family’s financial well-being.
Myth #2 – “When you owe someone money and can’t pay, they can harass you forever.”
- Owing money is stressful, and the psychological and emotional toll can be devastating. If you’re genuinely unable to pay your debts, many people are worry they will need to ‘look over their shoulder’ for the rest of their lives in case a collector pops back up and demands payment for an old debt.
- The law sets out a statute of limitations for many things in life, and debt is one of them!
- The BC Limitations Act sets out the period of time an individual would need to be concerned that collectors could take legal action against them. Legal action doesn’t mean you’ll be thrown in jail – it just means that your creditors can try to seize your assets or, if you’re working, seize your income.
- The timeframe creditors have to take action is actually quite short – just 2 years from the date of your last payment. If 2 years passes and they haven’t taken legal action against you, they lose the right to ever do so.
- Be careful with dates! The 2-year period runs from the date of your last payment. If you know you can’t pay the debt, it may be better to stop making payments, rather than making partial payments each month that extend the limitation period further into the future.
Myth #3 – “Your credit rating is a great indicator of your financial health.”
- A credit rating is essentially a financial report card used by lenders to determine whether they will loan money, and at what cost. Just about every Sands & Associates client seeking answers on how to get out of debt is concerned about their credit rating – often for good reason.
- The problem is, habits that drive a high credit rating are often completely at odds with habits that lead to financial success! A credit rating mostly just measures whether you pay your bills on time – it considers nothing about whether those bills are too high or if you have any assets at all.
- Consider the example of an individual who owns a house in Vancouver with no mortgage and pays for everything with cash. That person would have zero credit rating – they are not using the bank’s credit products. Compare that to the clients we see at Sands & Associates – more than 70% of people filing for bankruptcy have great credit! They are making all their payments each month, but often these payments are only being made by shuffling money from one card to another! Who would you rather be?!
- It’s important to realize that your credit rating can change over time – people can rebuild their credit in as little as 2-3 years, even after filing for bankruptcy.
- It’s often a better choice to take a short-term hit on your credit rating and rebuild, rather than try to preserve perfect credit, especially where it means incurring large interest costs each month to do so.
Myth #4 – “If you owe the government money, there’s nothing you can do.”
- If owing money on a credit card is stressful, owing the government money can be a whole other ballgame! Whether it’s income taxes, GST, student loans or MSP, the government has more tools at its disposal than any other creditor to collect what they are owed.
- The government does not need to sue in order to start seizing assets or wages – they can surprise you out of the blue if you default on amounts owing to them.
- There’s often little to be gained by negotiating directly with a government agent – they don’t have the authority to reduce the amounts that you owe, regardless of how dire your personal circumstances may be.
- There is hope, however! Every year tens of thousands of Canadians successfully ‘make a deal’ with the government on outstanding amounts owing, without filing for bankruptcy:
- A Consumer Proposal, which often provides for debt repayments as low as 20-30% of the outstanding balance, with no future interest, can be used to deal with government debts.
- Consumer Proposals are successful in more than 95% of cases and are legally binding on government debts, the same way they are legally binding on credit cards, lines of credit, payday loans etc.
- Only a Licensed Insolvency Trustee can file a Consumer Proposal for you.
More about Sands & Associates:
Multi-year Consumer Choice Award winners with a network of office locations throughout British Columbia, and over 29 years of experience providing real people with real solutions to get out of debt – we are Sands & Associates. We understand that the decision to deal with debt can be overwhelming and often confusing…we also understand that there are more debt solutions in Canada than filing for bankruptcy.
If you’re ready to leave your debt behind you and gain a financial fresh start, contact us today to book your free confidential debt consultation. There is no obligation or commitment required – all you have to lose is your debt!