Traps To Avoid!

Whenever people find themselves with financial problems, they look for options and sometimes base their decisions on representations that are wrong. Sometimes a well-meaning friend will provide them with advice that in hindsight is wrong. There are a number of matters that you should be aware of, and you should exercise appropriate caution when faced with these matters.

1. Consultants

During the last five years, the Edmonton area has seen a lot of people claiming to be trained in solving financial problems. Many do little more than extract a fee from people in financial difficulty for referring them to other professional advisors. Without exception, most legitimate consultants are prepared to meet with you to discuss your situation to determine if they can help you without charging you for their time to conduct the initial assessment.

As a general rule, people in financial difficulty should steer clear of anyone who wants a fee to discuss their problems or who wants to be paid a percentage of debts that they are able to negotiate away.

If you are dealing with someone who you are not certain about, ask them for references from people with whom they have dealt with and discuss their qualifications with them. Do not be afraid to discuss their recommendations with other advisors to be sure that what they are telling you is in fact true. Remember that if what they are telling you seems to be too good to be true, it likely is. Do not let yourself be fooled!

2. Secrets

It is impossible for a financial advisor to advise you about your assets or financial situation if you do not disclose all of your assets or liabilities. Secrets will always come back to haunt you. The majority of horror stories that you may have heard about any of the options are typically the result of people not disclosing their assets or liabilities to their advisor (regardless of what they tell you happened). The options are designed to help “honest but unfortunate debtors” not to punish them, so as with everything else in life – honesty is the best policy.

Anytime you propose a settlement to your creditors, it is possible that you may have to swear a declaration about your assets, liabilities and income. Most settlements will be void against the creditors if you are not honest about your assets, liabilities and your income. Most people with financial problems do not need more problems associated with swearing a false statement. Perjury is a criminal offence.

When you are discussing problems with someone who is trying to help you decide what option is best for you, you are protected because the meetings are confidential. They cannot advise you about your situation if they do not know about your situation.

Being truthful with your advisor is not the end of the world. If you do not like the advice you receive, and you wish to file with another advisor, there is nothing stopping you. Most financial advisors will return originals of any notes they make during the interview if you request the return of notes at the start of the meeting.

If you are really concerned about disclosing your finances with an advisor, you should discuss your concerns with your solicitor first so that you may understand the effects of such disclosures.

If anyone giving you advice suggests that you should not tell your financial advisor about your assets, liabilities or income, it’s time to start looking for another advisor.

3. Deadlines or Pressure to Make a Decision

There is nothing wrong with asking questions before you make a decision.

There is nothing wrong with asking any advisor for another meeting so that you can collect your thoughts and formulate your concerns so that you can be properly advised.

If you make a decision because you feel pressured into making the decision, it is quite likely that you may have made the wrong decision.

In the general scheme of things, the only thing that you would have to react to quickly is to stop a garnishee from being placed against your wages or a Revenue Canada Writ against your property. Your creditors would be in a position to garnishee you only if they had obtained a judgement against you personally. The judgement against you in favor of your creditor by the Court is necessary before a garnishee can be filed.

4. Credit Ratings

Most people who seek advice regarding their financial situation are concerned about their credit ratings. Many do not realize that prior to talking to a financial advisor, they may have already ruined their credit rating. Something as simple as having your debt sent to a collection agent could have resulted in you being rated as a bad credit risk by the creditor referring your debt for collection.

Once you have a negative rating on your credit bureau it is very difficult to redeem your good credit rating. The credit bureaus record your credit history and even though a debt may be repaid or settled, the fact that you had difficulty with the credit will remain on your credit history for the standard period of that bureau (typically this period is six or seven years).

The various alternatives available to a person experiencing financial difficulty that involve restructured payments, reduction in debt or interest, or write off of your debts will hurt a perfect credit rating.

In our opinion, the effect on changes in credit ratings among the alternatives is not significant.

Your creditors or potential creditors realistically have only two positions: your credit is good or it is bad.

You cannot repair a bad credit rating with more credit! The fact that you have honored payments on a leased vehicle or been able to get by on a secured credit card will not guarantee that your credit rating will be improved.

The only way to repair a bad credit is to avoid new credit and try to establish a new relationship with a financial institution that will appreciate doing business with you. It is a good idea to routinely review your credit reports to make sure that the items being reported about you are accurate. Sometimes old entries about your past credit are reported as current credit problems.

One final important point about credit ratings and credit is that your credit rating is only one factor that a lender considers when evaluating you for a loan.

One of the other major factors that is considered is your “debt service ratio”. If your credit is perfect, you may have so much debt that the lender believes you cannot afford more debt or even to pay your current debt, and they will not lend you any more money because they do not believe you have enough income to pay the new debt. If such is the case, the only way that you will be able to get new credit is if you pay down your existing debts or somehow increase your income. Many other factors are also considered when evaluating you for a loan, including: marital status, occupation, time at your current employer, annual income, family situation, etc.

Sometimes a creditor will use your credit history as an excuse for not giving you new credit because it is easier to quote a report prepared by someone else than it is to discuss the real reasons why your credit application was refused.

5. Monies Owing to Canada Revenue Agency

The government has legislated itself powers to file writs against properties of taxpayers who owe them money. The Writ is very powerful security, if registered before you take formal protection, it remains a secured charge (subordinate to existing charges) and will have to be paid. People with large Canada Revenue Agency debt should explore their options in a very expedient manner. The Writ does not destroy the provincial exemption protection.

Canada Revenue Agency has a program that will write off unpaid interest and penalties if such amounts could cause a person to consider bankruptcy. The program is called the “Fairness Legislation ”. People with serious tax problems should be wary because the program contains no assurances that Writs will not be filed against the properties of the people seeking fairness and there is no stay of proceedings to stop Canada Revenue Agency from taking action against the taxpayer while the fairness request is being considered.