It is safe to say Canadian’s didn’t need the help of a pandemic to plunge them deeper into personal debt than at any time in history.
At the end of 2019, before Covid-19 even appeared, Canada had one of the highest consumer debt-to-income ratios in the world – already a bad sign
Now experts are warning that we are rapidly approaching the debt deferral cliff – fueled by government bail outs simply delaying the inevitable crash – and it may already be too late to avoid the worst economic collapse ever.
Why mortgage deferrals and CERB will not help
Millions of Canadians were forced to take government bail outs and defer mortgage payments to avoid instant insolvency – a sign of how precarious the debt situation already was for many people.
The problem now is that many people were already on the cusp of bankruptcy, which has simply been delayed by mortgage deferrals and 12 months of government bail outs
At some point, debt needs to be repaid. Lenders, be it the government or the major banks and other financial institutions will, in the near future, expect consumers to meet their mounting debt obligations. When this happens, economists predict an unprecedented surge in people effectively becoming insolvent.
How exactly does a debt write off work?
Whilst the Canadian government doesn’t write off people’s debt for them, it does legally recognize and regulated certain methods for reducing debt for those in need.
A Consumer Proposal is a popular method that involves striking a deal with your creditors to pay back as little as $0.20 on the dollar amount you owe. A licensed Insolvency Trustee will negotiate this on your behalf until you end up with a small, affordable monthly payment that is interest free and will bring your debt down to zero.
You might be wondering why credit card companies and banks would agree to write off the debt you owe for a fraction of the total. Quite simply – if your situation is bad (i.e. you are technically insolvent) then your creditors would rather agree to settle for something instead of getting nothing at all if you go bankrupt.
Why you need to act now
Alarm bells are ringing with financial experts and economists who are paying close attention to the situation and realize that a unprecedented surge in Consumer Insolvencies is inevitable in the last quarter of 2020.
With a limited number of licensed trustees and an already overwhelmed court system there is no way to know what will happen when thousands of people start applying at the same time.
The sudden stop in government funding and mortgage deferrals coming to an end is all going to happen at the same time and will likely coincide with the predicted second wave of the pandemic.
This means more job losses happening just as income assistance stops – a recipe for disaster.