What should I do?
This is the fourth part of our series on the analysis of options to deal with debt. Further articles will change one or two variables to see how reasonable options differ depending on circumstance. If you wish your situation analyzed, send us your fact pattern.
The situation:
Personal
Jack is 38, married with no children, and nets BC's average wage of $3,095 monthly. His spouse brings home $2,200 monthly.
Debts
In addition to $31,000 on credit cards, $4,000 to a bank, and $2,000 for MSP, Jack now has an income tax debt of $215,000. In total, his debts are $252,000. His tax debts arose over several years when he was a sole proprietor and did not pay taxes.
Assets
Other than a financed auto, Jack has nominal assets.
Cash Flow
Jack's car costs him $850 monthly for payments, insurance, gas, etc. After rent of $1,100 the household has $3,345 for food, debt payments and everything else.
Jack does not want his spouse to be liable for his debts, and none of his debts are joint. He thinks he could pay about $700 monthly towards debt.
The options:
Hang in there
CRA has enhanced collection powers. After it has assessed Jack, if a suitable payment plan is not established then CRA can seize bank accounts and “garnishee” wages. If he owned his home CRA would lien it.
Seek a consolidation loan
A consolidation loan will not be available and would be too costly anyway.
Consumer proposal to creditors
The CP is an option available to individuals unable to repay debts totaling less than $250,000. It is okay if there is an additional debt for a mortgage on a principal residence.
Making a proposal through us stops any creditor activity. To accept any proposal, CRA will want a sizeable recovery against this debt – probably 40% and perhaps more depending on Jack's conduct and compliance with the Income Tax Act. Jack would have to pay over $100,000 to avoid a bankruptcy filing. At this cost, Jack will seriously consider other less expensive options where he could obtain a fresh financial start earlier.
Bankruptcy
This is Jack's most reasonable option. His required payments for 21 months would be $787 monthly and would vary depending on different factors during his bankruptcy.
He is known as a tax debtor under section 172.1 of the Bankruptcy and Insolvency Act because his tax debts exceed $200,000. This requires the Court to review his circumstances as to how his debts arose and his prospects regarding future income and then to decide whether Jack must pay further monies before he will be free from his debts.
Overall, this is a reasonable cost for Jack to deal with $252,000 of debt.
Let your debts go
If you have too much debt I can get you headed in the right direction. Contact me at
ken@debtsgo.com. You're only a click away from financial security and freedom from debt.
604-531-4186, www.debtsgo.com
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