WARNING: This is a very long post but worth the read for people having troubles.
I just finished reading this thread from start to finish and a lot of the advice being provided is, in my opinion off base.
Before I begin, prior to joining the regular force I worked in the financial services sector. I was a loans officer at CIBC (the guy you would go to for a consolidation loan). Afterwards I worked as a senior account manager, then financial planner with RBC Investments, and finally an Investment broker with TD Waterhouse… This is my lane!
I DO NOT KNOW WHAT ANY OF THIS WILL DO TO YOUR APPLICATION TO JOIN THE CF. THIS IS JUST A STATEMENT ABOUT HOW DEBT AND BAD DEBT WILL AFFECT YOU AND MY ADVICE ON HOW TO DEAL WITH IT IF YOU ARE THAT FAR GONE.
Here is the deal. You cannot qualify for a consolidation loan if you do not have the income to support the monthly payment that said consolidation loan would require you to make. If you are unemployed, or you are making minimal income, NO FINANCIAL INSTITUTION will help you, even if it is in their best interests.
Furthermore, if you are already having trouble making payments it is too late. Reason being, each month, each institution you owe money to reports to the credit bureau, either Equifax or Trans Union Credit. They report the status of your loan. R1 or I1 means you are up to date and no issues. R2 or I2 means you are 30 days late and so on…
Once you fall into R2 and beyond your credit rating has just taken a beating and nobody is going to lend to you at reasonable rates. Citibank Financial MAY chose to lend to you if you have an income but they are going to charge you 30% interest. It’s just not worth it. They engage in high risk lending so they charge higher rates to compensate.
You can try to call the institutions you owe money to but I can already tell you how that’s going to go. They will not budge at all. Trust me folks, I have tried this for clients time and time again, and no dice. It’s not going to happen. HOWEVER, what will happen is they will get fed up with you and send your file off to a collection agency. Here is what that means.
Let’s pretend you owe $1000. They will sell that loan to a collection agency for say $750. The collection agency will then try to collect the full $1000 from you. All of these agencies are different. Some are nice and reason with you, others will try to intimidate you or your spouse with financial repercussions. But, they will often entertain payment proposals. But here is the problem, once it gets to this point it’s already too late!!!!
You will be showing up as an R9 or I9 by the original company that you owned this money to. So no matter what arrangement you make with the credit agency, your credit rating is finished. However, if you cooperate with the collection agencies they wont report you as a collection debt, which is another thing altogether.
Now on to consumer proposals… Its simple, DON’T EVER EVER EVER do a consumer proposal. Here’s why. By doing this, your consumer proposal reps will take control of your affairs, and they will approach the financial institutions you owe money to and MAKE things work. (If you are unemployed this won’t work, you simply don’t make any money, how are you going to repay any arrangement?) When I say MAKE things work, they will negotiate in good faith, failing that they will use the courts to IMPOSE a payment arrangement on the institutions you owe money to.
What does this mean?
Those companies will stop bothering you, or won’t refer you to collection agencies. HOWEVER, you will be stuck paying back all of this debt over a VERY long period of time and your credit score will be RUINED. And it won’t bounce back until AFTER you have repaid the dept in full. Bad bad bad.
There is zero benefit to you in a consumer proposal, but lots of benefit to the company you owe money to.
If your situation is bad enough to warrant a consumer proposal then declare bankruptcy.
Here is what happens if you do this.
You approach a bankruptcy trustee. They go over all your information. Tell them EVERYTHING. Do not leave any debt out, make sure they know it all, this will help you later. After they review your case, they will advise you on weather this is a reasonable option for you. If it is they will move forward.
You will have to make monthly payments to them for approx 7-9 months. The money they receive from you (usually quite minimal) will be divided up and given to the institutions you owe money to. After this 7-9 month period, you will be discharged. What this means is that you are no longer legally required to repay this debt. In effect, after completing the discharge period on your bankruptcy you are debt free. And, your credit is ruined.
See where I am going with this? In either case, be it a consumer proposal or a bankruptcy your credit is absolutely ruined. You have absolutely nothing to gain financially (personal feelings on debt are an altogether different matter and I have zero interest in discussing them, I’m talking only cold hard financial fact) by doing a consumer proposal. By declaring bankruptcy, you will rid yourself completely of your debt (note there are a few exceptions, certain student loans depending on how long you have been out of school and other items may not be included in this), and are now able to start over, however your credit is ruined.
No major Canadian bank will touch you until at least 2 years after you have been discharged from a bankruptcy, some of them longer then others but 2 years is the absolute minimum. So don’t expect to borrow anything in that timeframe. But you should not want to borrow anything after your ordeal so this part is not so much of a concern.
You are now free to start rebuilding your credit once discharged. The problem is, finding someone to do business with you. With a consumer proposal there is no repairing your credit until after that bad debt is paid, and that takes a long long time.
The good news is there are places that will do business with you once you have been discharged from bankruptcy. Capital One Canada Inc will issue you a MasterCard. Here is what will happen. You will apply, and be honest about your situation. They will either approve you for a $500 dollar card, or they will decline you and automatically offer you a secured card. What this means is that you give them $500 and they use this money to secure against your card. You will now have a $500 MasterCard to use. If you fail to repay for any reason, they use your $500 to pay off your debt. No risk to them, so they are willing to do it. You start using your new MasterCard and you make sure to make your monthly payments on it on time. Better yet, pay the balance in full every month. Within a year or so if you have been a good boy or girl with your credit card they will give you your $500 back and you will have re-established a moderate credit rating and the major banks will start looking at you again.
NOTE: DO NOT GET A CARD FROM CAPITAL ONE UNLESS YOU ARE EMPLOYED. There is no point in getting a new credit card if you cannot make the payments because if you screw up this opportunity to rebuild your credit, you are absolutely finished.
If you are employed and get a new card and then lose your job call Capital One right away and tell them to cancel your card. They will use your $500 to pay off whatever you owe and mail you back the remaining amount and no harm done. DON’T WAIT UNTIL AFTER YOU ARE HAVING TROUBLE MAKING PAYMENTS TO DO THIS!!!!!
Aside from Capital One, there is one other company that will make a similar arrangement for a credit card. I forget the name of the company; I will look it up and get you the info. They offer a visa. It is a $1500 card. You mail them a money order for $1500 and they give you a visa for that amount. They use your money to secure the card just like the previous example. You can do one, or either or both. Doing both is not a bad idea; it will help rebuild credit faster however you MUST make prompt payments. You cannot mess this up. The more of these programs you enter the faster your credit can rebuild but the more opportunity to screw up and forget a payment is also present. Chose wisely and don’t screw it up.
You can also approach your local credit union and make a similar arrangement with a small loan. The beauty with this is you don’t need to come up with the money to start off with.
Here is how it works. You talk to the loans officer and are COMPLETELY HONEST WITH THEM. Tell them what happened. Tell them you are discharged (don’t try this until you are discharged) and tell them you want to rebuild your credit. They will accommodate you. What they will do is issue you a small loan. Start off with $1000. So they give you a $1000 loan, but they do not give you the money. They take the money and invest it in a Guaranteed Investment Certificate (GIC) and secure this GIC against your loan. You earn interest on this GIC however the interest you pay on your loan is greater. But it is a small loan and you will usually only take a 6 month – 1 year long term. The interest you pay will be negligible, and the interest you earn on your GIC will be even more negligible. But the point is you now have a loan to repay. DO NOT SCREW THIS UP!!!! Make your monthly payments promptly. Pay off your loan properly. If you lose your job or get into trouble go straight to your loans officer and tell him to repay the loan with the GIC right away. He will do so and give you what is left on the GIC. No harm done. It’s a risk free adventure for them and it’s a win situation for you as long as you don’t screw it up. Once you have repaid your loan in full they will release that $1000 GIC to you. Consider it a savings plan.
Again if you are unemployed don’t bother. Get a job first and then start doing this.
If you get one of the above mentioned credit cards and one small loan from your credit bureau, you will re-establish your credit within a few years and you are back in business.
You cannot do any of this if you do a consumer proposal. BAD BAD BAD, stay away from these.
Six years after the date of discharge the bankruptcy will no longer show up on your credit rating and will no longer have any negative impact, unless of course you screw up again. But if you do things properly as I have stated above your credit rating will be established before the six year mark.
This is just a basic overview of what you need to know if you are starting to have trouble, and what everyone else should know before they start getting into trouble in the first place.
Once again, I cannot say what impact any of this will have on your application to join the CF. What I can tell you is that a bankruptcy will not prevent you from gaining a security clearance in of itself. However, if you have gone bankrupt and don’t take appropriate measures or are still a big mess with your finances, then you are likely screwed.
If you end up having to go bankrupt twice, then I have no sympathy for you and am not interested in providing any help or advice. But aside from this statement, know that everyone makes mistakes, and unfortunately some of them get into trouble with their debt. It is not the end of the world and it will not cancel your life. You can rebuild and bounce back. Don’t hold your head in shame just don’t make the same mistakes in the future and live happily ever after. It happens to the best of them. Many of my clients had it happen to them. I’m not saying this to justify unnecessary bankruptcy, rather, I know from first hand experience with clients how mentally and emotionally stressful it can be. It doesn’t have to be that way if you take the right action and deal with things properly. If you have specific questions send me a PM. Chances are I will know someone in your neck of the woods that may be able to help you.
A note on buying a house:
A mortgage is a secured loan against your house. Typically this is the easiest type of loan to qualify for as it presents little risk to the banks. If you go bankrupt you WILL be able to buy a house in the future. Usually around 2 years after you are discharged you will be eligible for a mortgage again. If you are able to come up with a 25% down payment, meaning if your house costs 100,000, you come up with 25,000 down, then you will avoid CMHC and approvals are easier. If you cannot get that much money together, you can still get qualified but CMHC will make it more difficult for you and you will be stuck paying a higher interest rate. But it is still doable. I have approved many mortgages for people who have been bankrupt.
