Finance
Moneywise
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Cletus
Castelino, bia credit counsellor, can be rached at
905-848-0006.
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What
is insolvency?
No one begins their financial lives ex-pecting to end up insolvent.
Most believe that hard work will eventually
reap financial rewards that include amassing wealth, providing
for the family and retiring comfortably.
Many of us, if we look closely at the legal
definition of an insolvent person as defined by the Bankruptcy
& Insolvency Act (bia), have at some point in our lives
been insolvent. This means that you have owed at least $1,000
and were unable to pay your bills when they became due or stopped
paying the debts altogether, and selling your assets would not
have covered your debts.
Most of us start our financial lives with few
assets and need to rely on other's money or credit to provide
us with our needs for example education or a home
that would otherwise not be obtainable. This results in a taste
of insolvency.
When does insolvency move from a momentary
state in one's financial life to a point of no return? There
is no simple answer simply because the causes can range from
basic misuse of credit to low self-esteem and addictive personalities.
The severity of the debts can range from a few hundred dollars
to hundreds of thousands of dollars owed to many creditors.
Section 2 of the bia defines an insolvent person
as someone who is not bankrupt and who resides or carries on
business or has property in Canada; whose liabilities to creditors
provable as claims under this Act amount to one thousand dollars
and who is for any reason unable to meet his obligations as
they generally become due, who has ceased paying his current
obligations in the ordinary course of business as they generally
become due, or the aggregate of whose property is not, at fair
valuation, sufficient or, if disposed at a fairly conducted
sale under legal process, would not be sufficient to enable
payment of all his obligations, due and accruing due.
Most people try a number of options before
turning for help with their debt problem. Taking personal loans
from family and friends, cashing in their rrsps, mutual funds
and other investments; approaching their banks to obtain loan
consolidations or lower interest loans to replace their higher
interest charge cards and loans; taking a second or third mortgage
against their home or borrowing against their business, vehicle
or other fixed properties are some of the typical ways in which
a debt-ridden family attempts to cope with an ever-increasing
debt load.
Generally, these solutions turn out to be ill-advised
in scenarios where spending habits do not change with the increasing
need to curb expenditure. Add to this a cyclical and often unexpected
lowering of income because of a shrinking economy, and families
and businesses find their debts becoming a burden.
Now, like most, these use credit to pay for
credit. The symptoms of a point of no return insolvency become
clearer as the financial situation of the borrower becomes bleaker.
