TRUMP PRESIDENCY – INTRODUCTION
As we head into the year 2017, we are faced with the possible consequences of a Trump Presidency; consequences that will reverberate throughout the world. Trump will certainly have an impact of the geopolitical landscape, but the economic impact of his administration will be even more acute, particularly within countries with high levels of household debt.
One of the most significant impacts of “Trumponomics” will be on interest rates. President Trump has promised a massive infrastructure rebuilding program in the United States of $1 Trillion dollars. This has already had an impact on the bond market – yields have increased due to expectations of inflation. This in turn is increasing interest rates on fixed rate mortgages.
People living in heavily indebted nations such as Canada will start feeling the pinch in 2017. As Canadian interest rates creep up, so will the mortgage payments of Canadian households as mortgages come up for refinancing. Higher interest rates will also make it more difficult to borrow, thus having an effect on the housing market, leading to a possible decline in home values. In short, people in Canada will start feeling a lot poorer and as a consequence, will start spending less money. Over the medium term, this will have an impact on the economy as a whole, leading to a possible recession and job losses.
So as we Canadians brace ourselves for this possible outcome of a Trump presidency, (i.e., increasing interest rates leading to increased debt payments, a slowing economy and risk of job loss), what can we do to prepare for the worst?
Well, we can obtain knowledge of our legal options to deal with our debts if they happen to get out of control. Let’s examine these options in turn:
Credit counselling is offered by certified non-profit credit counselling agencies throughout Canada. They offer what is called a Debt Management Program. Under a DMP, the agency will work with the client to consolidate her debts by having her make one payment to the agency which distributes the monies to her creditors. The expectation is that the client will pay off her debts in full, but over an exteneded period of time (usually up to 60 months). The agency will also attempt to have the creditors reduce the rate of interest charged on the outstanding debt or have them stop accruing additional interest altogether.
This sounds great, but the downside is that DMPs have a negative impact on a debtor’s credit rating. If someone files a DMP, her credit rating will be at an R7 for the duration of time it takes her to pay the DMP in full.
Filing a consumer proposal in Canada is a method of facilitating a legal settlement between a debtor and her creditors under the Canadian Bankruptcy and Insolvency Act with the assistance of a Licensed Insolvency Trustee. She will meet with the Trustee who will conduct a financial assessment of her circumstances. The Trustee will use his experience to determine what settlement the debtor can afford to pay that will be acceptable to her creditors. A consumer proposal can be paid as a lump sum settlement, or the settlement amount can be paid on a monthly basis over a maximum period of 60 months.
A consumer proposal is only available to someone that is insolvent. That is, if a debtor sells all of her assets for cash and she still doesn’t have enough to pay off all her debts, she is by definition insolvent.
Moreover, a consumer proposal will have a negative impact on a debtor’s credit rating. If someone files a consumer proposal, her credit rating will be at an R9 for the duration of time it takes her to pay her proposal in full.
Filing for personal bankruptcy in Canada is a last resort for someone facing financial difficulties. When someone files for bankruptcy, she is voluntarily assigning her assets to a Licensed Insolvency Trustee who must liquidate these assets for the benefit of her creditors. Although that is a general rule of thumb, there are many exceptions to that rule:
Throughout Canada assets such as personal use vehicles , RRSPs, life insurance policies, and pensions, will be exempt from seizure by a Trustee. The circumstances in which these exemptions will apply vary from province to province.
We are heading into uncertain times – the world is changing quickly and unexpectedly, including our finances. We hope that this information will empower you to deal with any bumps on the road as we head into 2017.