Types of Debt

Tax Debt

In Canada, tax debt is a colloquial term for monies owed to municipal governments, provincial governments or to the federal government. This can take shape in many forms, such as but not limited to: Personal income tax, corporate income tax, GST/HST payments and remittance, benefit overpayments, property tax etc.

The Canada Revenue Agency (CRA) is the government body which handles the collection and intake of Federal tax for the country and Provincial tax for all provinces, excluding Québec. The CRA has certain powers given to it under the Federal Income Tax Act and Excise Tax Act, which allow it special recourses to recover tax debt, over and above what would be available to most creditors. Certain types of tax debt can be absolved through filing a Proposal or a Bankruptcy. If this applies to you, contact us right away to discuss how.

Payday Loan Debt

Payday loans are short-term, high-interest and high-cost loans, which are to be repaid upon receipt of your paycheque. The applicable interest rates have been known to exceed 300% APR in Canada. Due to the nature of these loans, it becomes very difficult to exit a payday loan cycle as they will encourage you to re-borrow after repayment and, if they are not fully repaid on time, will be subject to added fees. In Ontario, payday loan lenders are provincially licensed and regulated by The Office of the Consumer Affairs – Consumer Protection Ontario and operate under the provisions of the provincial Payday Loans Act.

Personal Loan Debt

A personal loan is money lent to you by an individual with or without conditions, whereby an understanding or an agreement of future repayment exists. This is not to be confused with a gift. These loans can also be secured or unsecured. Generally, personal loans are legally enforceable and may be included in a Proposal or Bankruptcy.

Credit Card Debt

Credit cards are revolving credit products, by which you are given a credit limit, and any credit you have spent within your limit will not be available again until it has been repaid. Your monthly charges to the card must be repaid in their entirety by your statement due date to avoid incurring purchase interest, which can sometimes be in excess of 20% APR. You can also take out cash advances on a credit card, which are immediately subject to interest. Credit cards are a notoriously common form of debt, as failure to repay the full monthly amount – such as only making the minimum payment, has been known to create cycles of debt as payments towards the recurring interest charges do not deduct from the purchase balance.

Financial Contracts

A financial contract is a binding agreement between two or more parties, for the purpose of exchanging money on mutually agreed-upon terms. It may also extend to real property or chattel (movable property) pledged as collateral, also known as a security, to guarantee all or a portion of the debt. Examples of these financial instruments include car loans and real property mortgages. It is a common misconception that the terms of financial contracts can be fulfilled by simply returning the collateral. For this to exist, the value of the collateral must exceed the balance of the contract. A lender may also exercise their right to redeem the collateral, in the event that the terms of the contract are not respected.

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