Tips to Avoid Insolvency During A Recession

It’s a hard time for many Canadians right now. The rising cost of living is hitting many people hard. The soaring inflation rates and skyrocketing energy costs have led many financial experts to predict Canada will enter a recession in the first quarter of 2023.

Although Canada may fare better than many other countries worldwide, such an economic downturn can hugely impact workers, small businesses, and families. Companies must tighten their belts, leading to higher levels of unemployment. At the same time, the resultant drop in spending can force small businesses to shut their doors for good.

If you are struggling with debt, you may be worried about the impact of the coming recession on your ability to pay the bills and keep your household afloat. Perhaps you are having difficulties finding employment, or you’re worried you might lose your current job. Or the rising costs of everything from food to fuel make it increasingly tough to meet your debt repayments. In the worst-case scenario, you could face insolvency, whereby you cannot pay your debts. The following guide will examine the steps you can take to avoid becoming insolvent during a recession.

What is insolvency?

Insolvency is a state of financial distress in which a person or business cannot pay off its debts. It often leads to insolvency proceedings, where the individual’s assets may get liquidated, and they get forced to file for bankruptcy. Other options are available, such as filing a consumer proposal. Still, the best course of action is to avoid insolvency altogether. When the country is in a recession, those struggling with their finances are more likely to end up in debt, but there are ways you can protect your assets and remain solvent.

Tips to avoid becoming insolvent

Manage your money: Everyone must tighten their belts during a recession, and it’s a good idea to look at where your money is going. If your debts result from risky investments, careless spending, or excessive borrowing, you should address the root cause. Create a budget to track your finances and have complete visibility of your financial situation. Try to save money where possible and do your best to meet your scheduled debt repayments.

Resolve any errors: If you are getting chased for a debt you don’t think you are responsible for, you must rectify the issue as soon as possible.

Disputing a debt is appropriate if:

You believe you have already paid the debt in question.
The account is in another person’s name.
You disagree with the amount.
Or the time limit for debt recovery has passed.

If the debt is erroneous, contact the creditor immediately to sort things out. If you are genuinely not responsible, they should stop chasing you. You may need financial advice to determine whether you are responsible for payment.

Negotiate with your creditor: Many creditors are reasonable and amenable to negotiation. Still, they will assume you don’t want to pay if you don’t maintain lines of communication. Get in touch and explain the difficulties you are having. They will undoubtedly appreciate the transparency and may be able to provide alternative options or payment plans to help you.

Consider other options: The threat of insolvency can be scary, but other options are available if you feel you cannot pay off your debts. By contacting a Licensed Insolvency Trustee, you may benefit from a debt repayment plan or a consumer proposal to help you move forward while protecting your assets. Sometimes, the best solution may be to file for bankruptcy and clear your debts. Your Licensed Insolvency Trustee will be able to evaluate your finances and help you arrive at the right solution.

In conclusion, there are so many things you can do to improve your financial situation and make it easier to pay off your debts in a recession. By following these tips, you will be better equipped to avoid insolvency. If you are struggling with debt and need help to avoid becoming insolvent, get in touch with Fox-Miles and Associates for a free consultation.