Watch where the cash goes to avoid debt, says insolvency trustee

A P.E.I. insolvency trustee says when people reach the point of coming to him for help, it's usually something unforeseen that has forced them into that position.

"It takes people a long time to get to my office. They've struggled a long time," said WalterMacKinnon,vice-president withMNPLimited.

"The debt problem owns them 24 hours a day, seven days a week."

MacKinnonsays people in thatsituation come looking for a life-changingsolution.

There were 126,000 bankruptciesand consumer proposals in Canada by the end of June, including 700 in P.E.I.

"(Consumer) proposals are becoming more frequent and I think that's because it's a win-win for the creditors who are trying to, of course, get their debt paid and the debtors who are struggling to pay that debt."

MacKinnonexplained a proposal is a way for debtors to settle their debts. The debtor and an insolvency trustee will go to the creditor with a plan.

"Generally you will say something like, 'I can't pay these debts but I have a plan. I can pay so much a month over a period of time.'"

MacKinnonsaid it is demonstrated to the creditors how much they'll receive under the proposal, adding the amount isusually significantly more than if the debtor went bankrupt.

"It becomes a business decision for the creditors," he said. "Do I take a proposal that will return more to me than would the case in a bankruptcy?"

Both on credit file

MacKinnonpointed out both a bankruptcy and an insolvency will end up on your credit file.

"Proposals are on your credit file for three years from the time you finish the proposal. Bankruptcies are on your credit file, if you've never filedbankruptcybefore, for seven years from the time you finish your bankruptcy."

He said creditors like to see that a debtor has tried to solve the debt rather than go through the bankruptcy process.

"People get into debt for all kinds of reasons. Some people make decisions that in hindsight theywished they hadn'tmade."

MacKinnon said other reasons people get into debt can include illness, death, loss of job, and more.

He provides assistance with budgeting is provided as well as tips on financial management.

"We help them with some tools so hopefully it will not return them to a situation where they have too much debt."

MacKinnon said people need to "follow the cash:" watch what they spend and where they spend it.

"Following the cash by doing a budget will help people do wonders getting their debt under control."

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