What is sponsorship debt?
A sponsor is someone who has signed a sponsorship undertaking, promising to Citizenship and Immigration Canada to support relatives for a period of 3 to 10 years after landing in Canada so that they will not require social assistance from the government. If the sponsor`s relatives do receive social assistance from the government during this period then the sponsor (and any co-signors) will be responsible for paying this back to the government plus interest and any legal costs. This debt can accumulate to a very amount over the period of 3 to 10 years so serious consideration must be given before the signing of a sponsorship undertaking.
What happens when you default on a sponsorship agreement?
A sponsor will be referred to the Sponsorship Default Recovery Program if their sponsored relatives end up receiving social assistance from the government. Under this program the sponsor will be pursued for payment of the accrued debt (ie the total social assistance paid) and legal costs. This can be very stressful for the sponsor as they will receive numerous phone calls and letters regarding the debt and there is not time limit for bringing the case to court. The debt will increase as the sponsor`s relatives continue to receive income assistance and as further interest and legal costs are applied. The sooner action is taken the better.
If the debt is not paid within a reasonable period of time then under the Court Order Enforcement Act the government may take steps to recover the money owing by seizure of assets, garnishing of income and even by forcing the sale of the family home. The case may also be referred to the CRA for recovery by withholding the sponsor`s tax refunds.
Please watch this video to learn your rights when being pursued for debt payment:
When debt may be forgiven?
Under special circumstances beyond the sponsor`s control the debt may be forgiven. These circumstances may include and are not limited to the following:
- The relatives separated due to an abusive relationship. For example if the sponsor was abused by his or her spouse and no longer wished to stay in touch through fear for their safety.
- The sponsor was no longer able to work due to illness
- The sponsor is on Guaranteed Income Supplement
- Other extraordinary circumstances.
It is therefore very important for a sponsor to keep in touch with the provincial government advising them of any changed circumstances rendering it impossible for them to provide ongoing support for the sponsored relatives.
What are the options for addressing sponsorship debt?
Thankfully all is not lost for those with sponsorship deb debt. There are options and strategies to ease the debt payments and allow the sponsor to eliminate it completely.
A suggested action plan is outlined below:
- Contact the provincial government explaining why you were not able to continue supporting your sponsored relatives. The government may consider your circumstances to be extraordinary and offer some relief of the debt.
- If your circumstances are going to change and allow you to pay off the debt and continue supporting your sponsored relatives you may ask the government to suspend your payments for a period of time until things improve. For example you may be unemployed but have been offered a new job.
- Send the government a letter detailing your income and expenses and available cash flow to service the debt. This may then be used as a basis for negotiating a manageable payment plan to service the debt. Always present a solution in your communications with government collection departments and do not simply say you cannot pay the debt. This will improve your negotiating position.
- Seek forgiveness of the debt through filing a consumer proposal or bankruptcy. These two options are usually your last options and they will affect your credit but they will extinguish the sponsorship debt and allow you to move on.
Filing a Consumer Proposal or Filing for Bankruptcy
Under the Bankruptcy and Insolvency Act debtors may file a consumer proposal or bankruptcy to extinguish unsecured debts which they would otherwise be unable to pay-off. When a debtor files under this act a stay of proceedings is enforced stopping any legal action by the creditors, including the government in the case of sponsorship debt.
If a sponsor files for bankruptcy all his/her assets will be assigned to a trustee in bankruptcy (now called a licensed insolvency trustee (LIT)) who will sell the assets and distribute the proceeds to the creditors. During the bankruptcy, which can last 9 to 36 months, a portion of the sponsor`s income will also be taken by the LIT and paid towards the sponsorship debt. On completion of the bankruptcy the sponsorship debt will be extinguished and the sponsor may then start rebuilding their credit.
If the sponsor would rather not file for bankruptcy then a consumer proposal may be a good option. A consumer proposal is considered the alternative to bankruptcy and allows the sponsor to make an offer to the government to pay a reduced amount to eliminate the sponsorship debt. The agreed amount is then paid interest free over a period of up to 5 years. Once a consumer proposal is filed the sponsor`s assets are fully protected (unlike bankruptcy) and the government cannot communicate with them or take any legal action.
There may be a reluctance for a sponsor to file a consumer proposal or bankruptcy due the adverse impact on their credit but very often this is preferable to struggling with sponsorship debt for many years to come. Credit can be rebuilt but the dollars spent on interest and legal bills may take far longer to recover.
Recovering from Insolvency Proceedings
After discharge from a bankruptcy or the filing of a consumer proposal it is imperative that the sponsor starts building a good credit history to improve their credit score which will have been impacted. In order to do so they may consider applying for a secured credit card which provides credit up to the amount of a deposit secured against the card. For example if a security deposit of $2000 is paid then the card owner may carry a maximum balance of up to $2000 on the credit card. At the end of each month the full balance on the card should be paid off. Using one or preferably two secured credit cards will help to build up a positive credit history on the sponsor`s credit bureau thus increasing their score.
Please watch this video for more information on rebuilding credit: https://petertemple.ca/portfolio/how-to-rebuild-your-credit/
Sponsorship debt can prove financially crippling when it raises it`s ugly head and must be dealt with swiftly and effectively given the government`s powers to recover the money owing. It is imperative that the sponsor communicates with the relevant government department as soon as possible to explain their situation and hopefully receive some relief from the amount owing and/or agree an affordable payment plan. Ultimately the sponsor may file a consumer proposal or bankruptcy to extinguish the debt. As with any debt, sponsorship debt should never be ignored in the hope that it will go away as it will only get worse and grow with time.
Please note that this article is for general information only and legal advice should be sought for your own situation. One source of legal advice is from your community legal clinic.
Thank you Kyle Anderson of Unsplash for photo.