Archive for Category 'Bankruptcy'

Question: I have about $50,000 in credit card debts.  I got laid off two years ago, and it took me a year to find another job, which did not pay as well as my old job.  I live in Ontario, so I am wondering if I should file bankruptcy in Ontario, or is there something else I should consider?

Answer: Yes, there are other debt management options you should consider.  Bankruptcy should be your last resort, not your first choice.  Here are some options:

First, now that you are back to work, is it possible to repay your debts on your own?  If you can, that’s your best option, even if it takes a year or two to substantially reduce your debt.

Second, if you have high interest rate credit cards, a second option to consider would be a debt consolidation loan to consolidate your debts and reduce the interest you are paying.

Third, if the bank won’t give you a consolidation loan, another option is a consumer proposal.  In a consumer prop0sal you make a settlement with your creditors.  For example, the credit card companies may be willing to accept payments of $500 per month for 50 months, or $25,000 in total, and then right off the rest.  Whether or not they will accept that deal depends on your personal situation.

If those options are not possible then yes, filing bankruptcy in Ontario may be your final option.  You should consult with an Ontario consumer proposal administrator or an Ontario bankruptcy trustee to arrange for a free initial consultation to fully explore your options before you make a decision.

Question: I filed a consumer proposal late in 2009. I usually use the T1 Special forms for filing my taxes. I understand that you can’t use the T1 forms for filing if you have declared bankruptcy, but can you use them if you have entered into a Consumer Proposal? (I don’t owe Revenue Canada any money).

Also, do you have to declare a consumer proposal on your income tax return?

Thanks.

Answer: When you file a consumer proposal, you file your taxes in the normal manner, just as if you had not filed a consumer proposal.  You can use the normal tax forms; there is no requirement to indicate that you have filed a consumer proposal on your tax forms.

In fact, being able to keep your tax refund is one of the main reasons that people in debt file a consumer proposal instead of personal bankruptcy.

Question: I have recently been trying to re-establish my credit since I have returned to a secured field of employment that would allow me to do so. I have previously started establishing credit by having a visa, a revolving store account and a cell phone contract that was obtained in 2004. All have been sent to collections, but have recently been paid in full as I am in a position to borrow again. I have met with several lenders who could not give me the proper advice needed in order to obtain credit from their institution. They would rather treat it as a gamble and advise me to “just apply and see what happens.” Once I have applied and have been denied, even with a down payment the lender would give me advice on what I needed to do in order to obtain credit. I have conducted research into the issues i have encountered and have been monitoring my credit report and score in an effort to bring my file to an acceptable lending position. Even with doing so and having my fico score start at 630ish with nothing owing and plummet to 550 from the numerous inquires then return to 600 and plummet once again due to the inquiries and false advice received from the lending institutions every time they would tell me I would be approved for the loan. Now that all three bills have been paid in full for over six months the lending institutions are now telling me that I am a credit hunter and are refusing my application as a result of the previous inquiries. I currently have a secured credit card and a loan from well fargos that are relatively new. I was wondering if there was anything i could do to have the inquiries removed from the bureau as the majority of them are only there as the banks stated I would be approved if I complied with their request’s but only to be denied by them again? I am starting to think that it might have been more efficient to claim bankruptcy instead of trying to repair the credit on my own.
Thanks

Answer: Your question raises some interesting issues.

If you have a debt that goes into default, and then at some later point you eventually repay it, the notice of the default still appears on your credit report.  According to Equifax, information about debts you pay late remains on your credit report for six years, which is the same period that information regarding bankruptcy appears.  Credit inquiries remain on your credit report for three years.  So yes, you may be correct that in hindsight a bankruptcy may have been a viable option for you.

It should also be pointed out that since the market crash back in late 2008, all banks have tightened up their lending practices.  It has become much more difficult to borrow now, even if your credit isn’t bad.  That could also be a factor in your inability to borrow.

Your best option is probably to only borrow when you are highly likely that you will get the loan.  For example, perhaps you start a small RRSP at your bank, and then apply for an RRSP loan for a small amount.  Since the loan will be re-invested in your RRSP at the bank, it is more likely that the bank will approve the loan.  That will then give you a loan approval on your credit report, which should improve your credit score in the future.

Some other tips:

First, avoid credit repair scams.  There are lots of people who will promise to fix your credit, but there are no magic solutions, so if it seems to good to be true, it probably is.

Second, the best way to repair your credit is to have money in the bank, so work on saving money.  That money can then become a down payment or a security deposit on a future loan.

Third, don’t apply for lots of loans.  As you have discovered, every time you are rejected your credit score on your credit report drops.

Finally, keep all of your current bills up to date.  Don’t be late with your hydro bill, or any other bill, as that will negatively impact your credit.

Credit repair doesn’t happen overnight, so take your time and allow the gradual improvements to improve your credit score.

Question: How long is it for, if you win any lotteries etc, that you have to notify your trustee?

Answer: All lottery winnings, inheritances, and other lump sums of money you receive while you are bankrupt must be reported to your trustee.  Once you are discharged from bankruptcy you are not required to report anything further.

Question: I have been told that even when one files for bankruptcy, up to 20% of my wages could be garnisheed (by the bankruptcy trustee?) during the 21-month period before discharge. Is this correct?

Answer: When you file bankruptcy in Canada you are required to make a payment to the trustee for the benefit of your creditors based on your surplus income.  In a first bankruptcy if you have excessive surplus income you will be bankrupt for 21 months.

However, that doesn’t mean the trustee will be garnisheeing your wages.  When you file bankruptcy the trustee will arrange a payment plan with you, and you will simply make the required payments each month, so no wage garnishment should be required.  If you don’t make the required payments the trustee does have the power to go to court to get a garnishment order, but that would be a very unusual circumstance.  Obviously you filed bankruptcy to deal with your debts, so it would not make sense to not fulfill your obligations while bankrupt so that you can receive your discharge.

Question: A collection agency called and told us that if they don’t get payment by 3pm the following day they would proceed. When we asked what this meant, the agent replied “I don’t know, I’m not a lawyer” What does proceed mean??

Answer: Most of the time it doesn’t mean anything.  A collection agent’s job is to collect money, so they will tell you whatever they think will help them collect money.  If a collection agent tells you something, and then can’t explain what it means, it’s likely that that means they won’t be doing anything.

A collection agency can phone you and send you letters.  If that doesn’t work, they could “proceed” to take you to court and attempt to get a judgment and garnishee your wages.  However, court actions cost money, so that’s a last resort for a collection agent.

Also, they know that if they do start a wage garnishment, it is likely that you will file a consumer proposal or bankruptcy to stop the garnishment, so there is little point in them forcing the issue too far.

For more information, please see our article on dealing with collection agencies.

Question: My wife and i have over $85,000 of unsecured debt. and add $185,000 first mortgage and $25,000 2nd mortgage = almost $300,000 total debt

our house was valued at $220,000 2 march’s ago. but now we need the roof repaired $10k for that. and found the basement foundation to be slowing getting bad so we think the value will be lower. plus housing been dropping the past year. so no equity at all in our home

my van still has $7k left to pay on it and it’s valued about $7k right now also so no help from that. my wife other 2 vehicles have dead engines needing over $3k in repairs each.

last yr my wife was making about $40,000 plus $15,000 in over time. $19/hr plus OT = almost $7/hr . i was making $18/hr $37,000 a yr. great income and just a little ahead of the bills. had plan to get rid of 1/3 of debt in 1.5 yrs and another 1/3 in 3 yrs.

but then i got laid off for 3 months and had to take a job for $14/hr , not to bad $4/hr less. we were still making the bills. just not much extra. Then my wife lost her job and fould a job 2 months later for $12/hr. thats from almost $26/h with the OT to $12/h, huge loss.

our income dropped $18 a hour. making the reg bills. mortgage utils food. we borrowed $600 from a church. plus food from them. just to try to catch up. even tried to get 2nd jobs.

we’re now behind $4k in bills. and utils 3 month back close to cutting off.

should we file right now. or save a bit of money by not paying the credit cards and mortgage. and pay the utils and save up to move? then file

or is it just best to file asap and then work on the bills and saving to move?

sorry for long question. just wanted to give most of the details. we are filling out the paperwork i printed off line for the trustee. but just havn’t made the appointment yet.

oh and 2nd question is how fast will we have to move when we file? i hear it’s hard to rent a place if in bankruptcy. so could take time to find a place too?

thank you

Answer: In most cases it is best to deal with the urgent issues first.  In your case, if the plane is to surrender your home to the morgage company and find a place to rent, it is probably best for you to stop paying the mortgage and save enough so that you can move.  Having a place to live is a high priority.

However, with each passing day you will be getting phone calls from all of your creditors, and they may start legal action.  So, you will want to be ready to file personal bankruptcy when required.  In your case, given the amount of your debt, and your incomes, a bankruptcy may be your most logical option.

We suggest you book your meeting with a bankruptcy trustee now, so that they can start preparing the necessary paperwork, so that if a creditor does start court action you will be able to file quickly.

Question: I borrowed $26,500 from a friend and didn’t pay them back and they sued me. Since it was in small claims they were only awarded $25,000.

Now if I file for bankruptcy would this $25,000 go away too? Would legal settlements still stick with me if I file personal bankruptcy? Thank you

Answer: Unless fraud was involved, this debt would be discharged if you went bankrupt.  A bankrutcy trustee can provide you with more information.

Question: Can a collection agency working for the bank sweep your entire bank account every payday?
I am dealing with an overdue overdraft account and made arrangements for weekly payments. I was 2 days late with a payment and they swept my entire account. I thought that worse case, they can only take half? They have been repeatedly sweeping it, even before the late payment.
I need to know if they can take everything and leave us nothing to live on? Since every other time it was swept they have returned it.

Answer: Yes, as you have observed, a bank or collection agency can take money from your bank account.

The immediate solution is to open a new bank account at a new bank (where you don’t owe any money).  You can then deposit your paycheque in the new account.  Since the old bank and collection agency is not aware of the new account, they can’t automatically seize funds from it.  They would require a court order to seize funds from the new account.  (Your current bank doesn’t need a court order, since the money is sitting in your account at their bank).

Of course opening a new account is only a temporary solution.  The collection agency can still pursue you for the amount owed.  If you have other debts, it may be prudent to consider a permanent solution, such as a consumer proposal or a bankruptcy.

Question: My wife and I are self employed. We have huge credit card debts because we’ve used them to finance our businesses. We also have about 20% equity in our home. The problem is business has been bad for the past six months and we’ve run out of cash. Is there a solution where we could defer making payments on the debts for six months or so and then simply resume making payments when business improves?

Answer: You are in a difficult situation.  In general, credit card companies will not allow you to stop paying for six months.  You have a number of choices:

First, you could simply stop paying.  The credit card companies will obviously call you and attempt to collect the money, and they may even take you to court.  If they do, they will probably have difficulty garnisheeing your wages, since as a self-employed person you have “earnings”, not “wages”.  Since it may take them six months to do that in any event, by the time they are ready to go to court you may be in a position to resume making payments.

A second option would be to continue making whatever payments you can, even if it’s less than the minimum payment, and hope that your business improves and you become able to make full payments again.

A third option would be to file a consumer proposal.  You could offer the creditors a nominal payment for the first six months (say $100 per month), and then gradually increase the payments after that based on your expectations for future income.  A consumer proposal only makes sense if you are confident that business will improve significantly in the future.

The final option would be to simply assume that business won’t improve in the near future, and declare bankruptcy.  This may result in losing your home, so careful consideration would need to be given to this option before making a decision.

A trustee can provide you with more advice on whether a consumer proposal or a bankruptcy is the correct option for you.  Either way, you will want to make a plan as soon as possible so that you can deal with your debts, and devote most of your energies to running your business.