Archive for Category 'personal 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: 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: 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.

Question: My gross income annually is $70,000 and my wife’s is $42,000. We own a home valued at $490,000 with an outstanding mortgage of $460,000. We have $110,000 of unsecured credit, a secured car loan for $15,000, and a second leased vehicle. In addition to this we are behind $7,000 in property taxes.  Is personal bankruptcy in Canada our only option?

Answer: No, bankruptcy is not your only option.  In fact, it is probably not the correct option.  Before considering bankruptcy, you should consider two other alternatives.

First, you could consider selling your house and renting.  By selling your house you might generate a small amount of cash, but you would probably also significantly lower your monthly living expenses.  Paying rent is probably much less expensive than paying a mortgage and property taxes and repairs and maintenance on a $460,000 mortgage.

A house is not an investment, so reducing your living expenses may be a good start.

Second, whether or not you decide to keep your house, bankruptcy would be very expensive, because the cost of bankruptcy is based on your surplus income each month.  Given your income, a bankruptcy would be very expensive.

A better option would be a consumer proposal.  With a consumer proposal you can work out a payment plan that is affordable, without the significant monthly costs of a bankruptcy.  A trustee can explain both options in more detail, and show you the costs based on your situation.

Question: Hello! Can you please tell me if you fall behind in credit card payments or just pay small payments to credit card companies….can they sue you or place a lien on a mortgaged home? We are a one income home(pension), car is on a loan and our home is mortgaged. Can they take our home, force us to sell or move out? I am very worried! I do not want a consumer proposal or go bankrupt. I thank you in advance. M

Answer:  In theory, yes, if you default on your payments the credit card company could take you to court, sue you, obtain a judgment against you, and then enforce that judgment by placing a lien on your home.

However, that is very unlikely.  Since your home already has a mortgage on it, there is probably not a huge amount of equity.  Also, the credit card company, in order to get their money, would have to sell the home and pay off the first mortgage holder.  It is unlikely they will want to spend that much money to collect what you owe them on your credit card.

You should attempt to make payment arrangements with the credit card company.  If that’s not possible, it may be time to consider your other debt management options.

Question: How does a consumer proposal affect a debtor’s future when accepted? Does it affect your future like someone who’s gone bankrupt?

Answer: Once a consumer proposal is accepted by the creditors, the creditors cannot take you to court, sue you, or garnishee your wages.  Once you have completed all of the payments and the proposal is completed, your debts are legally eliminated.

Unlike in a bankruptcy, once the consumer proposal is accepted, the payments you are required to make in the consumer proposal are fixed; they don’t change.  That’s good, because you know exactly what you are required to do to eliminate your debts.  In a debt consolidation loan with a line of credit, the interest rate may change, so your payments may change.  In a bankruptcy, the payment you make each month is based on your surplus income, so if your income increases, your payment increases.  A fixed payment is a big advantage of a consumer proposal.

Another advantage of a consumer proposal is that you don’t lose your assets, such as a house, car or RRSP.  In a bankruptcy if there is equity you may lose some of your assets.

According to Equifax, Canada’s largest credit reporting agency, a consumer proposal is reported as an R7 (perfect credit is R1), and remains on your credit report for 3 years after the payments are completed.  A bankruptcy is coded as an R9, and remains on your credit report for six years from the date of discharge.  Since a normal first bankruptcy lasts for 9 months, that means it’s on your credit report for about 7 years.  If the proposal payments last for 4 years, the proposal is also showing on your credit report for 7 years, so in that respect a proposal and a bankruptcy are similar.

To decide whether you should file a proposal, a bankruptcy, or some other option, you need to consider all of the costs and implications.   A licensed trustee can provide you with a free consulation to review all of your options.