by admin | Bankruptcy, Uncategorized
Before you make the decision to declare bankruptcy, you should know what you can expect when the process is over. The very best thing that happens is that after your bankruptcy is discharged, you’re absolved of your responsibility to repay your debts and free to make a new start. No more collection agencies calling you, no more shower of letters through your mail slot, no more stress.
There are, of course, some not so positive consequences too, the most serious of which is likely what a bankruptcy does to your credit rating.
A first-time bankruptcy stays on your credit bureau report for seven years, and will make it hard to obtain credit. That means not only that it becomes much more difficult to buy a car, a house, or other such major purchases, but it gets harder to do simple things like reserving a hotel room.
There are steps you can take, though, to start to restore your credit rating, such as obtaining a secured credit card. This means that you essentially prepay the card by putting money on deposit with the lender to mitigate their risk. That way, if you don’t make a payment, the lender will take enough of the money you’ve put on deposit to cover the debt, and reduce your credit limit accordingly. Making payments as required will reflect well on your credit rating, so don’t let that happen, though. You might also consider borrowing for an RRSP, or applying for a small-limit credit card or line of credit with a co-signer. If you don’t start repairing your credit, you’ll find after seven years have passed that you have no credit history whatsoever, and that can make it as difficult to obtain credit as having a negative credit history.
Even though you are released from your debts, your bankruptcy becomes part of your personal financial history, and as such must be honestly disclosed as the law requires, even after the seven years are up and it no longer appears on your credit report.
Depending on the circumstances that drove you to bankruptcy, you can be susceptible to repeating the same mistakes over again. Not only do you not want to repeat the anguish of becoming insolvent, but subsequent bankruptcies are harder to obtain and take more time to discharge. Make sure you get the help you need from a qualified credit counsellor, even beyond the two sessions required to fulfill your obligations for discharge if you need them, so you can make your financial future brighter than the past.
by admin | Bankruptcy, Uncategorized
Next to their home, for many people their car is the most valuable thing they own. Naturally, it’s often top of mind when insolvent individuals — those whose debts outweigh their ability to repay them — consider declaring bankruptcy.
Will you lose your car in bankruptcy? There’s good news and bad news. The good news is you won’t be stranded. Once the value of your vehicle has been appraised for fair market value — that is, what you could likely sell it for to a stranger — if there are no liens on it, you’ll have the choice of either surrendering the car to your bankruptcy trustee or remitting to the trustee the value of the vehicle to be disbursed to your creditors. If your car is worth less than $5,650 and you don’t owe money on it, you’ll be permitted to keep it without further payment; if it’s worth more, you’ll remit the difference.
The potentially bad news is that if you do owe money on the car, i.e. there’s a lien on it so you don’t have “clear title,” it gets a little more complicated.
The lender who helped you buy the car will likely be able to prove to the trustee that they have first priority over any other claims on it, and your trustee will likely “release” the car to them; that is, acknowledge that they have the right to the car if you fail to make your payments. The lender will then be able to make arrangements with you to keep
making your regular payments, or seek payment of the fair market value if your loan is more than the car’s worth, or seize and sell the vehicle. If the difference between what you owe and the car’s value is significant, it may be in your best interest to simply surrender the car to the lender; the shortfall will then be added to your bankruptcy.
If the value of your vehicle is actually more than the remaining loan amount, instead of releasing your car to the lender, your trustee will determine the difference between the market value and what you owe, and you will pay that amount to the trustee as well keeping up your payments, or the trustee will seize and sell the car. Usually, you’ll be able to make arrangements to pay the difference over the course of your bankruptcy.
The rules about vehicles in bankruptcy can get confusing, so your best bet is to discuss your particular situation with your credit counsellor or bankruptcy trustee.
by admin | Bankruptcy, Uncategorized
If you are insolvent and have declared bankruptcy, you can generally expect to be legally released from your debts when your bankruptcy is discharged. For a first-time, uncontested bankruptcy, you are automatically discharged nine months after you declare.
If, however, your unsecured debts include owing taxes to Canada Revenue Agency, there may be additional considerations. For most people, income tax debt is simply another unsecured debt, but if your tax debts are more than $200,000 and represent more than 75% of your total unsecured debts, you are not eligible for that automatic discharge.
In such a case (and they are rare), you will have to go to court and have a registrar (essentially a bankruptcy judge) decide on conditions you will have to meet to be discharged. It could entail paying back some of those tax debts (usually 10% or 20%), or that your discharge will take longer.
It’s important to note, too, that declaration of bankruptcy affects only unsecured debts. If you owe money to CRA, they may have taken action prior to your declaration, which could have included a lien on your property. If there is already a lien on your house, it is no longer an unsecured debt. Filing for bankruptcy will not remove the lien, so before declaring, you should be talking to CRA about how to repay your tax debt.
If you have a business, you may also have unremitted HST as part of your debts (for example, if you are a director of a company, you can be personally liable for HST remittance), which may give the Crown priority status over your other creditors. If this is the case for you, you should discuss it with your credit counsellor or bankruptcy trustee.
by admin | Bankruptcy, Consumer Proposal, Uncategorized
The most common ratings, called North American Standard Account Ratings, being with “R,” which indicates “revolving” credit, such as credit cards or lines of credit. They’re coded from 0 to 9, with zero being the most desirable, best score and 9 being the least desirable, worst score. Here’s what Equifax, one of Canada’s two major credit bureaus, says:
- R0 Too new to rate; approved but not used
- R1 Pays (or paid) within 30 days of payment due date or not over one payment past due
- R2 Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due
- R3 Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due
- R4 Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due
- R5 Account is at least 120 days overdue, but is not yet rated “9”
- R7 Making regular payments through a special arrangement to settle your debts
- R8 Repossession (voluntary or involuntary return of merchandise)
- R9 Bad debt; placed for collection; moved without giving a new address
TransUnion, our other big credit bureau, uses a number system that encompasses payment history, outstanding debt compared to credit available (balances above 50% of your limit harm your credit score), credit account history, recent inquiries, and the types of credit you use (a healthy profile uses a mix of credit accounts and loans). A score of more than 650 means you will likely qualify for a standard loan; under 650 means you may have trouble getting credit.
by admin | Consumer Proposal, Uncategorized
If you’ve become insolvent, a Consumer Proposal is perhaps the most desirable option available to you to clear your debts without resorting to bankruptcy.
In a consumer proposal, a qualified administrator will sit down with you and go over your finances, and help you determine what the nature of your proposal will be. They’ll take care of preparing and filing the necessary documents, and getting in touch with your creditors on your behalf — a consumer proposal is essentially a negotiation between you and your creditors so that they see some satisfaction of repayment while you are relieved of your debts.
A consumer proposal means that, if your creditors agree, you get to repay a percentage of your debts over a fixed period of time (no longer than five years), without your creditors’ taking any further action, such as phoning you or selling your debt to a collections agency.
A successful consumer proposal allows you to pay off your debts without losing your assets or incurring further interest; it also allows you relief from some percentage of your debt, so you don’t end up having to pay it off in its entirety. Your wages won’t be garnisheed, and you’ll get help from two mandatory credit counselling sessions to help you avoid future financial problems.
It sounds like a pretty great solution, and it is, but it could still present a few challenges.
Once your consumer proposal has been approved by your creditors and is legally in place, you will be required to meet your payment commitment for five years. Sometimes, if your financial situation changes, that can be challenging. If you default on your payments, your proposal is annulled, and you could find yourself back where you started (although there is the possibility of amending the agreement, as long as you’re forthcoming with your administrator and your creditors agree to an amendment).
Your consumer proposal must be approved by creditors representing a majority of your debt; if, for example, you owe $100,000, credits representing $50,001 must approve of the proposal in order to proceed. If you don’t get majority support, you will have to examine other options.
Like a bankruptcy, a consumer proposal will have a profound effect on your credit rating. Your rating will be lowered, to either R7 (meaning that you are a consumer proposal) or R9 (meaning that you have bad debt that is uncollectible, placed for collection, or that you are bankrupt) and there it will likely stay for the duration, until you receive your certificate of full completion once all the terms of your consumer proposal have been met and the up-to-five-year repayment period has passed. After that, it will be noted on your credit report that you completed a consumer proposal, likely for a further three years. This will affect your ability to get credit, which may prevent you from making certain purchases for which we normally seek credit, such as a car or a house.
If you find yourself having trouble repaying your debts, the best thing you can do is to contact a professional credit counsellor and start the process of correcting past mistakes. Call GTA Credit Solutions today.
