by admin | Consumer Proposal, Credit Counseling, Uncategorized
If you run your own business, you’re familiar with Entertainment Expenses. That’s the category to which you can assign money you spend entertaining clients or potential new clients, with the final resolution that you drum up some business.
The idea is that you spend a little to make your clients feel appreciated, and they give you back more than the cost of a dinner, sports tickets or a break at a café. Canada Revenue Agency generally allows you to claim 50% of a reasonable dinner/entertainment bill. The idea is that you consume half of what your total bill is, and they’re not going to pay for your meal. There are exceptions for occupations such as long-haul truck driver or bike courier, because they are required to eat in order to continue doing their jobs. For the average entrepreneur, the CRA doesn’t usually bat an eye if you spend $650 per year on entertaining.
But what about in terms of your household budget? Should you factor in some “entertainment” expenses if for nothing else than to feel as if you’re not spending everything you make on the drudgery of staying afloat financially?
Most experts agree that you should. But how much of your monthly budget should you assign to it?
If you work with the CRA figure, a person may think about spending $55 a month on entertainment (movies, fast foods, afternoon lattes, etc.). That’s for one person. If you want to budget for your wife or children, you may want to expand on that. Most experts agree that you shouldn’t be budgeting more than 5% of your paycheque, though, since there are other things that should take priority in your spending (utilities, debt repayment, rent, etc., and yes, even savings).
So, if you’re bringing home $1,000 every two weeks, for example, and you’re effectively covering off your house payments and debts, you may consider putting $50 into the “fun” jar.
You may think that doesn’t allow you much fun outside of your everyday routine, and so vacations are out of the question, but vacations are probably best included in your long-term planning, a separate budget category that is taken care of by your savings.
Your savings is money for your future, so in effect you’re stocking money away today for future fun — short-term financial pain for longer-term financial fun, if you will. Some people put savings away for their retirement and forget about having fun until then. There are examples of couples investing heavily in their retirement, with hopes of travelling the continent in a motorhome, only to have one of the spouses pass away suddenly and the surviving one wishing they had spend more money on living with each other now, rather than waiting for a tomorrow that now will never come.
Say you put away 10% of your paycheque into a high-yield savings account (which these days is about 3%). At the end of the year, you’ll have over $2,600. That’s a pretty good vacation for two every couple years, even at today’s prices, and you’re still contributing toward your retirement (albeit, not much).
As with any budgeting, the idea is to make your paycheque cover the essentials and plan for the things you want to do, rather than build up more debt living unsustainably.
So, figure out what you can afford to put away for “fun” and be regimented in making sure you put that money away. And be patient about spending it. The money will eventually be there to take off for Cuba, or buy a big screen TV, or just have a meal at a fancy restaurant and perhaps spend the night away at a downtown hotel. You just have to wait for it to arrive.
by admin | Bankruptcy, Uncategorized
One of the consequences of declaring bankruptcy is that the value of your assets is distributed among your creditors. There are some exceptions in limited amounts, such as food and heating fuel, clothing, furniture, and a vehicle you need to get to work (to name a few); their value limits are set by your province.
Fortunately, while RRSPs used to be subject to creditor distribution, a law passed in 2008 now means that you won’t lose most of the funds in your RRSP, even if you declare bankruptcy. Only those funds you contributed in the year prior to declaring will be subject to seizure and distribution, so for example, if you have $10,000 in an RRSP and in the last year contributed $1,500, that amount would be withdrawn and distributed, and you’d and keep $8,500. Taxes are levied when the money is withdrawn, and the net amount distributed to your creditors, rather than you taking a tax hit at the end of the year.
If you continue to make contributions to your RRSP before your bankruptcy is discharged, those amounts become part of your “surplus income,” which may still be distributable to your creditors, so make sure you discuss your RRSP thoroughly with your bankruptcy advisor.
Remember, too, that your assets are assigned to your trustee until your bankruptcy is discharged, so you won’t be able to access those funds. Besides, once you cash them in, they’re no longer protected under any RRSP exemptions.
If you took a loan to purchase your RRSPs, and the loan amount is included in your bankruptcy, the lender may be entitled to take back your investment, so make sure you discuss that too.
Registered Retirement Income Funds (RRIFs) are similarly exempt under Ontario law.
If your debts have gotten out of control, it may be tempting to cash in your RRSP in an effort to repay them, but you may still find yourself headed for bankruptcy, only now without your retirement savings. Don’t do anything that may have long-term consequences before you talk to a credit counselling professional.
by admin | Bankruptcy, Consumer Proposal, Uncategorized
If you’ve come to the decision that you simply can’t continue in your current financial state, you may be looking at another important decision — consumer proposal vs. bankruptcy.
There isn’t a one-size-fits-all answer; you need to make the choice that suits you best. Both could be an appropriate course of action for someone whose debts are beyond their ability to repay. Here are some key features of each:
Consumer proposal
– In a consumer proposal, your Trustee/Credit Counsellor will contact your creditors on your behalf and try to negotiate an agreement under which you will repay all or (usually) a portion of your debts through one pre-set monthly payment.
– A majority of your creditors must agree to the proposal for it to move forward; the good news is that they generally do, understanding that if you must declare bankruptcy, they will be repaid very little if at all.
– Consumer proposals generally include only unsecured debt, such as credits cards and lines of credit, not secured debts, such as homes or cars.
– You get to retain your valuable assets.
– One approved, your consumer proposal becomes a legally binding agreement.
– A consumer proposal will be removed from your credit report three years after your consumer proposal is fully paid, and if your income does substantially increase, you can repay your debts sooner than your agreement calls for.
Bankruptcy
– Once the necessary duties have been completed, an uncomplicated bankruptcy will take nine months to discharge, but will stay on your credit report for seven years.
– Once discharged, all of the debts included in your bankruptcy will be erased.
– You will be obligated to attend two credit counselling sessions.
– You may be permitted to keep certain personal assets, but only up to a certain amount; for example, in Ontario, you can keep furniture and appliances up to $11,300, clothing up $5,650, and one motor vehicle needed to get to your job, up to a value of $5,650.
– In Ontario, your principal residence is not exempt from bankruptcy, which means you may be required to sell it and remit the value for disbursement to your creditors.
– Other assets may also be subject to seizure and sale.
Here is some guidance on which choice might be the most appropriate for you.
A consumer proposal may suit you best if …
– You have a regular income, but are simply unable to meet your monthly payments.
– You believe your income will increase considerably before a bankruptcy would be discharged.
– You have certain valuable assets, such as a luxury car, a house, or certain RRSPs.
– You have declared bankruptcy before; a second or subsequent bankruptcy is more complex and takes more time to discharge than a first.
– You have debts that a bankruptcy will not discharge, such a student loan or income tax debt.
– You own and operate a limited company.
– You wish to maintain ongoing relationships with secured creditors, such as a mortgage company.
Bankruptcy may suit you best if …
– You are unemployed or your income is irregular and unlikely to increase.
– You have a steady income but have a number of dependents and/or high non-discretionary obligations (such as support or health care).
– You have few assets or they are of little value.
In either case, you must meet certain criteria, and be prepared for your decision to reflect negatively on your credit score. This is by no means a comprehensive analysis, and every case is different. Neither decision should be taken lightly.
If you’ve come to the point where your best options for resolving your financial issues are to file a consumer proposal or declare bankruptcy, get personalized advice from a qualified Credit Counsellor, like those at GTA Financial. Take the first step towards peace
by admin | Bankruptcy, Uncategorized
Most people look at the declaration of bankruptcy as an absolute last resort when they’re looking for a way to ease their financial problems. In many cases, it’s a simple matter of morality — most of us want to honour our commitments and feel very badly when we can’t. Who want to feel like a deadbeat? Bankruptcy can also mean the loss of assets, and will mean having to rebuild your credit slowly, over time.
So why do people do it?
When people become insolvent — that is, they have more debt than they can afford to repay — it can mean sleepless nights, harassing phone calls from creditors, and the continuing accumulation of debt if you find yourself using credit to pay for necessities like groceries or utilities. Bankruptcy can take care of all of these problems in a few simple steps and a few months of accountability to a trustee.
Bankruptcy offers a clean slate and a fresh start, and for some people, that’s what it will take to get them back on their feet and in the right frame of mind to face the future.
There’s often more to their situation than just badly handled credit. Many people are forced to consider bankruptcy because they lost their jobs, got divorced or separated, lost property that was insufficiently insured, needed legal counsel, or any one of a variety of legitimate reasons why otherwise responsible people find themselves insolvent.
The bottom line is that the decision to declare bankruptcy is a very personal one, one that needs to be made only after careful consideration and consultation with a professional credit counsellor. If, after careful consideration, you and your counsellor decide that bankruptcy is the right option for you, proceed without beating yourself up. The option exists for a reason. Use your bankruptcy as a lesson, and learn the skills you need so you never have to face financial problems again.
by admin | Bankruptcy, Uncategorized
Should your financial issues result in a declaration of bankruptcy, one of the conditions to which you’ll have to adhere is to advise your bankruptcy trustee of your household’s income each month, and then remit half of any “surplus income.”
Monthly net income thresholds for singles and families are set by the government, based on what they’ve decided it takes to maintain a reasonable standard of living. Every dollar over that is subject to a surplus income payment of 50% until your bankruptcy is discharged.
So, the basic formula then is:
Net income – government threshold = surplus x 50% = amount you must remit
You will be required to submit to your trustee proof of your income, for example your pay stubs. If you’re in a career where your income fluctuates, you may pay more some months than others.
To determine net income, taxes are subtracted, as are spousal support, child care, medical bills, and whatever other expenses you would normally deduct when preparing your income taxes.
If you are married, your spouse’s income is included in the household net income. Once net income is determined, the amount each must remit is based on each partner’s percentage of the total.
Failing to remit surplus income payments will result in the delay or denial of your discharge.
Normally, a first bankruptcy is discharged in nine months, but if your surplus income exceeds $200 each month (so that you would be paying more than $100), your discharge will be extended for 12 months, which means you will pay that surplus income charge for 21 months in total. Remember to tell your trustee if you anticipate any bonuses or overtime over the course of your bankruptcy — they will increase your average monthly pay and could extend your bankruptcy; likewise, five-paycheque months (if you’re paid weekly) or three-paycheque months (if you’re paid bi-weekly) will increase your average monthly income and could affect the length of your bankruptcy.
The amount of the government thresholds (which, for a single person is only about $2,000/month) and potential amount of remittance over a long period of time are two more reasons that bankruptcy is a last resort for most people. If you’re faced with insolvency, consider filing a consumer proposal instead. Regardless whether your income increases, your payments in a consumer proposal stay the same. Talk to your GTA Credit professional today about what is the right choice for you.
