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 | Bankruptcy, Consumer Proposal, Uncategorized
Many graduates find themselves with tens of thousands (sometimes hundreds of thousands) of dollars of debt to go with their new educations. It can make graduation a time of anxiety instead of joy — What if I can’t find a job in my field? I won’t be able to afford a car or a home. How will I ever pay it all back?
If you’re struggling with government-secured student loan debts, the only options available to you within seven years of graduating are to contact the lender and try to negotiate a lower payment or to enlist the help of a licensed administrator to prepare a consumer proposal on your behalf, which is also a negotiation between you and your lender, but one you don’t have to undertake alone. (It has the added benefit of taking into account any other unsecured debt as well.) Any time you’re struggling with debt, it’s a good idea to meet with a credit counsellor to discuss your options.
If you’ve been out of school for more than seven years, though, bankruptcy may be an option. Any less, and your government-backed loan won’t be automatically discharged in a bankruptcy situation like your other debts.
(Remember that it’s always a possibility that any creditor may oppose your bankruptcy or your discharge, and that includes the government.)
Of course, if you have other debts increasing the pressure, reliving them through bankruptcy may still be the best option for you, as it will free up your income to pay off your student loans, but bankruptcy is a serious step that should be undertaken only after sufficient discussion with a qualified professional.
The Bankruptcy & Insolvency Act states that at any point from five years after leaving school, if you are believed to have acted in good faith and are in financial hardship (i.e. if it’s determined that continued repayment of the loan would make you experience financial difficulty), your debt may be eligible for discharge in bankruptcy, but will not necessarily be automatically discharged.
Good faith essentially means that you used the loan funds as they were intended, made reasonable efforts to repay them, and that you took reasonable steps to take advantage of lender offers of interest relief. The court may decide to let you take advantage of the five-year rule especially if you unable to work in your field after graduating (i.e. you are not deriving the economic benefit of your education), or if you left school for medical reasons without graduating.
Even if you successfully declare bankruptcy, you may still be required to make regular payments on your student loan as a condition of discharge.
These rules apply to government-backed loans. Private loans from other lenders abide by the same rules as any other unsecured lender, which means you can include them in a bankruptcy proposal at any time.
A bankruptcy that includes student loans can get complicated, especially if you’ve returned to school since graduation, so it’s always a good idea to talk to a qualified professional, like those at GTA Credit Solutions.
by admin | Bankruptcy, Consumer Proposal, Uncategorized
If used responsibly and properly, credit cards are wonderful tools. Prudent use can help you establish such a stellar reputation, you’ll have no trouble obtaining the significant credit required to buy a home, finance a business, get a degree, and all sorts of other wonderful lifestyle options for which borrowing is likely the only option. They can help you over occasional hurdles and take the pressure off during emergencies. Without a credit card, you’ll have trouble reserving a hotel room or an airline ticket. They can take the stress out of your holiday shopping by allowing you to do all your buying online from the comfort of your couch. Many credit cards come with benefits, like points accruals that help you get membership awards or cash back, or they come with travel insurance or provide extended warranties or other perks. They also protect you from the vulnerability of carrying cash.
As positive and useful as they can be, though, they can be equally negative and destructive if they aren’t used properly.
Credit card interest is compounded, which means that if you fail to pay your balance off each month in full, the following month you’ll pay interest on the interest; for example, if you pay off a balance of $10,000 at 17.99% APR (annual percentage rate) by making only a minimum payment of 3% of the balance each month, it would take you more than 17 years and cost $9,487 in interest — that’s almost as much as the principal! (Your minimum payment will typically be anywhere from 1% to 4% of your balance.) To really appreciate the effect of credit card interest, before you charge something you can’t pay off immediately, ask yourself how much more you’d be willing to pay.
for it. A $90 movie night doesn’t seem like such a deal when you realize it’s actually going to cost you $180 by the time you pay for it.
In some cases, banks will let you make interest-only payments on a line of credit, which means you could conceivably carry the debt for years and never even touch the principal! Obviously, this arrangement is beneficial only to the lender.
Make sure you always read the fine print. Sometimes, a reasonable interest rate will jump considerably if you are late on even one payment. Another way lenders attract users to their credit card is to offer an APR that is low initially, but increases considerably after six months or a year.
Stay away from cash advances; while convenience cheques can be handy for transferring balances from higher-interest cards, be wary of them too. While interest on a credit card purchase usually doesn’t start to accrue until after your payment due date, giving you a chance to pay it in full without accruing any interest at all, cash advances are charged interest from the day you take them, and often at a higher rate. Low introductory rates won’t apply to them either.
Using credit cards to meet basic needs, like paying rent or buying groceries, transferring balances around to keep up with payments, failing to open your credit card statements, consistently making late payments or paying only the minimum, and having credit cards that are maxed out to their limits are all signs that you’re headed for financial trouble. If this sounds like you, call a qualified credit counsellor today.
by admin | Bankruptcy, Consumer Proposal, Uncategorized
When you and your credit counsellor discussing whether bankruptcy, is the right solution to your financial problems, you’ll need to know the difference between secured and unsecured debts.
Your repayment of a secured debt is essentially guaranteed by the asset for which you took the loan. A home mortgage is a very common type of secured loan — the loan to pay for the home is secured by the value of the home itself. If you fail to meet the terms of your repayment agreement, the lender can terminate the agreement, and seize and sell the home. For the duration of the mortgage they have a lien on your property that restricts what you can do with it. A car loan is another example. The lender maintains a lien on the vehicle until the debt is repaid.
By contrast, unsecured loans are essentially granted on the strength of your work history and credit score, and “guaranteed” by no more than your signature and good reputation. A credit card is the common example of an unsecured loan. The credit card company has no claim on the items for which you used your credit card to pay. Most
of your bills, including taxes and medical bills, are unsecured debts. You will usually pay a higher interest rate on unsecured debt, because the lender is taking a greater risk than if it were secured debt.
It’s only unsecured debt that is discharged in bankruptcy. If you have secured loans for an asset and wish to keep the asset, you’ll have to continue to make your agreed-upon payments. Secured debts are treated differently in a consumer proposal, too. It can get a little complex, so you should definitely talk over all of your debts with your bankruptcy trustee or credit counsellor.
(And remember that if you charge a significant amount just prior to declaring bankruptcy, your credit card lender will likely consider that fraud, and demand payment, although that still doesn’t make it a secured debt, even if you bought something seizable, like furniture.)
If your debts have become unmanageable, call a qualified credit counsellor today.
