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.
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.
