Personal debt  and bankruptcy is on the rise in Canada. Here’s a brief overview of the personal bankruptcy process.

Between 1990 and 2006 business bankruptcies declined by 42 per cent – but consumer, or personal, bankruptcies increased by 85 per cent, according to Industry Canada statistics. And with Canadian household debt loads continuing to rise, it’s likely that individuals will continue to have to file for personal bankruptcy. Here’s an overview of the process and some things to consider.

Insolvency

When someone is unable to meet his or her payments on debts (known as debt obligations), that person is considered to be insolvent. The insolvency process is a legal proceeding that is dealt with under the provisions of the Bankruptcy and Insolvency Act.

You are considered to be insolvent when:
• you do not currently have an un-discharged bankruptcy
• you owe at least a $1000.00; and you are unable to meet your regular payments as they become due, or you would not be able to pay all of your debts if all of your assets were sold

At that point there are really two options:

• Bankruptcy: under the guidance of a trustee, most of the assets of that individual will be liquidated to sold the debt
• Proposal: where the individual makes an offer to debtors to settle the debt. (Companies have a third option, receivership, but this is rare for individuals.) To make a proposal the individual’s unsecured debts must total under $75,000.

A licensed professional can advise you on whether a proposal or a bankruptcy best fits your situation. Once you have determined that a bankruptcy is appropriate you will need to find a licensed trustee.

Bankruptcy Trustees

Trustees are chosen by the person filing for bankruptcy and paid by the bankrupt and the assets from the estate. These fees will depend on the individual’s debt situation, but are set under the Bankruptcy and Insolvency Act. However, it’s important to understand that a trustee’s first responsibility is to represent the creditors.

The trustee’s duties are to:
• Review your situation and inform you as to the alternatives available;
• Administer the proposal – that is, to sell any assets you have that are not exempt and to distribute the cash to creditors
• Administer the estate and file the paperwork from the beginning to the end according to the Bankruptcy and Insolvency Act.

A trustee is also an officer of the court, and is generally an accountant. Once chosen, a trustee cannot be discharged (or ‘fired’) without approval from the Court.

If your case is particularly complex or you have concerns, you may want to consult an insolvency lawyer as well. The Office of the Superintendent of Bankruptcy Canada regulates licensed trustees, and provides an online database of trustees.

Once you have a trustee, you have certain obligations that you must fulfill.

Your obligations

Once you enter into the process of bankruptcy you must disclose all your financial information to the trustee: income, expenses, debts, and assets, along with information about any property you have sold in the last year. You will have to turn your credit cards over to the trustee. You must stay in touch with the trustee during the process and advise them of any address or telephone number changes.

You may have to attend an examination before the Official Receiver. This examination takes place under oath and is designed to discover the cause or causes of your bankruptcy, look at any property recently sold, and the status of current assets. Your conduct is also examined.

You may also have to attend a meeting of your creditors, if one is requested. This is to confirm the appointment of the trustee, give creditors information about the bankruptcy, and to appoint inspectors to oversee the process.

And you will have to attend at least two counseling sessions that discuss issues around personal finance and bankruptcy.

Which debts are covered by bankruptcy? What do I keep?
Debts that are not secured, such as credit card debt, and in many cases debts to the Canada Revenue Agency (taxes) are dealt with through bankruptcy. Debts to family must be included in the bankruptcy process – you cannot continue to repay family members the full amount of a loan while settling with other creditors for less.

Secured loans, such as mortgages and car loans are not covered by bankruptcy. However your trustee may be able to help you in surrendering those assets and receiving a receipt.

Other debt not covered by bankruptcy includes:
• student loans, if it is less than 10 years since your schooling finished
• fine or penalty imposed by the Court
• alimony
• liability for dividend to an undisclosed creditor
• debt obtained by fraud
• liability for support or maintenance of spouse or child under an agreement or Court Order

Which assets remain yours (or are exempt from the bankruptcy) depends on your province.

Once you file for bankruptcy most wage assignments and garnishments will stop. The trustee will review your income and expenses and compare these to guidelines set out by the Superintendent of Bankruptcy. If you are considered to have extra income it may be assigned to your creditors.

Assets that you acquire during the bankruptcy period – for example, if you were to inherit property – become a part of the bankruptcy.

Discharge of bankruptcy
For first-time personal bankruptcies the bankruptcy is automatically discharged after nine months. There are however, several kinds of discharge:

Absolute discharge: You are no longer responsible for unsecured debts incurred prior to bankruptcy except for those which were not included (such as child support payments).

Conditional discharge: You may have to make payments to your creditors through the trustee for a specified period. You will not receive an absolute discharge until that period is over (and all payments have been made).

Discharge refused: The Court may refuse a discharge in unusual circumstances, such as:

• your assets are less than 50 per cent of the amount owed
• you continued to obtain credit while unable to pay your existing creditors
• you contributed to bankruptcy by extravagant living or gambling
• you failed to perform any duty imposed by the Bankruptcy and Insolvency Act

Once your bankruptcy is discharged it will take six years for it to be removed from your credit report.

For more information:
http://strategis.ic.gc.ca/epic/site/bsf-osb.nsf/en/h_br01545e.html

North Americans are a collection of spenders who must learn the hard way to practice what our grandparents have always known: A penny saved is a penny earned.

Consider that about 43% of North Americans spend more than they earn, according to estimates from the federal government, and the average household carries some $8,000 to $10,000 in credit-card debt.

To make matters worse, the average North American no longer saves money. That’s tumbled from a 10.8% average savings rate in 1984 into negative territory today. It’s no wonder that many of us have been living way above our means for some time.

But that is getting harder and harder to do. Available credit for people to finance their lifestyles has shrunk if not dried up altogether and many North Americans are standing by in shock watching their mortgage payments surge while the value of their 401(k)s / RRSP’s drop.

It’s clear we need to start spending less and saving more. That may sound easier said than it’s done. The key is to be aware of your where your money is going and take steps to stop the leaks.

Here are five simple tips that could save you hundreds of dollars a month:

1. Cash back at the pump

In the past five months gasoline prices have dropped 56%, from an average price of $4.11 to $1.80 a gallon or 72 cents a litre. Somehow, households found the money to pay the higher price and survive so now people should take that excess money they are saving and bank it.

Jean Chatzky, author and personal finance expert suggests using the money you were spending on gasoline to build up that rainy day fund or to pay some your holiday expenses instead of racking up more debt.

2. Dinner Savings

Another great way North Americans can cut costs each month is to eat at home, says Jonathan and David Murray, twin brothers who are financial advisers.

According to a recent Zagat survey, North Americans will spend an average of $34 this year every time they go out to eat dinner, that’s for one dinner, drink and gratuity; $76.00 if they live in one of the 20 most expensive cities. If a couple does that four times in a month the expense is close to $300 in low-cost areas and $600 in higher-cost regions, and if you have more than one drink or are treating family or friends, costs can add up quickly.

Plan a dinner or party at home and ask guests to bring a dish. If you’re big on getting together with friends, family and work associates, this could save you hundreds of dollars a month.

3. Renegotiate Household Bills

You may not be able to negotiate with the gas company or the electric company, but you can with credit cards, cable and phone services, among others. Do the homework and find out what competing cable companies, for example, are offering and ask your provider to renegotiate your bill. You may have to get through to a manager but Chatzky said she recently did this and got her monthly bill reduced by $50.

4. Smart shopping

Retailers are poised to have one of the worst holiday shopping seasons in decades and are offering deep discounts to move merchandise. But smart shoppers can save even more money by hunting down coupons. Before ordering online or going to a store, go to sites like Couponcabin.com and Ultimatecoupons.com or Google the name of a store and often you’ll get a coupon code to enter at checkout. You can save 10% to 20% or more on the total order or maybe get free shipping.

There are also coupons to print out and take to the store for deeper discounts. And don’t be afraid to pit one retailer against another by asking for a price match on sale items.

5. Keep the receipt

It is important to hang on to all your store receipts and keep track of sales. Savvy shoppers can possibly save even more on purchases by checking back to see if the retailers lower prices even further. If that happens within two weeks of your purchase, most stores will credit you the difference.

We hope that you can layer into your shopping habits the following tips as a means to start saving money fast and easy.

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The closest many people get to budgeting is depositing their paychecks into their checking accounts and buying everything with an ATM card until the money’s gone.

While there are certain advantages to this method, such as not incurring credit card debt, there are also major disadvantages, such as not quite knowing where all that money’s going and not contributing enough to your savings because there’s never anything left over.

Even though budgeting is a wonderful tool for managing your finances, many people think it’s not for them. The logic they use, however, is often flawed. Below is a list of 10 budget myths that stop people from saving as much as they could – and should. Do any of these budgeting myths apply to you?

1. I don’t need to budget.
The truth is, almost everyone, even those with large paychecks and plenty of money in the bank, can benefit from budgeting. Keeping track of your monthly income and expenses allows you to make sure your hard-earned money is being put to its highest and best purpose. For example, if you knew how much money you were spending on restaurant meals every month, you might decide that you’d rather be putting that money toward something else, like a nicer vacation.

2. I’m not good at math so I can’t manage my money.
Thanks to budgeting software, you don’t have to be good at math, you simply have to be able to follow instructions. Many of these programs are free and can be safely downloaded without fear of viruses or spyware from CNET’s download.com. If you know how to use spreadsheet software, you can even make your own budget. It’s as simple as creating one column for your income, another column for your expenses and keeping a running tab on the difference between the two.

3. My job is secure.
No one’s job is truly secure. If you work for a corporation, downsizing or losing your job to overseas workers is always a looming possibility. If you work for a small company, these concerns may not apply, but if the owner died suddenly, the company might die with the owner. You should always be prepared for a job loss by having at least three months’ worth of living expenses in the bank. It’s a lot easier to accumulate this money if you know how much money you’re bringing in and laying out each month.

4. Government-sponsored unemployment pay will tide me over if I lose my job.
Unemployment benefits are not a sure thing. Let’s say a bad situation at work leaves you with no choice but to quit your job. Because you weren’t laid off, leaving your job will be considered voluntary and it’s very unlikely you’ll receive any benefits. It won’t help if you decide to remedy this problem by getting yourself fired, as those who are let go for bad behavior are also very unlikely to receive unemployment assistance. On top of that, getting fired will make it harder for you to get a new job.

5. It won’t happen to me.
We all think that unexpected high bills and tragedies won’t happen to us. With the number of things that can possibly go wrong in life, hoping for the best is the most logical emotional survival tactic. However, you might lose your job, be in a car accident, get cancer, or need to help a friend or family member who falls on hard times. It’s best to be prepared and hope that you’ll get to use the money for something fun one day instead.

6. I don’t want to deprive myself.
Budgeting is not synonymous with spending as little money as possible or making yourself feel guilty about every purchase. The crux of budgeting is to make sure you’re able to save a little each month, ideally at least 10% of your income, or at the very least, to make sure that you aren’t spending more than you earn. Unless you’re on a very tight budget (and we all are sometimes), you’ll still be able to buy baseball tickets and go out to eat. Tracking your expenses doesn’t change the amount of money you have available to spend every month, it just tells you where that money is going.

7. I don’t want anything big so I don’t need to save for anything big.
This one is tricky. If you don’t have any major savings goals to buy a house, a new car, or to save enough money to quit your day job and take a stab at starting your own business, it’s hard to drum up the motivation to stash away extra cash each month. However, your situation and your attitudes are likely to change over time. Perhaps you don’t want to save up for a house because you live in New York City and expect that renting will be the most affordable option for the rest of your life. But in five years, you might be sick of the Big Apple and decide to move to rural Vermont. Suddenly, buying a home becomes more affordable and you might wish you had five years’ worth of savings in the bank for a down payment.

As another example, many people thought home ownership would be forever out of reach when the housing bubble was pushing prices ever higher, so they gave up on the idea of owning a home. After the bubble burst and prices sank, however, those who previously couldn’t even afford condos sometimes had the income to afford houses. Even FHA loans require a down payment, though, so those who saved their extra money when prices were high put themselves in a great position to buy when prices dropped.

8. Any money I save would just be taken when I apply to grad school/an MBA program or when I send my kids to college.
Yes, the catch-22 of student financial aid is that the more money you have, the less financial aid you’ll be eligible for. That’s enough to make anyone wonder if it isn’t better to just spend it all and have nothing in the bank in order to qualify for the maximum amount of grants and loans.

When you apply for federal student aid such as the Stafford Loan, Perkins Loan, or Pell Grant, you will fill out the Free Application for Federal Student Aid (FAFSA). Whether you are an adult student going back to school or the parent of a student headed to college, this form does not require you to report the value of your primary residence (if you own a home) or the value of your retirement accounts. This means that if you want to save money without compromising your financial aid eligibility, you can do so by using your savings to buy a house, prepay your mortgage or contribute more money to your retirement accounts. The savings you put into these assets can still be accessed in the event of an emergency, but you won’t be penalized for them. Paying down credit card debt and auto loans can also serve as a form of saving that won’t detract from your financial aid eligibility. Just think of all that interest you won’t have to pay when your balances go down or are even paid off completely.

Another issue is that even if you employ all the legal strategies available to you to maximize your financial aid eligibility you still won’t always qualify for as much aid as you need, so it’s not a bad idea to have your own source of funds to make up for any shortfall in the aid you’re offered.

9. I don’t need to budget because I’m debt-free.
While being debt-free is unusual and commendable, it won’t pay your bills in an emergency. A zero balance is better than a negative balance, but that zero can quickly become negative if you don’t have a safety net.

10. I don’t need to budget because I always get a raise/bonus/tax refund.
It’s never a good idea to count on unpredictable sources of income. Your company may not have enough money to give you a raise, or as much of a raise as you’d hoped for, even if you’ve earned it. The same is true of bonus money. Tax refunds are more reliable, but this depends in part on how good you are at calculating your own tax liability. Some people know how to figure to the penny how much of a refund they will get (or how much they will owe) as well as how to adjust this figure through changes in payroll withholding throughout the year. Others find W-4 forms, 1040s, and tax tables incomprehensible and April is always a surprise. You might be expecting a $1,000 refund only to find that you’re getting $300 – or worse, that you owe.

Solutions
If you’re still not convinced that budgeting is for you, here’s a way to protect yourself from your own spending habits. Set up an automatic transfer from your checking account to a savings account you won’t see (i.e., a savings account at a different bank from your checking account) that is scheduled to happen right after you get paid. If you are saving for retirement, you may have the option of contributing a regular, set amount to a 401(k) or other retirement savings plan. This way, you’ll always pay yourself first, you’ll always have enough money for the transfer, and you’ll always pay yourself the same predetermined amount that you know will help you meet your goals. If you don’t think you have the discipline for budgeting, this is your best bet.

However, a better solution is to make this automatic contribution in conjunction with starting a budgeting spreadsheet or using budgeting software. This way, you won’t run into any unpleasant surprises, like your checking account balance reaching zero when your car insurance is due and you don’t get paid for another week.

Conclusion
To manage your monthly expenses, prepare for life’s unpredictable events and be able to afford more expensive purchases without going into debt, budgeting is a great idea. Keeping track of how much you earn and spend doesn’t have to be drudgery, doesn’t require you to be good at math and doesn’t mean you can’t buy the things you want. It just means that you’ll know where your money goes, you’ll have greater control over your financial situation and you’ll probably be able to sleep more soundly at night.

Budget Myths

I came across this fantastic news today in the Toronto Sun newspaper that will give investors some peace of mind:

If you find yourself in financial trouble and have to declare bankruptcy, your registered retirement savings are now safe from your creditors.

Recent amendments to Canada’s Bankruptcy and Insolvency Act now rule that for bankruptcies occurring after July 7, 2008 creditors can no longer go after your Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs) or Deferred Profit Sharing Plans (DPSPs) to pay off owing debts.

In the past, only some of your investments such as certain segregated funds and pension funds were protected from creditors. Now, you don’t have to worry that all your retirement savings will be forfeited if you go bankrupt. However, to prevent intentional protection of funds, any money put into registered plans in the 12 months before a bankruptcy (or longer) may not be subject to this new rule.

Several provinces (Manitoba, Saskatchewan, P.E.I., and Newfoundland) already provide creditor protection. Those laws will remain in place and the new federal law applies everywhere else. Quebec law protects some registered retirement plans but this new law appears to cover all RRSPs in Quebec.

All Canadians will benefit from this new rule change in the following ways:

– Retirement protection for small business owners:

In 2003, the Canadian Federation of Independent Business conducted a survey of members that found 91% of small business owners used RRSPs as a retirement savings vehicle. CFIB has been calling on the government to protect these retirement savings for years. Many small business owners and professionals put their personal assets at risk. The CFIB survey says only 28% of small business owners have already-protected formal pension plans. This rule will help small business owners protect one of their main retirement savings strategies while still investing other money in their business.

– Greater diversification:

As we all know, you should spread your investments around to reduce your risk. Before this amendment, if protection from bankruptcy was a concern for your retirement savings your investment choices may have been limited. Now you and your advisor can look at the universe of investments to choose what works best for your retirement portfolio.

- Potential fee savings: Bankruptcy-protected segregated funds have higher fees due to the creditor protection and other unique features. Investors can now work with their financial advisers to see if there are appropriate alternative strategies that can save them some money.

Most GTA – Greater Toronto Area -  financial advisers can help you determine if this rule change affects your personal financial planning strategies. Consult a Toronto bankruptcy expert to find out more details about how these changes could affect your situation. If you find yourself in financial difficulty consult your local non-profit credit counselling agency. Their counsellors can help you decide if bankruptcy is the right course of action for you.

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Most people are very concerned about their home and what happens to it if they file bankruptcy. There are only two options: you keep it or you lose it.

To keep your home you need to answer YES to the following questions:

Do you want to keep the house? (Not everyone wants to keep their house. If you don’t then filing bankruptcy will allow you to “walk away” from a house).

Is the mortgage current or if it is not current, have you negotiated a plan with your mortgage company to make it current? (Your mortgage is “current” if you aren’t behind in any of your payments.). If it is not current your mortgage company may have concerns about your ability to pay.

Are your property taxes and utilities current? If they are not, your mortgage company may be concerned about the city or the utilities registering liens against your house.

Do you have the ability to make your future mortgage, property taxes and utilities payments? Even if you’ve never missed a payment in the past, if it looks like you aren’t going to be able to make your payments in the future then your mortgage company may use your bankruptcy to cancel your contract (and that means sell your home).

Can you afford to pay for the equity in your home? If you think that you may have equity in your home or you aren’t certain what this means then go to “What if there is equity in my home?”

If you answered NO (or even MAYBE) to any of these questions you should probably consider whether or not you can afford to keep the house you’re in. Keep in mind that when you file bankruptcy you no longer have to make payments towards your unsecured debts and therefore you may actually have more money available to pay your mortgage, property taxes and utilities. If you haven’t already done so, flip to our page on budgets to determine whether or not you have the ability to pay for your house.

If you answered YES to all of these questions then, in most cases, your house will not be affected by your bankruptcy. That’s not to say that your mortgage company can’t cancel your mortgage contract if you file bankruptcy – legally they can demand full payment. It’s just very unlikely that they will. The mortgage company makes their money off the interest that you pay (and not by selling houses). If you have been a good customer and you have the ability to continue making payments, then that’s what the mortgage company is going to want you to do.

It’s very important that you know your rights and responsibilities in regards to your secured creditors, including your mortgage, BEFORE you file bankruptcy. Be certain to discuss your situation in detail with your trustee.
What if there is equity in my house?

If there is equity in your home when you file bankruptcy then you’ll be required either to pay the trustee an amount equal to your equity or the trustee will be forced to seize and sell your home.

The following example demonstrates how a trustee might determine if you had any equity in your home.

“A real estate agent appraises your house at $150,000 and you owe the mortgage company $120,000. I’ve got $30,000 in equity, right?”

Not necessarily. The amount of equity in this house should be calculated as follows:

In this particular example, the trustee would expect the bankrupt to pay $14,500 before their bankruptcy was completed, if the bankrupt wanted to retain possession of their home.

You should discuss the equity in your home and the required repayment terms with your trustee before you file your assignment.

Bankruptcy Toronto

There are no quick fixes for improving your credit score. But you can raise your score over time by demonstrating that you consistently manage your finances responsibly. Any of the following ten tips can help you to improve your credit score:

1. Pay your bills on time.

This is the best way to improve your score, and it’s never too late to start. Even if you’ve had serious delinquencies in the past, those will count less over time if you keep paying your bills on time.

2. Keep credit card balances low.

High outstanding debt can pull down your score. Don’t go maxing out your credit cards all the time.

3. Check your credit report for accuracy.

It’s possible that there may be inaccurate information on your credit report that can be easily cleared up (see How To Fix Credit Report Inaccuracies). In Canada, if this proves to be the case, then you should contact Equifax immediately.

4. Pay off debt rather than moving it around.

Consolidating your credit card debt onto one card or spreading it over multiple cards will not improve your score in the long run. The most effective way to improve your score is by simply paying down the amount you owe.

5. Keep your credit cards – but manage them responsibly.

In general, having credit cards and installment loans that you pay on time will raise your score. Someone who has no credit cards tends to have a lower score than someone who has managed credit cards responsibly.

6. Don’t open multiple accounts too quickly, especially if you have a short credit history.

Opening too many accounts in too short of a time period can look risky because you are taking on a lot of possible debt. New accounts will also lower the average age of your existing accounts, something that your FICO score also considers.

7. Don’t open new credit card accounts you don’t need.

This approach could backfire and actually lower your score.

8. Don’t close an account to remove it from your record.

It’s a myth that closing an account removes it from your credit report. This is untrue-even closed accounts remain on your report, possibly for an indefinite period of time and may still be factored into the score. In fact, closing accounts can sometimes hurt your score unless you also pay down your debt at the same time.

9. Shop for a loan within a short, focused period of time.

FICO scores distinguish between a search for a single loan and a search for many new credit lines, based in part on the length of time over which recent requests for credit occur. If you shop for a number of loans over too long a time period, it can count against you.

10. Contact your creditors or see a legitimate credit counselor if you’re having financial difficulties.

This won’t improve your score immediately, but the sooner you begin managing your credit well and making timely payments, the sooner your score will get better.

Steps to Improve Your Overall Credit

If you have a history of poor credit or think that you might, it’s important that you find out and take the steps to improve it. It will take time, but with discipline, you may expect to see improvement in as little as six months. You see, creditors are interested in a track record. You’ll have to prove that you consistently pay your creditors on time and that you can effectively pay down your debt. Here’s the simple plan to improve your credit:

Know what’s on your credit report and resolve any discrepancies.

Even if you believe you have a good credit score, it is still wise to check with credit reporting agencies to make sure they contain a similar view of your credit history. It’s also wise to make sure there are no errors on your report, such as name misspellings or incorrect addresses.
Plan to pay your bills on time and follow through.

You can start this today, even before you take a look at your credit report. Contact your creditors to review your payment options and catch up with any late payments. Focus on ways to reduce your spending.

Stop using credit cards now.

Paying down your credit card balances will not only improve your credit rating over time, but you’ll be in a better position to negotiate a lower interest rate for your cards.

Don’t live beyond your means.

Make paying your bills and buying only essential items your main priority. Carefully weigh the importance of all new purchases against the greater importance of reestablishing your good credit.

Getting a handle on your spending, paying bills on time, and paying down credit cards takes a long-term commitment and strong self-control. It won’t always be easy, but the effort will pay off once you see your credit improve.

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Don’t let poor financial planning keep you awake at night. If you take these actions now, you might sleep better — and better sleep might ensure good health as you age. Concerns about financial well-being in retirement keep many Canadians awake at night.

About 43% of employees at small and medium sized businesses, as well as 26% of retirees, are so anxious about being able to afford medical care in retirement that they sometimes can’t sleep, according to the Principal Financial Well-Being Index compiled in August 2006.

Workers are also anxious about being able to enjoy the same quality of life they have now (42%) and being able to afford the basic necessities in retirement (38%).

Women are significantly more concerned with being able to afford the basic necessities than men are. Retirees are also unable to sleep because of their financial concerns, but the No. 1 fear among retirees is inflation’s erosion of their purchasing power (37%).
Here are some ways to ease your fears about retirement planning so you can sleep soundly:

* Plan for the financial transition. It is important to develop a plan to transition your retirement savings into a steady stream of income. Only 30% of current employees and 51% of retirees have a plan for turning investments into bills paid, the quarterly Principal study said. “Just investing the time to plan for the retirement transition with help from a financial professional . . . can make the difference between achieving financial well-being in retirement or not,” says Dan Houston, Principal’s executive vice president of retirement and investor services.

* Pay down debt before you retire. Both housing debt and consumer debt are rising for elderly families. The average debt for a family headed by someone age 75 or older rose from $7,769 in 1992 to $20,234 in 2004, the Employee Benefit Research Institute reported in October 2006, citing the latest available figures. Those approaching retirement age have increasing levels of debt as well. “You need to get your finances in order,” says Craig Copeland, a senior research associate for the institute. “Having debt going into retirement is not the way to have a successful retirement.”

* Evaluate your assets. Take stock of all the sources of income you’re going to have in retirement. “You need to think about what sort of guaranteed income streams you have — Social Security, defined benefit plans — and also the amount you have in a 401(k) or other savings,” says Emily Kessler, a staff fellow for the Society of Actuaries. “Figure out how much you need to live on, and factor in inflation.” Knowing that you’ve got enough money coming in from various sources is sure to help you sleep more soundly.

* Health insurance is a must. If you retire before age 65, you must make sure you have health insurance. You may be able to qualify for COBRA coverage for up to 18 months after you leave your job. But even after age 65, “get access to some form of insurance to help you pay for those things that Medicare doesn’t cover,” Kessler says. Medicare does not cover long-term care or long hospital stays, warns Copeland. Supplemental insurance can help make sure your investments remain intact if major health problems arise.

* Take care of your health. Perhaps even more important than financial assets is investing in your health with healthful foods, exercise and preventive care so that catastrophic health-care costs can be avoided as much as possible. Making sure your retirement worries don’t interfere with adequate sleep will keep you healthier, too. “Good sleep is important for good mental and physical health, including resistance to disease,” says Timothy Monk, a professor of psychiatry at the University of Pittsburgh Medical Center. “Good sleep can be a predictor of longevity in seniors,” he adds. Mary Carskadon, a professor of psychiatry and human behavior at Brown Medical School, says, “Poor sleep can contribute to the kind of illness that we typically associate with aging.”

Toronto Bankruptcy Trustee

Avoiding credit card overload increases your opportunities to save and invest for important goals.

1 Managing Debt and Credit

Credit was once defined as “Man’s Confidence in Man.” But in fact, the definition of credit today is more like “Man’s Confidence in Himself.” Using credit today means you have confidence in your future ability to pay that debt. Forty years ago, your parents may have paid cash for their homes and their cars, a largely unheard-of event today. If they borrowed money at all, chances are it was from a relative or friend, and not a financial institution.

Today debt and instant credit are part of our everyday lives. The convenience of instant credit, however, has taken its toll. Many individuals use credit cards to spend more than they earn, and a few of these people actually build themselves a debt prison from which some never emerge. On the other hand, those who never use credit can be denied a loan or credit when they have a justifiable need or use for it. Using credit establishes a history of financial responsibility: Until you establish a credit history, your chances of qualifying for an important loan, such as a mortgage, are greatly reduced.

What is the balance between using credit wisely and staying out of overwhelming debt? Let’s look at the facts and some pros and cons.

2 Installment Debt

Debt comes in many forms, and most types help us in our daily lives — when used responsibly. Most people cannot buy a home without some financial help, and many cannot buy a car (especially a new one) without some sort of financing. The money borrowed to purchase large-ticket items is called installment debt: The debtor pays a portion of the total at regular intervals over a specified period of time. At the end of that time period, the loan with interest is paid off.

Installment debt allows you to purchase items at a competitive interest rate: for example, 5% to 7% for a 30-year home mortgage and 8% or 9% for a car loan. The loan is paid back on an amortizing schedule, monthly payments of a fixed amount that remain constant over the life of the loan. At first, most of the monthly payment consists of interest. In later years, principal begins to be paid down.

Installment debt is easily budgeted and the debt is eliminated on a predetermined date. Even for those who may actually have the cash to purchase the desired item, installment debt can make financial sense if you can earn a higher return (after taxes) on your investment of cash than you must pay on your installment debt.

3 Revolving Credit

A revolving line of credit, also called “open-ended credit,” is made available to you for use at any time. Examples of revolving credit are credit cards such as Visa, Mastercard, and department store cards. When you apply for one of these cards, you receive a credit limit based on your credit payment history and income. When you use the credit line, you must make monthly minimum payments based on the total balance outstanding that month. Some lines of credit will also have an annual account fee.

While revolving credit is a convenient way to borrow, it can also become an endless pit of minimum payments that barely cover the interest due. Many cards charge annual rates of interest of 18% or higher. As you pay off your debt, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay. Paying just the minimum due on a $2,000 credit card loan could mean making monthly interest payments for 10 or more years!

Revolving credit, in addition to being convenient, eliminates the need to carry a lot of cash and can help establish you as a creditworthy risk for future loans. The itemized monthly statements also can help you track your expenses. But some people can easily yield to the temptation that the convenience of credit cards offers. Impulse buying, failing to compare costs, and purchasing large items you can’t afford are all downfalls brought on by always available purchasing power. Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.

4 Using Credit Wisely

To use credit intelligently, start by examining the terms of the card(s) you are currently using. Keeping track of your cards, their rates, and your current balances will help you to be aware of how you use credit cards. Increased competition in recent years has led some credit card companies to offer enticing features to attract new cardholders, including no annual fees and low interest rates for an introductory period. (And credit card companies sometimes will give their introductory rates to existing cardholders so that they won’t transfer their balances to another credit card company.)

5 Eliminating Credit Card Debt

If you think you may have too much credit card debt, begin to address it by honestly evaluating your spending habits. Examine your existing expenses to analyze how your money is spent. You will most likely be able to identify the problem areas where you are more likely to spend too much or too readily with credit cards. Then, based on your current spending practices, create a realistic budget to pay off your credit card debt in the shortest time possible while not adding any more debt to it. For assistance, you may want to turn to your financial advisor, who can help you to allocate your resources wisely to address your credit card debt.

6 The Role of Debt

Today, carrying installment debt is almost a fact of life. Mortgages, car loans, or small-business loans (to name a few) are part of almost everyone’s life. On the other hand, carrying credit card debt is usually not a good idea. At interest rates of 16% and up, it’s hard to justify keeping savings that could pay off that 18% department-store credit card in the bank at 2%.

Debt and credit play increasingly important roles in our lives. As the aging Baby Boomers get closer to their peak earning years, many are realizing the need to reduce debt and increase savings. Even though analyzing your spending habits and creating a budget to address your debt may seem a little overwhelming, the simplicity of the philosophy of the Depression era still stands: Never spend more than you earn. Once you have come to grips with this basic fact, managing your debt will become far easier and more rewarding.

Summary

* Installment debt means the loan is paid off in a specified period of time by making predetermined payments periodically.
* Revolving credit is a line of credit that is instantly available through use of a credit card (and sometimes a check).
* As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay.
* Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.

Checklist

___ Remove high-interest-rate credit cards from your wallet or purse to reduce the temptation to use them unnecessarily.

___ Read the fine print on all account statements to understand how your fees and payment amounts are calculated.

___ Prepare to transfer balances from accounts with temporary low interest rates that are scheduled to rise soon.

___ Use the savings from your debt reduction initiatives to set more money aside for important short- and long-term financial goals.

If you’re a Type A credit card user, chances are you know it whether or not you are willing to admit it. If you can answer yes to these questions, then a lifestyle change is in order.

• Do you pay interest fees when you send in your credit card payment?
• Have you ever paid your credit card late because you didn’t have the money for the payment?
• Do you use your credit card when you don’t have enough cash?
• When your issuer raises your credit limit, do you spend more because you can?

Type A credit card users are loved by the issuers. They pay interest and late fees. Between that income and the interchange fee the cards charge the merchants for each transaction, the card issuers’ business plan is to get Type A credit card users to spend more.

On the other hand, Type B users, who don’t pay interest or fees, are shifted to cards with higher interchange fees. For example, Citi switched me from a Dividend Platinum MasterCard to a Dividend World MasterCard. The main difference between the two cards is the RFID chip that allows transactions without physical contact, but the hidden difference is the higher charge merchants pay to accept the card. (Also, like the larger trend in the credit card industry, the cash back rewards have been reduced.)

If you’re a Type A user, then it would be in your best financial interest to stop using your credit card, to budget your income, and use cash. While some people can take that advice and get it done, others have built up a psychological dependency on credit cards. Here are 10 steps to break the cycle of dependency.

1. Look at your spending carefully.

Deep down, some know that they are spending more than they are earning and wasting money on interest fees. This fact is ignored at the conscious level; ignorance is bliss. Use software like Quicken, Microsoft Money, Excel, or even a pen and paper to track all your spending for a month, even the quick daily cafe mocha at Starbucks.

Use your credit card statements to compare with what you have recorded. Did you track everything?

This might reveal incredible, depressing detail about your spending. $100 a month at Starbucks or $400 for dining out are not out of the ordinary when looking at these numbers for the first time.

If you continue this for more than a month, you might see your bottom line, or net worth, declining each month. This is not a good sign, and it may be enough to encourage you to change your behavior for a better chance of financials success.

2. Understand marketing.

Society doesn’t want you to curb your spending. Products and advertising are designed to make you believe you need something when you don’t. Even the government encourages spending, especially when trying to boost the economy. President Bush would be ecstatic if everyone took their economic stimulus payment and loaded up on American-made goods.

It’s hard to maintain control when the rest of the world is against you. The sooner you understand that it takes effort to defy the prevailing trend, the closer you will be to being above the influence of marketing.

Being completely above the influence is impossible unless you disassociate yourself from “civilized” society. Accept the fact that powerful forces in the world are trying to manipulate your behavior, and accept the fact that with extensive research they are mostly successful. With this realization comes enough power to resist a portion of those marketing efforts.

3. Commit yourself to change.

You can only change your behavior if you want,/em> to change your behavior. A smoker can be told repeatedly that there’s a good chance her lifespan will be shortened and may face health consequences like emphysema or cancer, but unless she’s ready to quit, all the words in the world would have no effect. Logic and reason often play small roles in human decision-making.

For those with debt accumulation, the problem isn’t the credit card. Credit cards are just tools, but they enable people to spend money they don’t have. If you’re ready to break the credit card habit, understand that there’s a deeper problem to solve. Without credit cards, the most accessible facility for overspending will be removed, and that can be the first step to solving the deeper problem of overspending. That is, of course, if you’re ready to admit there’s a problem and commit to changing it.

Steps 1 and 2 above may help you get to the point at which you’re ready to commit to changing your behavior. Committing to this change means spending less than you earn. You should be familiar with the details behind your income an expenses and have the knowledge to determine where there are opportunities for cutting back your spending and increasing your income.

If you use the credit card for spending more than you have, then you will need to cut back immediately.

4. Consolidate your balances onto one or two cards.

Gather the latest statements for the cards containing balances. Choose one or two with the lowest interest rates and consolidate your balances onto these cards. By calling the credit card company, you can provide the information for your other cards with balances and they will initiate a balance transfer. Ask for a transfer fee waiver. If they aren’t willing to waive the balance transfer fee, consider using a different card to consolidate your balance.

5. Enact a cash-only policy.

Once you consolidate your balances onto one or two cards, you cannot use those cards for spending. You have two options for spending from this point forward: cash or debit. I suggest cash because spending with a debit card can be psychologically similar to spending with a credit card. In order to kick the overspending habit, changing the way you think about financial transactions is important.

While there is a logical difference between spending with credit cards and with debit cards—debit cards are linked to your checking account so you can only spend what you have—if humans were logical they wouldn’t be in debt.

Actually, now many banks allow you to overspend (overdraw your account) with your debit card. Additionally, they charge a sometimes hefty fee for this “privilege.” If you want to change your behavior, cash-only is the best policy. An empty wallet is a great spending barrier.

6. Destroy your credit cards except for one or two.

Forget all the talk that says closing your credit cards will damage your credit score. Overspending is a larger problem than getting a more favorable rate on your next mortgage. I would suggest canceling almost all of your credit cards. Why not all? While some people might have good results with the “cold turkey” approach, I don’t believe it should be a universal recommendation.

Here’s the proper way to destroy your cards. First, get your free credit report from annualcreditreport.com, the official site that will provide you with your three free reports each year. Inspect the report carefully taking note of every credit card listed. See some unfamiliar cards? Chances are your report contains information on cards you didn’t know you had.

If that’s true, first confirm that these cards are in fact yours. If someone is using your identity to open credit cards, this must be resolves as soon as possible. There’s also the possibility that the credit reposing agency has bad information. Clear any errors quickly by contacting the company that provided you with the credit report, like Experian, Transunion, or Equifax Canada, and disputing the incorrect information.

Next, call the credit card companies for which you do not have your card and cancel your accounts with them. If you don’t have the card, you didn’t even know you were a customer. There’s no sense in keeping a credit line open if you didn’t know you had one and if you’ve survived thus far without needing it. The plan is to reduce your spending, so the simple solution is simply canceling the cards you haven’t been using.

If you consolidated your balances as suggested in step 4, you should have one or two cards with balances and more without. Here’s the dirty secret about consolidation. Now that your your balance is all on one or to cards, your combined minimum payment is probably lower than it was before. Don’t forget to pay at least the minimum to each card, but we’ll tackle paying down the balance aggressively at a later point.

Cancel all the cards not containing balances. As I mentioned above, this is not the savviest approach if you are concerned about your credit score. If you have an overspending habit enabled by easy access to credit, you are not concerned with your credit score. Keep your oldest card if you expect to be applying for a mortgage in the near future, but otherwise, stick with the lowest interest rate.

To cancel your accounts, you have to call the companies. The representative on the phone will try to keep you as customer by offering you lower rates and higher limits. Don’t bother negotiating, even if they offer a lower rate than the card you are saving. The idea here is to simplify, so don’t play any games.

Shred all the now-unused plastic. If you don’t have a shredder that handles credit cards, use a pair of scissors to slice the cards into several pieces. I would even discard of the pieces in different locations.

7. Lock away your remaining credit card.

Now that you have one credit card left, realize that you will not be using this card for everyday spending; for now, cash is king. Put your remaining credit card out of sight. Lock it away. I’ve even heard of some people who put their credit card into a cup of water in the freezer. The extra step of breaking a block of ice to get to your credit may be an extra demotivator.

8. Build an emergency fund.

This step will take some time. If you have an overspending habit, you’re spending more than you earn. That creates a situation that prevents saving. In step 1 you evaluated your spending. Perhaps you came across some options for cutting back, allowing you to put money into a short-term savings account.

Open up a high-yield savings account. Many, like ING Direct, allow you to set up direct deposit or an automatic investment plan. Choose one or the other, which ever is the best for you. It’s simpler if you already have a pay check deposited somewhere else to go with the automatic investment plan.

The goal is to save 3 to 6 months of your expenses in this savings account. This could take a long time if your expenses approach or exceed your income. You’ll have to be creative. If skipping this year’s vacation would help you achieve this goal, then you have a decision to make.

Remember: an emergency fund is to be used in true emergencies only. This doesn’t take the place of your credit card. Te purpose of the emergency fund is to remain untouched for regular expenses but accessible when major spending is required. Some examples might be the loss of a job or a significant medical expense.

9. Pay down your balances.

While you’re building your emergency fund and paying cash for all your expenses, don’t forget to spend money every month to your consolidated credit card balance. In order to get out of debt, you’ll probably have to pay more than the minimum. There are several theories prescribing the best way to divert all available funds to paying down your debt.

A popular financial guru, Dave Ramsey, suggests what he calls the “Snowball Method.” He suggests ordering your balances (you should only have two at the most at this point) from highest to lowest. To the card with the highest balance, pay the minimum each month. To the card with the lowest balance, send the minimum payment plus any additional funds you have available. Dave believes this will allow you to see success (paying off the first card) sooner, providing a psychological boost, encouraging you to continue.

While psychology plays a large part in terms of money, I believe Dave’s reasoning is faulty. If you put the most money towards the card with the highest interest rate, you might not get the psychological boost of paying off a card sooner, and the time difference may be negligible. You will have a psychological boost from knowing that you will be paying less interest.

10. Check your progress monthly.

If you use financial software mentioned above, you’ll have a straightforward way of measuring your progress. You should see your expenses decreasing each month and your credit card balances decreasing. These monthly reports can be excellent motivation to continue. Your habit is clear in graph form; visuals are powerful. Each month, recommit to spending only what you have.

When changing a behavioral pattern like overspending, don’t expect immediate success. Our society encourages consumerism, and breaking from that trend, like swimming against the current, is going to be difficult. We often do not see the consequences of overspending. We hear about the government bailing out banks for making bad lending decisions and creating laws to protect consumers who purchased houses too expensive.

Don’t let this distract you. In most cases, the consequences a pattern of overspending can be difficult on relationships as well as personal finances. Once you’re ready to change, make the commitment and follow the steps above. Success will come through sticking to the plan.

All about Bankruptcy Mediation

Recent amendments to the Bankruptcy and Insolvency Act have led to changes in the consumer bankruptcy process, changes that could be very helpful to you as a bankrupt or a creditor.

This post provides basic information on the mediation process. It does not provide detailed legal advice. For complete legal information related to mediation and bankruptcy, you may contact:

• a trustee in bankruptcy
• the Office of the Superintendent of Bankruptcy in your area
• a lawyer who specializes in bankruptcy.

What is mediation?

Mediation is a way of resolving conflict between two or more people. The parties involved in the disagreement agree to work with an independent person called a mediator who helps them settle their dispute.

Why was mediation introduced into the consumer bankruptcy process?

The mediation process will be more flexible and less costly than a formal court decision. It will allow the people who are affected by the bankruptcy to be directly involved in deciding how their disagreement will be settled.

Who is the mediator?

The mediator may be an employee from one of the Superintendent of Bankruptcy’s Division Offices. It may also be any other person with training and experience in mediation who is approved by the Superintendent.

What does the mediator do?

The mediator’s role is to help the parties communicate. To reach an agreement, all parties must understand what issues are in dispute and what each party wants or needs. The mediator will help the parties explain their point of view and discuss ways to settle the disagreement. The mediator does not decide what the settlement will be. The parties decide that together.

The mediator explains the mediation process including the procedures for additional meetings (rescheduling and adjournment). The mediator is not allowed to act as a legal counsel to any party involved in the mediation.

What is the trustee’s role in the mediation?

The trustee’s role is to provide guidance to people who are affected by the bankruptcy.

Who may attend the mediation session?

The bankrupt, the trustee and the mediator will be present. In addition, the following people may attend:

• any creditor who has requested mediation
• the bankrupt’s spouse or a friend
• legal counsel for any of the parties.

The parties present at the mediation session should have signing authority and bring all pertinent documentation.

When can mediation be used to resolve disputes?

Mediation is available to resolve two kinds of disputes:

1. Disagreements over the amount of money the bankrupt will pay to creditors (called surplus income).
2. Disagreements regarding the conditions for a bankrupt to be declared free from the status of being bankrupt (called a discharge from bankruptcy).

1. Surplus Income Mediation

At the beginning of the bankruptcy, the trustee determines the amount, if any, that the bankrupt will be required to pay to creditors. This amount is called surplus income. The trustee sets the amount by taking into account:

• the standards issued by the Superintendent of Bankruptcy, and
• the bankrupt’s personal and family situation.

Who can request surplus income mediation?

• If the bankrupt does not agree with the amount of surplus income to be paid, the trustee must request mediation.
• If any of the creditors do not agree with the amount of surplus income to be paid, they may submit a written request to the trustee asking for mediation.

Who will be considered for surplus income mediation?

• Surplus income mediation is available to a first-time bankrupt or multiple-time bankrupt.

2. Discharge Mediation

Towards the end of a bankruptcy, the trustee must recommend whether or not the bankrupt should be declared free from the state of being bankrupt (called a discharge from bankruptcy). The conditions of the discharge, if any, will be based on the bankrupt’s conduct and ability to make payments.

Who can request discharge mediation?

• The bankrupt may request mediation if he or she disagrees with the conditions that the trustee has recommended for discharge.
• The trustee must request mediation if he or she opposes the bankrupt’s discharge because:
  • the bankrupt did not pay the agreed amount of surplus income
  • the bankrupt filed for bankruptcy instead of proposing a viable repayment plan (called a proposal).
• The creditors may request mediation if they oppose the bankrupt’s discharge because:
  • the bankrupt did not pay the agreed amount of surplus income
  • the bankrupt filed for bankruptcy instead of proposing a viable repayment plan (called a proposal).

The trustee must request mediation when creditors oppose the bankrupt’s discharge.

Who will be considered for discharge mediation?

• Discharge mediation is only available for a first-time bankrupt.

What happens if the parties agree?

The mediation is successful when all the parties will reach an agreement. A “mediation settlement agreement” will be signed by all parties. The bankrupt will be required to comply with all provisions of the agreement.

What happens if the parties cannot agree?

1. Surplus income mediation

   If the parties do not reach an agreement over surplus income, the trustee may apply to court to decide the matter. However, the trustee must apply to court, if he or she is requested to do so by a creditor or by officials from the Office of the Superintendent of Bankruptcy.

2. Discharge mediation

   If the parties do not reach an agreement over conditions for the bankrupt’s discharge, the trustee must apply to court as soon as possible to have the matter decided.

Questions? Need more information?

Call your trustee in bankruptcy or the Office of the Superintendent of Bankruptcy in your area.