Cons And Pros Of Declaring Bankruptcy

There may be cons and pros of declaring bankruptcy; but, there seems to be no abating the rise of bankruptcy filings despite the 2005 changes in the federal bankruptcy code which was supposed to put a damper on them. Filings for bankruptcy rose by almost a third in 2009 from 2008 according to the compilation of data by the National Bankruptcy Center. More of these filings were for Chapter 7 even though in 2005 the legal changes were aimed to encourage Chapter 13 filings that required debt-repayment plans. The changes were intended to make it more difficult for a Chapter 7 application. A means test was required thereafter to separate those who could repay debt from those unable to do so. Chapter 7 was not to be a recourse, if the test revealed that payment of some portion of the debt is possible after restructuring. Yet, Chapter 7 filings were up over 42 percent by November 2009; and by contrast Chapter 13 filings made up less than a third of the total filings in the same period and rose by only 12 percent.

The advantages and disadvantages of bankruptcy

The disadvantages of bankruptcy include the fact that most tax debt is not-dischargeable and neither is student loan debt. Your credit will be affected for years. It will remain on your credit report for up to ten years. You will lose your credit cards and some of your possessions. You will lose property that you own that is not exempt from sale by the bankruptcy trustee. It will be harder to file later on, if something even worse financially comes along. For instance, if you complete the bankruptcy process under Chapter 7, you cannot file for another Chapter 7 bankruptcy for six years. The six year period is counted from the date you last filed for bankruptcy. Another consideration to provide some pause is that a filing will limit the techniques you can use to get out of the financial ditch.

Amongst the benefits that come from bankruptcy there is the fact that old tax liabilities, these being those older than three years are removed. Bankruptcy will also keep your lenders from pursuing aggressive collection actions. Missed payments, repossessions and lawsuits will also hurt your credit like a filing will. It may be possible to salvage one or two credit cards, in some cases. Most state exemptions permit you to keep possessions as exempt from bankruptcy that you might consider you need. You will keep the salary you earn and the property you buy after you file. Bankruptcy helps you get a fresh start, so you can get started on rebuilding your credit. You may file for Chapter 13, if you need to seek bankruptcy again before you are entitled to file for Chapter 7. You may file for Chapter 13 repeatedly, although each filing will appear on your credit record.

Chapter 7 or Chapter 13?

Chapter 7 is more popular as it does not require repayment of a portion of their debts as wipes out many debts entirely. A Chapter 7 filing will, however, wipe out only your personal obligations. Liens recorded before the filing are not affected. After your bankruptcy, the IRS can seize property owned at the time of the filing. After-bankruptcy, the IRS tends to seize real estate and retirement accounts or pensions; and generally only when a taxpayer has made no efforts to otherwise resolve the problem.

In some situations, however, Chapter 13 is the superior alternative. Also, certain debtors cannot file for Chapter 7; but, may file for Chapter 13. Under the 2005 changes you are ineligible to file for Chapter 7 if you cannot meet new requirements under what is termed the means test. Chapter 7 is off limits if in your state of residence your current monthly income over the six months prior to your filing date is more than the median income for a household of your size. In addition, if your disposable income after the subtraction of certain expenses and monthly payments for debts you would have to repay exceeds limits set by law. In sum, if you have the means to repay some of your debt through a Chapter 13 repayment plan, you are ineligible for a Chapter 7 bankruptcy filing. The means test can get complex, so professional advice is important. You are also prohibited, if you received a Chapter 7 bankruptcy discharge within the last eight years, or if you received a Chapter 13 discharge within the last six years.

You may opt for Chapter 13 if you are behind on mortgage or car loans and seek to make up the missed payments over time. Only Chapter 13 permits making up your missed payments. If you have a tax obligation, student loan, or other debt that cannot be discharged in Chapter 7, you can under a Chapter 13 plan pay them off over time. If you have nonexempt property that you want to keep, Chapter 13 is preferable. Under Chapter 7, only exempt property is allowed to be retained. Exempt property is property protected from creditors under state or federal law. Your nonexempt property will be disposed off by a bankruptcy trustee to distribute proceeds to your creditors. In Chapter 13, you do not have to give up any property and can repay your debts out of your income. Should you have a codebtor on a personal debt, the co debtor will be left alone under a Chapter 13 filing so long as you keep up with your payments; but, under Chapter 7 your codebtor will still be liable.

If saving your home is a reason for filing for bankruptcy under Chapter 13, you might want to know that a study has found that this will be of little help in saving homes. The authors of the study found that for one-third of the filers, the money freed up is insufficient to save their homes, and many others have enough income to save their homes without choosing this drastic measure. You should seek a qualified attorney in your area that knows the bankruptcy laws and exemptions in your state to advise you and help you decide whether you should take the serious step of filing for bankruptcy. Bankruptcy should be the last recourse. A declaration of bankruptcy affects your future credit and your reputation. On the other hand, those who choose this path do it because they see this as the best alternative among poor options.

Considering Cons And Pros Of Declaring Bankruptcy

Cons And Pros Of Declaring Bankruptcy

When considering the cons and pros of declaring bankruptcy; be aware that bankruptcy filings have been rising in spite of the revisions in the federal bankruptcy code in 2005 intended to inhibit them. Majority of the filings were Chapter 7 even though 2005 revisions were to discourage them in favor of Chapter 13 filings. This is because Chapter 13 filings require debt-repayment.

Advantages and disadvantages of seeking bankruptcy

One disadvantage is that most tax debt may not be-discharged. Student loan debt may also not be discharged. Your credit is affected for years. Your bankruptcy will be on the credit report for up to a decade. Credit cards and some of possessions will be taken. It will be harder to file in future, within the prohibited period for Chapter 7 filings. There will be less flexibility in the means you can use to improve your financial condition.

A benefit is that tax liabilities more than three years old can be removed. Bankruptcy will stave off the wolves at your door. Generally, state exemptions allow possessions you think necessary to be retained. You can keep your earnings and any property purchased after a filing. You get the opportunity to get a new start to get on the route to better management of your finances. A Chapter 13 filing option remains open for those not eligible for Chapter 7. There is no prohibition on filings for Chapter 13, even if each filing appears on the credit report.

Will you choose Chapter 7 or Chapter 13?

More people choose Chapter 7 because debts can be wiped out in their entirety. This applies only to personal obligations. Any liens recorded remain. The IRS can still seize property after a bankruptcy; although it generally only takes this action after a taxpayer has made no effort to otherwise resolve the problem.

In some cases, Chapter 13 is the smarter choice. Of course, it is also an avenue for those who cannot file for Chapter 7 due to the structures of the 2005 restrictions. Those who have gone through Chapter 7 within the last eight years, or a Chapter 13 process within the last six years are also prohibited from a Chapter 7 filing.

Chapter 13 is the path to make up for missed debt payments. If you have debts that remain in Chapter 7, Chapter 13 enables you to adjust their payments to make them more manageable. If you have property that would not be exempt, Chapter 13 will save you losing that property. You can shield your codebtor, which you cannot do in a Chapter 7 application.

Keep in mind that Chapter 13 might not be much assistance in saving your home from foreclosure. The funds freed up could be insufficient to save the property. A qualified attorney should be sought if you are seriously considering the bankruptcy option.

The Cons And Pros Of Declaring Bankruptcy

The cons and pros of declaring bankruptcy seem to be considered by a rising number of people, if the rising filings is any indication. And, bankruptcy application have risen even though changes were implemented in the federal bankruptcy law to act as a breaker. Data has revealed that most filings were for Chapter 7. Yet, 2005 revisions were specifically supposed to discourage this.

Some advantages and disadvantages

A disadvantage is that tax debt discharge may not be an option. Student loan debt is also off the table. The fact that credit is impacted for years after can be off putting. Your credit report will reflect your bankruptcy for 10 years. Your credit cards will become history and some of your possessions can be disposed off to pay off your creditors. Filing in future could be a problem. There will be less flexibility in means available to you to improve your financial condition thereafter.

Tax liabilities that exceed three years may be removed. Harassing creditors will be kept at bay. You may not be required to dispose off your possession, should state exemptions cover them. Your income and any property purchased post filing is retained. You may really need the fresh start bankruptcy affords you. The Chapter 13 recourse is open to those not eligible for Chapter 7.

Deciding between Chapter 7 and Chapter 13

The more common choice is Chapter 7 as debts are wiped out in this process. Bear in mind, only personal obligations are removed. Recorded liens are not discharged. The IRS may still take property following bankruptcy; although generally only if a taxpayer has made no real effort to resolve the problem.

Chapter 13 is the better alternative sometimes. Needless to say, it is also only route for those ineligible for Chapter 7. Debtors who have already gone through Chapter 7 in the last eight years, or Chapter 13 in the last six years are ineligible for a Chapter 7 filing.

If you seek to pay missed debt payments, Chapter 13 is the choice for you. If your debts cannot be discharged under Chapter 7, Chapter 13 will allow you to adjust your payments and make them more manageable for you. Property not subject to exemption you wish to retain requires a Chapter 13 recourse. Should there be a codebtor you seek to protect, you will not be able to do this under Chapter 7.

Bear in mind Chapter 13 might not serve as an adequate aid in saving you from foreclosure. Funds freed in this process may not be sufficient in some cases to save the property. Please seek a qualified attorney for any serious consideration of bankruptcy.

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

At first glance, this may seem a pointless topic for an article. Who would want, after all, to declare bankruptcy? Most Americans are well aware of the far-reaching financial consequences of bankruptcy protection. Bankruptcy can immediately and significantly lower FICO scores, darken credit reports for up to a decade and, depending upon the situation, forever prevent you from some sorts of financing or employment. In the more popular games bankruptcy means, simply, that you lose the game. Even as a form of speech – being morally or spiritually ‘bankrupt’ – the notion’s hardly complimentary.

Nevertheless, as spiraling bills force more and more borrowers to sadly ponder what would’ve been once unthinkable, many consumers are forced to consider bankruptcy as a final alternative to seemingly insurmountable debt-loads. And, because bankruptcy’s so well-known as a final resort, a good number don’t bother to investigate the actual truths of bankruptcy (particularly after the restriction-tightening recent legislation) before succumbing to the inevitable.

More than ever before, this is a shame. Bankruptcies are no longer a guarantee of debt liquidation, the negative impacts can well beyond credit score repercussions, and, especially now, other bankruptcy alternatives may serve the average consumer better as they seek debt relief. Even on a Chapter 7 bankruptcy – and even though Chapter 7 notation would appear on your credit report for seven to ten years following – it’s possible that not all debt would be eliminated. In other words, the unlucky filer could yet adopt all the corrosive drawbacks of bankruptcy without the expected benefits. Considering this, it’s more important than ever for all borrowers even beginning to think about bankruptcy to closely analyze all aspects of the new legislation.

First of all, it’s no longer wholly the consumer’s decision on which sort of bankruptcy to file. As most past debtors attempted the Chapter 7 (which did, whatever the negative effects upon credit, liquidate most outstanding bills), this should be the most striking difference for average borrowers. Under current legislation, the courts must subject your income from six-to-nine-months ago to what’s become known as ‘the means test’. This test compares past income (no grace given if, say, the borrower has since changed jobs) with the average income from the state and then subtracts arbitrarily decided living expenses. Even avoiding the obvious regional and career differences (with housing prices in Fresno rather less expensive than those in Southern California, say, or the vehicle needs of a contractor more expansive than secretary), this allows a court trustee or their assistant to, upon their whim, change every bit of your life. Families have been forced to move or pull children out of private schools with little warning. Allowing the government free rein to budget and plan your family’s future carries obvious risks.

In previous years, of course, whomever went bankrupt would have to face the threat of their property and possessions being taken by the court and sold off to pay the creditors – every once in a while the news would cover an auction of celebrity memorabilia essentially being run by the IRS, for example – but ordinary debtors rarely had to worry about the loss of household items since their collected value, after depreciation, simply wasn’t worth enough for the government to bother with. Now, however, the tax laws insist all possessions (hobby equipment, children’s toys, family heirlooms) be listed according to their replacement cost: sentimental value, as you’d expect, not to be considered.

More worrisome, any significant investments (aside from custodial trusts or tax-deferred retirement plans like Individual Retirement Accounts) could be liquidated. Second homes and second vehicles are also fair game. Depending upon your specific state’s exemptions, even your residence or primary vehicle could also be forced towards auction. Essentially, the exemptions protect some degree of equity for the home, but, if the borrower had paid down too much of the mortgage balance, the courts could insist the home be sold with all excess equity given over to creditors. It’s imperative that every homeowner even considering bankruptcy search out his or her state’s specific protections and talk to a bankruptcy attorney about the potential fall-out.

There’s another even more significant reason to ensure you’ve a well-trained attorney with whom you feel comfortable. It’s considerably easier under the 2005 act for both creditors to sue for fraudulent bankruptcy filings and for the government to initiate criminal proceedings. Obviously, there should be safeguards in place to prevent the genuinely mercenary from taking advantage of bankruptcy protection, but gray areas within the law can also unnecessarily vilify even those honest borrowers that underestimated a motorcycle’s worth or forgot about accounts they hadn’t touched for a decade.

Again, obviously, for many consumers – those without investments or significant equity in their homes or vehicles; those willing to forego all accumulated possessions; those that wouldn’t mind the government planning their family’s budget for half a decade; those that can’t imagine needing credit reports or FICO scores again – personal bankruptcies can still be of some use. Even for those desperate souls, though, we still urge the consultation, whatever the cost, with top bankruptcy attorneys. For all others, it almost always makes sense these days to do whatever possible to avoid bankruptcy altogether – especially as other alternatives, such as debt settlement, have become increasingly popular. It was always meant as the final option, but, after the recent legislation, that can be all too true.

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.

Bankruptcy Toronto

Bankruptcy often has a huge stigma attached to it but if you are struggling under a huge pile of unmanageable debts then it is something you may want to seriously consider.

It is not something that you should enter into lightly but can also free you from your debts and help you start again. It will mean that your assets will be taken away to pay off any creditors and will affect your status in the future but it doesn’t last as long as many people think.

What is Bankruptcy?
Bankruptcy is a legal status that you can enter into when you are unable to pay off large debts that you owe. Sometimes you might enter into voluntarily or a creditor may force you to make the move so that they can get their money.

Either way, a court will declare you bankrupt and then this status usually lasts for a year during which time they will use your assets and any excess income to pay off the debts that you owe.

What Bankruptcy Means For You
Once you have been declared bankrupt you will be allocated an official receiver who will be in charge of managing your assets to pay off the money that you owe. This means that they can sell things such as your car or your home to pay off the debts. Items that you need for your work or in the household are exempt from this though.

You will still be required to pay your rent/mortgage and bills once you are made bankrupt. Your official receiver will look at your income and decide how much you can pay towards your debts each month.

Long-Term Effects
The status of being bankrupt only lasts for one year, during which time all your assets and extra income will go towards paying off your debts. After this time, as long as you have behaved responsibly and co-operated with your order then you will be discharged from your debts. After this, however, the fact that you have been bankrupt will affect your ability to get further loans or credit. The details of your bankruptcy will stay on your credit report for six years after you have been discharged.

What are the Alternatives?
If you can avoid it then it is best not to be declared bankrupt. It should only be used as a last resort and there other ways that you can get your debt problems under control. You can enter into an individual voluntary agreement (IVA) with your creditors. This will help you work out a payment plan that you can manage and is a legally binding agreement that you must stick to. Also, there are a number of agencies that will help consolidate your debts and work out a payment plan but be careful about hoe much they may charge.

It is never good to be in a position where you are considering bankruptcy but if you are it can turn out to be a good move. Once it has been declared by the court you will lose all your assets and any extra income will go to your creditors. After a year though your debts will probably be discharged and you can start again, albeit with a bit of a rough credit rating.

Bankruptcy Toronto

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

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.

The cost of bankruptcy in Toronto, Ontario is largely dependent on your personal situation – although not completely since there are some common expenses that you should certainly take into the account when trying to determine the cost of filing bankruptcy in your case.

Below we provide a summary of some of the costs you can expect in regards to a bankruptcy process in Toronto, but for a thorough explanation of all the costs, we recommend that you interview several Trustees in your area.

Costs in a Bankruptcy Process in Toronto

First of all, when filing personal bankruptcy you will have to make a contribution to your bankruptcy estate to cover administrative costs, court fees, communication and government filing fees.

Next, you must pay a share of your “surplus income” into your estate. If you or your family earn over a certain amount each month, you will lose a fraction of your earnings over that limit.

You should also keep in mind that you will lose some of your assets, as well as any tax refunds and GST credits you would normally acquire during the bankruptcy period. You will also lose any windfalls (lottery winnings, inheritance) you receive throughout the bankruptcy.

For the most part, your total cost of filing bankruptcy will be determined mostly by your monthly income, your family size, and your assets.

Determining the actual final numbers can be difficult, so it’s recommended that you speak directly with a professional. Please note that an initial consultation is normally at no charge.

A trustee in bankruptcy is a person licensed by the Superintendent of Bankruptcy to handle the process of proposals and bankruptcies. Only licensed trustees can provide bankruptcy services. Although they represent creditors (those who are owed money), trustees are officers of the court who also advise debtors of their options with respect to debt problems.

If a person or company is unable to meet its debt obligations, it is said to be insolvent.

When that happens, there are three main Bankruptcy options:

• Bankruptcy – This is where assets of an individual or company are liquidated and the proceeds are given to people who are owed money. (Some assets are exempt from liquidation, depending on the province.)
• Proposal – This is where an offer is made to people who are owed money in an effort to settle the debt.
• Receivership – This usually happens to companies, not individuals. This is where a secured creditor (often a bank or other large creditor represented by a receiver) comes in and generally takes control of the assets of the company.

There are also three main individuals in the process:

• Debtor – The person or company that owes the money.
• Creditor – The person or company that is owed the money.
• Trustee – The people who are licensed to administer the proceedings.

When this happens, Bankruptcy Trustees then;

• advise debtors of their options with respect to debt problems;
• prepare official documentation that is both filed with the Superintendent of Bankruptcy and used to notify creditors;
• ensure the validity of claims;
• ensure that debtors are provided with mandatory counselling and access to mediation services if there is a dispute regarding any income they are required to contribute;
• sell the debtor’s assets (except those that are exempt from seizure) and hold the proceeds in trust for distribution to the creditors;
• assess the debtor’s conduct both before and during a bankruptcy, as well as the cause(s) of the bankruptcy; and
• make an application for a debtor’s discharge (in the case of individual debtors).

No matter which form you choose, it is important to understand what bankruptcy can and cannot do for you. It is very good for eliminating credit card debt, but some debts are considered obligatory and very rarely are discharged. Tax debts, student loans, child support, and spousal support all are such debts. If your debt load is comprised of such factors, look for an alternative to bankruptcy by calling a Toronto Bankruptcy Trustee and asking as many questions as you need to feel comfortable.