Red Deer Personal Bankruptcy
Common Misconceptions About Personal Bankruptcy
There is still a chance to bounce back if you have a debt that does not go beyond $250,000 CAD. Although you are currently having problems with your finances, finding a good insolvency trustee is essential.
A consumer proposal is actually a great option instead. People are worrying too much about their financial standing and disregarding the fact that there are solutions. Failure is the primary cause of these worries.
The coronavirus pandemic has imposed a lot of financial downturns on the Canadian economy. However, the good thing is that consumer bankruptcies are not that affected. The newest statistics show that the lowering of consumer bankruptcies filed happened in the 2nd quarter of 2020.
These consumer insolvencies were 38.4% beneath compared to October 2019. It is significantly much higher than the statistics a year after.
Moreover, there is an extensive slowing down between individuals when they are thinking about how grave their debt problems are and what they will do about it. Some people even wait for more than a year before they tell their spouse about the situation.
We could not take away the fact that the pandemic has hit a lot of people really hard financially. The increasing debts that they have might be really detrimental to the retirement of an individual.
The following instances were experienced not only by Canadians but also by people from all parts of the world.
- Job loss
- Marriage problems
- Both chronic and short-term illnesses
Spending more than what you can is also a big factor in bankruptcy. The availments of payment deferrals are also a big factor.
There are warning signs that a person is on the road to bankruptcy. One of them is they are already having problems paying their bills.
From last year, there are 99% of the 686,000 people have taken advantage of deferred mortgages had continued their payments.
However, this does not represent everything cohesively as there are still a lot of people who are behind their payments for the following months to come.
What to do?
There are different things that you can do if you are on the brink of personal bankruptcy. Here are some of the most notable among them.
Seek Professional Help
Having a professional evaluate the situation can help the occurrence of such problems. One of the worst things that you can avoid is to withdraw from a registered retirement saving plan just to be updated on your credit card bills.
Moreover, creditors cannot take away investments that are specifically placed for retirement. Although there are exceptions such as the contributions for the past year which must be remained unaltered.
Similar things go for those who make their homes as collateral when it is not allowed for repossession. This only entails that people must secure their assets so that they can have something to use in emergency situations.
A balance sheet is the most basic yet very effective in containing the effects of bankruptcy. This contains assets and liabilities to help us visualize the financial status that we currently have.
A perfect example is an entrepreneur who is always using a balance sheet to monitor earnings especially if they have a business loan. On the other hand, regular employees will be hesitant to do so because they are expecting a fixed salary on an ongoing basis.
Never Underestimate Debt Spiral
A debt spiral can be detrimental in the closing of an electricity account. Usually, there is 30 to 40,000 USD on cards and credit lines which needs higher monthly mortgages without any leeways behind.
The limits are usually imposed by the financial institution and clients can’t do anything about it. As a result, people just accept it even the increase is somehow unreasonable already.
It might be really tempting to see that a loanable amount that is somehow manageable to pay. However, the interests and principal could double up the costs that you have to pay depending on the mortgage plan that you have.
There are instances that bring debt they could manage by utilizing a credit home equity line. However, unawareness is always an issue as they might regard bankruptcy with creating a consumer proposal.
Proposal Making
For people who have a debt that is not more than 250,000 USD
Below is a draft we are still working on
3. MAKE A PROPOSAL
If you’re an individual whose total debt (excluding your mortgage) does not exceed $250,000, you can make a consumer proposal—an offer to reimburse your creditors. “This simplified procedure allows you to suspend the proceedings instituted against you by your creditors; keep most of your property; retain your right to professional practice, if applicable; [and] repay some of your debts interest-free.” explains Justice Quebec. “A consumer proposal may be completed quickly if it is based on a single lump-sum payment (generally through a loan made on condition that your creditors accept your proposal).”
For debt in excess of $250,000 or for business owners, a Division I proposal is available. Bankruptcy should be your last recourse, says Lyons.
“A proposal should always be looked at first,” insists Lyons. “The idea is to figure out what your cash flow will accommodate for repaying creditors, based on OSB rules, and give them something more than they would get in a bankruptcy.”
With a consumer proposal, all creditors are bound in a single file that is submitted to the OSB. From the moment the proposal is made, unsecured creditors can no longer demand direct payments or seize wages and must cease any legal proceedings. They have 45 days to accept the proposal or request changes to it. If it is accepted, payments are made to the trustee, not to the creditors.
“This is by far the most advantageous solution for everyone, including creditors, who could lose even more in the event of bankruptcy,” says Leblanc. “An individual who owes $30,000 could repay $20,000 interest free under a proposal at $400 per month for five years, the maximum term. Another consumer may repay $12,000. It all depends. In all cases, consumers will be required to attend two counselling sessions to learn how to better manage their finances.”
4. REBUILD YOUR CREDIT
Consumer proposals make it easier to rebuild your credit reputation quickly. “If you’re able to settle your proposal in less time than expected, your [credit] score will improve faster, which is not the case with bankruptcy,” explains Leblanc.
“In addition to providing some financial certainty for the [person], who knows going forward what their fixed payments will be over the next five years, a consumer proposal is always a better option because it has a lesser impact on their credit rating,” adds Lyons. Once the consumer proposal is completed, no debts will be reported as R7 after three years.
The “R” set by Equifax and TransUnion stands for revolving credit, which mean credit accounts that can carry a running balance and on which you are required to pay only a portion each month. R1 is the best credit rating you can have when you pay your credit account on time, and R9 is the worst. Between both, you have a range for “R” referring to how many days late you pay: R2 for 30 days late, R3 for 60 days late, R4 for 90 days late, R5 for 120 days late (R6 is not used). Once you get a R7, getting credit could be difficult and expensive, but still possible.
A first bankruptcy lasts nine months, but if your monthly income exceeds certain OSB-established low-income cut-offs, you’ll be deemed to have surplus income, which will change the length of your bankruptcy (to 21 months) as well as the amount of your payments. For a family of four, the cut-off is set at $4,168 (many examples of calculations are available here). If you declare bankruptcy a second time, you won’t be discharged for 24 to 36 months.
Once you’re discharged from your bankruptcy, R9 ratings stay on your file for six years (or 14 years after a second bankruptcy). If you have debts reported as R9, you will be unable to get credit or loans and may have to dispose of assets to pay off your creditors. Your car, home, furniture, personal items or tools necessary to your work would fall under that category; the value of what you’re entitled to keep depends on your province. Despite these consequences, bankruptcy still accounted for 40 per cent of the 137,178 consumer insolvencies filed with the OSB in 2019.
Some people do try to game the system by making large purchases in the weeks before declaring bankruptcy, transferring funds to a third party or selling their home to invest the money collected in their spouse’s name, but the culprits often pay the consequences: a transfer of property to a stranger can be deemed a void transaction if it occurs less than one year before bankruptcy or less than five years when made to a family member.
But these cases are rare. “The majority of people who end up in debt default are acting in good faith,” says Leblanc. “Often, they’re just unlucky and unfortunately lack the necessary financial knowledge.”
LOOKING FOR FINANCIAL ADVICE?
Find out how to manage your debt in tough times. Learn what to consider before lending money to loved ones or how to set priorities in your relationship.
Lost your job due to the pandemic? Find out how to manage your expenses and access government support programs that can help you weather this storm. You can also attend this on-demand webinar if you’re concerned about your debts.
If you are struggling to manage your household debt, there are several not-for- profit credit counselling agencies that exist to help individuals and families sort out their personal finances. Many of these agencies provide highly qualified support at little or no cost. For more information, visit Credit Counselling Canada and Credit Canada.