Hoyes Michalos Blog

Hoyes Michalos and Associates Ontario Personal Bankruptcy Blog

Posted on Wednesday, May 17, 2006

Keeping the house? or letting go?

I recently met with a couple in our Kitchener Hoyes Michalos bankruptcy office. They are a hard working couple, however she was laid off from her job about 18 months ago. When the second income disappeared they began using credit cards to pay regular monthly living expenses, hoping that she would soon find a job. The job never appeared, and now they have accumulated more debt than they can handle.

They own a home, but between the first mortgage and the second mortgage (which they were forced to take with a high interest lender) their living expenses including their mortgage payments are nearly 80% of their household income. Needless to say, many bills were going unpaid.

They also have $36,000 in various credit card debts and the creditors are starting to call. Things are starting to unravel. This situation is a clear example of just how fast a stable financial situation can come off the rails. Together we looked at their situation and it became very clear that the house was a big problem. There was little to no equity left in the house. It was nothing more than a huge money sucking problem. In this case the best solution to their problem was to walk away from the house and file personal bankruptcy to get a fresh start. (If she finds a job soon, a consumer proposal may also be an option).

This couple have been doing without even some of the simple necessities of life to wrestle with their debt. In their case walking away from their home would mean a substantial improvement in their quality of life. Instead of paying out 80% of their income to put a roof over their head, they could now look forward to putting nearly $700 a month in the bank to save for their future, a prospect that was simply impossible for the last several years.

No one wants to file bankruptcy, but sometimes in some situations it really is the best option to protect your future, the key is to recognize the warning signs. If you are struggling with debt and you can't see a way out, it really is in your best interest to look at your options. Maybe personal bankruptcy is not the right option for you, but without all the information you may not know what the best option is. Call us at 310-PLAN today, or e-mail or call your local Hoyes Michalos office; we can help you make a plan to resolve your financial troubles.

Posted by Brian McIlmoyle @ 9:18 AM

Posted on Friday, May 12, 2006

Where can I find information about personal bankruptcy?

Last week I met with a person who had a lot of debt, and wanted me to explain what their options were to deal with their debts. We talked about dealing with their problems on their own through personal budgeting, getting a debt consolidation loan and credit counselling. Then we talked about one of the best bankruptcy alternatives in Canada, called a consumer proposal.

This person was intrigued, and asked my why they had never heard about a consumer proposal before. I explained that at Hoyes Michalos we do everything we can to explain the advantages and disadvantages of consumer proposals (including creating a video about consumer proposals), but obviously we need to keep working to get the word out on this bankruptcy alternative.

One of the ways we try to provide information for people in financial trouble is through the internet, both on our own web site, and on web sites where we write articles. Here are some sites that are worth exploring if you are looking for more information about personal bankruptcy, and alternatives to bankruptcy:

Moneyproblems.ca is one of Canada's oldest and best sites devoted to helping Canadians deal with their money problems; it also has links to trustees and credit counsellors across Canada.

Personal Bankruptcy Canada Blog, Canada's oldest and largest personal bankruptcy blog, where readers can post questions and get answers from trustees (of course you can e-mail us directly and get a personal answer to your question);

Canada Student Loan Bankruptcy Legislation Blog; I maintain this blog with up-to-date information on proposed changes to bankruptcy legislation in Canada as it relates to student loans;

Ontario Personal Bankruptcy Blog, dealing with bankruptcy related issues in Ontario.

Finally, if you live in the United States, Bankruptcy America provides information about bankruptcy for residents of the United States.

Obviously there are lots of places for you to research your options, so visit these web sites and then e-mail us or call us at 310-PLAN (no area code required) to arrange a no-charge intitial consulation to review your options.

Posted by J. Douglas Hoyes, CA, Trustee @ 5:39 PM

Posted on Saturday, May 06, 2006

Can I buy a house if I have a lot of credit card debt?

In the last few weeks I have met with a number of people, mostly married couples, who want to buy their first house, or buy a bigger house because of their growing family.

They tell me they are eager to buy their house now, because they are afraid that real estate prices will continue to increase, and if they wait too long they may never be able to afford a home.

It is true that over the last three years house prices in every city in Ontario where we have offices have increased. It is also true that house prices do not increase forever; the real estate market goes up, and goes down, based on supply and demand.

I personally believe that as interest rates increase, house prices will level off and perhaps even decline. Unless you have a very secure job, and can lock in a favourable interest rate, it may not be advisable to purchase a house at what may turn out to be the peak of the real estate market.

In addition, if you already carry debt, such as high interest credit card debt, adding more debt by purchasing a house may not be wise. First, it is unlikely that a bank or mortgage lender will lend you money if you are already over-extended. Second, more debt will only place an even greater strain on your already tight finances.

I suggest the following approach:

If you want to buy a house, start by eliminating your existing debt. Pay off your credit cards and bank loans. If you need help, consider contacting a credit counsellor in Ontario to arrange a debt management plan to repay your debts in full over a three to five year period. The credit counsellor will normally be able to negotiate an interest freeze, so all of your payments go towards repaying your debt.

If your debts are too high for that approach, consider a consumer proposal or, as a last resort, personal bankruptcy.

Obviously having a personal bankruptcy or consumer proposal on your credit report will make it more difficult to get a mortgage. However, if you eliminate your debts, you will have money to save for a down payment; with a sufficient down payment you can qualify for a mortgage, even with a bankruptcy on your credit report.

House prices in Ontario will probably not increase substantially over the next few years, so dealing with your debts first is probably your best option.

For advice on dealing with your debts, please contact the Hoyes Michalos office near you, and one of our professionals will meet with you personally to help you make a plan to deal with your debts.

Posted by J. Douglas Hoyes, CA, Trustee @ 11:59 AM

Posted on Monday, May 01, 2006

Credit Cards: Before, During and After Bankruptcy (or Proposal)

When you file for bankruptcy, you must turn over all your credit cards to your trustee, who will then return them to your credit card companies; that is the law (paragraph 158(a.1) of the Bankruptcy and Insolvency Act and Directive #3 issued by The Superintendent of Bankruptcy). Even if you have a zero balance on your card, this rule applies. The only exception to this rule is if the card you hold was issued to a third party (for example your employer, spouse or parent) and the third party confirms that you may continue to use the card. (All of these comments apply to proposals as well as bankruptcy).

During your bankruptcy, it is an offence under the Bankruptcy and Insolvency Act to obtain credit without disclosing the fact that you are an undischarged bankrupt; basically, you cannot apply for or use a credit card during your bankruptcy.

After your bankruptcy, it is safe to apply for credit cards. As a trustee in bankruptcy, I am not promoting the use of credit cards, but in today's economic climate, it is difficult to sometimes function without a credit card. Try making a hotel reservation or buying an airline ticket without having a credit card and you'll know what I mean. If you have filed for bankruptcy with Hoyes, Michalos, you will have received two financial counselling sessions in which credit repair and re-establishing your credit post-bankruptcy is discussed at length. We also emphasize the use of a credit cards as a substitute for cash, not a method of supplementing your cash flow.

Finally, you may be wondering what company in their right mind would give you a credit card as soon as you come out of the bankruptcy process. Well, it will be difficult, but there are ways to obtain a credit card. One method is to obtain a secured credit card. For example, Home Trust VISA allows you to obtain a card with limits between $1,000 and $10,000. You must put down a security deposit for the amount of your limit in full. Each month, you pay off your balance in full, and this fact is reported to the credit bureau, thereby re-establishing your credit. You can check out the details of their program at their website.

For more information about this topic, you can meet personally with one of our trustees by calling us at 310-PLAN.

Posted by Benny Mendlowitz, CA CIRP, Trustee @ 8:23 AM