Trustee in Bankruptcy, Benny Mendlowitz answers the most pressing questions about paying down debt by filing bankruptcy. Benny is a trustee at Hoyes Michalos in charge of our Scarborough and North York offices and during the show he answers these frequently asked questions:
- What does it mean to go bankrupt?
- What does it cost to go bankrupt?
- What if I don't want to go bankrupt?
- Can I keep a credit card during bankruptcy and how will filing affect my credit score?
- How can I get rid of the stress caused by my overwhelming debt?
Benny points out that not everyone has to go bankrupt. However if you can't pay your bills, have credit card debt, struggle with your car payments you need to do something. Meeting with a bankruptcy trustee is a start.
I'm there to try to help them come up with a plan to pay those creditors back as best we can and it may involve filing a bankruptcy, there are other options. And I try to explain to them how that process works. How do they get themselves out from underneath their debt load and still get on with their lives?
Determining the Cost of Bankruptcy
Every person's situation is different. Benny explains that he begins his consultations by asking a series of questions related to income, expenses and assets to determine the cost of a bankruptcy and to review all options with his clients to help them make an informed decision. He points out that there are several factors associated with the cost of a bankruptcy and depending on which factors apply in your personal situation, the cost can vary for each client.
Surplus income is one factor that could extend the length of a bankruptcy and ultimately make it more expensive (use our surplus income calculator to see whether it could affect you in a bankruptcy). Benny explains that
our federal government says if you file for bankruptcy, there are certain thresholds - the amount of income you're allowed to take home on a monthly basis. If you fall below those [thresholds], there's nothing [extra] you have to pay to your creditors. If you earn over those thresholds, the government expects you to pay some of that income to your creditors as part of the bankruptcy process.
Assets are another factor to consider when reviewing your options and knowing how much it will cost to file bankruptcy. Benny explains that if an asset (like a house or car) has value above the loan amount, it is deemed to have equity that will need to be paid to your creditors to keep the asset.
What I mean by equity is if you take a look at the value of the home and you subtract from that what you owe against the mortgage, if there's equity in the home...you can't just walk away from your debts in a bankruptcy and keep all of this equity.
Not everyone loses their home or car, in fact in most cases they do not. This video explains how filing insolvency can affect your home.
The Affects of Bankruptcy on Your Credit Score
One of the most frequently asked questions by all of our clients is whether they can keep a credit card during bankruptcy and how filing will affect their credit score. Benny points out that the rules regarding credit card use are black and white and that bankruptcy law requires all filers to turn over their credit cards to the trustee, at the time of filing. Filing a bankruptcy or consumer proposal is a legal process that helps you get out of debt and create healthy financial habits that will last far beyond the bankruptcy process. Keeping a credit card defeats the purpose of the bankruptcy and provides an opportunity to take on additional consumer debt while trying to eliminate old debts.
If you feel that you need a card for work, online purchases or booking hotel rooms, it's important to use the right tools. Benny explains that tools such as a secured credit card, prepaid credit card and secondary card on a family member's or friend's existing account are all ways to safely use credit during and after the bankruptcy process.
Moreover, if you're worried about how a bankruptcy might negatively affect your credit score, Benny reassures listeners that,
you're here today because you have bad credit. Do a credit score [check], do a credit report [check] and look to see what your creditors think about you right now. It's not going to be good.
Contrary to popular belief, filing bankruptcy or a consumer proposal
is the first step to rebuilding your credit. First we have to erase your debts.
How to Deal with Debt Stress
Clients that come into any of our 25 office locations across Ontario have one thing in common: they feel stressed and overwhelmed because of their debts. Benny explains that
[debt] takes a toll on people. It's not just a financial toll, it takes a toll on their families, on their work, on their sleep. People are really under the gun for all this debt load that they've got and they're looking for some help.
No matter what the reason for your debt, it's important to make a plan to deal with it because it won't go away on its own. Assess your debt load, create a budget and start to pay off your debts as soon as possible. If you're debt is too overwhelming to handle on your own, it's time to book a consultation with a licensed bankruptcy trustee who can help you to get out of debt and relieve the stress that's been holding you back from dealing with your financial situation.
Read the full transcript here - FAQ "Going Bankrupt" with Benny Mendlowitz, Bankruptcy Trustee