Month: November 2013

The Impact of Bankruptcy on Your Marriage

Couple examining their pile of overdue bills

Apart from the many legal consequences, filing for bankruptcy or defaulting on debt comes with an emotional and social burden that often overwhelms spouses in a relationship.

From a strictly legal perspective, your spouse is only responsible for your debts if it is a joint debt or if they have co-signed or guaranteed for your debt. If this is not the case their credit rating should not suffer.

Supplementary Cards

Spouses often share supplementary credit cards.  Typically the primary card holder will request a supplementary card for their spouse.  Since the spouse did not apply for the card, they are not legally responsible for it.  However, if the spouse uses the supplementary card, it is not uncommon for the credit card company or a collection agency to then pursue the supplementary card holder if the primary card holder defaults on the payments.   Prior to filing bankruptcy you should review this with your trustee, to determine if your credit cards have supplementary or joint co-borrowers.

Joint Debts

Unlike with a supplementary credit card where only the primary borrower is legally responsible for the debt, with joint debts both parties are fully liable.

Financial issues can often lead to separation or even divorce. Blaming each other for all the accumulated debt lies at the bottom of such divorce cases and many times partners believe they can get rid of debt if they get divorced. Unfortunately, although matrimonial property is generally split between partners, the same does not apply when it comes to debt. In the province of Ontario, joint debt is not a 50/50 split as most people would imagine.

Divorce and Debts

What most couples aren’t aware of is that getting divorced will not split the debt in two or exonerate them of debt at all. You and your spouse maintain equal responsibility of ensuring that all debt is fully repaid even after divorce. Divorce is not a way to avoid the effects of bankruptcy.

In fact, even in the special situation where there is a legal separation agreement stating that each partner is to assume half of the joint debt, a creditor can still pursue the other spouse for all amounts outstanding if one of the partner defaults. Not even such agreements will release your spouse of your portion of the debt should you fail to repay it. Property can be owned jointly, but debt cannot. As a result, the other spouse is liable for their spouse’s debts should they default on their payments or file for bankruptcy.

Remember, you are getting divorced from your spouse, but not from the bank, so once you co-sign a joint debt you are responsible for the entire debt, unless the debt is paid or the bank agrees to release you from that debt.

Summary

Every situation is unique and things are not always simple. There are certain situations when the fact that you filed for bankruptcy can impact your spouse and your marriage.

If you have joint and other debts that you may be unable to pay, or if you have questions about how filing for bankruptcy will affect your spouse, your marriage and your family, contact us today for a free consultation. We can answer your questions.

10 Facts You Need to Know About Bankruptcy

10 Facts You Need to Know About Bankruptcy

Before you file bankruptcy, you’ll need to know what you’re getting into. Here are 10 important items you need to be aware of before you consider bankruptcy as a debt resolution option. Understanding the pluses and minuses will help relieve the stress of making a decision that works best for you and your family.

  1. You won’t lose everything. When filing bankruptcy in Canada most of your personal belongings are exempt from seizure. There are bankruptcy exemptions that allow you to keep a car, furniture, clothing and your RRSP’s (except for recent contributions), life insurance and pensions. Filing bankruptcy will not leave you destitute. In fact it is a step towards recovering your finances so you can build and move forward.
  2. You will have to make monthly payments. There is a cost to declare bankruptcy. A minimum payment is required to cover the administrative costs, generally $200 per month plus you may have to make additional surplus income payments depending upon your income. However compare this to the alternative of struggling to try to meet all your current monthly debt payments. In most cases your monthly payments will be less than you are paying now and they certainly will improve your cash flow down the road once your debts are eliminated.
  3. Bankruptcy will not affect your job. Only in rare cases (for example you work with trust accounts managing other people’s money) will filing bankruptcy affect your employment. We do not notify your employer unless you direct us to in order to stop a wage garnishment.
  4. Bankruptcy does not affect your spouse. Filing for bankruptcy does not affect your spouse’s credit rating or their debts. If they have co-signed a loan for you, or you have debts in both your names, they will still be responsible for these debts. If this is the case, talk to your trustee about bankruptcy options for both spouses.
  5. You will not automatically lose your house. You will need to show your trustee a valuation on your house and a recent mortgage statement. If your house is worth less than your mortgage but you want to remain in your home, you usually can as long as your mortgage payments are kept current. You will have to pay the trustee for any equity you have in your house however you do not have to pay everything up front. You can make payments over the term of your bankruptcy.  If you need longer to pay you can also consider filing a consumer proposal which will allow you to make payments for up to 5 years.
  6. Bankruptcy stops creditor collection actions. That includes wage garnishments and collection calls. If your mortgage or car loan are in arrears, these secured creditors can still pursue you for payment and take possession of your house or car. However filing bankruptcy may deal with your other debts allowing you to catch up on these payments before this happens.
  7. You can be discharged in as short as 9 months. How long your bankruptcy lasts depends on your income and if you have filed bankruptcy before.  If you are below the government’s income limit and this is a first bankruptcy, you would be eligible to be discharged in 9 months.  A second time filer with surplus income will be in bankruptcy for 36 months.
  8. Your debts go away once you are discharged. You must complete your duties including submitting proof of income each month, attending two credit counselling sessions and making the required payments but once you do you will be discharged from all of your debts included in your bankruptcy.
  9. Bankruptcy will affect your credit rating. A first bankruptcy is on your report for 6 years after discharge. However your credit rating is probably already poor today and will not improve unless you take action to do something about your debts. We will also show you ways to purchase items where you need credit, like obtaining a secured or prepaid credit card, or using a Visa debt card.
  10. There are other options available.  Bankruptcy may or may not be the best option for you. There are alternatives to bankruptcy like making a consumer proposal to your creditors.

When you meet with one of our local Licensed Insolvency Trustees for a free consultation, we will help you determine whether filing personal bankruptcy is right for you. No-one will pressure you to make a decision and we are happy to answer any other questions about bankruptcy you may have.

5 Things to Know About Filing Bankruptcy in Ontario

5 Things to Know About Filing Bankruptcy in Ontario

Many may consider filing for bankruptcy in Ontario because, unfortunately, maintaining financial health in the province isn’t always the easiest thing to do. You may have family expenses, car loans, mortgage payments or rent – the list goes on and on, and can pile up quickly. Anyone, regardless of age, gender or background, can come to a point where staying ahead of their debt and keeping on top of payments becomes too much.

When individuals reach this point, they are often forced to turn to options such as bankruptcy in order to resolve their financial woes. However, before you turn to this option, here are 5 important things you need to know about the process of filing bankruptcy in Ontario.

  1. Bankruptcy should be a last resort. If the time has come when you are seriously considering filing for bankruptcy, keep in mind that it is a route to take only when you have exhausted all other viable alternatives. For example, in Ontario you can opt for debt consolidation, a personalized debt management program or file a consumer proposal. Only after you have talked to a professional and determined that these are not feasible options should you file for bankruptcy.
  2. You can’t go it alone. Once you have made the decision to file for bankruptcy in Ontario, you will need to enlist the help of a trustee. Why? Trustees are licensed by the Canadian government and are the only professionals that can actually file bankruptcy in Ontario on your behalf.
  3. You will need to inventory and assign your assets. In order to file bankruptcy in Ontario, you will need to complete and file an Assignment and a Statement of Affairs. The first form indicates that you are handing over your property to the trustee; the second is a list of your assets, liabilities, income and expenses. After you have completed these two legal forms, your trustee will ensure that they are properly filed.  Under Ontario law you are permitted to keep your basic possessions, including a basic car, so you should consult your trustee in advance to determine if you will lose any assets when you file bankruptcy.
  4. You will have to perform certain duties. There are things you will need to do while you are bankrupt. You are required to attend a meeting of creditors if one is called, although this is rare. You will be required to report your household income and living expenses monthly so your trustee can calculate if you will be required to make surplus income payments during  your bankruptcy. You will also be required to attend two credit counselling sessions about personal budgeting and money management. While these are the main duties you will be required to perform, there are others. Your trustee will outline these responsibilities before you file.
  5. Your time until discharge from your debt depends on a few factors. How long before you are discharged from your debt via bankruptcy is dependent upon certain criteria. For first time bankrupts, an automatic discharge after 9 months is common, unless you have surplus income, have failed to perform the legal duties required during bankruptcy, or your creditors object. Your trustee will be able to give you an estimate of how long you will be bankrupt before you file, however the ultimate period will depend upon you.

It is important to understand how the process works prior to filing for bankruptcy in Ontario. If the option is appropriate for your particular case, bankruptcy can help you stop wage garnishments, stop collection calls, resolve your debt issues and give you a chance at a fresh financial start.

If you think filing for bankruptcy in Ontario makes sense for you, contact Hoyes, Michalos & Associates today. We can help you eliminate your debt. Let’s get started.

Understanding Credit Helps You Avoid Debt

Children learning financial literacy

Financial literacy doesn’t have to be complicated. Sometimes it’s the simple things that help us manage our money better.  Understanding some simple facts about how credit works can help you make better choices about borrowing and debt and help you avoid taking on costly subprime loans.

For example, do you understand amortization periods?  That’s a fancy word, but the concept is simple.  Amortization simply means the length of time your payments are stretched out to make your loan payments.  This is an important concept to understand, so that when the bank asks you “do you want to pay your loan monthly, bi-weekly or weekly?” you will be able to determine the answer that’s best for you.

The correct answer, as I describe in this video on budgeting, is that you should pay your bills as often as you get paid.  If you get paid bi-weekly, consider paying your mortgage bi-weekly.

There are advantages to following this type of cycle. Paying bills to match your paycheque makes budgeting very easy, but if you are paid more than once a month, matching your mortgage or car loan payment schedule with your pay schedule will also pay off your loan much sooner.

So instead of paying $1,000 per month on your mortgage you pay $500 every two weeks. In most months there is no difference in your cash flow; you are paying $1,000 per month either way. But making the payments twice monthly will lower your overall interest costs. Even better, in your three pay months, which happens twice a year, you make an extra $500 payment if you are paying bi-weekly.  That extra payment will pay off your loan much faster, and you won’t even notice the difference.

That’s a simple example of how understanding how credit works can help you pay off debt years faster.

Here’s another example: it’s not the payment that matters; it’s the total that you pay that’s important.

If you walk into a payday loan store and ask to borrow $500, they say “sure, all you have to pay is $100 in interest and service charges over the next two weeks when you will pay off your loan.”  $100 does not seem like a lot, but they are charging you $100 for a two week loan.  If you got that same loan every two weeks for a year, you would pay $2,600 in interest and charges.  On a $500 loan that’s the equivalent of 520% interest!

If you understand how credit works you will never get a payday loan.

 

Why Surplus Income Is an Important Part Of Your Debt Recovery

surplus-income-debt-recovery

You’ve filed for bankruptcy. Good to go, right? Not necessarily. In order for your debts to be discharged once you have filed for bankruptcy, you will be required to complete certain duties, which in some cases involves making surplus income payments.

What is Surplus Income?

Simply put, surplus income is the amount you are required to pay in a bankruptcy is dependent upon how much you make. The government of Canada has set net monthly income thresholds for a person or family to maintain a reasonable standard of living. Every dollar you make that is above this threshold is considered surplus income and you are required to remit 50% of your surplus to your trustee.

5 Reasons Why Surplus Income Is Important

The formula for calculating surplus income is not complicated, however there are many reasons why surplus income is something you need to consider carefully before filing for bankruptcy.

  1. The amount of your surplus income can affect the length of your bankruptcy. If you have surplus income averaging more than $200 per month, your bankruptcy will be extended for 12 months.
  2. It is important to note that surplus income payments are required by law, as outlined by the Bankruptcy and Insolvency Act (BIA). Failure to report your income or make your required payments while bankrupt means that your debts will not be discharged.
  3. All sources of income, whether taxable or not, are included in the surplus income calculation.  This includes your net pay, but also includes child tax credits, child support, and pension income. Any of these amounts can increase your average monthly income resulting in your having to pay surplus income.
  4. If you experience a month where you receive three bi-weekly paycheques, instead of the normal two, this could be sufficient to trigger a surplus income payment.
  5. If you think your income will increase during your bankruptcy, or you expect to receive a bonus, this may cause a surplus income payment, increasing the cost of your bankruptcy.

For these, and many other reasons, it is important that you discuss surplus income with your trustee prior to filing bankruptcy. Depending upon what your surplus income payments may be, you may want to consider a consumer proposal as an alternative.

Try our Surplus Income Calculator to calculate what your monthly surplus income payment might be in a bankruptcy to see if a consumer proposal is an option to avoid high monthly bankruptcy payments.

Do you need debt help? Contact Hoyes Michalos today for professional, experienced debt management advice.