Preparing for Life after Bankruptcy
Over the past few months, we have had many requests and questions associated with and surrounding the process of bankruptcy discharge.
How long will it take to get credit? Will a lender or service provider still do business with me? How can I rebuild my credit? What happens to my credit bureau? How will I know I have been discharged? And the big one that comes more often than it should… I did not get my discharge, now what?
Bankruptcy Discharge as explained in our previous posts, will occur either after 9 months or 21 months. On the rare occasion a bankruptcy will last longer but for this article we will stick to typical scenarios.
Discharge from 1st time and 2nd time bankruptcy will occur automatically. This is the release from your obligations and requires no court appearance.
Automatic discharge will only occur if the debtor has met his obligations and there is no opposition to the discharge. In order to receive your timely discharge be sure that all the obligations have been met on your side.
Basic Debtor Pre-Discharge Checklist:
- Have you made all your payments to the trustee? This includes any surplus income payments. Outstanding monies owed will postpone or delay discharge.
- Did you complete your budgets submissions, supply any and all documents, T4’s or other forms requested by the trustee?
- Have you attended 2 mandatory financial counseling sessions?
- Will there be any opposition by creditors to the discharge? Ask your trustee if he anticipates any creditor making application for opposition.
IF you are not sure that indeed have completed your obligations or want to confirm the date of discharge call your trustee. Confirm that nothing is outstanding to delay your discharge.
Discharge Day – Celebrate
Ready to get on with your life, follow these important steps
- After receiving the discharge papers, make several copies and keep secure the original. It is a very important document and there is a strong possibility that over the next few years, you will be required to provide proof of discharge.
- Report your discharge directly to Equifax and Transunion. In writing, you will need to send in a copy of your discharge directly to both agencies. Every trustee is different, you can not depend on them to file your discharge with the credit bureaus. Recently trustees have been requested by the bureaus to forgo direct reporting of discharge to the credit bureaus. Leave nothing to chance, do it yourself.
- Include a copy of the statement of affairs with your discharge documents being sent to each credit bureau.
- Review your credit bureau for both Transunion and Equifax. These are available either for a fee online or by requesting by phone or mail. Check your bureau thoroughly, review that each and every account is accurately reported. Using the official Statement of Affairs, provided to you by your trustee cross reference credit accounts associated with the bankruptcy.
- If you find errors or omissions, you need to initiate a dispute to correct the inaccuracies.
- 2 months after reporting your discharge, review your credit bureaus again. Following up that your discharge was reported properly and all changes and accounts are now current and accurate.
Creditors will often sell off their accounts to collection agencies, prior, during or post bankruptcy. As the ownership changes, reporting to the bureaus can become riddled with errors or omissions. Avoid needlessly falling victim to inaccuracies, stay on top of your credit accounts.
Bankruptcy will stay on the credit bureau for 6 to 7 years after discharge, as will all associated credit accounts. However, you can start rebuilding credit as soon as you are discharged.
The new you is finally here, financially responsible and taking control of your life
Seniors Debt in British Columbia is on the rise.
We are already well versed in debt, the media is constantly reminding Canadians debt levels are at a dangerous level. In particular Residents of BC carry the 2nd highest levels of debt in the country.
In 2013 41% of Bankruptcies and Proposals are filed by 50+ Age;
(Based on statistics compiled by the OSB, Superintendent of Bankruptcy )
Known as the Sandwich Generation, this group has the distinction of representing the fastest growing segment of indebtedness in Canada. The Sandwich generation, are the group of people that are moving into retirement that could be supporting both aged parents and adult children.
Saddled with investment losses from the 2008-09 stock market plunge, constantly increasing living costs, stagnant or declining real market values, it is not surprising that the previous 20 years, the number of Canadians over 65 who have declared bankruptcy rose by 1700% while the insolvency rate increase for the population as a whole rose by only 139 %.
Seniors have fewer levers to manage debt;
Without potential of increasing pension income or the ability to take on added work for extra income. Depending on the levels of debt, the options maybe limited. Aggravating the situation is that this generation was brought up to believe that “DEBT” is a 4 letter word and bankruptcy means failure. This mentality prevents conversations with family and friends and the seniors will suffer in silence, never seeking help or advice.
If you or family members are approaching or in retirement and facing financial stress that is affecting your or their health and well-being, WE can help. We will work together to explore your options for dealing with debt after retirement. Potentially a Consumer Proposal could be a tool to get your finances back on track.
Regardless of age, every situation is unique and before filing bankruptcy, our trustees will assess all your options, providing you with financial scenarios and solutions.
From there you can decide which route will provide you success and improve your financial future.
Talk to our Senior Debt Experts
Let’s Compare – Debt, Housing Costs and Insolvency Rates
When considering insolvency levels it would be a natural leap to equate the high price of housing to a high level of debt and subsequently a increased amount of insolvencies. That leap would be totally incorrect and the statistics below support the opposite position.
Canadians are sustaining record level debt. However regionally it becomes apparent that particular provinces are bigger consumers and better at sustaining debt than others.
Alberta has one of the lowest insolvency rate yet the debt to income ratio keeps increasing and the price of housing is rounding out the highest in Canada.
British Columbia has the highest priced housing, the highest average debt levels and yet is situated with one of Canada’s lowest insolvency rates. Vancouver BC tops the charts with $41,077 of non mortgage debt per person.
Quebec, the province with the lowest priced housing, the lowest amounts of debt per person is filing the most amount of bankruptcies. Quebec has one of the highest insolvency rates and the rate is on the rise according to OSB statistics. Quebecers ironically have the most affordable housing.
It appears there is no direct link to housing costs and insolvency rates. In fact the opposite appears to be valid, as the provinces with the highest priced homes and the most amount of debt are in fact filing the least amount of bankruptcies.
Next discussion… Why is Quebec becoming the bankruptcy capital of Canada?
HOUSE PRICES + HOUSEHOLD DEBT = CRISIS?
Ask anyone who has attempted to purchase a house recently, they will tell you it is getting more difficult to find affordable housing and even more difficult to secure a mortgage. Recently the IMF, International Monetary Fund, released data to support that Canada is top on the list for the most expensive housing in the world. Canada tops the charts in several key areas, causing concern that if things don’t change, we could see a strong correction. The IMF pointed to several key indicators,
1. House prices vs. Household Incomes
1. House prices vs. Rental Costs
Why is it the perfect economic storm?
Canadians are aggressively borrowing to buy into the housing market. Many scraping to purchase with a 5% down payment. If there is a correction in the housing prices, even a small -10% adjustment in valuation, this level of pricing correction will create a negative equity situation for many home owners. There is potential that the mortgage will be worth more than the value of the house.
Next Question… Will the high price of housing increase insolvencies in Canada?
Debts That Can Not be Included in a Bankruptcy
Laws surrounding Bankruptcy Canada dictate that not all types of debt can be included in bankruptcy.
There are certain types of unsecured debts that are not released when you are
discharged from bankruptcy.
- Fines or penalties imposed by a Court;
- Debts for alimony or child support;
- Students loans if the loan is guaranteed by the federal or provincial government
- and you have not been out of school (part-time or full-time) for a required amount of time;
- Debts arising from fraud or misrepresentation supported by a Court Order;
- An award for damages against you for intentionally causing another person bodily harm or death.
If you have concerns that some of your debt would not qualify in bankruptcy talk to a local CAIRP trustee directly.
Ontario Government has finally put legal restrictions in place to protect it’s most vulnerable citizens from “shady” debt reduction solutions.
Bill 55 | How will it help Ontario Citizens?
Debt Settlement, operated by over 35 companies in Ontario should be now following a new set of rules. Given that the industry has not been well regulated in the past, the new law should provide a solid foundation to ending rip-off companies. However, a law is only as effective as the enforcement surrounding it. Given that we have not seen strong enforcement to date in consumer protection, we highly recommend the buyer beware, read the fine print to prevent being another casualty to bogus debt help companies. If you do feel that a company is providing services that contravene the new law, contact the government of Ontario.
- Eliminating upfront fees for services
- Regulation of fees to consumers and controlling that the service be successful before payment be made.
- Requiring clear, transparent, and detailed contracts that include information about the effect of the contract on the consumer’s credit rating
- Requiring credit counsellors to disclose information regarding the nature of funding of their company, non profit or otherwise.
- Establishing a 10-day cooling-off period, providing consumers more time to consider their agreements with companies
Read the fine print, ask questions, talk to multiple professionals and the most important criteria, MEET the company in person. A solid indication of a reputable company is that you can walk in the office and talk to the principles in the business. Your future depends on your proper due diligence.
Every situation is different and there is no ABC of Bankruptcy, each person should review their entire personal situation with a trustee to determine the best course of action. That being said, there can be strategy behind filing. Especially if you have already determined that bankruptcy is your only viable solution. Just when is best to do it?
The best time to file bankruptcy for many Canadians can be before the end of the calendar year.
The timing has bearing on your future tax refunds, if you normally receive a refund from CRA – Revenue Canada, you will likely benefit by signing your bankruptcy papers prior to Dec. 31. Bankruptcy law, the BIA, Bankruptcy and Insolvency Act, dictates which tax refunds are applicable to be seized by the trustee/estate, for payment to your creditors. The law also dictates which tax refunds normally would be returned to YOU! There is significant gain to the consumer by filing before Dec. 31 .
Consumer Protection Suspends License, Freezes Accounts
Options Credit Services Canada Ltd a BC licensed debt settlement company is in the news again. On Dec 5 2013 the BC Consumer protection Agency suspended the license of the company and seized the bank accounts associated with the company. Options Credit Services,
Financial troubles and collection agencies or harassing creditors seem to come together in hand in hand.
There is nothing worse than being harassed or hounded by creditors or collection agencies, they call at work, they call at dinner, they disrupt your life. There are horror stories of collection agencies stocking people, showing up at their home in the middle of the night or even at their place of work.
The first step in bringing an end to the fear of collection calls is to understand your rights and your options.
There is a difference between a collection agency and a creditor. You should always deal with your creditor if possible.
What is a creditor– An individual or business who gave credit to a debtor, which has not been repaid, there are 2 types of creditors – Secured Creditor and Unsecured Creditor.
What is a collection agency– A collection agency is a business that obtains or arranges for payment of money owed to either a person or a company. When you have an account with a business that is “past due” or in default, the business may sell your account or turn your account over to a collection agency.
– Keep a log of who calls, time and date of call, name of person that is calling and what is said by them and by you
– Stay calm and be polite and be honest
– Do not make promises you can not keep
– Ask questions:
Will the creditor reduce or eliminate the interest on the debt?
Can the creditor reduce the outstanding amount owing?
Will the creditor extend the timelines to repay the debt?
Can the creditor remove the account from the hands of collections?
There are very specific laws that dictate how debt can be recollected and regulate how collection agencies operate in Canada. National and provincially the laws vary and can be researched in depth at the following agencies.
Understanding your rights is an important first step. Here are helpful links for every province and our federal consumer protection agency, each agency has a process to file complaints against unlawful collection tactics.
Canada – Industry Canada
Alberta – Alberta Fair Trading Act
Manitoba – Consumer Protection Act
Saskatchewan – Consumer Protection Act
Newfoundland – Department of Government Services
Nova Scotia – Service Nova Scotia and Municipal Relations
Nunavut – Community and Government Services
Northwest Territories – Municipal and Community Affairs
Dealing with your creditors is the most important factor – Ignoring the issue like an ostrich is a foolish short term reaction, not a solution.
You do have many options
Finding the solution that suits your specific situation is important. There is no one size fits all solution to debt repayment, being proactive and talk to a good professional will get you on the right track.
Offering less borrowing power against their home, Canadians face fewer options to pay off debt.
The government announced on June 21 2012 it will reduce the maximum amortization period for a government-insured mortgage, lowering it from 30 to 25 years, and also drop the upper limit that Canadians can borrow against their home equity from 85 per cent to 80 per cent.
A far cry from the CMHC rules of 2006, which allowed insurance for 40-year-amortizations, when it also moved to provide mortgage insurance on 100 per cent financing.
All these changes are sparked by the continued indebtedness of Canadians, which sits at a staggering 152 % of their income and growing.
Protecting Canadians from their spending habits the government has changed the rules 4 times in 4 years. Cutting the mortgage duration which stood at 40 years in 2008, dropped to 35 years, then dropped to 30 years and now stands at 25 years. Many of the changes are specifically tied to high ratio, government insured financing.
Refinancing and leveraging properties to a maximum of 80% of their value will form a barrier to prevent Canadians from over extending their credit. As many Canadians struggle to meet their payment obligations at historically low interest rates, the fear of financial destruction will become reality when interest rates rise.
For Canadians using a yearly influx of equity loans, to pay off their debt. That door has now been slammed closed.
We suspect this new cap on home equity borrowing will force many Canadians to face the reality of their spending and debt.