Archives for June, 2007

   Benny Mendlowitz, Trustee

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A lot of people I see in my office have serious credit card debt, and rely heavily on them for household expenses, like groceries or gas. Some of these people even continue using their credit cards right up to the first meeting in my office. When is this practice fine and when is it fraud? What happens if I use my credit cards just before I declare bankruptcy in Toronto?

If you use your credit cards the week before you declare bankruptcy, you need to understand that your credit card company is not seeing the fact that you need help with your bills, but the fact that you are in fact taking money away from them and then stating, a week later, that you can’t afford to pay them back. In essence, you’re stealing from the credit card company, and this is where the situation gets tricky.

When people come into my office for their first meeting and they have recently used their credit cards, I check to see what they have used them for. Was it for groceries? For gas? For household supplies? If this is the case, and the amounts are smal, then it’s not a significant problem. This is probably how you got into trouble in the first place – you have lost your job, or you’re sick and you can’t afford to work, or you’re going through a separation and you are adjusting to a one-income lifestyle, or you’re having trouble managing your money. You’re using your credit cards to fill in the shortfall between the money you make and your expenses, and the week leading up to you declaring bankruptcy is no different.

But if you purchased a 54-inch plasma TV, or went on an all-expenses-paid vacation to Greece the week before declaring bankruptcy, then there’s a problem. If you can’t afford to pay off your credit card and other unsecured debt, you can’t afford the television and you really shouldn’t be flying off to enjoy exotic vacations. This is where you have committed something fairly close to fraud – you purchased items that you couldn’t afford with money that was not yours without any intention of paying it back. You very well may end up having to pay back the credit card company for those specific purchases, or at the very least return the items in order to give the credit card company back their money.

At our first meeting, I will tell you not to use your credit cards anymore, even for basic expenses – at this point you won’t be responsible for any more bills incurred by your debt, meaning you should have money available to buy the things that you need now. If you continue to use your credit cards, it isn’t fair or ethical, considering you know that you can’t pay any of the money back.

If you’re relying on your credit cards for household expenses, or you have questions about your debt and bankruptcy, give me a call at 310-PLAN. You can also e-mail me any concerns you might have. We’ll set up a free meeting to discuss your situation and help you find the solution that can get you a relief from your debts and overwhelming bills.

   Benny Mendlowitz, Trustee

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A woman came into my office recently, overwhelmed by debt and the payments that are required to service her debt. She needed a solution and was considering bankruptcy, but was really worried about her house and her mortgage – would she lose it all? Or would she be able to hang onto her house and her mortgage if she decided to declare bankruptcy in Toronto?

I explained to her what I think a lot of people forget – your mortgage company doesn’t want your house. They want your payments. If there is a chance that you can keep the house, your mortgage company will make that happen before deciding to foreclose and take back your house.

There are a few things, though, to keep in mind when declaring bankruptcy when you have a mortgage.

• Your mortgage company will only continue to do business with you if you keep up the payments. If you have been missing payments, you will already be in trouble with the mortgage company, and they may foreclose. If you have been able to keep up with your payments prior to your bankruptcy, chances are your mortgage company will let you continue to make payments while you are bankrupt and after your bankruptcy has ended.
• When considering bankruptcy, you need to think about how much equity you have in your house. If you have equity, you’ll need to either pay the trustee the amount, or your house will be sold in order to get that amount. The calculation for equity is more complicated than comparing how much you owe with how much your house is worth. You can come into the office for a free consultation, and I’ll help you figure out this number.
• Your ability to renew your mortgage will be intact after your bankruptcy. Your current mortgage-holder will generally renew automatically with no questions asked. They’re not concerned with the fact that you’ve been bankrupt – they’re concerned about your ability to make the payments. If you can keep them up, there usually is no trouble. If you try to shop around, though, your potential lenders will definitely be looking at your bankruptcy, so stick with the mortgage company that you’ve got. If for some reason your mortgage company refuses to renew, don’t panic. I can refer you to a mortgage broker that will help you find someone to renew with.

When you’re considering bankruptcy while living in Toronto , your mortgage will be taken into consideration, but if you’ve been on-time with your payments, and you want to keep your house, we can help you figure out a way to do so.

If you have a mortgage and are overwhelmed by your other debt, come in to talk to me. You can call me at 310-PLAN to set up a free consultation, or you can also e-mail me any questions you might have about your situation. Let me help you get peace of mind and keep your mortgage.

   Benny Mendlowitz, Trustee

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I received the following email recently:  I bought a car last year, but I couldn’t afford it outright. I had to get a loan to cover the cost of the car and used the car as security for the loan. If I default, they’ll take my car away. What will happen, though, if I declare bankruptcy in Toronto? Are the rules the same? Will I lose my car?

The answer to this very common question is “it depends” – how is your relationship with the creditor who holds your car loan?

Your car company, who loaned you the money, would rather you make your payments than take your car. This is true with every secured loan, where there is something pledged in security for the loan. So, if you’ve made your payments and have been a good customer, you’ll usually be able to keep your car and the loan while being bankrupt, as long as you keep making the payments on time.

If you haven’t been paying your car loan though, the car company will probably take your car back. This could very well happen to you – if you’re having trouble paying your off your debts, there’s a good chance that you’re behind in other bills as well. If this is the case with your car payments, your creditor will have no choice but take back the car.

The only time where it doesn’t depend solely on the relationship you have with your car company is if the contract you signed states you can’t be bankrupt. Certain companies have a policy that stipulates if you go bankrupt they will automatically repossess your vehicle. The companies that have this policy change on a regular basis, so if you’re concerned about your car loan, contact my office for a free consultation and we can review your loan agreement together.

If you’re considering bankruptcy, regardless of what your contract says, though, make sure you contact your car company beforehand to discuss your options. Let them know of your situation, that you’ve been a good customer, and that you’d like to continue to be a good customer. By talking to them, you will ensure that there are no surprises when you do file for bankruptcy. Your car company will be forthcoming in telling you exactly what their policies are and you’ll know where you stand with your car loan.

If you’re worried about your car loan and what will happen to it when you declare bankruptcy, contact my office at 310-PLAN. We can set up a free consultation to discuss your situation and all of your options. You can also e-mail me any questions you might have. Working through your financial situation might seem overwhelming, but together we can come up with a solution that will work for you and your family.

In my email this week I received the following question:

“Just curious – how many times is someone allowed to go bankrupt? I know someone who has gone bankrupt twice and I was wondering if there was a limit.”

The short answer to this question is no, there is no legal limit to the amount of times you can go bankrupt. According to the law, you can go bankrupt as many times as you need to.

The long answer, of course, reveals why this is not the whole story. Although there is no legal limit for the amount of times you can go bankrupt, the courts are more strict with people who file for more than one bankruptcy, and the process becomes more difficult the more times you file.

Essentially, a first bankruptcy will take 9 months, after which the person who files will be discharged, or released from their debts, unless there are specific reasons not to (i.e. like the person didn’t make their surplus income payments).
A second bankruptcy is more difficult to obtain as it is not automatically discharged after 9 months. Instead, the person has to appear in court for a judge to decide the terms of their discharge. The same rules apply for a third bankruptcy and so on.

In my experience, second bankruptcies are quite common and leave a more lasting mark on your credit report (Equifax, a credit information company, reports that a first bankruptcy will stay on your credit report 6 years from the date of discharge, whereas a second bankruptcy will stay on your credit report 14 years from the date of discharge).

I have seen a few cases where a third bankruptcy was filed for, but in each case the court has not looked favourably on the bankrupt and it was much more difficult to get the bankruptcy discharged. And in my 25 years of experience, I have not seen anyone file for a fourth bankruptcy.

As you can see, although there is no legal limit on the number of times that you can go bankrupt, each bankruptcy after the first is more difficult and complicated to complete, limiting the number of times people can go bankrupt.
When I am approached by someone facing a second or third bankruptcy, I try to look for an alternative that will keep them out of the courts; a consumer proposal may be the best alternative in these cases.

If you have any questions about bankruptcy or about your financial situation, contact me for a free consultation. You can also email me any questions you might have. Even if you’re in a tough financial situation, we can help.

I meet with a lot of people in the Etobicoke office who have heard about consumer proposals but aren’t really sure what they are and what they can do for them and their financial situation.

Typically, a consumer proposal is a plan to pay back a portion of your debt through a contract with your creditors over a period of time.

So, how do you make contract with your creditors?

To start a consumer proposal, you will first sit down with a trustee and figure out how much money you can afford to pay to your creditors, or the people you owe money to. We will need to look at your income, budget, what you own, and who you owe money to.  This will help to determine a proposal or contract to present to your creditors, which will offer to pay a certain amount of money over a set period of time.

A copy of your proposal and other information is mailed to your creditors, who will then have 45 days to consider whether or not they will accept your offer. If a majority of your creditors vote in favour of the proposal, then you have a contract with your creditors.

There are many advantages to using a consumer proposal to handle your debts. You are able to pay back what you can over a set period of time instead of being harassed by bill collectors and collection agencies. And because it is a legal process, any wage garnishments will stop.

Consumer proposals are also a creative solution to your debt problems, in that there is more than one option when coming up with your proposal terms, as follows:

-Monthly payments over a period of time, but no longer than 5 years or 60 months, based on what you can afford in your budget

-One lump sum payment to your creditors

-A combination of monthly payments and a lump sum payment

For example, if you owed $50,000 in credit card debt, and you figured out you can only pay $30,000 of that debt, your proposal could be:

-Monthly payments of $500 over the course of 5 years, or 60 months

-A lump sum payment of $30,000

-A lump sum payment in the beginning, with the remaining amount being spread out over monthly payments

You might wonder how a lump sum payment is even possible. In the case of one of my clients, she has received an inheritance from her mother early, and is using that amount to make her one-time lump sum payment to her creditors. When she has made that payment, she will be debt free and able to start over financially. Obviously, each solution is not meant for everyone, but a consumer proposal could be the best solution for you and your situation.

If you think a consumer proposal might work for you, or if you have any questions about this or other solutions, contact me at 310-PLAN. We can set up a time for a free consultation, where we can review your situation and find the right solution for you. You can also email me any questions. If you want relief from your debts, contact me and let’s figure out a way to give you a fresh start.