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Filing for Bankruptcy in Your 20s: What You Need to Know

Posted by in Bankruptcy
23
Oct 2020

There was a time when filing for bankruptcy in Toronto seemed like the end of any future financial aspirations. Now, bankruptcy is often an answer to a question of insolvency and opens the doors to a new life filled with new possibilities.

 Filing for bankruptcy in your 20s: What you need to know

As an insolvency and bankruptcy expert in Toronto, Kevin Thatcher & Associates, Ltd., Licensed Insolvency Trustee, works with people of all ages across Ontario. Recently, we have seen an influx of younger clients filing for bankruptcy. To help younger generations navigate the bankruptcy journey, we have created this guide to bankruptcy in your 20’s. Here are the facts.

Bankruptcy is a Big Step that Should be Discussed

Debt is a fact of life for all Canadians. After a certain age, we begin to accumulate debt in many ways. From cell phone plans and credit cards to student lines of credit and car loans, the debt we acquire stays with us everywhere we go until it is paid off.

When you are in a relationship, especially a serious relationship, it is important to try to share information about your partner’s debt and inquire about theirs. Filing for bankruptcy will impact your spouse if you are married, and therefore, it should be a joint decision based on the income you both receive and your combined financial standing.

Bankruptcy is not for everyone and may be avoidable if one spouse can support the other while you consolidate debt, pay down debt, or make settlements with lenders.

Credit Cards Can be Problematic

One of the most common areas of financial concern for young adults is credit cards. Credit cards come with a variety of limits, interest rates, special offers, and annual fees. Depending on your card, you could wind up paying a lot in interest, particularly if you frequently use the card without paying the funds back immediately.

When one credit card begins to build up, the answer is never to acquire a second card. By accumulating credit cards when you cannot meet the demands of a single card, you put yourself in a position where debt is only building faster. If you cannot pay for the credit card you have, it is best to continue making payments on time and speak to your lender about a payment plan until you get things back on track.

In many cases, situations like bankruptcy can be avoided simply by trying to work with your creditor. Rather than ignoring collection calls, be the one to call and ask for options that work for your current financial standing. Your credit card company may not always be able to accommodate you, but most creditors want their money back and are willing to work together in some way to ensure they receive repayment.

Bankruptcy is Not a Get-Out-of-Jail-Free Card

There are a lot of negative connotations associated with bankruptcy, and while it is not the end of the world, it is also not a “get-out-of-jail-free card.” Bankruptcy is a serious process and should not be taken on lightly.

Once you apply for bankruptcy, should you be approved, it will follow you on your credit report for the next 6-7 years. This can prevent you from receiving loans, credit cards, a mortgage, even a student line of credit to finish a degree.

Bankruptcy is a viable method of rebalancing your financial life if it is the right step for you. As an insolvency trustee, we always encourage and assist our customers — no matter their age — in considering all the options available and be sure that bankruptcy is right for them.

You are Not Alone

If bankruptcy is the right move for you in your 20’s, it helps to know you are not alone. Many young men and women are not overly familiar with the world of finance. There are many reasons you can find yourself needing to claim bankruptcy, and we never cast judgement.

As a young Canadian, you must not let the financial burden take over and ruin your life. Rather than looking at bankruptcy as a stain on your life, think of it as one small stepping stone on a very long path. One day you will be finished with the bankruptcy portion of your life and look back happy to be starting fresh.

Do not be afraid to lean on friends, family, and a Licensed Insolvency Trustee for help as you proceed with bankruptcy.

Bankruptcy is Not Forever

It is important to note that while the bankruptcy process is lengthy, it is not forever. We’ve seen bankrupt Torontonians get back on their feet in as little as 9-months, and the mark on your credit score will disappear after 6-7 years. This means that while the road to financial redemption is long, there is always a light at the end of the tunnel.

Working with a Professional Bankruptcy Trustee Helps

Finally, young adults filing for bankruptcy should always consider working with a professional trustee. Bankruptcy in Toronto can be confusing, costly, and does require you to go to court. Having someone on your side who understands the system’s intricacies — and has successfully assisted clients — will relieve some of the stress you feel as a young person claiming bankruptcy.

At Kevin Thatcher & Associates, We work closely with customers from start to finish ensuring you have the tools, information, and support needed to manage your bankruptcy with minimal anxiety. We work with clients of all ages and specialize in Bankruptcy and Consumer Proposals in Toronto, Brampton, Scarborough, Hamilton, Kitchener, Cambridge, Guelph.

For more information about filing for bankruptcy in your 20s, call Kevin Thatcher & Associates at 1-866-719-8547 or contact us here.

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How to Help a Loved One Going Through a Debt Crisis

Posted by in Bankruptcy
9
Oct 2020

The term “bankruptcy” is not the life sentence it used to be, but it often fills us with dread when it is uttered.

How to help a loved one going through a debt crisis

Working in this industry, we understand the intimidation and worry concerning bankruptcy, and how difficult it is to watch those we care about to undertake the process. Here, we will discuss the various ways you can help your loved ones as they navigate insolvency and all it entails.

Be Open and Judgement Free

One reason people hide bankruptcy from friends and family is the embarrassment. The fear of judgement not only prevents them from seeking professional bankruptcy support but emotional support from loved ones. If you know somebody who is having a difficult time financially, leave your judgement at the door.

It is easy to cast judgement on those seeking bankruptcy support, but the truth is that there are many reasons bankruptcy becomes a necessity. Job loss, unforeseen circumstances, life changes, medical reasons, and various other occurrences cause bills to build up, payments to be missed, and funds to get tight. If you have a loved one who is considering bankruptcy, be there to listen.

Encourage Action

Too often, those encumbered by financial burden feel alone in their struggle to overcome debt. This causes them to freeze up rather than taking action. A great way to offer bankruptcy support is to encourage loved ones to continue working toward debt resolution.

Debt will never disappear on its own, whether we look the other way or stare it clear in the face. It is always better to move forward. Getting out of debt is possible, and it’s essential to make sure they believe that.

And there will be plenty of action for them to take! From seeking aid from a finance management team to consolidating debt to working with a bankruptcy trustee. The first step is often the most difficult, but when people feel encouraged and supported, they are more likely to ask for the help they need.

Just Listen

Too often, our plights are met by mountains of unnecessary comments and advice when all we need is a shoulder to lean on and an ear to listen. If you know somebody who is struggling with financial debt, you can help by just being there.

Offer your uninterrupted companionship and listen to all the stress and fears your loved one is going through without comment. If asked what you think, you should offer some words of encouragement, but ladling negative opinions on top of an already negative situation is a recipe for disaster.

Find the Positives in the Negative

Filing for bankruptcy is never something we plan for in life. However, it is sometimes needed to resolve financial turmoil with no other solution. Rather than observing bankruptcy for the negative aspects it possesses, consider the positive. These include:

  • There is a sudden potential to overcome overwhelming debt
  • Once bankruptcy is declared, debtors stop calling
  • You may avoid wage garnishment
  • Bankruptcy in Canada is removed from your credit report after 6-years
  • There is ongoing support from bankruptcy professionals

Helping loved ones see these pros over the long list of cons is an excellent way to provide bankruptcy support and boost morale.

Offer Your Help

The help we provide our friends and family during bankruptcy does not need to be financial support. Instead, offer emotional support or help to navigate the process. For example, if you have ever been through bankruptcy yourself, you can help a loved one by walking them through the process step by step.

Other ways to assist may be in stopping by the post office to help mail a letter, babysitting so your friend or family member can meet with their bankruptcy trustee, and other small acts which add up to a lot of bankruptcy support your loved one will be thankful to receive.

Whether you can help or not, the simple act of letting your loved one know you are there for them can be the difference in a positive bankruptcy experience and a difficult one. Bankruptcy is hard enough without worrying that nobody is on your side.

Spend Less Together

Spending time with a loved one who is experiencing a financial crisis does not need to be complicated. It may even help you curb some unnecessary spending and save money. By changing your habits together, you will encourage your loved one to spend less and stress less during bankruptcy.

Spending time with someone you care about does not need to be expensive. Make a few changes — like eating at home instead of at a restaurant — can help your friend save in a significant way. All those little expenditures add up over time. Remember, a good conversation is free, and there is nothing like a walk in the park to facilitate a great chat.

Put them in Contact with Professional Bankruptcy Support

Finally, a foolproof bankruptcy support method is to help your loved one find the right Licensed Insolvency Trustee for them. If your friend or family member is feeling a bit shy or embarrassed about the process, you can help by reaching out and giving them information about the local professionals in the area.

As an authority in bankruptcy, consumer proposals, and insolvency here in Toronto, Kevin Thatcher & Associates, Ltd. is always happy to answer questions and help however we can. We strive to provide the highest quality services to our friends and neighbours in Ontario. Our job is not only to help you navigate bankruptcy but ensure you reach a positive conclusion when the process is over.

For more information on how to support your loved ones through bankruptcy, call Kevin Thatcher & Associates at 1-866-719-8547 or contact us here.

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Filing Bankruptcy: Will I Have to Go to Court?

Posted by in Bankruptcy
21
Sep 2020

The very idea of having to go to court can be intimidating for many, regardless of the reason or the offence for which you are paying the visit. However, this doesn’t have to be the case, especially when you’re filing for bankruptcy.

Filing bankruptcy: Will I have to go to court?

In Canada, bankruptcy is a legal process that can help individuals eliminate their debts, and in most cases, individuals do not have to go to court to do so. Bankruptcy is filed through a Licensed Insolvency Trustee.

Once you have completed the process and all of your required duties you will receive a certificate of discharge outlining how your bankruptcy requirements were met. There are two ways an individual can be discharged from bankruptcy, including an automatic discharge or a court-ordered discharge.

If you are eligible for an automatic discharge, you will not be expected to attend a court hearing, and you will be released from your debts. Alternatively, if you do not qualify for an automatic discharge, your Trustee will be required to apply to the court hearing to review your discharge.

Complete Your Duties for Automatic Discharge

An automatic discharge is a relatively simple route for most individuals who file for bankruptcy. If the bankrupt is entitled to an automatic discharge, then there is no formal application or hearing required at the court for discharge to be granted.

If it is your first or second bankruptcy, you will be eligible for an automatic discharge as long as the following requirements are fulfilled:

  • All of your bankruptcy duties have been appropriately completed
  • If there is no opposition or challenging of your discharge

When you file for bankruptcy, certain duties are required to be completed before you can be discharged, including attending two credit counselling sessions. If these duties are not completed, your Trustee can oppose your discharge from Bankruptcy, in which case you will be required to attend a discharge hearing in bankruptcy court.

When you are asked to attend a court hearing, you will be expected to explain why you didn’t complete your duties. So to avoid this lengthy and avoidable procedure, it is wiser to simply complete all that is required of you.

The easiest way to be granted an automatic discharge is to ensure that your duties and responsibilities of bankruptcy are completed. However, even if your responsibilities and duties are completed, one or more of your creditors could still oppose your discharge.

In this situation, you will be required to attend a bankruptcy court hearing. Luckily, this is a very unusual and rare situation and only occurs in less than 1 in 100 bankruptcy cases in Canada.

The main reason why a creditor would oppose your discharge would be to convince the court that you should make more payments or perform extra duties. In most cases, it is usually not the creditor who opposes your discharge, rather your Trustee, if you fail to complete all of your bankruptcy’s responsibilities and duties.

Another situation in which an individual would be expected to attend a bankruptcy court hearing is filing for their third bankruptcy. An individual becomes ineligible for an automatic discharge upon filing for their third bankruptcy, and therefore a bankruptcy court hearing is required to determine the terms of discharge.

Don’t Fear the Courts

If you are genuinely struggling with debts and do not have the ability or resources to pay off your creditors, turning to bankruptcy is a viable option. Many individuals fear the possibility of ending up in bankruptcy court when they file their claim; however, this should not be feared, nor is it common.

Additionally, if you have not committed any fraud, have included accurate and true information on your forms, then there is no need to fear being summoned to the courts or dealing with numerous lawyers.

In the odd situation that a mandatory court appearance is required, such as due to an opposing creditor, remain calm and confident that your bankruptcy will eventually be discharged. Bankruptcy can be a stressful time for many, which is why we’re here to help you navigate this difficult time. Our team of highly dedicated and experienced professionals can help you build your brighter financial future.

To learn more about how to file for bankruptcy without going to court, call Kevin Thatcher and Associates at 1-866-719-8547 or contact us here.

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Overcoming Bankruptcy: Steps to Take to Bounce Back

Posted by in Bankruptcy
7
Sep 2020

Financial problems can be a burden which can manifest in several ways, and negatively impact an individual. Financial stresses can lead to many physical and psychological health problems, including depression and anxiety.

 Overcoming bankruptcy: Steps to take to bounce back

Fortunately, for individuals who have become overwhelmed by debts and have no means to relieve themselves, there is an option they can turn to. This option is filing for bankruptcy, which can help give individuals a chance to start fresh and rebuild their lives without the burden of unpaid debts.

Bankruptcy is filed through a Licensed Insolvency Trustee who will be able to meet with you to review and discuss your debts, assets, budget, and review the costs associated with filing for bankruptcy to determine if it’s the right option for you.

By filing for bankruptcy, you will be able to rid yourself of unsecured debts, stop collection calls, and be given a chance to start fresh. However, as pleasing as this may sound, the aftermath of filing for bankruptcy must be dealt with. With the right help, you can successfully overcome bankruptcy and bounce back onto your feet.

The first thing to remember is that bankruptcy isn’t as scary as you may think and can be a lot less intimidating than receiving calls from collection agencies. Overall, bankruptcy can be a way to help you learn how to manage your money and start with a clean slate, which is why we’re here to offer some tips to help you rebuild your life after bankruptcy and get you back on track towards a healthy financial future.

What happens after I complete my bankruptcy requirements?

Once you’ve filed for bankruptcy, you’ll work with your Trustee to complete all of the duties in bankruptcy. Once all duties have been appropriately completed, you will be given a discharge, which is an official certificate of how all of the duties of bankruptcy were completed.

Unfortunately, a record of your bankruptcy will remain on your credit report for many years following your discharge, and your credit score will decrease significantly following your filing.

Other than the record of bankruptcy on your credit report, your credit status will be clear, similar to an individual who is just starting. You will have to rebuild your credit and the trust of potential creditors.

If it’s your first time filing for bankruptcy, your filing and your debts will remain on your credit report for 6-7 years from your date of discharge. However, this doesn’t mean that you have to wait 7 years before you start to rebuild your credit history. If you are eager to start fixing your credit, you could start right away.

How to rebuild your life following a bankruptcy?

Although bankruptcy is usually considered a last resort, it doesn’t mean the end of your financial future, but rather the start of a new and fresh one. There are several ways that you can use to take control, rebuild your life, and thrive post-bankruptcy. Some of these ways include:

  1. Organizing your finances

    With or without realizing it, you can begin to hemorrhage money, lose track of where it goes, and starting a savings account seems impossible. It’s important to make it a priority to organize yourself and your finances, before and after bankruptcy.

    Downsize to a smaller place and only spend on necessities until you are back on your feet financially. Be sure not to allow any debts or loans to build up and stick to using cash whenever possible so that you aren’t tempted to overspend.

  2. Create a budget

    Budgeting is one of the best ways to manage your money and ensure that you don’t spend more than you have. Use a spreadsheet to list all of your monthly expenses, including mortgage or rent payments, bills, insurance, etc. Ensure that you can pay for all of these expenses, put aside money for emergencies and save whatever you possibly can for the future.

  3. Securing a job

    If you were running your own business before the bankruptcy, it is certainly a big loss, but one which can be restarted once you’ve reestablished yourself. Start by securing a job to have a steady source of income while you get back on your feet. If you already have a job, don’t take risks or make any big moves right away until you’ve settled yourself financially.

  4. Think positive but remain realistic

    Tell yourself that you will get back on to your feet and regain the financial comfort you may have once had. The road to recovery and rebuilding can be long, so remain realistic and ensure that even if your steps are small, make sure they are in the right direction. Set goals for your future, such as purchasing a home, and remain determined to work hard to achieve all your financial goals, even if they seem far off.

  5. Don’t be afraid to ask for help

    We all need a helping hand now and then, and there is no shame in seeking help as you rebuild your life following a bankruptcy. Don’t be afraid to reach out to your family, friends, or professionals to help you create a plan and manage your money wisely. You may get a lot more support and compassion than you expect.

How do I rebuild my credit following a bankruptcy?

If you’re eager and motivated to begin rebuilding your credit right after your discharge, it’s important to start by taking a look at your starting point and following a step by step process:

  1. Examine your credit report

    Take a look at the current status of your credit reports from the credit bureaus following your discharge to determine if the credit report is accurate. It’s important to ensure there are no inaccuracies in your credit report, which could lengthen your rebuilding process. If you find any errors, be sure to fill out a form to indicate any inaccuracies so that your report can be updated.

  2. Apply for a secured credit card

    Once you’ve confirmed that your credit report is accurate, you can apply for a secured credit card, which can offer you revolving credit. Revolving credit means that you can access any available credit as many times as you need as long as the payments are maintained.

    To get a secured credit card, you will have to pay a deposit in case you default on the account; however, the security deposit is usually very affordable. Be sure to act responsibly and continue to pay the credit card off in full every month, slowly increase your credit score, and show your lenders that you are responsible with your money. Use calendars, alerts, or pre-authorized payments to ensure that all of your due payments are made on time.

  3. Consider a loan for an RRSP

    Once you’ve used your secured credit for a while, and if it is affordable within your budget, you can try establishing your credit by considering a loan for an RRSP. This type of loan is relatively small, with payments made over a one year term, and the RRSP account is available to you after the loan payments are completed. This small loan is a good way to establish your credit because it increases your net worth and offers an income tax deduction.

Filing for bankruptcy is no small decision and should be made after seeing advice from a Licensed Insolvency Trustee, in the absence of any other ways to relieve yourself of your debts.

If you choose to go down the route of bankruptcy, it can be a great opportunity for you to start fresh and begin to rebuild your credit and financial future without the pressure of past creditors. Filing for bankruptcy can allow you to rid yourself of your poor credit and begin building it up as you move forward.

For many individuals, bankruptcy may seem like the end; however, it should be considered a fresh start. It’s okay to make mistakes, but how you choose to remedy those mistakes and prevent them from occurring again in the future is what determines your future.

If you feel overwhelmed by debt and other financial troubles, don’t be afraid to seek professional help. At Kevin Thatcher and Associates, we are here to help you navigate through your financial concerns and create a plan that is best suited to your needs and unique situation.

To learn more about how to bounce back from debt through a bankruptcy and consumer proposal, call Kevin Thatcher and Associates at 1-866-719-8547 or contact us here.

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Filing for Bankruptcy: What Happens to Your Tax Refund

Posted by in Tax
17
Aug 2020

First, tax refunds are considered to be an asset. When you file for bankruptcy under the Bankruptcy and Insolvency Act performed by Industry Canada, your trustee will become the administrator of your assets. This means that your income tax refunds for all the years you had not yet received them—until the year of bankruptcy—will also be sent to the trustee to be included in the funds available to the creditors.

What happens to tax refund when filing for bankruptcy?

After filing for bankruptcy, the law requires that the Canada Revenue Agency (CRA) sends your income tax refunds for the period up to the year of your bankruptcy to the trustee to aid in settling some of the remaining debt. Providing your trustee with your tax information for the year of bankruptcy is necessary to be discharged from bankruptcy.

What is the range for this “specific period”?

When you file for bankruptcy, there are 3 important tax periods that you should consider:

1. The years before filing for bankruptcy

If you have any unfiled tax returns for one or more years prior to the date of bankruptcy or your discharge, your trustee will need to ensure that your tax return is filed. Any refunds will go to your trustee for transfer to creditors. If you owe money on these tax returns, then it will be considered a debt that will be handled regarding personal bankruptcy.

According to Section 67 of the Bankruptcy and Insolvency Act,

“(1) The property of a bankrupt divisible among his creditors shall comprise

(c) all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge, including any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year—or the fiscal year of the bankrupt if it is different from the calendar year—in which the bankrupt became a bankrupt.”

2. The year when you file for bankruptcy

Section 67 of the Bankruptcy and Insolvency Act above suggests that you will also lose any tax refund for the year that you declare bankruptcy. The CRA will send them to your bankruptcy trustee. If you declare bankruptcy in 2020, your tax refund for the 2020 tax year will be sent to the trustee.

Your trustee will file two tax returns for your bankruptcy year:

  • The pre-bankruptcy tax return for that year of the period starting from 1st January to the date of filing for bankruptcy. In case you have income tax debt during this period, it will be included in your bankruptcy because it’s an unsecured debt. Otherwise, any refund will be sent to the trustee.
  • The post-bankruptcy tax return for the same year, but starting from the date of filing for bankruptcy to the 31st December. Any income tax owing during this period will have to be paid because it’s not included in the debts when filing for bankruptcy. However, if you get a tax refund, it will be sent to your trustee.

3. The years after filing for bankruptcy

Fortunately, the tax years that come after filing for bankruptcy will not be affected by the bankruptcy. This means that you can collect any tax refunds in subsequent years. Furthermore, if you have income tax debts moving forward, you will also be required to pay them in full.

Exceptions

The Canada Child Benefit (CCB) is a federal, tax-free monthly payment sent out to eligible families with children under 18 years of age to aid them in meeting household costs. The CCB may also include the Child Disability Benefit and other provincial or territorial programs. While the CCB is part of your annual income, it is not considered an asset like a tax refund. So, you will continue to receive them regardless of the bankruptcy.

Filing for bankruptcy will not stop you from receiving your CCB. You should include it when reporting and calculating your household income in the annual tax returns. The monthly reports help determine whether you’re considered as having a surplus income, which will influence the time taken in bankruptcy and the amount you’ll be required to pay to your creditors.

If you don’t want to lose your tax refund, but feel like bankruptcy is the only way to save yourself from a serious financial situation, your financial expert may recommend a consumer proposal.

Filing for bankruptcy: January or December?

Considering that you will lose the tax returns for the year when you file for bankruptcy, does it matter when you go bankrupt?

Generally, since you file your taxes every year, you’re likely to lose your tax refund for one or two years. If you’re expecting to receive a tax refund, you may consider waiting until you’ve filed your tax return and received a refund for the previous year before going bankrupt later in the year. This way, you only lose the tax refund for that year when you’re filing for bankruptcy.

If you’re considering bankruptcy, you’re probably in a very serious financial situation, possibly dealing with wage garnishment and other problems that add to your financial hardship. So you really can’t afford to file for bankruptcy in April or May, not to mention December. However, depending on your situation as to the option that is right for you.

Also, if you owe the CRA some money, then the timing doesn’t matter as they would seize any refunds anyways, thus you can file for bankruptcy anytime.

Final Note

When in financial difficulty and considering bankruptcy, you must consult a professional to assist you in weighing your options and understanding your bankruptcy tax impact. This will help you avoid or manage any challenges or shortcomings you may encounter in the process, even as you rebuild your financial future.

For more information on filing for bankruptcy or a consumer proposal and the implications, please contact Kevin Thatcher & Associates here.

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RESP 101: How to Open an Resp Account in Canada

Posted by in Children's Future
3
Aug 2020

The Canadian government allows its citizens to contribute towards saving for their children’s post-secondary education via the Registered Education Savings Plan (RESP Canada). The plan receives contributions from both individuals and government grants, with the growth and investment returns sheltered from all taxes until you withdraw.

 Steps to open an RESP account in canada

With the continually rising cost of higher education, RESP Canada provides parents with a somewhat stress-free opportunity to save up for their children’s future educational pursuits gradually. If started early, and with regular contributions throughout the years, combined with the effects of free government grants, your investment can grow considerably. This allows your children to receive their university or college education and graduate with little to no debt. This will, in turn, yield more positive effects down the road.

Open an RESP After Bankruptcy, Not During

If you have recently filed for bankruptcy or submitted a consumer proposal, an RESP is one option that you can take to help you get back into saving, contributing toward a child’s higher education.

It is not recommended to open an RESP during bankruptcy, as they are not on most provincial or federal bankruptcy exemption lists. Even though an RESP is for the benefit of a child, the funds are not exempt assets. This means that any RESPs will be calculated as part of your assets if you file for bankruptcy.

Choosing an RESP Plan

Anyone can open an RESP account, provided both the beneficiary and subscriber (account opener and contributor) — who may be a parent, grandparent, relative, or family friend — is Canadian. The subscriber can choose one or more beneficiaries under a single plan, while a child can be a beneficiary for more than the RESP plan.

To open an RESP account, the subscriber must have the child’s Social Insurance Number and then choose one of three types of RESPs:

  1. Individual RESP plans: Anyone can open this type of account and make contributions, including parents, relatives, sponsors, or philanthropic strangers.
  2. Family RESP plans: This plan can have one or multiple beneficiaries, provided they’re related to the subscriber or have been formally adopted. For instance, you can include your children and nephews under the same family RESP plan, but not a friend’s child. The funds in family RESP accounts can be spent on educating any of the beneficiaries.
  3. Group RESP plans: This type of plan only allows one child as the beneficiary, who may or may not be related to the subscriber. Since there are multiple contributors, the beneficiary can choose to share the pooled earnings with other children in the same age group.

Keep in mind that RESP accounts cannot be transferred, except to a sibling. In addition, the beneficiaries are expected to be under 21 years when added to an RESP plan. Also, group RESP plans have the most rules and restrictions compared to other plans.

Parties Involved in Opening an RESP Account

There are 6 parties in an RESP plan:

  • The financial institution or scholarship plan dealer. You can purchase an individual or family RESP plan through a bank, credit union, or other financial institution. However, scholarship plan dealers are the organizations responsible for administering RESPs, and you can also set up any plan with them but beware they may change fees.
  • The subscriber. They make contributions, but whatever they contribute is not deducted from their income on their Income Tax and Benefit Return.
  • The promoter. This person administers the contributions paid into an RESP account. The promoter also pays the contributions, and the earnings on the contributions—known as Educational Assistance Payments (EAPs)—to the beneficiaries according to the plan’s terms.
  • Beneficiaries. They receive the contributions and EAPs from the promoter. While contributions should not be included in income, EAPs must be included in the year when they’re received.
  • Government grants. If applicable, the grant will be paid to the RESP. The grant can be awarded by the Canada Learning Bond (CLB), Canada Education Savings Grant (CESG), or other designated provincial education savings program.
  • The Canada Revenue Agency. This is the body tasked with registering your education savings plan contract as an RESP.

Here’s the breakdown of government grants on an RESP:

  • The CESG contributes $7,200 over the lifetime of an RESP by matching 20% of your annual contributions (up to $500 per year), making it worthwhile to make annual contributions to your RESP plan.
  • Additional CESG, which depends on the contributor’s income, can give you another 10% to 20% on your annual contributions (up to $100 per year).
  • The CLB is given by the Canadian government to low-income families and includes a deposit of $500, followed by annual top-ups of $100 until the beneficiary turns 15 years old.
  • Provincial government grants are usually one-time grants that should be applied when the beneficiary reaches a certain age.

Getting Started

If you want to start making contributions for your child’s education, you can open an RESP account as soon as you get their Social Insurance Number (SIN). At this point, you can visit a scholarship plan dealer and sign a contract allowing them to make all investment decisions. Alternatively, you can visit a bank or credit union to set up a family or individual RESP plan, which will allow you to self-direct your RESP investments.

Be very careful when choosing a company to start your RESP with. Many of the independent companies or ‘Plan Dealers’ (ie not a Bank or Credit Union) will charge high fees to administrate your plan. This means if you have an issue and have to cash the funds early you will receive little to no money back as it will be taken to pay their fees. Many banks and credit unions do not charge fees so make sure to do your research in advance and ask lots of questions.

Making Contributions

With family and individual RESP plans, the subscriber has full authority to decide when to make the contributions. However, with group plans, the contributions should be regularly based on a predetermined schedule, as missing a contribution can result in a penalty charge or missed interest. In some cases, your account may be terminated, forcing you to give up some or all of your earnings (EAPs) on the investment.

The Income Tax Act sets the lifetime limits for your RESP based on the amount that can be contributed to each beneficiary. However, the maximum contribution for any single beneficiary is $50,000.

Accessing the Funds in an RESP Account

All RESP accounts must be closed by the 35th anniversary (after 36 years) from the date of purchase. The promoter is expected to pay the contributions and income earned on them to the beneficiary at the right time to aid in financing post-secondary education. So, when your child enrolls in a qualifying higher-education institution, they will start receiving EAPs (Educational Assistance Payments) from the RESP to finance their post-secondary education.

The child claims the EAP as income on their tax return for the year when it’s received. The tax implications are usually negligible since they’re likely in the lowest tax bracket with probably little-to-no other income.

If this is not possible, perhaps because the child doesn’t want to pursue post-secondary education, the investment can be transferred to another eligible child. Alternatively, the promoter will pay the subscriber’s RRSP (Registered Retirement Savings Plan) a maximum of $50,000 at the end of the contract, tax-free.

Final Note

RESPs are a great way to plan ahead for a child’s future and back into saving once you’ve completed bankruptcy or submitted a consumer proposal.

If you are thinking of going through bankruptcy and would like to hold onto a child’s RESP, there are ways you can do this. Keep in mind that every situation is different, and it is recommended that you speak to a trustee.

For more information on how RESPs are affected during a bankruptcy or a consumer proposal and information about getting back on your feet, please contact Kevin Thatcher & Associates here.

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10 Ways To Rebuild Your Credit Score After Bankruptcy

Posted by in Bankruptcy
20
Jul 2020

If you have filed for bankruptcy in Canada, you are aware of the financial hurdles that are sure to come your way.

How to rebuild credit score after bankruptcy?

First, your credit score will inevitably go up and down throughout your bankruptcy. But you don’t have to worry. You are in the driver’s seat when it comes to rebuilding your credit score for securing your financial future.

After your bankruptcy is discharged, credit repair in Canada can be achieved efficiently by following these 10 effective solutions to put your credit score in good standing.

How to Rebuild Your Credit Score in Canada After Bankruptcy

1. Request a copy of your credit score

Keep in mind; your bankruptcy will stay on your credit report from 5-10 years. This is a long time, but look at it as an opportunity to rebuild your finances steadily. The main action during this period is to request a copy of your credit score from Equifax and TransUnion. From there, you will be able to see your current credit score and make a plan of action to increase it.

In Canada, Equifax stores your credit score for up to 6 years after filing your bankruptcy discharge. Depending on which province you filed bankruptcy, TransUnion keeps it on file for 6 to 7 years. What lenders want to see during your bankruptcy is that you have developed responsible financial habits and have kept your debts out of the red.

2. Pay your bills on time

A major part of rebuilding your credit score is to pay all your bills on time. That includes car insurance, hydro, electricity, and wifi internet. Always pay your credit card minimum payments on time. Even better, if you can squeeze in a second payment during the same payment cycle on your credit cards before the due date, multiple payments help improve your credit score.

3. Sign up for a cell phone contract

During bankruptcy, signing up for a 1-2 year cellular phone contract can help improve your credit score. Each month that you pay your cell phone bill, the cellular company will send the records of your monthly payments to Equifax or TransUnion. It tells lenders that you’re paying on time and in full every month. This establishes steady financial management.

4. Get a secured credit card

Applying for a secured Visa credit card helps improve your credit score neatly. If the credit limit is $500, put down a $500 deposit. Once you are discharged from your bankruptcy, the deposit you put on the card is considered a cash deposit and automatically puts your account in good standing.

Visa will then report this positive balance to Equifax and TransUnion monthly and will increase your credit score. If you need to use the secured credit card, pay off the balance in full every month to keep your score afloat, so it doesn’t decrease.

5. Avoid NSF and overdraft fees

Always keep track of your bank account payments, especially if you set up authorized monthly payments to pay your bills. Avoid getting a negative balance, as NSF fees and overdrafts signal financial trouble and will affect your credit score.

6. Open a tax-free savings account

Opening a Tax-Free Savings Account (TFSA) is a great way to start saving money. In case of an emergency, it’s free to make withdrawals. Just be sure not to withdraw all of the funds, as the bank might close the account.

As little as $50-$100 a month will add up during your bankruptcy, and the more you contribute to it, interest grows and shows lenders that you’re serious about saving money.

7. Open an RRSP

Similar to a Tax-Free Savings Account, opening a Registered Retirement Savings Plan (RRSP) to show lenders that you’re saving money to establish your financial future. It’s beneficial to open an RRSP because the more money you contribute, even in small amounts, the lower your income tax will be.

Keep in mind, if you open your RRSP before filing for bankruptcy, any funds you contributed can be taken to pay off your debts. Open it after your file for bankruptcy, and once your bankruptcy is discharged, start making monthly payments to rebuild your credit history.

8. Spend wisely

Cost-cutting and spending wisely can come in handy when you live on a budget. Start subscribing to online discount coupons, like Groupon and LivingSocial, for activities that you can get a substantial discount on. Stick to buying ‘needs’ and skip ‘wants’.

For groceries, using coupons can save you $5 – $10 a week. You can even get cash-back on groceries from Checkout 51. Spending wisely and cutting some corners will eventually add up, leaving you with more money to pay bills or save.

9. Live debt-free

Once you get the hang of living on a budget, trimming down the use of credit cards, and contributing to a savings account, rebuilding your credit score after bankruptcy doesn’t stop there.

Even after your bankruptcy is discharged, your long-term financial goals should include living debt-free and saving money. You don’t want to accumulate more debt the second time around and file for another bankruptcy because your finances will suffer again.

After filing for bankruptcy, expect to build up your credit score. But if you follow these 10 tips outlined in this article, you will be on your way to financial success.

These crucial steps, such as getting on a cell-phone contract, paying your bills on time, contributing to an RRSP and TFSA, and getting a secured credit card, will show lenders your consistent financial habits that will improve your credit score in Canada.

If you would like bankruptcy counselling to improve your credit rating in Toronto, the GTA, or Southern Ontario, our Licensed Insolvency Trustee is happy to help you.

For more information on how to rebuild your credit score after filing for bankruptcy in Canada, call Kevin Thatcher & Associates at 1-866-702-9801 or contact us here.

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What Is Preference In Bankruptcy In Canada?

Posted by in Bankruptcy
6
Jul 2020

When declaring bankruptcy in Canada, your trustee goes through the initial process of assessing your liabilities and assets. From there, your trustee deals with your creditors until you get your bankruptcy discharged.

What are preferences in Bankruptcy?

However, timing is everything when you file for bankruptcy. If you made payments to your creditors before filing for bankruptcy, these payments could be considered as a “preference.” Let’s take a closer look at what bankruptcy preferences entail and if it can apply to you.

What is considered a preference in bankruptcy?

Bankruptcy preferences are payments you made before a specific period before you filed for bankruptcy. If you are in this position, your bankruptcy trustee might be able to reverse the payments back from your creditors. This process is called “avoiding” the transfer.

It is important to state that not every payment before bankruptcy is considered a preference. Generally, preferences are deemed as unfair payments to specific creditors. Bankruptcy preferences refer to the transferring of funds to a creditor within three months before filing for bankruptcy in Canada. These creditors who received payments were preferred at the cost of the additional creditors.

Payments Made to Creditors

Within 90 days of filing your bankruptcy, if your debts exceed your assets and you pay a creditor, this payment may be deemed a preference if they received more money than the rest of your creditors.

Payments Made to Insiders

An insider is considered someone close to you, such as a family member, spouse, or business partner. If you make a payment to any insider one year before filing for bankruptcy, it will be considered a preference.

What happens when you make preference payments?

The main idea of bankruptcy is that all of your creditors get treated fairly. If you give one creditor priority over the others before filing for bankruptcy, this gives other creditors unfavourable treatment. When this happens, your trustee can void transfers.

In the case when a trustee can void a transfer, they can get back the funds you paid from the creditor. The first step starts with the trustee requesting the creditor to give back the money. If the creditor rejects the request, the trustee can file with the bankruptcy court to force the creditor to return the money.

In your position as the bankrupt, it’s advised to go along with your trustee. You will not be responsible for recovering the money from the creditors. Rather, leave this up to the bankruptcy court to decide.

How to Prevent Transfers from Happening Between Your Trustee and Insiders

It might seem convenient for your trustee to work hard to get your money back from a creditor, but it is a different story if your trustee tries to get back the money you paid to your insiders.

Here is an example. You borrowed $1,000 from your mother to pay for your car insurance. The following year you got a tax refund of $1,000, and you paid back your mom. Six months later, you decide to file for bankruptcy. The trustee tells you they plan to get the $1,000 from your mother and use it to pay your unsecured creditors.

If you end up in a similar situation, here are some solutions you can explore if you do not want your trustee to file a lawsuit on your mother for $1,000.

  1. Wait a year before filing for bankruptcy

    When it comes to paying your insiders, wait at least one full year before filing for bankruptcy. Since insiders are people you are close with, they probably know about your financial issues. Give them a heads up about your plans about filing for bankruptcy when you pay them back so that they are aware of the timeline.

    Remember with insiders; it’s not a 90 day grace period – it’s a full year or more. Regardless, to be on the safe side, wait longer than 12 months to avoid preference bankruptcy with your insiders.

  2. Talk to your trustee

    Talk to your trustee about your insider’s financial situation. They may not have the income to pay you back. Express to them that they do not have assets or expendable income. Your trustee won’t want to invest their time and resources to serve them in bankruptcy court.

  3. Talk to your insiders

    Talk to your insiders about repaying them until after you have filed for bankruptcy. This way, there will be no chance that your trustee could request a transfer of payment.

  4. Offer a payment plan

    Offer your trustee a payment plan to pay a reduced amount yourself. Your trustee is there to work with you and won’t be concerned about where you get the money from, as long as you make arrangements to pay it.

    For example, you can arrange to pay back the $1,000 or even $800. Just be sure to offer a sum of money that you can afford. You and your trustee can create a monthly payment plan or even bi-monthly payments. Also, a payment plan is better than having your insiders get a request to pay the amount to the trustee.

The Bottom Line on Bankruptcy Preferences

The bottom line about bankruptcy preferences is that you have to take into account the timing when you make payments to insiders and your creditors. Prior to filing for bankruptcy, you should be aware that your bankruptcy trustee could get the money back from the payments you made to your creditors and insiders. This process is called “voiding” the transfer.

Filing for bankruptcy does not mean bankruptcy preferences can work in your favour. If you paid back the money you borrowed from your insiders, such as family members or business partners, less than a year of filing for bankruptcy, your trustee could review those insider payments and request that they pay it back.

If you require additional information on when to file for bankruptcy in Toronto, the GTA, or Southern Ontario, we’re here to help.

To learn more about bankruptcy preferences in Toronto, call Kevin Thatcher & Associates at 1-866-702-9801 or contact us here.

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What To Know Before Filing For Bankruptcy

Posted by in Bankruptcy
15
Jun 2020

Filing for bankruptcy can be a difficult decision, with potentially drastic consequences that will impact many facets of your life. Understanding both your situation and the bankruptcy process in Ontario is the first step in ensuring you are making a decision that will benefit you in the long term.

What should i know before filing for bankruptcy?

When considering bankruptcy, you will likely be facing many debts that appear to be insurmountable. While mishandling any issues can lead to many different problems, undertaking the proper process of filing for bankruptcy offers benefits that will help ensure your long-term future. In such a stressful time, the only way to make sure you do not make any potentially damaging mistakes is to gather all the necessary information prior to making any decision.

Know What Debts are Erased by Bankruptcy

Before the bankruptcy process, you must first understand which debt will or will not be erased by bankruptcy. Any time bankruptcy is being considered; there will always be many factors in play. It’s essential to make sure you do not lump everything together, preventing you from understanding the important details. By distinguishing which debts cannot be included, you will be prepared for any potential outcome in your situation.

With bankruptcy in Ontario, you are still required to pay alimony or support, court fines, debt incurred by fraud, and any remaining student loans. Exactly what bankruptcy entails will vary from one party to another, meaning that debt erasure may not be universal. Before knowing the best decision to make, you must know your situation once it’s resolved. Ideally, you will know exactly what has to be paid and when, and what debts will be wiped out after bankruptcy is filed.

Know What Will Happen to Your Credit

Immediately upon filing for bankruptcy, there will be repercussions on your credit score. It is important to understand that your credit score will be damaged. Understanding how your credit score will be impacted is one of the most important parts of recovering from bankruptcy. Not only does bankruptcy ruin any credit that you may have built up, but it can also leave a mark on your score for a number of years.

Knowing how to deal with your resulting credit score will give you a great advantage in overcoming bankruptcy. Even if having your credit score damaged because of bankruptcy is inevitable, it will remain one of the most important parts in the process of recovering from potentially crippling debt. Having a damaged credit score will not necessarily make it impossible for you to get credit at a later point. That being said, it is an opportunity for creditors to increase their interest rates and try to take advantage of your situation.

Your Creditors Must be Informed.

The moment you decide to file for bankruptcy, you are giving your finances up for public scrutiny. Any creditors, including family members and business associates, will be involved in the process and will understand your situation. Complete honesty is crucial to maintain the integrity of the process; that means you may have to deal with uncomfortable financial information being provided to your creditors.

The reality is that these people need to know about your finances because they will be directly impacted by the process. It is important that creditors, or any individual who is owed a debt, know what is going on with their money. The bankruptcy process can add different kinds of strain on an individual’s life, but attempting to hide any information from public scrutiny will only worsen the process and threaten the potential results.

Know What Kind of Paperwork to Expect

Filing for bankruptcy is a complicated process, and the only way to simplify it is with organized paperwork and proper documentation. Full disclosure is essential to any bankruptcy case, and the only way to establish reliability is with proper documentation. With an adequate e-paper trail, everyone will have access to all the necessary information. Unfortunately, navigating that trail can be a tremendous task and will often set people back.

First and foremost, it is important to make sure that your paperwork is in order. Before knowing what will need to be done when the process begins, make sure you understand every detail of your situation. By having your situation documented, it will be much easier once you begin the bankruptcy process.

Get the Help Available to You

Things will often be overwhelming when dealing with bankruptcy, and many obstacles seem insurmountable. While the process will inevitably be difficult, it is important to have a proper understanding of what to expect before the process begins. Fortunately, there are experts available to you at a moment’s notice, making sure you are never left alone to handle such a complicated endeavour.

The best way to ensure you are making the right decision is to seek out an expert opinion. With so many different factors involved in a bankruptcy, it will be much more costly to try and handle things on your own. Before taking any action, make sure you call Kevin Thatcher & Associates at 1-866-702-9801 for a free consultation that will give you the information needed. You can also access any additional information at www.billfixer.com and even book your free consultation online.

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Should You Include Debt From Family In Bankruptcy?

Posted by in Bankruptcy
1
Jun 2020

While facing bankruptcy, you will inevitably be forced to address various creditors who are involved with the accumulated debt. One of the more difficult and frustrating kinds of loans to assess will be debt from family. Debt with family members is the same as any other unsecured debt and must be included.

Should You Include Debt From Family In Bankruptcy?

There is an assortment of ways to resolve family settlements, but declaring bankruptcy further complicates many situations. In order to make sure all sides are protected, it is crucial to understand what kind of regulations there are on family debt when declaring bankruptcy. Before the bankruptcy, talk to your trustee, get information you need to know how your family will be affected.

Establishing Relationships for Settlements

In order for a family member to know what kind of payment to expect if their loan is included in the bankruptcy, the first thing that needs to be established is the relationship between the two parties. The settlement will depend on how the two parties are connected, giving a better idea if they are entitled to any collection.

Have Proper Documentation

One reason why a family loan can be more complicated than most business transactions is because of how informally it might be done. Remember that once a bankruptcy is filed, there must be proper documentation for everything. Regarding family settlements, the date is crucial. Without appropriate documentation of when the loan was given, it may not be possible to get the family settlement you would otherwise be entitled to.

When dealing with bankruptcy, proper documentation is equally as important for family debt as it is for any other kind of interaction. Under the bankruptcy and insolvency act, all family loans and debt are to be included when declaring for bankruptcy. Theoretically, any family loan should be able to lead to a family settlement. The issues will only arise when there is no way of confirming the transaction on a document.

Keep Your Family Informed

When considering family debt while declaring bankruptcy, it’s important to keep any family members involved as informed as possible. While they may be entitled to a family settlement because of the bankruptcy, the valuation of the payouts will often be complicated. The reality is that the creditors who are owed money when bankruptcy is filed do not get the full value in a settlement.

It’s important to make sure you have the information needed to include family debt in bankruptcy properly, but the resulting family settlements will not completely resolve the debt. When another family member has to sacrifice earnings as a result of the settlement, it’s imperative to make sure they know what to expect when the process is complete. If a family member is left in the dark, there can be further complications that will end up harming both parties.

By communicating with your family, you can establish all the information needed to include family debt in bankruptcy properly. Additionally, all parties will be on the same page with what to expect, and no one will be left sacrificing more than they realize. Thus, it is important to make sure both parties know what a family settlement will entail.

Stay Prepared Ahead of Time

If you ever find yourself in the difficult position of considering bankruptcy, make sure you get all the information needed before the process begins. Family debt can be the most difficult aspect of declaring bankruptcy, and there is no reason for you to go into the process without knowing exactly where you stand with any debts.

In order to make sure you know exactly where you stand with all family members involved with bankruptcy, call Kevin Thatcher & Associates at 1-866-702-9801 to book your free consultation. For any additional information, or to book a consultation online, visit www.billfixer.com, where you can expect to get all the help you may need while looking into family settlements when filing for bankruptcy.

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