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Five Ways To Manage Your Credit Score After Going Bankrupt

Posted by in Credit Score
Mar 2020

Being in debt can be a highly stressful time, and it can be unpleasant when you begin to consider all of your options going forward. How will you handle the debt? Are you financially capable of paying off each of your creditors? Or will you be left paying debts for the rest of your life? It’s hard to find a silver lining in situations of financial difficulty; however, there are ways for individuals to start with a clean slate.

Ways to manage your credit score after your get bankrupt

When you’ve got more debt than you can pay off, and not enough income, leaving you with no surplus or savings, you may choose to file for bankruptcy. Filing for bankruptcy is a process by which the bankrupt individual surrenders their non-exempt assets in exchange for release from most or all of their debts. Any of your assets, except those that are exempt from bankruptcy, (those that are considered essential for living), are handed over to a trustee. The trustee turns these assets into cash and uses that money to pay off your creditors on your behalf. You will be left with your essential possessions and a chance to start a fresh, debt-free life.

Your new start will require some work to rehabilitate a few aspects of your financial life, including your credit score. Bankruptcy can cause your credit score to plummet, usually it is already poor. Although the effects of bankruptcy on your credit score can differ from one situation to the next, there is an overall negative effect. If you have a good credit score of 700 or more, it can drop by at least 200 points when you file for bankruptcy. Whereas a lower credit score such as 680 can drop by 130 to 150 points.

If it’s your first bankruptcy, this information will remain on your credit report for at least six years from the date of debt discharge, and this time period is extended if it is your second or third bankruptcy. Once you’ve filed for bankruptcy and completed all of the required processes and requirements, the worst is behind you. The next step is to work on managing and improving your credit score and working hard to remain debt-free. Here we share five ways that you can manage your credit score after bankruptcy:

  1. Complete your bankruptcy in the shortest amount of time

    • If you are filing for bankruptcy for the first time in Canada, you will qualify for an automatic discharge from bankruptcy within nine or twenty-one months (depending on your income). In order to be finished in the shortest amount of time, you will be required to make monthly payments to your trustee and attend counselling sessions. The benefit of completing your bankruptcy in a short amount of time is so that it will disappear from your credit report sooner. Do what is required of your bankruptcy process, and you will be able to move forward to improve your credit rating.
  2. Pay your bills on time

    • This is one tip that needs no explanation. Do not allow late payments to bring down your credit score by ensuring that at least your minimum required payment is made on time every month. Make a list of all your regular bills including hydro, gas, internet, etc. so you won’t forget to pay them, or set up automatic payments for each of your bills every month. This way, forgetfulness won’t even be a factor. Remaining consistent with your payments will show your potential lenders that you know how to manage your money.
  3. Stick to your monthly budget

    • Whether you are recovering from bankruptcy or feel that your financial situation is going well, having a realistic budget or spending plan is an excellent way to help manage your money from one month to the next.
    • You should allocate a realistic amount of money towards essential expenses such as rent, mortgage, groceries, car payments, etc., and try to put away a set amount of money every month for an emergency fund and your savings. Try to limit any excess and unnecessary expenses. When you start saving money, it proves to your potential lenders that you are responsible and able to handle money. Your budget will help you spend within your means and keep you from mounting any future debts.
    • When you set aside specific amounts of money for your different expenses, it will ensure that you only spend what you have. If you do choose to use your credit card, make sure only to make purchases that you can pay back immediately. A golden rule to live by is only to purchase what you can pay for upfront, and this is made easier when you create a realistic spending plan that you can stick to.
    • Lastly, if you focus on staying within your budget, you will automatically be avoiding overdraft or non-sufficient fees (NSF). If you find yourself going over your limits and writing NSF cheques, it may be time to revisit your spending plan and see where your money is being spent and make necessary adjustments.
  4. Get a secured credit card

    • In order to apply for a secured credit card, you need to save about $500 for the security deposit, which will be held onto by the credit card company for up to two years in case you don’t make payments. Use this secured credit card to make a few small purchases every month that you can pay for on time and in full to help rebuild your credit and restore your credit score.
    • It’s also important to remember not to apply for too much credit because every time you do, it will impact your credit report. If your credit card application is declined once or twice, then it’s better to wait at least six months before applying again. When you apply for a credit card, usually, a “hard inquiry” will be placed onto your credit report, and this causes your credit score to drop slightly. Unfortunately, this inquiry can remain on your credit report for three to six years.
  5. Get a Registered Retirement Savings Plan (RRSP)

    • Once you have been through the bankruptcy process, if you didn’t already have an RRSP, then it’s a great time to invest in this plan. Try to put more of your savings towards your RRSP regularly, and you will see a better income tax return when tax season rolls around. The more you contribute to your RRSP, the better your income tax return will be.It is always good to have an asset to list on your credit application.

When you’ve made it through the bankruptcy process, it’s time to pick up the pieces and start over, which means it’s time to start making smart financial decisions and avoid ending up in debt ever again. Part of the rebuilding process involves improving your credit score, which can take some time to do. As long as you are not spending excessively, sticking to your budget, and making payments on time, you will see a slow and steady improvement in your credit score over time as well.

Sometimes, reaching out for help can be the best way to stay on track, and at Kevin Thatcher and Associates, we’re here to provide you with the financial advice and support you may need during this time. Our team of friendly professionals can help you find ways to restore your credit score after bankruptcy. Call Kevin Thatcher and Associates today at 1-866-702-9801 to book your free consultation or visit our website here to learn more about what we have to offer.

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How Can I Keep My RESPs?

Posted by in Bankruptcy
Feb 2020

If you don’t have any interest in holding on to your RESPs, then your trustee can cash out the plan and use them against your debts. However, if holding onto your RESPs for your children is a priority during bankruptcy, there are ways that you can do this, including:

How can I keep my RESPs?

  1. Buyback option

    This option allows you to pay for the RESP by offering payment equal to the cash value of your RESP to your trustee. You are in a sense buying back your RESP from your bankruptcy.

    When an RESP is cashed out, there are penalties associated, and this can reduce the overall cash value of the RESP to half or less or what it was worth. For this reason, it’s recommended that you purchase your RESP back so that you don’t lose any of the value of your plan.

    In order to buy back your RESP, you must first obtain the details of your plan and its current standing. The company which holds your funds will be able to provide you with the current face value of the plan, the penalties which will be applied if the funds are cashed out, and the amount of money you will receive if the funds are cashed out.

    In order to buy your RESP, you must pay your trustee the amount that would be provided to them if your plan was cashed out.

  2. Consumer proposal option

    This option recommends that you file a consumer proposal rather than file for bankruptcy, especially if the cash value of your RESP is high. A consumer proposal is a legally binding process that is administered through a Licensed Insolvency Trustee.

    The trustee will work with you to create a proposal that offers to pay your creditors a percentage of what you owe them and it allows for an extension on time allowed to pay off your debt, or both.

    This means that when you file a consumer proposal, you are not surrendering the assets you own to help pay off your debts. Rather, you continue to pay what you owe or a portion of it, over time. The consumer proposal allows you to hold on to your assets, including your RESP, but you will have to offer to pay your creditors more than they would receive if you were to file for bankruptcy or a proposal.

Holding on to savings for your child’s education and bankruptcy can seem like opposing battles, where only one can win. However, this isn’t necessarily the case. There are ways to hold on to your RESP and still rehabilitate your financial situations through bankruptcy or a consumer proposal.

Each situation is different, and the best options available to you can be determined based on many factors, including your priorities and your plan value. In order to make an informed decision to help you hold on to your RESP, speak to a trustee who can offer the best plan for you.

To learn more about how to keep and RESP during bankruptcy, call Kevin Thatcher & Associates at 1-888-329-5198 or contact us here.

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Which Items Are Exempt When Filing for Bankruptcy?

Posted by in Bankruptcy
Feb 2020

Bankruptcy can be a scary word. It can be frightening to think that all your assets, whatever they may be, will be taken from you and used as a way to help pay off your debts to your creditors. However, this is a common misconception.

Which items are exempt when filing for bankruptcy?

When you file for bankruptcy, it can be a great way to utilize legal assistance to help clear all of your debts, free yourself from any legal action by creditors, and start with a clean slate. The procedure followed when you file for bankruptcy can appear like a punishment, but this, however, is not the correct way to think about this.

Bankruptcy can be rehabilitation for your current financial situation. You will not be expected to surrender all of your assets in a bankruptcy case, and each province has slightly varying exemptions to what is and is not an asset that can be seized by your trustee and used against your debts.

The overall concept of bankruptcy is to obtain protection from creditors to whom you owe money. You surrender your assets to your chosen trustee in exchange for release from all of your debts.

You may be wondering how you can live without some of your important assets, such as basic living expenses. This is why the exemptions are outlined to help you hold on to some of the necessities as you begin to start a new financial chapter in your life.

What assets can I hold on to during bankruptcy?

Overall, the types of assets which are exempt from the bankruptcy process are similar across Canada. However, how much of each asset that is kept during bankruptcy can vary slightly from one province or territory to the next. The types of assets which are exempt from bankruptcy in Ontario include the following:

  • Basic clothing and other personal items
  • Home furnishings and appliances up to a value of $13,150
  • Tools which are required for your work up to $11,300 in value
  • A single motor vehicle up to $6,600 in value (if your car is worth more than $6,600 you can pay the difference to your trustee in order to keep your car). Financed vehicles are usually not an issue as it has no value to the trustee as you owe more than it is worth.
  • Certain farm property including livestock, fowl, bees, books, tools, and other chattels, which are used as part of an individual’s occupation up to $29,100 in value
  • Your RRSPs and RDSPs, which were not contributed within the 12 months prior to filing for bankruptcy
  • Certain types of life insurance

How does a mortgage affect bankruptcy exemptions?

It’s important to understand what assets are and are not exempt from bankruptcy. The best way to do this is to seek advice from a Licensed Insolvency Trustee before you file for bankruptcy.

In regards to a mortgage on your house or car, the bankruptcy exemption applies to the equity you have acquired on that asset. The equity refers to the value of an asset after any debt amount has been deducted.

Most individuals who own a house and file for bankruptcy in Ontario have a mortgage on their house. Your main residence is exempt from bankruptcy as long as the equity of your home does not exceed $10,000. If the equity of your home does exceed $10,000, then the trustee will deal with your equity.

Why are some assets exempt from bankruptcy?

If you are struggling with numerous debts and do not have the income or assets to pay them off, bankruptcy can be the best solution if you are an honest but unfortunate debtor. Filing for bankruptcy can be a great way to help you start with a clean slate.

Your debts will be discharged, and certain assets of yours will be used to help settle debts with all of your creditors. Your assets are given to a Licensed Insolvency Trustee, who converts these assets into cash and equally distributes the monetary value among all of your creditors.

As useful as this technique is, it may seem like you will be left with nothing. Luckily, this isn’t true. Some assets are exempt from bankruptcy because, to live, you will require some essential items as a starting point for your new debt-free future ahead.

If you file for bankruptcy, assets that are required for you to survive, earn an income, and provide for your family are exempted and are yours to keep. Essential assets are exempt from bankruptcy and laws have been created to outline these exemptions.

The thought of bankruptcy can be scary, but the thought of being left with nothing shouldn’t be a fear. Bankruptcy laws have been put into place to ensure that just because some of your assets have been surrendered, it does not mean that you will be left without the basic tools you need for your new start.

Bankruptcy laws ensure that there are exemptions to the assets which can be taken from you so that you are not left without your dignity and essential items. Bankruptcy exemptions are unique to the province or territory in which you reside and can change over time, so make sure you seek professional advice to help you hold on to as many assets as you are entitled to.

To learn more about which items are exempt from bankruptcy, call Kevin Thatcher & Associates at 1-866-702-9801 or contact us here.

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Preferential Payments: What You Need to Know

Posted by in Bankruptcy
Jan 2020

We all have our preferences, and sometimes we may unconsciously or consciously lean towards something rather than another. This can be applied to almost anything in life, from food to people, and in this context, even our creditors.

What are Preferential Payments?

When you owe money to several creditors, you may or may not realize that you’ve focused your attention and money towards one specific creditor and have ignored the others. This is referred to as preferential debt payments, which involve a payment made to a particular creditor shortly before you file for bankruptcy.

Financial troubles can be very stressful, and if you don’t have any assets or savings to pay off any of the outstanding debts, then you may have no choice but to file for bankruptcy. Although filing for bankruptcy may seem to be the most obvious and affordable solution, there are certain things that you have to keep in mind before doing so.

One of these is referred to as preferential payments, mentioned under the Bankruptcy and Insolvency Act.

What are preferential debt payments?

Preferential debt payment is a payment that is made for the benefit of certain creditors shortly before filing for bankruptcy. This ties back to preferences or priorities which are created, and cause us to lean towards and prefer one creditor over another.

It’s also possible that you may owe money to a friend or family member and feel the need to settle that debt with any financial means that you currently have. You may feel obligated or inclined to pay back some individuals before others.

If you do choose to pay back a loan or debt to a preferred creditor shortly before filing for bankruptcy, it can be considered a preferential debt payment. For example, if you borrowed money from a family member, and you use some or all of your money earned from selling a house to pay off your debt before filing for bankruptcy, it can be considered a preferential payment.

If it’s determined that a preferential debt payment has been made, the bankruptcy trustee can recover the preferential payment, also known as a clawback, so that it can be fairly distributed among all of your creditors. Preferential payments are not illegal unless they are made with the intent to hide money from the trustee.

Irrespective of the intent, a preferential payment will have to be returned so that it can be fairly distributed among all your creditors. Clawbacks are ways to help ensure fairness among creditors. This is because a preferential payment prior to bankruptcy would result in a smaller payment made to each creditor, rather than if the preferential payment was also included in the amount being distributed.

When is a payment considered preferential?

Preferential payments can be of concern when you are filing for bankruptcy. It’s important to understand what is considered a preferential payment. This could include:

  1. Payments made within 90 days of filing for bankruptcy

    If you make a payment that is over $600 total to a preferred creditor in the 90 days prior to filing for bankruptcy, and if this payment to the creditor is greater than what they would receive through your bankruptcy, it is considered a preferential payment.

  2. Payments made to family or friends within one year of filing for bankruptcy

    When you owe money to individuals, who are considered insiders such as your friends, family, or business partners, the same criteria regarding payment apply as well. However, the period prior to filing for bankruptcy is greater in this case. Payments to insiders are considered preferential payments if they are made within one year of filing for bankruptcy.

When is a payment NOT considered preferential?

In some cases, an individual dealing with various debts may not be working alone. Having financial support can be a huge blessing. If a close third party relative — such as a family member — makes a large payment to an unsecured creditor on your behalf in the period prior to you filing for bankruptcy, then you haven’t done anything that can be considered a problem.

The fraudulent preference section, which is described in the Bankruptcy and Insolvency Act, is aimed to prevent individuals from purposely paying off one or more specific creditors and not others, which can be considered preferential. However, if a family member has paid one of your creditors, then you have not done anything that could be considered questionable.

What does it mean to file for bankruptcy?

Filing for bankruptcy is a legal process that can offer individuals who have financial problems with immediate financial assistance and a stop to any legal actions which are being taken against them by creditors.

If you do not have any assets, savings, or surplus income, and will not be able to pay the debts you owe to your creditors, you would just pay a basic fee to the trustee. When you file for bankruptcy, you are released from most or all of your debts.

Although this may seem like a quick and simple solution to your financial problems, there are a few protocols that must be followed to ensure the authenticity of the bankruptcy filing before any debts can be excused. These procedures include:

  • 2 counselling sessions
  • Submit monthly budgets to the trustee
  • Provide information to your trustee to file your taxes.

Other things can happen but usually payments, counselling, budgets, and taxes are all that is required.

The bankruptcy process aims to provide individuals suffering from financial troubles with a fresh start and to ensure that the individual’s assets are fairly distributed between their creditors.

There are a few assets that are exempt from bankruptcy in Ontario. This means that not all of your assets have to be signed over, and you can keep some items. These assets include:

  • Most RRSP and pensions
  • Personal effects and household items within reason
  • Most insurance policies
  • A basic vehicle
  • Tools required for work

How can I avoid making a preferential payment?

If you intend to or have already made a preferential payment to an insider individual or to a specific creditor you may want to see a lawyer first.

If the time prior to filing for bankruptcy falls outside of the specified preference periods, then it’s unlikely that the payment will be considered preferential by the trustee. It’s important to follow all of the guidelines outlined in the Bankruptcy and Insolvency Act to ensure that all your financial activity lines up with the appropriate criteria for bankruptcy.

If you intentionally try to defraud your creditors or hide any assets, you can face criminal charges and lose the benefits of being discharged off all of your debts.

If you are considering filing for bankruptcy, it can be a stressful time for all individuals involved and affected. If you ensure to avoid preferential payments and follow the correct steps when filing for bankruptcy, then the outcome can be a great way to start fresh. Your debts will be eliminated, and you will no longer owe your unsecured creditors.

To learn more about preferential payments to creditors and how they can affect filing for bankruptcy, call Kevin Thatcher & Associates at 1-888-329-5198 or contact us here.

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10 Ways to Get Out of Debt – No Matter What Size

Posted by in Debt
Jan 2020

Unpaid debts can cause unnecessary stress. Instead of being able to enjoy the full potential of the money you earn, you’re stuck chipping away at a debt that seems to have no end.

How to get out of debt?

Regardless of the size of your debt, owing money is something you should try to avoid altogether, and there are many ways to help you do just that. If you are struggling with debt and find it to be an uphill battle, let us provide you with a few quick tips to get out or significantly pay down your debt.

If you’re ready to tackle your debt but aren’t quite sure where to start, just know that there isn’t only one solution. Rather, there are several ways to help manage your money and channel more of it towards eliminating your debt. Using as many of these debt reduction strategies as you can help you reduce your debt faster.

Here are 10 ways to help you get out of your debt as quickly as possible:

  1. Pay more than the minimum

    This can be considered one of the most prominent strategies, but one that many people tend to overlook. When you are working on removing your debt, you will be provided with a payment plan which highlights the minimum payment amount required, usually monthly.

    The minimum payment will allow you to pay off your debt, but you’ll be stuck making these payments for a very long time. Try to direct as much spare money towards the debt and aim to pay more than the minimum payment, as much as you can afford.

    Every little bit that you can put aside for your debt can be helpful, and over time, you will find that your principal amount has been sharply reduced.

  2. Spend less, save more

    Again, this strategy may seem obvious, but it can be difficult to do. Cutting costs may appear like an unpleasant task, but it can be done. It can be an eye-opener when you learn to manage without the purchases you chose not to make.

    In many situations, debt is the result of buying things that you want without the money to afford them. In these situations, it’s important to separate your needs from your wants and understand that you may not always be able to buy everything.

    The first thing to keep in mind is that the credit available to you through credit cards are simply loans and cannot be considered yours to spend. When you are considering making a purchase, ask yourself whether you would be able to pay for this item upfront and in full. If the answer is no, you should leave it until you can and always try to make payments using cash rather than credit. Also, is this a want or a need?

    The money that you save by avoiding unnecessary purchases can be put towards paying off your debt. Over time, you will find that these new and healthy financial habits will help improve your future finances.

  3. Don’t buy a new car

    The unfortunate truth about cars is that they depreciate at a rate that results in a significant loss of money. If you choose to buy a new car for even $20,000, you will lose more than half of its value within the first few years of purchasing.

    It’s impossible to maintain the value of a new car. The moment you drive it off the lot, it will lose at least 15% of its value, and more as time goes on. Purchase a good-quality used car instead of a new one. You will be able to save a significant amount of money, which can be funnelled towards paying off your debt. Ask yourself if a car is a necessity or if transit is an alternative.

  4. One car and no more

    Whether you’ve purchased a used car or a new one that you plan to hold on to for the next decade or so, it’s financially beneficial to have a single car for the household. There are many excellent alternatives to driving, including public transit, walking, or carpooling.

    A single car can help you save thousands of dollars over the span of a year, by saving money on gas, insurance, and overall maintenance. If you do own more than one car, the money you earn by selling the other vehicles and the money you save from having a single car can be used towards your debt.

  5. Start with the largest interest rate.

    There is always that one debt that has a larger interest rate than the others and is costing you more. The best strategy to use in this case is to focus all of your attention and extra money towards paying off the largest interest debt, while also making minimum payments on all of the others.

    Setting up an auto-deposit can be a good way to make sure you never miss a payment. Once your largest interest debt is paid off, begin focusing all of your extra money towards paying off the next largest interest debt and continue this pattern until all your debts are paid off.

  6. Work twice as much

    Sometimes the money you’re making with a single job is simply not enough to tackle your debt at the speed you may want. It can certainly be stressful and exhausting as you pay off a debt, and in some cases, you may find yourself working harder without being able to keep all the money you are making.

    It can be a good idea to get another job on the side and use the money earned from that job to pay off your debt aggressively. This will allow you to make very large monthly payments and bring down your principal amount as fast as possible to minimize the amount of interest that is being added.

    A second job doesn’t necessarily have to involve working for someone else, but ways to increase your income. It can be as simple as renting out space in your home or using one of your skills or talents to make some cash on a small scale.

    Just remember that your debt and second job are temporary and may be tiring at the moment. However, it will only speed up the process of debt reduction for you so you can enjoy your debt-free future.

  7. Plan your grocery shop

    One of the main areas of constant spending is usually groceries; you will need to purchase food. Eating out at restaurants should definitely be limited as much as possible because the costs can add up quickly.

    There are also ways to help you save during your grocery trips. Luckily, there are some types of grocery items that can be stored for long periods of time, such as canned goods or frozen goods.

    These non-perishable items should be stocked up when they are on sale and used over time. When you buy many groceries on sale and stock up, you may be able to skip one trip to the grocery store every month, and you will find that you can save a lot of money that can be put towards your debt. You can check for sales on items at the grocery store and plan your meals around those items.

  8. Consolidate your loans

    Consolidating all of your loans is a good way of organizing yourself and putting all of your loans into only place under a lower interest rate.

    Rather than worrying about all the different places you owe money and the various minimum payments that have to be made, putting all your debts under one roof can be the best way to help keep track of how you’re doing. The key is to have your debt at a lower interest rate.

    Regardless of whether you consolidate your loan or not, this technique will only be effective if you create a realistic spending plan and stick to it. It’s also important to put aside some savings so you won’t have to use your credit card during emergencies.

  9. Refinance your mortgage

    Refinancing your home can allow you, as a homeowner, to reduce your overall monthly mortgage payments and pay less interest over the span of your loan repayment period. Again, this helps to bring the interest rates down on the money you owe.

    If you do choose to refinance your home and consolidate your debts into your mortgage, you have to think of your mortgage like a debt consolidation loan. This situation should be no different from any other type of loan. Pay as much as you can!

    Also, make sure you get rid of the credit cards and lines of credit you consolidated so you don’t get yourself in trouble again.

    You should put money aside as savings and remain within your spending plan. Your home should never be the source of your bill payment money because it will leave you with no assets or savings when you choose to retire.

  10. Keep track of your expenses

    Before you can even begin to start paying off any loans, you have to be aware of all the debts you owe, how much they are, the minimum payments, and the interest rates. Creating a spreadsheet with all of this information is step one in the organizational process.

    Expenses can get out of hand and bills can start piling up when you aren’t carefully tracking your expenses. If you’re spending more than you are bringing in, you know that trouble is ahead.

    Debt or no debt, it’s a good idea to keep track of your expenses and create a budget so money can be allocated to different areas such as groceries and rent. Once you have this spending plan, you have to keep a close track of all your spending and remain within your budget at all times.

    If you are working on paying off a debt, you should allocate a specific amount of money to your debt and determine other areas in your life that you can cut back on and direct that extra money to debt repayment.

Chipping away at debt can sometimes be overwhelming, and it can be discouraging if you feel that you don’t see any results. Make sure you feel prepared and have a solid plan about how to tackle your debt.

In some cases, speaking with a credit counsellor or a financial advisor can be the best way to get all your facts and outline a plan that is best suited for your situation. They will be able to help you effectively deal with your debts.

To learn more about how to get out of debt, no matter the size, call Kevin Thatcher & Associates at 1-888-329-5198 or contact us here.

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Bankruptcy and My Income

Posted by in Bankruptcy
Dec 2019

When it comes to bankruptcy in Canada, many are unfamiliar with how surplus income affects your bankruptcy process. In general, surplus income is your monthly income during the time you are bankrupt—basically, the higher your income, the more surplus income you will have to pay.

How surplus income affects your bankruptcy process?

Many sole proprietor owners and self-employed individuals think that after filing bankruptcy in Canada, you are removed from making any payments to creditors. However, this is a misconception. Almost immediately after declaring bankruptcy, your surplus income will need to be calculated and discussed with your trustee based on a government formula.

Before filing for bankruptcy, you need to consider many things. First, let’s outline the misconceptions of declaring bankruptcy and outline the advantages if you decide to file for it.

Common Misconceptions about Bankruptcy

Your debts are piling up, and you can barely make the minimum payments. You think by filing for bankruptcy, you’ll be off the hook, right? Not necessarily.

Here are the common misconceptions debunked when you go bankrupt:

Once I file for bankruptcy, can I avoid legal action?

Yes, you can avoid legal action taken by your unsecured creditors. Once you declare bankruptcy, bankruptcy law covers you under something called an ‘automatic stay.’ The automatic stay means that creditors are no longer able to collect unpaid debts prior to you filing for bankruptcy. However, you must agree with your trustee to make surplus income payments because if you fail to do so, you remain bankrupt.

Is it cost-effective to file for bankruptcy?

Depending on how much your debts are, declaring bankruptcy might be a cheaper option because you will no longer have to pay creditors high-interest rates. Your surplus income will have a positive effect on debt recovery.

When I declare bankruptcy, will I no longer have to pay my other debts?

No. That’s not the case at all. Debts you will still owe during bankruptcy are: spousal and child support, fines that are mandated by the court, and student loans. Student loans are exempt when the individual has been out of school for more than seven years.

Now that you know which misconceptions of bankruptcy are debunked, here are five reasons why surplus income is important for debt recovery:

Surplus Income affects Length of Bankruptcy

Your surplus income is based on your monthly net income and your number of dependents; a government formula is used to see if you come under this rule.

How long will you be bankrupt?

It depends. If your net income does not meet the government limits and this is your first bankruptcy, you won’t have to make surplus income payments. If this is your case, you can expect to be discharged from bankruptcy in 9 months.

For those who are on the first bankruptcy and need to pay surplus income, you can expect the bankruptcy to last 21 months. If this is your second or third bankruptcy, you need to pay surplus income for 36 months.

Surplus Income Payments are Legally Binding

Not only does surplus income payments affect the duration of your bankruptcy, but you are legally bound to pay them according to the Bankruptcy and Insolvency Act (BIA). If you miss your payments or fail to report your monthly income, you prolong your bankruptcy process, and your debts will not be discharged.

The More You Earn, the More You Pay

During your bankruptcy process, your income might fluctuate. It’s important to understand that during this period, all sources of non-taxable and taxable income are included in your surplus income payments. Your net income is always included, along with pensions, child tax credits, and spousal and child support. If you start receiving other monies, it will increase your monthly surplus income. If your income goes down, your required payment will go down.

Go to Meditation if You Can’t make Surplus Income Payments

If you started making your surplus income payments to your trustee, but cannot make them during the middle of your bankruptcy process, you can request for surplus income mediation. During the mediation, an extension of time to make the required surplus income payments will be decided between you and the trustee.

Opting to mediation is better than avoiding payments altogether, as not making the payments results in staying bankrupt.

Regular Income Reporting is Mandatory

Along with making your surplus income payments regularly, it’s mandatory to report your monthly income or any changes to your financial situation to your trustee. Also,if you change your phone number, move houses, leave the country, take on a new job or lose a job, you must report this information to your trustee.

Good communication with your trustee and making your surplus income payments will help the bankruptcy process proceed smoothly.

As you can see, filing for bankruptcy doesn’t let you off the hook completely. You must take into account that you may have surplus income payments.

If you are a small business owner in Toronto, the GTA, or Southern Ontario looking to file bankruptcy, these payments determine how long you will be bankrupt. But don’t worry, we’re here to help.

To learn more about why surplus income payments are important for debt recovery, call Kevin Thatcher & Associates at 1-866-702-9801 or contact us here.

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What Are Surplus Income Payments?

Posted by in Bankruptcy
Dec 2019

When self-employed and sole proprietor owners get overwhelmed with debt, many file for bankruptcy to gain a fresh start. However, after you have filed for bankruptcy, you might have to make monthly payments known as surplus income payments.

What are surplus income payments?

It’s important to know when you declare bankruptcy what your income is and if it will change in the near future. If you are working during your bankruptcy process, you may have to make surplus income payments.

But how will surplus income affect you? Here are the ten most common questions answered regarding surplus income and surplus income payments:

1. What is the definition of surplus income?

After you declare bankruptcy, the Office of the Superintendent of Bankruptcy has a formula that must be used to calculate the amount of your monthly payment based on your current income, family size, and financial situation. If you do not fall under these rules you just pay the basic fee.

2. What are surplus income payments?

If your income exceeds the Office of the Superintendent of Bankruptcy’s standard, you will have to make surplus income payments to your trustee. Keep in mind, the higher your income is, the higher your surplus income payments will be.

Having dependents such as children affects your surplus income payments. For example, if you have children, you would pay less surplus income payments based on the number of dependents than a couple without children earning the same income.

3. How is surplus income calculated?

First, you must submit proof of your income to your trustee every month. This includes:

  • Payment statements or stubs, RRSP and RESP contributions, spousal support, child tax benefits, and other financial obligations you need to pay. You also need to report any other sources of income you receive, such as monetary loans from family or freelance income from odd jobs.
  • Your trustee will tally your monthly amount and apply the government formula.

If your take-home income doesn’t have a surplus income, your trustee will expect you to make monthly minimum payments to cover the administrative costs of the bankruptcy (their fee).

4. How long do I have to make surplus income payments?

First-time bankruptcy individuals should expect to make surplus income payments for 21 months. For those on a second bankruptcy, payments will last for 36 months. For a third bankruptcy and any following bankruptcies, payments will last for 36 months, and the bankruptcy court may decide further payments.

5. What if I stop making my surplus income payments?

It is the trustee’s job to collect these payments on behalf of your creditors. If you stop making your monthly surplus income payments to your trustee as required, you prolong your bankruptcy process and will not get an automatic discharge. Instead, your case will be sent to the bankruptcy court. The court will then decide how much longer you will stay bankrupt and any amount to be paid.

As a general rule of thumb, if you decide to file bankruptcy, you must accept that you will have to pay your surplus income payments to get discharged.

6. How does my fluctuating income affect surplus income payments?

In the case of fluctuating income the amount of surplus income is based on an average over the required period (21 or 36 months).

7. Is surplus income calculated before or after tax is deducted?

Surplus income is calculated based on your income after tax and other basic deductions.

8. What if I don’t agree with the surplus income payment amount?

If you don’t agree with the surplus income amount required, your trustee will request mediation with the Office of the Superintendent of Bankruptcy to determine if any adjustments are possible.

9. Can I avoid making surplus income payments?

No. Once you decide to file bankruptcy, surplus income payments cannot be avoided. If you don’t think you can make monthly surplus income payments, talk to your trustee about a consumer proposal or perhaps lowering the monthly payment to the trustee but staying bankrupt longer..

10. How will my surplus income affect the bankruptcy process?

It’s essential to make your monthly surplus income payments to stay on track with the bankruptcy process. In instances when you stop making payments and don’t catch up, your trustee will notify the bankruptcy court about your missed payments. When you don’t pay, you won’t get discharged from bankruptcy.

The bankruptcy laws allow you to get control back of your finances; although you are obligated to pay surplus income payments. As you can see, if you are a sole proprietor owner or self-employed individual in Toronto, the GTA, or Southern Ontario looking to file bankruptcy, these rules on Surplus Income are something you must be aware of.

To learn more about surplus income payments or if you have any questions, call Kevin Thatcher & Associates at 1-866-702-9801 or contact us here.

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Five Effective Ways to Avoid Bankruptcy

Posted by in Bankruptcy
Nov 2019

For most small business owners and self-employed individuals, filing bankruptcy in Canada should be carefully considered.

What are the effective ways to avoid bankruptcy?

First, we’re going to outline the advantages and disadvantages of filing for bankruptcy —- you need to weigh the pros and cons of bankruptcy. Then, we will discuss five effective ways to avoid bankruptcy that you can include when making a plan of action.

Advantages of Filing for Bankruptcy

You need to weigh the pros and cons before filing for bankruptcy. This decision will depend on how much debt you are in, your income, and your living standards. Here are the advantages of filing for bankruptcy:

  • You are no longer obligated to pay most debts
  • You no longer need to make direct payments to creditors
  • Your wages will stop being garnished (does not include support payments)
  • Unsecured creditors can no longer take legal action against you to collect debts covered by the bankruptcy
  • Collection agencies and creditors will stop making harassing calls as the debt has legally been dealt with.
  • Once your bankruptcy is discharged, you can start a new financial future

Disadvantages of Filing for Bankruptcy

You should also be aware that declaring bankruptcy places you in financial restraints with these disadvantages:

  • Your bankruptcy will appear on your credit report for 6-7 years
  • You must surrender all credit cards to the trustee
  • Some assets may have to be surrendered to your trustee whose job it is to realize upon the assets for your creditors
  • You will be required to keep detailed records of your income and expenses during your bankruptcy

Many people think that filing for bankruptcy rids you of all debts. However, certain types of debt will remain. Debts you still owe after bankruptcy include:

  • Alimony
  • Car loans (if your choose to keep your car)
  • Child Support
  • Debts caused by fraudulent activity
  • Fines or penalties imposed by the court
  • Mortgage (if you choose to keep your property)
  • Student loans (if you have attended school in the last 7 years)

Now that you know the advantages and disadvantages of filing bankruptcy, here are five effective ways to avoid bankruptcy that are practical and can help your financial future.

1. Sell your personal assets

Selling some of your assets is a temporary solution to trimming down your debt and keeping your credit rate afloat. By informing your creditors that you are planning to sell your personal assets, they will usually give you a timeframe to pay down your debt. Keep in mind that this may result in the need for life-style changes.

The disadvantage to selling your personal assets is that you most likely need these belongings in life. You need to take a step back and evaluate how important these assets are and if you can survive life without them. It might seem like a quick fix to pay off your debts by selling your assets; however, in the long-run, it could affect your financial future. Remember, if you decide upon bankruptcy you get to keep basic clothes, furniture, and a basic vehicle.

2. Live on a budget

Next to selling some of your assets, personal budgeting can do wonders for paying off your debts. Before filing bankruptcy, you have to ask yourself, “Can I afford to repay my debts on my own?”

If you think ‘yes’ or ‘maybe,’ we advise you to create a personal budget, outlining how much your monthly income is and how much you have available to pay off your debts. Then, list down the amounts of each debt and monthly payments, and calculate how long it will take to pay them all off.

A great way to start budgeting is to write down what you spend each day; do this every day for a month. Now add up the amounts by category (auto expenses, groceries, etc.) so that you know where your money is going. Now you can set your priorities.

3. Filing a consumer proposal

When you file a consumer proposal, you need to outline the amount you owe to your creditors and offer to pay them a percentage of the amount owed based on what you can afford and offering at least what they would get in a bankruptcy. It’s also a chance for you to propose a timeline to deal with the debt at an amount you can afford.

For example, if your debt is $100,000, the consumer proposal may offer to pay 40% of that debt within five years. If the creditor agrees to the payment terms in your consumer report, it’s a legally binding contract, and you must make payments.

A great benefit of a consumer proposal is that the amount agreed to is fixed. There are not any interest charges.

You cannot file a consumer proposal on your own. Filing a consumer proposal requires the services of a Licensed Insolvency Trustee such as Kevin Thatcher & Associates Ltd.

4. Cut spending

There are two ways to fix a budget:

  1. Increase income
  2. Decrease spending

Cutting your spending goes hand in hand with personal budgeting. Being diligent in all aspects of your spending will help you save in the long run. If you want to get creative with personal budgeting and saving money, check out how to budget creatively and be debt-free.

But to save money, you must spend less money. Penny-pinching might be a tedious thing to do, but at the end of the month, it does save you dollars and cents.

5. Seek professional debt counselling

If you don’t have a lump sum of money, but feel you can pay off your debts over a period of time, debt counselling may be a good choice. During the debt counselling process, we can help you create a debt management plan where you outline a payment plan that will enable you to pay your debts in full.

Remember, before you file for bankruptcy, you can try to prevent it. You can consider:

  • Selling some of your assets
  • Living on a budget
  • Filing a consumer proposal
  • Cutting spending
  • Getting professional debt advice

To learn more about how you can avoid going into bankruptcy, call Kevin Thatcher & Associates at 1-866-702-9801 or contact us here.

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10 Questions Answered on How Bankruptcy Affects Your Business

Posted by in Bankruptcy
Nov 2019

With such a large number of start-ups and businesses in Canada, self-employed
individuals are prone to run into debt problems. When these debt problems get overwhelming, small business owners may need to file for bankruptcy to gain a fresh start.

How bankruptcy affects your business?

When an individual files for bankruptcy, this is considered personal bankruptcy. In legal terms, as a sole proprietor, the assets owned from the individual filing for a bankrupt business are not separate assets from the business.

If you are a sole proprietor owner in Canada and have to file bankruptcy for your business, here are ten common questions answered on how filing bankruptcy will affect your business.

1. Can I continue to operate my business after filing for bankruptcy?

The answer is yes. However, there are distinctions. Here are the specific distinctive factors that small business owners face.

If the small business is incorporated, then it will be the business that files bankruptcy due to it being a legal entity. Incorporated businesses have certain assets that will be sold by the Licensed Insolvency Trustee (LIT) to use the funds to pay off the creditors of the corporation. However, often there is little benefit to the corporation going bankrupt.

It’s important to understand that incorporated businesses can continue to be operated; however, the owner can face difficulties accessing business credit and unpaid suppliers may not want to work with the corporation going forward.

In the cases of a partnership or sole proprietorship, the individual(s) files for personal bankruptcy as this business is not a separate entity.

2. What happens to my assets after I file for bankruptcy as a sole proprietor?

After a small business owner files for bankruptcy, the individual might lose some of their assets. However, legally, small business owners can get a bankruptcy exemption called “Tools for the Trade.”

This exemption in Ontario covers an amount of up to $11,300. The amount of the exemption varies from each province in Canada. Be sure to check on the amount according to the province where the business is located.

3. Will I lose everything after I file for bankruptcy?

No. You will be able to keep some of your belongings, such as clothing, furniture, and a basic car. In terms of a house, depending on the circumstances, those who file for bankruptcy will be able to keep their home as they’re still responsible for paying the mortgage. However, any equity you have in the property is an asset the trustee must realize for your creditors.

4. Which debts are eliminated by filing for bankruptcy?

After filing for bankruptcy, most debts can be eliminated, including:

  • Credit cards
  • Lines of credit
  • Unsecured debts
  • Income tax debts
  • Payday loans

5. Which debts will I still owe after filing for bankruptcy?

Debts you still owe are:

  • Alimony
  • Car loans (If you choose to keep the car)
  • Child support
  • Court fines or penalties
  • Employment Insurance Overpayments
  • Mortgage (If you choose to keep the property)
  • Secured Lines of Credit
  • Student loans, if the business owner has not been out of school for more than seven years.

6. How is income determined after filing for bankruptcy?

Almost all money you receive is considered income. Your monthly income is compared to Federal Income Standards and if you are over their ‘line’, Surplus Income rules apply based on a government formula to determine your monthly payment.

7. Will it be difficult to get credit afterwards?

Yes, those who file for bankruptcy will face difficulties accessing future credit. Upon filing for bankruptcy, all credit cards must be surrendered to each credit card company; this includes those with zero balance. Credit card accounts will be frozen and be named creditors in bankruptcy.

Bankruptcy can stay on your credit report for seven years. However, once the bankruptcy is over and you’re discharged, getting a secured credit card will usually result in creditors working with you after using the card for a year.

8. Can I include tax debt when I file for bankruptcy?

One of the largest amounts in debt owed for small business owners is income tax. Tax debt can be listed in your bankruptcy. However, the exceptions include if the Canada Revenue Agency (CRA) has set a property lien before the business owner filed bankruptcy. This should be looked at as if Canada Revenue Agency has a mortgage on your house. A title search of the ownership would show if CRA has such a lien.

9. How long does the bankruptcy process take?

Each individual’s case is different. Two distinctions determine the length of the sole proprietor owner’s bankruptcy process.

If it’s your first time filing for bankruptcy and you have surplus income, it typically lasts more than nine months. Having surplus income adds more time to the bankruptcy process. It typically takes 21 months to be discharged from bankruptcy for first-time filings.

A small business owner who files for bankruptcy for the first time without any surplus income can expect a nine-month process.

If this is the second time filing for bankruptcy, the usual time is 24 months to get discharged without surplus income or 36 months with surplus income.

10. What are my bankruptcy options?

Besides filing for bankruptcy, another option is to file a consumer proposal. Filing a consumer proposal lets the sole proprietor owner keep their assets, including those that are needed for continuing to operate the business. It allows for negotiating a deal with the creditors to repay a portion of the amount owed. The monthly payments are usually spread over a five year period (60 months).

For example, an unsecured debt under $250,000 that has been agreed to pay within five years. The total offer is based on what assets are worth along with surplus income payments.

To learn more about how bankruptcy affects your business, call Kevin Thatcher & Associates at 1-866-702-9801 or contact us here.

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How Bankruptcy Affects Student Loans

Posted by in Bankruptcy
Oct 2019

With what many would consider being unfair changes to the student loan process in Ontario, more students will be faced with the challenges of financing their education. Whether you had benefited from student loans prior to the amendments made to the student loan program or are looking at your current financial situation as a student today, student loan repayment is something you will eventually have to face. Paying back student loans can be a challenge, especially if you are trying to establish a career living in an expensive area like the GTA. If you are facing financial hardship due to your student loans, you might be looking for assistance to help reduce your debt burdens. Here, we explore the impact that bankruptcy has on student loans, as well as your options before bankruptcy is necessary.

How Bankruptcy Affects Student Loans

Consider Your Payments

If you have found you aren’t able to meet your required payments each month, look at your budget to determine how much you think you can afford to pay. Don’t worry if it turns out that you can’t afford to pay anything! Once you have an idea, you will be in a better position to speak to your creditors, whether it is the government or a bank that provided your student loan. You can explain your situation and see if you can come up with a more manageable repayment plan.

Government Repayment Assistance

If your loan was through the government, you might be surprised to hear that they tend to be far more forgiving when it comes to loan repayment options.

The government views getting back any amount of money from student loans preferable to having to write them off altogether. Therefore, they are happy to discuss your options. They even have a repayment assistance department for this sole purpose. They have flexible terms and even offer support to students in need. However, it is also important to be realistic and know when you may need more help than their repayment assistance can provide.

Repayment assistance can be a real lifesaver for you if you are struggling financially. In Ontario, the Ontario Student Assistance Program (OSAP), will allow for reduced payments. In some cases, they will even completely defer payments for as long as six months when necessary. In certain scenarios you aren’t charged interest during this period as well.

Your best first optionis to call OSAP to make arrangements, as the online process does not allow you to enter all the personal details of your situation. Speaking with a live person makes it easier to review your issues and come up with a solution that is a little more customized.

They will review your monthly income, your necessary expenses, and discuss possible payment terms that are realistic based on your overall financial situation.

Student Line of Credit

If your loans came from a bank, you are going to have fewer options. Banks are not as forgiving, as they are all about the bottom line. However, these types of debts are dischargeable in a bankruptcy or a consumer proposal as the funds did not come from Student Loans. They don’t offer a formal repayment assistance program like the government but you can still gain from a conversation with your bank. When you are strapped for cash, even though paying more interest is never a good idea, if you can negotiate a longer payment plan, you can reduce the amount owed each month. You can hope to improve your financial situation over time and increase your monthly payments. You will then end up paying less interest. This way, you have better cash flow and can have a more manageable monthly budget that also reduces stress! Be honest and provide a new monthly payment you can afford and, hopefully, they will work with you to help make your repayment schedule work.

Consumer Proposal

If you don’t have any luck with settling your debt issues, speak to our team at Kevin Thatcher & Associates. As Licensed Insolvency Trustees, we can discuss the possibility of a consumer proposal.

A consumer proposal is a negotiation process to reduce debt. We try to propose a repayment plan on your behalf that will significantly reduce your debt. Student loans are unique as they will only be completely wiped out if you have been out of school for more then 7 years however at the very least they can buy you time and get your life and income on track.

If you do file a consumer proposal, it will show up on your credit record. This will be a negative mark that will impact your ability to get any further loans, including a mortgage or auto loan however if you are dealing with an unmanageable debt situation your credit is already being effected.

A consumer proposal stays on your record for three years following the completion of your proposal. That means you could have the mark on your record for up to eight years. You can take steps to get your credit score back up to good standing by ensuring all payments for s your rent, utility bills, and cell phone bills are paid in full and on time each month.


Last, but not least, your final option is bankruptcy. We consider this to be the last resort, however, it can wipe your debt clean, allowing you to start to rebuild your finances. For Student Loans it is important to understand that the debt is only wiped out if you have been out of school for more than 7 years. If you have not been out of school for that period of time then a bankruptcy can provide relief from required payments, garnishees, and harassment but the debt will survive. A trustee can explore this with you and what your options will be to deal with the debt if it is not wiped out.

After 10 Years

For OSAP loans, if you remain in debt beyond 10 years of completing your studies, you can review your situation with the government again. They call this “stage two” of debt repayment. Depending on your finances, they may negotiate the best terms to help you pay off the principal (your loan balance sans interest). You pay what you can afford, and they handle the rest. When you are truly strapped, they will forgive the debt but this is not a guarantee

As you can see, although student loans can create unmanageable debt situations, you always have options. We can help you find the best solution, so you can focus on your career and rebuilding your financial stability.

At Kevin Thatcher & Associates, we offer consumer proposal services and bankruptcy student loans that Ontario clients need to get their finances back on track. Contact us here for more information.

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