Topic: Considering Bankruptcy

lawsuit

Planning bankruptcy to stop a lawsuit

Question from Quora, asked by Kayee Tong: Is it possible to rack up debt to reduce the chance of lawsuits by threatening default and bankruptcy protection to a potential lawsuit?

Here is the answer from Victor Fong, Licensed Insolvency Trustee in Toronto, Canada

I’m a Licensed Insolvency Trustee operating in Canada, so what follows is my perspective from the standpoint of Canadian bankruptcy law.

If you are accumulating debt when no intent to repay it (i.e., you’re ready to proceed with a bankruptcy filing), then you’re committing de facto fraud.

What you have to understand that filing for personal bankruptcy in and of itself does not make the debt go away. Your debt goes away only when you are discharged from your debts. And a number of parties can intervene to prevent you from being discharged from your debts.

For example, your bankruptcy trustee or your creditors can have you examined in bankruptcy court and asked such questions (under oath) as where the money was spent. If you cannot account for where the money you borrowed was spent or the court determines that the money you borrowed was spent frivolously, this will cause you a lot of problems in obtaining your discharge from bankruptcy.

Upon reviewing evidence of your conduct before and during your bankruptcy, your discharge could be outright refused by the bankruptcy court or it could be subject to conditions such as paying a monetary sum to your creditors via the trustee.

So what you’re contemplating is a really, really bad idea.

I see that you’re a medical professional. Is the lawsuit related to your medical practice? I’m assuming that you have professional liability insurance that would deal with such a lawsuit?

You should seek confidential professional advice from a bankruptcy attorney. And I don’t think it’s a smart idea to post such a question using your actual profile if you’re going to pursue this strategy.

jail, bankruptcy

I went to jail. Should I file for bankruptcy now?

A Quora user asks: I went to jail. Should I file for bankruptcy now? I went into serious debt?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

If you’ve been released from jail

Having been in jail, you now have a criminal record. With that in mind, what are your chances of getting a job that will pay you enough to: (1) finance your living expenses; and (2) gradually pay off your debts?

To be blunt, it’s hard enough to get a good paying job as it is. Now you face an additional burden of potentially being turned down for employment once a prospective employer conducts a criminal background check.

So my advice: go out there and try to get work and see what happens when they run a background check. If you’re able to get hired despite it and the job pays you well, then gradually pay down your debts.

If you can’t get work because of your record, file bankruptcy (assuming you have no assets) and start fresh.

If you’re currently in jail

Now on the other hand, if you are currently in jail and wish to file bankruptcy, there’s nothing to prevent you from doing so except for the fact that you’ll need to find a Licensed Insolvency Trustee that’s willing to come to visit you in prison in order to: (1) perform a financial assessment of your circumstances; (2) sign the necessary bankruptcy documents with you; and (3) perform your two credit counselling sessions. If you’ve never been bankrupt before, you can be discharged from your debts in 9 months.

inheritance after filing bankruptcy

Inheritance or windfall after declaring bankruptcy

Question on Quora asked by Ivan Zarate: If a person becomes rich after declaring bankruptcy (e.g., an inheritance or winning a lottery), why don’t they have to pay back their original debt?

Answer given by Victor Fong, Licensed Insolvency Trustee in Toronto, Canada:

The idea of bankruptcy is for a person to get a fresh start in life so she can become a productive citizen and contribute to society without being burdened by overwhelming debt.

With that being said, in Canada, if you acquire property (like an inheritance or some other windfall) between the time you file for personal bankruptcy and the date of your discharge from bankruptcy, the trustee seizes it from you for the benefit of your creditors. If the amount of your windfall is more than what you owed to your creditors, the trustee would keep enough of it to pay all your creditors and his fees and would return the excess to you.

On the other hand, if you receive that windfall after your discharge from bankruptcy and the conditions for you receiving that windfall didn’t exist until after your discharge, then you keep it.

debt consolidation loan or bankruptcy

Should I get a debt consolidation loan or file for bankruptcy?

A user on Quora asks: I owe $65k in credit card debt. What’s better: those debt consolidation loans that I get in the mail or filing for bankruptcy?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

There are 3 main factors you must take into consideration in deciding which option best suits you:

Financial Goals

Do you have any financial goals which require you to have access to credit within the next 7 years? If the answer is “yes” then bankruptcy might not be the best choice for you.

Within the context of the question above, from my experience, personal bankruptcy is appropriate if you’re either really young or really old.

If you’re really young, you can file and get rid of your debt. By the time you’re in your late twenties or early thirties your bankruptcy will be off your credit record just in time for you to get that mortgage or that business loan.

If you’re really old, you’re past the station in life where you need to get a mortgage or business loan.

Assets

Do you have any assets? If you have assets, they may have to be liquidated by a Licensed Insolvency Trustee if you choose to file bankruptcy. Therefore, this will also be an important factor in your decision.

Ability to service debt consolidation loan payments

Can you afford to make the monthly payments on a debt consolidation loan? The size of your payments will depend on the borrowing rate you can get from the lending institution. If the interest rate you are paying on the debt consolidation loan is higher than the average interest rate you currently are paying on your credit cards, you’ll be paying more money in interest than you would if you just paid off the credit cards on your own. In this situation, a debt consolidation loan wouldn’t make any sense.

On the other hand, if you can negotiate an interest rate on the debt consolidation loan that is lower than the average interest rate on your credit cards, then such a loan might make financial sense.

co-signer bankruptcy

What happens to a co-signer of a loan agreement if I file for bankruptcy?

A Quora user asks: What happens to a co-signer of a loan agreement if I file for bankruptcy?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

You need to read what the loan agreement actually says.

Having said that, what these agreements usually say us that all signatories to the loan agreement are joint and severally liable. So if one person cannot pay (like yourself), then the other party is responsible for the entire loan.

Now, what recourse does the co-signer have against you if you file for personal bankruptcy?

If the co-signer pays off the debt, she can file a claim in your bankruptcy proceedings since now she is now one of your creditors. More particularly, she has the same rights as the other creditors, namely:

  • She can request that you be examined under oath before a bankruptcy court if there are issues regarding your personal conduct prior to and during your bankruptcy.
  • She can request a meeting of creditors which your Licensed Insolvency Trustee would be required to schedule and which you would be required to attend. The purpose of the meeting is to review the state of your financial affairs and to provide an opportunity to the creditors to ask you questions.
  • She can oppose your discharge from bankruptcy by filing an opposition with your Licensed Insolvency Trustee. If this happens, you would not be eligible for an automatic discharge from bankruptcy and you would be required to attend bankruptcy court to apply for your discharge from bankruptcy (and hence your debts).

bankruptcy assessment

An assessment of a possible bankruptcy

SummerTO2 asks on Reddit: Hi Victor! Can you perform a bankruptcy assessment of my situation? I have a total of more than $50,000 debt from credit cards and line of credit. My wife and I don’t have car nor home mortgage. I am unemployed right now (but no EI) and my wife is on EI. I am planning to file for personal bankruptcy. How would you assess my situation? And is my wife affected when I file for bankruptcy? We live in Ontario. Thanks!
Hi SummerTO,
Based on the information you’ve indicated in your post, if:
  • You’ve never been bankrupt before;
  • your household consists of just yourself and your wife (i.e., no dependent children); and
  • your combined average net monthly income over the next 9 months will not exceed $2,601 per month
then your bankruptcy will last for 9 months and you’ll be discharged at the end of that 9 month period.
Your wife won’t be affected by your bankruptcy (I’m assuming that you are the only person in the household with financial problems). However, if she has any joint debts with you, those creditors would look to her for payment.
Regarding cost, most trustees will charge a flat fee that can be paid in 9 monthly instalments. In the Greater Toronto Area, fees will generally range from $1,800 – $2,000, paid over 9 months.
Hope this helps!

 

foreign debt

Can foreign debt affect me here in Canada?

Foreign debt: Michelle D. on Quora asks: I have debt in the UK and have moved to Canada. Can it affect me over here? Should I go bankrupt in the UK? Can UK bankruptcy affect me in Canada?

I had a voluntary repossession of my car but there is still £5k outstanding. GM Financial have offices in Canada too. Can they pass it to them & affect my credit in Canada? Also have £6k in HSBC credit card. The weak CAD means 1 payment to them both would wipe out 1/2 a month’s salary!

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

You really have 3 questions, so I’m going to answer this in 3 parts…

Can it affect me over here?

The technical answer is “yes” but the practical answer is “no”. In theory, your UK creditors can pursue you in Canada by getting the cooperation of the Canadian courts to help your UK creditors enforce their debts against you in Canada. However, this would cost your UK creditors legal fees since they would have to hire a Canadian lawyer to make an application to a Canadian court to allow this to happen. The legal fees your UK creditors would have to incur would likely exceed the debts you owe them. Therefore, in their mind, it probably wouldn’t be worth their time pursuing you in Canada.

GM Financial in the UK and GM Financial in Canada are technically different two companies in two different jurisdictions. Therefore, GM Financial in Canada shouldn’t be able to pursue you without attending the the above described steps first. This would apply HSBC UK and HSBC Canada as well.

Should I go bankrupt in the UK?

This will depend on whether you plan to return and work in the UK. If you don’t plan to return to the UK, then there might not be any point in you doing anything at all (for the reasons I explained above). If you do plan to return to the UK and don’t want the burden of your creditors garnishing your wages or seizing your assets upon your return, you should meet with a UK bankruptcy trustee and discuss with him/her a possible bankruptcy filing.

Can a UK bankruptcy affect me in Canada?

This will depend on whether you have assets in Canada and the level of your monthly income in Canada. I’m not familiar with the UK bankruptcy laws, but most bankruptcy laws around the world require you to disclose to your bankruptcy trustee your worldwide assets and income. So any assets you might have in Canada may have to be liquidated by your UK bankruptcy trustee. Likewise, you may have to pay a percentage of your monthly income to your UK bankruptcy trustee if our monthly income is over a certain threshold. In the UK, this is called an Income Payment Agreement.

Also, if you are applying for a job in Canada, prospective employers will generally ask if you have filed bankruptcy within the last 5 years. So this may affect your ability to be hired for any future jobs here. Whether you answer “yes” or “no” will depend on how they ask the question: (1) “have you filed bankruptcy within the last 5 years?”; or “have you filed bankruptcy in Canada within the last 5 years?”. You would answer “yes” to the former and “no” to the latter.

 

 

co owner house

Is the co-owner of my house affected by my bankruptcy?

From Reddit: ta19762 asks: Big question……if my wife and I declare personal bankruptcy is our house in jeopardy? My mum lives with us and made a significant down-payment, and we pay the mortgage on the remainder. It’s in our name, but we have a legal doc stating my mum owns 37%. I don’t want our financial situation to impact her. She’s on s fixed income and I don’t want to be responsible for making it worse. We live in Ontario.

Victor Fong, Licensed Insolvency Trustee in Toronto, Ontario replies:

Hi Ta1976,

You indicated that your mother owns a 37% interest in your family home and that you have a legal document to support this. Is this legal document a title deed? That is to ask: is your mother on title with both you and your wife?

Also, is your mother a co-signatory on the mortgage? It would be helpful if you could provide this information.

But to provide a general answer to a situation like yours: the interest owned by you and your wife in the equity (i.e., the fair market value of the home minus the outstanding mortgage balance) would be affected by your bankruptcy. Your mother’s legal interest in the home’s equity would be unaffected.

When filing bankruptcy, your share of the equity becomes the legal property of the trustee. The trustee has a duty to realize on the equity. The trustee will usually work out some sort of payment arrangement where you and your wife can “buy back” the equity from the bankruptcy trustee under a monthly payment plan. The trustee will need the approval of your creditors before entering into such an arrangement with you. In the meanwhile, the trustee will register a bankruptcy caution or a mortgage charge at the land registry where your house is situated to make sure that you don’t sell the home and run off with the money before you’ve paid the trustee in full.