Topic: Financial Advice

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.

shopping addict

Advice for a shopping addict

Shopping addict Jocelyn Stengel asks on Quora: I am a shopping addict, how do I go about freezing my credit and what other steps can your recommend I take to prevent myself from opening credit?

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

Freezing your credit – call your bank and ask them to cancel your loan accounts. Of course, you will still need to pay off the current balances.

Prevent opening new credit – lodge a written undertaking with Equifax, Trans Union and Experian (i.e., the credit reporting agencies) that you will not use, possess, apply for, acquire or obtain any credit for 3 years. Three years should be enough time to give yourself a break from credit and learn how to live on cash.

debt settlement fix credit

Is debt settlement a good way for consumers to fix their credit issues?

Question from a Quora user: Will a debt settlement fix credit? Is debt settlement a good way for consumers to fix their credit issues?

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

The reason for the existence of credit ratings and credit scores is to protect lenders from potentially feckless borrowers who approach them for loans. Therefore, if someone’s credit rating has already been affected by, for example, late or non payment of debts, then a settlement won’t do anything to “fix it”.

The only way to fix a credit report issue is to deal with the outstanding debts by: (1) paying it off; (2) through a settlement; (3) or with the assistance of a Licensed Insolvency Trustee who can assist you with a legal settlement called a consumer proposal. Once you’ve dealt with your debts through one of these options, then you will need to rebuild your credit from scratch.

Rebuilding credit can be initiated by obtaining a secured credit card and using it on a regular basis.

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).

can i buy a home

Can I buy a home after filing for bankruptcy?

Can I buy a home?  A Quora user asks: If I file for bankruptcy, can I still buy a home?

 

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

The following comments are based on Canadian bankruptcy law. I’m also assuming that you’d be an undischarged bankrupt when you purchase the home.

Yes, in theory you can purchase a home so long as someone is willing to give you a mortgage to finance the purchase and is aware of your bankruptcy. It is an offence to obtain credit over $1,000 without disclosing to a lender that you are an undischarged bankrupt.

Aside from this, a question your trustee will ask is this: if you’re filing bankruptcy, how are you getting the money for the down payment? If someone is gifting you the money, then that gift is subject to seizure by your trustee while you’re undischarged.

With the above in mind, the best thing to do would be to wait until you’re discharge before purchasing a home.

Once you’ve been discharged, can start rebuilding your credit by obtaining a secured credit card. A secured credit card is relatively easy to acquire once you’ve obtained your discharge from bankruptcy. You will need to start using it and paying off the monthly balance consistently.

You’ll also need to start putting some money away for a down payment towards your dream home. In Canada, the minimum down payment is 5% of the purchase price if the price is $500,000 or less. If the purchase price is between $500,000 and $999,999, the down payment is 5% of the first $500,000 and 10% of any amount over $500,000.

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.

 

 

relationship and debt problems

Being in a relationship with someone who has a debt problem

A Quora user asks:

Do you think it is wrong, a bad idea, or unrealistic for me to want to avoid getting serious with guys who have considerable debts from college?

I worked hard to get through college with no debts, and I’m worried about perhaps ruining my future if I end up getting married to a guy who has considerable debts which could make life tough. I want a relationship to lead to marriage, so realism is important. Thanks. What are your thoughts?

Victor Fong, Licensed Insolvency Trustee replies:

Hi – that’s a great question. I’m a bankruptcy trustee in Canada and I wrote an article about this on my blog [1] , which I will reproduce here:

——————————————————————————————————————————————

Throughout my career as a bankruptcy trustee, I have seen the following scenario play out time and time again:

  • Girl meets boy and falls in love. He’s not perfect – he could be irresponsible at times – but he makes her laugh and makes her feel good. Besides, she’s confident that she can make him change his ways.
  • Boy wants to buy a new home or car, but has pretty shoddy credit and/or low income. However, that doesn’t matter, his girl loves him so much that she’ll co-sign the loan for him.
  • Eventually, and for one reason or another, the boy stops making his loan payments and takes off. He doesn’t return his girlfriend’s calls and she gets stuck with all his debt. There’s no way she can pay this debt herself so she filed for personal bankruptcy.
  • The roles assigned to the “boy” and “girl” in this scenario are deliberate: from my experience, it is almost always the man who suddenly absconds and the woman who gets the short end. I know this may be politically incorrect, but it is factually accurate from my experience.

So ladies, how do you avoid this scenario (or avoid it the next time)? Consider taking these steps:

In the short term, keep your financial affairs separate from your boyfriend or spouse. Do not co-sign any loans, keep your bank accounts separate and keep your assets separate.

If you are serious about establishing a long-term relationship with your partner (like marriage for instance), ask if he is willing to consent to a background check. A comprehensive background check will screen the following:

  1. Address histories
  2. Civil and bankruptcy records
  3. Credit reports
  4. Criminal records
  5. Driving histories
  6. Education and employment histories
  7. Liens and judgment histories
  8. Media coverage

If he has nothing to hide and really loves you, he should have no problem in consenting to this. If he is hesitant and cannot give you a REALLY good explanation, then you should have second thoughts about entering into a long term relationship with him. I have personally used Kroll to perform background checks on prospective employees.

If you have significant assets and income (or expect it in the future), discuss with him the issue of entering into a pre-nuptial agreement.
Feelings of romantic love will inevitably subside and reality will set in. And if it turns out that your partner is a “real” deadbeat, you will at least have taken preventive measures to make sure that only your heart gets broken, and not your wallet.

Footnotes
[1] Love and money don’t mix – Fong Financial Literacy Canada

proof of debt

A question about proving debt

ii8Bit asks on Reddit:

Been looking to speak to someone like you!

My question: is it the same in Canada as the US. Where if you write a letter to a debt collector requesting proof of debt owed, they have to get back to you with proof, and if they can’t it’s wiped clean?

Thanks!

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

Hi ii8Bit,

I don’t think that it’s that simple – at least not in Canada. There would be a number of steps one would need to take to achieve that same result:

You’re contacted by a collection agency asserting that you owe debt. You don’t pay it, either because you’re unwilling or unable;

The agency subsequently sues you for the debt by taking you to small claims court. At court, you can challenge the existence of the debt. And if the agency cannot produce proof of the debt (e.g., signed loan agreement or credit card agreement), then the court will dismiss the agency’s motion against you.

So just writing a letter to an agency for proof of the debt won’t prohibit them from taking collection action against you if they don’t happen to have the paperwork. The matter would have to go to small claims court. But if the above scenario plays out in your favour, then the debt is effectively “wiped clean” because the creditor cannot enforce its collection.

debt consolidation and credit score

Does consolidating debts hurt your credit rating?

Rustyshackleford14 asks on Reddit:

Hi Victor,

I have the following debts

Line of credit… $13,000 @ 8.99%; Credit card… 1,500 @ 9.99%; Car loan… about $16,000 remaining at 1.99% over 4 more years; OSAP… About $3,000 left, I think around 5% and around 3 years of payments remaining.

My buddy was in a similar situation, but I believe he was playing higher interest rates on his debts. He consolidated his debts for 8.99%

I have two questions…

I was once told consolidating your debts hurt your credit rating. Is this true?

Is the interest rate standard for consolidating? Or do they base it on the individual situation? The majority of my debt is below or around 8.99%, so if it was standard, I’d just end up paying more interest on my total debt, no?

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

Hi Rusty,

To answer your questions:

It depends how you consolidate the debts. If you’re taking out a consolidation loan at a bank (at a lower interest rate than the debts you want to pay off) and you use the proceeds to pay off the higher interest rate debt, your credit rating will be unaffected. If you are consolidating your debts through a debt management plan with non-profit credit counselling agency, your credit will be affected. In Ontario, you will have what is called an R7 on your credit report (it means you’re making a consolidated debt payment); for reference, an R1 is the highest credit rating. If you’re consolidating your debt through a consumer proposal (which is a debt settlement under the Bankruptcy Act), you will have what is called an R9 on your credit report (bad debt, uncollectible) until your proposal has been paid in full.

If you’re consolidating by getting a lower interest rate loan to pay off the other debts, then yes, of course you’re paying interest. If you’re doing a Debt Management Plan with a credit counselling agency, the agency will usually try to get a reduction on the interest you’re paying. If you’re filing a consumer proposal, your creditors are legally prohibited from accruing any more interest on your debts. So in a CP, the amount settled would be based on outstanding balance at the date the proposal is filed.