A common question I get when meeting with people to discuss their financial situation is “if I file for bankruptcy or a consumer proposal can I keep one credit card”?

The answer is no. All creditors must be listed in your bankruptcy or a consumer proposal. It doesn’t matter if the balance is small and you can pay it off, or even if there is no balance owing. You need to treat all of your creditors the same.

In today’s world many people need a credit card to book a flight, hotel room, job expenses and to make purchases over the internet. If you need a credit card, you may be able to get a secured credit card or prepaid credit card. A secured credit card allows you to use the card up to the amount that you have proved as security deposit for the card. You will need to save money and apply for a card to the amount you need. Check with your bank to see if they offer one.

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If you have an account with a bank in which you owe a loan or a credit card, that bank can go into your account and withdraw the payment to fulfill the debt. This process is called the “Right of Offset”. They can do this without notifying you ahead of time and if you are unaware that they have done this it may cause a cheque returned “NSF” or leave you short to pay other bills and living expenses. You should consider opening a bank account where you have no debt (including a mortgage or car loan).

However, before going bankrupt or filing a consumer proposal, we strongly recommend you open a new bank account so you won’t be banking where you owe. Once you file for bankruptcy or make a consumer proposal the bank you owe may freeze your account, which means you won’t have access to any of your money, including direct deposits and paycheques! The Trustee handling your file will then send the bank a document to unfreeze your accounts creditors and to cease all collection activity, but it could take your bank weeks to process it. In the mean time you won’t have access to your account.

Therefore, protect your income by changing bank accounts before signing papers with your trustee.

The following 5 steps will help you with opening your new bank account:

1 If you are in overdraft, you will not be able to close your old account but the overdraft will be included in your bankruptcy or consumer proposal. However, if you are not in overdraft then close the account at the bank where you owe.

2 You will need to change you income to your new account immediately. This includes all sources of income, such as your paycheque, child tax credits, and HST refunds.

3 Only give your new account number to your creditors for mortgage or car payments you will be continuing to pay.

4 Change any pre-authorized payments for things such as utilities, rent and insurance payments to your new account immediately.

5 You will need to stop any payments, pre-authorized or other types, to your old account.

After all this you may be saying to yourself “I like my current bank, been dealing with them for years and I don’t want to change my direct deposits and pre-authorized payments with another bank which will be a lot of work”. You also may be feeling hesitant about banking with a bank you have never dealt with.

Yes, it is a bit of work, but what’s worse: spending an hour to re-direct everything to your new bank account, or having your old bank account cleaned out because you didn’t open a new one, and missing your rent payment and not having any money for food?

Opening a new bank account at a new bank is great protection for you, so I strongly recommend it.

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In life it would be great to be able to foresee problems or disasters before they occur. Many times it is simply a matter of knowledge or experience that can alert us to see the bumps and pitfalls ahead in the road. More often than not people don’t realize they are in dire straits financially until it is too late. They don’t recognize the “red flags” that can warn us that financial crisis is looming. Here are a few of the “red flags” that are an indication you may be in financial difficulty:

• Having to Rob Peter to pay Paul – This is a phrase referring to taking money from one source to pay another. Taking a cash advance on your credit card to pay another bill. If you rob Peter to pay Paul, you are temporarily solving one problem but are really perpetuating your debt.

• You are only paying the minimum amount to each creditor. Minimum payments extend your debt as they pay the interest only, but don’t allow you to see the light at the end of the tunnel.

• Constantly behind on your bills and just can’t seem to catch up.

• Using pay day loans to pay bills and living expenses.

• Creditors sending second reminders, collection notices or threatening further actions.

• Charging more on your credit than you repay each month.

• You are unsure of exactly how much you owe to your creditors.

• You’re spending more than you earn.

• You are worried about paying your bills monthly, answering your phone or even opening your mail.

• You are living in overdraft every month.

If you’re struggling with red flags in your life, or you are at the point where you have too many red flags, just remember you are not alone when it comes to having financial difficulty, call us at Hoyes Michalos to set up a free consultation to go over your options and get a plan for the future, so you can get a fresh start. Call us at 310-PLAN or 519-250-8060.

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When you complete all your duties in bankruptcy, you will receive a certificate of discharge from your Trustee (or get a discharge order from the Court). This means your bankruptcy has been completed and subject to some exceptions, your debts are eliminated.

However, your bankruptcy will remain on your credit report for another 6 years, if you’re a first time bankruptcy filer, and longer when you’re a second time filer. When you get your certificate of discharge send a copy to Equifax and Transunion and ask them to update your credit profile with this new information and make sure that all of your debts that were discharged in bankruptcy are reporting as such and have a balance of zero.

Make sure your certificate of discharge is kept in a save place as it is an important document. This document provides proof that you have no further obligation to meet and there may be a time in the future you may need to provide proof of your discharge in bankruptcy. Here are some examples of times you may need to provide you certificate:

• The certificate would be necessary in order to lift the lien against your property that a former creditor put on. The certificate allows the owner to file to have the lien removed from the title to make it possible to sell.

• If any former creditor tries to collect from you or says you still owe them money showing them a copy of the certificate of discharge will prove that you do not owe them any money.

• It doesn’t happen too often, but we just had a person try to file a second time bankruptcy. However the records of the Office of the Superintendent of Bankruptcy stated that the individual was not discharged from the first bankruptcy. In order for that person to file again, he would need to provide proof of his discharge from the previous bankruptcy.

• Applying for a loan as they may ask for proof of your discharge.

If you loose your certificate of discharge it could be time consuming and cost money to have another one issued. In short, keep it in a safe place.

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by Angela Marquis

Going through a divorce, change of career, losing a love one or moving your place of residence are all stressful situations both emotional and financially. Any or all of these reasons, could contribute to confusion or misunderstanding regarding debts.

If you are not sure whom you owe, the first step is to get copies of your credit report. There are two major credit reporting agencies: Equifax and TransUnion. Read the report carefully to see who you owe, account number, contact information for the creditor, outstanding balance and a nine point scale indicating whether a payment was made on time or late.

The nine point scale is as follows:
R0 Too new to rate; approved but not used.
R1 Pays (or paid) within 30 days of billing; pays account as agreed.
R2 Pays (or paid) in more than 30 days, but not more than 60 days, or one payment past due.
R3 Pays (or paid) in more than 60 days, but not more than 90 days, or two payments past due.
R4 Pays (or paid) in more than 90 days, but not more than 120 days, or three or more payments past due.
R5 Account is at least 120 days overdue, but is not yet rated 9.
R6 (Code 6 does not exist.)
R7 Making regular payments under a consolidation order or similar arrangement.
R8 Repossession (indicate if it is a voluntary return of merchandise by the consumer).
R9 Bad debt; placed for collection; skip.

All credit reports contain different information and keep in mind, just because a debt isn’t on the report, doesn’t mean you don’t owe them, as it just means the creditor did not report it or the debt was removed from the creditors report, usually after six years.

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by Angela Marquis – client service specialist

Recently I was shopping and thought there are many items we pay a large part of the cost in the expensive or elaborate packaging. Most times when we arrive home we discard the packaging and store the items ourselves. Many times we can save a lot of money by buying in bulk, if we do so wisely.

Here is a list of things that usually saves a lot of money:

- Spices – All you need is your own jar and you can buy as much or as little as you need.
- Meat – Is probably the best item you can buy in bulk to save you money. Freezing you meat can last as long as 12 months.
- Wheat Flour – wheat flour is rarely on sale, so buying from the bulk bin does save you money
- Any items that you will use up in a short period of time as long as the price is reasonable.
- Canned goods have a long shelf time, so you can purchase them in bulk.
- Paper towels, toilet paper, paper plates, q-tips or any other paper goods are all great products to stock up on.

Now just because you can buy in bulk, doesn’t mean you always save money. Here are some tips for you to consider:

• Don’t over stock because if you’re throwing it away, then it’s not a savings.
• Make sure you check the price, to make sure it’s actually less expensive to buy in bulk.
• Make sure you can store it properly, as they can go bad before you use them.
• Buying items in bulk that you don’t use often uses up money that you would probably use elsewhere.
• You may end up buying things in bulk that you would never have just because they are such a good deal. Do you really need ground cinnamon by the pound?
• Keep in mind when you have more, sometimes you use more. When you have more food around to eat, you’ll find yourself eating more.

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What is surplus income in a bankruptcy?

Simply stated, the more you bring home each month the more you pay.

The Office of the Superintendent of Bankruptcy has issued guidelines stating how much money a family is allowed to make in a bankruptcy. The more family members, the greater the allowed income. Before calculating how much you have to pay each month we are allowed to consider certain expenses such as support payments and child care. You can see numerous examples of how to calculate surplus income at our surplus income page.

Is surplus income calculated on my income before or after tax?

After tax.

What about the fact I have a mortgage and car payment?

Sorry, but there is no allowance given for housing and car payments. The income limit is the same of everyone regardless of where you live or what you drive.

I have money left over each month. Does that mean I have to pay that to the Trustee?

It’s great that you are able to save money. But no, surplus income for bankruptcy is based on your net income and the guidelines. You are not penalized to being able to save money.

I am paid weekly. What happens when I have a 5 pay cheque month?

The limit is the same even if it’s a 5 pay month. However, the payments are make are based on your average income during the first 6 months of your bankruptcy.

Wow, that sounds confusing, is there any way I can avoid having to worry about whether or not I have surplus income?

Yes, when you file a consumer proposal, your payments are fixed. You don’t have to worry about being penalized if you earn more than allowed.

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by Angela Marquis, client service specialist

One of the more stressful situations in life a person can go through is a separation or a divorce. If it is compounded by financial difficulties, which is often the case, it can seem overwhelming.

Recently, I had just this situation and the question arose “my spouse declared bankruptcy after we separated. What impact does that have on me?”

If one spouse files and the other doesn’t, it does not always mean the other spouse will be forced to file for bankruptcy too. If all the debts are just one one spouse’s name, then only the spouse with the debts will file. However, if you have joint debt, or you are the co-signor with your ex-spouse on a debt, or have a secondary credit card, the creditor can require the entire payment of that debt from you even though the separation agreement says the full debt belongs to your ex-spouse. Unfortunately the creditor didn’t agree to this, so they aren’t bound by it.

Keep in mind that if both spouses own property together, such as a house with a mortgage, then that would be a debt of both parties.

Many people believe that filing for bankruptcy means you don’t have the obligation of paying child support or alimony. This is not true as these are non-dischargeable in bankruptcy. Meaning it does not release your spouse from the obligation of continuing to pay alimony or child support to you.

As you can read, this is a very confusing situation. You can sit down with us and we can review your situation and try to help you understand what debts you are responsible for .

If you’re concerned about how the bankruptcy would affect you or are considering filing for bankruptcy either separate or filing jointly with your spouse, call us at 519-250-8060 or 310-PLAN to set up an appointment to find out which situation will be best for you.

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A few days ago I met with Sally (not her real name). On the advice of a friend, she went to see a trustee and told me she didn’t like how she was treated and felt pressured. She decided to get a second opinion and came to see me. She and I talked about the appointment she had and she told me she paid $350 for the first meeting (which raised an alarm for me right away), the person wanted her to sign paperwork on the spot, she told him she didn’t want to and left.

She told me she called him a few times in the next month with questions and her phone calls were not returned. She was told she would have to pay the balance of his consultation fee of $1500 before he would meet with her. Unfortunately Sally did not go to see a Trustee, but went to see a debt consultant. The first warning sign should have been the fee required for a meeting. If someone is going to charge you a fee just to meet with you, call someone else.

I also met with Richard. He came to see me because he really would like to file a consumer proposal. He went to see another trustee and all they talked about was bankruptcy. I reviewed all of Richard’s options with him and a consumer proposal made much more sense. We calculated a bankruptcy would cost him $12,000 because of his income, so instead he is going to file a $12,000 consumer proposal. If the Trustee won’t review all of your options so you can understand the costs associated with both a consumer proposal and bankruptcy, go see someone else.

It’s important to know that you can choose who you meet with, and it’s your decision on what to do. Don’t let anyone try to talk you into one option over another.

There are several signs to look out for when you call to book an appointment or go to see a trustee

1 – When you called during normal hours, was someone available to help you on the phone, or did it take hours or days to get a return phone call. If you can’t speak to anyone on the phone, how likely will they be to help you when you have questions? Be wary of someone who offers service 24 hours a day. Is a trustee really going to meet with you at 3 am – of course not. You are only going to be able to leave a message with an answering service who can`t answer any of your questions. If you call Hoyes, Michalos and Associates and a trustee or client service specialist is not available to speak with you when you call, we do our best to call you back within the hour.

2 – As I mentioned before, do not meet with anyone who is going to charge you a fee just to talk to you. We do not charge a fee to meet.

3 – Did the Trustee take the time to review your entire situation and explain all of your options? You may have an idea of what you want to do, but the Trustee is still required to review all of your options. If you feel pressured to do something you don`t want to do or to make a decision right away, talk to someone else.

4 – How did you feel when you left the meeting? Did you feel a sense of relief or did you feel rushed and annoyed when you left. No one is happy to come and see a Trustee, but you should feel a sense of relief when you leave, now that you know what your options are and that someone is here to help you.

5 – Make sure you are dealing with a Trustee. All trustee’s are licenced by the Office of the Superintendent of Bankruptcy. You can check their website to see if the person or company you spoke with is listed. If you are not sure you are meeting with a trustee, just ask them.

6 – What kind of firm are you dealing with? Do you really want to be dealing with a trustee that advertises all of the corporate work they do or do you want to deal with someone who only deals with individuals just like you? We only deal with individuals.

Dealing with debt problems is stressful. Remember that you are in control over what you do and who you meet with. If it doesn’t feel right, then walk away.

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The Office of the Superintendent of Bankruptcy recently released the year to date statistics for bankruptcy and consumer proposals filings.

The good news for Windsor is that bankruptcy filings were down for the first 6 months of 2011 compared to 2010. 581 people filed for bankruptcy in the first 6 months of 2010 while 480 filed in the same period for 2011 for a decrease of 17%. There were 270 consumer proposals filed in the first 6 months of 2010 and 278 in the same period in 2011. 3% isn’t a huge increase, but it is still a good news story. How is that good news? A decrease in bankruptcy filings is good if it means the decrease is caused by people being able to manage their debt. Why? Since the bankruptcy rules changed in 2009, bankruptcy has become longer and more expensive for many people. Rather than having an expensive bankruptcy for up to 36 months, you can have a reasonable payment under a consumer proposal for a longer period of time. However, if you need help managing your debt it’s important that you speak with a licenced bankruptcy trustee. I am meeting with too many people who were attracted to the fancy ads of debt consultants and spent thousands of dollars in fees only to either be referred to a trustee to file a consumer proposal.

For the Windsor economy in general, a declining personal bankruptcy rate is good news. In order to make the consumer proposal someone needs to have a source of income, usually employment income or pension. An increase in consumer proposals shows that people are working, although still struggling with their debt. They can make some payment towards their debt, they just need help.

Unfortunately, the situation for Leamington is a mixed message. There were 32 fewer bankruptcy files, however there also 12 fewer proposal files. Does that mean that people who live in Leamington are less likely to have debt? I don’t think so. Debt levels are still at record levels and people need to pick up the phone and call if they need help with their debt.

For information on statistics for other areas, please see Bankruptcy Canada and Consumer Proposal Canada.

Hoyes Michalos is one of the largest filers of consumer proposals in Windsor and Leamington , so if you are interested in learning more about this increasingly popular option to bankruptcy, call me at 519-250-8060 in Windsor, 519-326-1467 in Leamington or email me to arrange a no charge consultation.

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