FREQUENTLY ASKED QUESTIONS

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Bankruptcy in Canada does not directly affect your spouse. Your debts are your debts, and you are solely responsible for them. If you decide to file for bankruptcy, you solve your financial problems and your partner, in fact, is not liable for your debts.

People believe that because they are married, their spouse is automatically liable for each other’s debts. This is not true. Often, credit recovery agencies will tell you that if you default, your spouse will be the one to pay. This is a tactic used by collection agencies to bully customers into paying.

The only exception in which your partner will be affected if you file for bankruptcy is if your spouse is a co-signer or is guaranteeing your debt. For example, if the two of you got a loan and both signed, it is legally your loan as well. If you both have a credit card on the same account, the debt of this credit card legally belongs to both of you.

Remember, your spouse is responsible for the debt, not because he/she is your spouse but because he/she signed the debt.

If all your debts are in your name, your bankruptcy will not affect the credit score of your spouse. However, the bankrupt spouse cannot qualify as a co-signer in the future.

If you are considering filing for bankruptcy in Canada and want to know how bankruptcy will affect your life, contact CDMP, and one of our associate counselors will help you find the best solution for you.

Can a Collection Agency take me to court? Will I go to jail for not paying my debts? Most collection agents are paid by commission or are performance bonus based on the amount of debt they recover. They often use many different collection tactics to force you to pay your debts. But can a collection agency take you to court?

The answer is yes – it is possible that a collection agency begins legal action against you. Typically, the collection agent who represents the creditor will call you and send numerous threatening letters.

However, they only take you to court if they think you have the ability to pay, and they have not been successful in recovering the money without taking legal action.

By going to court, the first step is to determine in the first court hearing if you owe any money to the creditor. The court hearing is very fast because it is well known that you owe the money.

The second step is the sentencing by the judge, stating that you owe the money.

The next step is to enforce the sentence and this is done by freezing the debtor’s assets, such as freezing your bank accounts, garnishing your wages, etc. Furthermore, most people do not have assets that can be confiscated. Therefore, the creditor is more likely to attempt to garnish their wages.

Many people worry that if they do not pay their debts they will go to jail, but that’s not the case. Jail is the result of a criminal trial. Creditors are taking steps in a civil court, which as described above leads to a sentence or order of attachment, but not prison.

To go to jail you should be convicted of a crime and must be charged with a crime by the police. If you rob a bank, you go to jail. If you commit fraud and get sentenced, you can go to jail. Not paying your credit card is not a criminal offense.

There are a number of duties that you must complete while in bankruptcy. As soon as you start your bankruptcy, you must surrender all your credit cards.

Meeting of Creditors

You must attend the meeting of creditors, if one is carried out. At this meeting, creditors will have the opportunity to ask questions about your bankruptcy. However, most personal bankruptcies a creditors meeting is not held.

Income Tax

You must give the administrator your T-4 slips and any other information needed to complete tax returns at the date of bankruptcy.

When you file for bankruptcy, that day is regarded as the end of your tax year, so that in the year of bankruptcy you really have to file two different tax returns.

Any income tax debt will be included in your bankruptcy, but you may have to pay it separately. Any refund you are entitled to will go to an asset manager and then go to your creditors.

Monthly Reporting

Each month, you must report your income, expenses and any change in family situation together with copies of pay stubs. Your administrator will provide you with the appropriate forms to fill in order to provide him or her with this information.

From your income and expenses, the administrator determines whether your net income was higher than the limit allowed by law for you to live. If you have any “excess income,” you will be required to make a payment each month to your administrator. The more you earn, the more you are required to contribute to your estate for the benefit of your creditors.

For most people it is the monthly reporting in that require the most work. However, the monthly income and expense reporting over this time period is very useful for most people, because now they can keep track of money coming into the home and how they spend and when.

Credit Counselling

To be eligible for an “automatic nine month discharge” you must attend two credit counseling sessions. Counselling can be one-on-one with you and your counselor, or if you prefer, you can be in a group of other bankrupts and their administrator.

The first counseling session should be between 10 and 60 days following the start of the bankruptcy, the second counseling session should be held no later than 210 days after the date of bankruptcy.

This credit counseling is designed to teach you budgeting and good money management, so you are less likely to have financial problems in the future. Each session is approximately one hour and your budget and the causes of your financial difficulties is discussed.

Experience shows that credit counseling reinforces your income and expense reports, which gives you better control of your finances.

Other Duties

  • You must inform the administrator as to where you live.
  • You must respond to requests from the administrator, help him or her when necessary and provide all information requested.
  • If you borrow more than $500, you must tell the lender you are bankrupt.
  • You may not be a director of a company.

Timely Completion

It is essential to perform these tasks in a timely manner, so that bankruptcy may be completed as soon as possible. For example, if you miss a payment, your discharge date will be postponed. The sooner you get your discharge, the sooner you will be able to rebuild your credit.

If you’re ready to put these financial problems behind you, please contact us and we will guide you in this process.

The majority of people who file for personal bankruptcy in Canada never imagined they would be in that situation. For many, bankruptcy raises a number of moral dilemmas, one question that often arises from them is “Should I feel guilty if I file bankruptcy?

One thing to note is that in most cases, people had a good paying job and at the time had the means to pay for their bills and loans, but then unexpectedly, the problems started. For many financial problems begin with the loss of employment, a marriage break up, or even health problems that prevent them from working. For these reasons people begin using credit to pay their bills, but then find themselves so far into debt that they have no choice but to declare bankruptcy.

You know you owe money, and you want to pay it back, here is where you start feeling guilty about filing for bankruptcy. You are afraid of taking the “easy way out.”

Remember that most people do not plan or want to file bankruptcy, but if you are drowning in debt, bankruptcy may be the solution.

It is better to go bankrupt that to have your wages garnished for many years. It is more important to feed your family and provide a roof over their heads.

Of course there is always the option of a consumer proposal. If you want to avoid bankruptcy, an agreement or negotiation between you and your creditors might be the right choice. Although the proposal will cost more than a bankruptcy, by negotiating an agreement with your creditors, your feeling of guilt may disappear.

A credit card is a payment tool that gives you access to a flexible source of credit. Compared with other ways to access a loan, credit cards are very convenient, allowing you to choose how much to borrow and how much to spend in a given time.

However, as with any system of credit, credit cards should always be used wisely. The irresponsible use of credit card debt could mean that hinder the return of payment. If you reach this stage that is in financial difficulties and can not meet the monthly payment, it’s time to see a counselor Funding will help you find the best way to recover your financial peace of mind.

Note that the proper handling of your credit card lets you enjoy many goods and Services, but this mismanagement can lead to bankruptcy.

Credit is an integral part of our modern economy, and as such it has advantages and disadvantages. It is important to weigh all of the factors involved before making a decision to use credit. If the potential downside is not considered, you might find yourself wishing that you had not incurred the debt.

In general, think before you buy – is it for a want or a need? We all need food, clothing, shelter and transportation, but beyond the basics much of what we acquire is really for wants, not needs. Also, in this day of uncertain employment, it always makes sense to live on a bit less than you have coming in, rather than borrowing on the assumption that next month or next year will be better.

If you do decide to finance a purchase, shop around for the best interest rate, make the largest down payment you can, and be sure that you know about all hidden charges, interest costs, late payment penalties etc., before signing on the dotted line. And ask who holds the financing – many consumers have been surprised to learn after arranging a purchase that they will be dealing with a finance company when it comes time to pay.

Many retailers focus on the “low monthly payments” instead of the interest rates being charged on financing promotions, and they don’t want you to know the total cost of buying with credit. Just out of interest, ask the total cost of the monthly payments over the life of the contract, and compare that to the cost of paying cash today. You’ll be surprised!

Try not to use credit for something which won’t last until the bill arrives. It’s one thing to have a credit card bill for a stereo or a new suit which you’ll enjoy for several years. It’s another thing to have to pay for a restaurant meal, groceries or cigarettes you enjoyed three weeks ago.

Keep track of all credit purchases in one book, and consider how they impact your monthly budget. If you are using a credit card, try to pay it off in full at month-end to avoid interest charges, and treat any purchases like cash transactions with respect to your record-keeping. If you are borrowing for a larger item such as a car or furniture, look at how the monthly payments fit into your budget.

A good guideline to remember is that non-mortgage debt payments should be no more than 10-15% of your regular take-home pay each month. A higher percentage can be an indication of trouble on the horizon.

Finally, consolidation loans are useful under certain conditions – but only if the original sources of credit which are being consolidated are closed. A consolidation loan which pays off credit card balances but does not close the credit card accounts is a ticking time bomb, because now the capacity to incur debt is greater than ever.

You can rebuild your credit history; CDMP will help you on that process.

What is the credit reporting and how does it affect me?

A credit bureau is an information service, where companies that provide credit share their experiences with the borrowers. When you apply for credit, the lender will want to know the risk that you do not pay your loan. Thay get your “credit report” from the credit bureau, and so estimate the risk according to your credit history. To obtain a large loan, you need a good credit history.

There are two major Canadian credit bureaus, Equifax and Trans Union.

About once a month, all the major banks of Canada (banks, credit card companies, finance companies) send a report on its borrowers to credit bureaus. In addition, the Federal Superintendent of Bankruptcy sends a list of everyone who submitted a proposal for settlement for credit and bankruptcy to the credit bureaus as well as a list of all those who have been discharged.

The credit bureaus collect this information, a summary of it, and sell it to its members, the financial institutions.

Credit bureaus maintain a database of accurate history of the loans, however, the data at some point can not be perfect because this information is uploaded by humans and they make mistakes. If your credit report contains an error, you may be get refused a loan that you are processing.

For this reason, it is important that you seek correction of any errors on your personal credit report, and you have the right to obtain a free copy once a year. It is also important to do everything possible to ensure that your credit report shows a history of reliable credit payments, and with few incidents of adverse payment as possible.

How long will a bankruptcy or a consumer proposal remains on my credit report?

  • A consumer proposal for three years after your last payment.
  • A declaration of bankruptcy for six years from the date you are discharged.
  • A second bankruptcy for 14 years from the date you are discharged.
CDMP is a counselling company that offers a range of services for people with financial difficulties. One of the most common services is to help you find the best strategy to pay your debts through a program called debt management. CDMP can also provide an individual or group counselling on topics such as:

  • How to do the budget and to stick to it.
  • Using credit wisely.
  • How to improve your credit report and credit score.

You may have to pay fees to a credit counselling agency for their services. The cost varies from one entity to another. Before using these services, you should ask some questions to make sure you know the costs to pay and the services you will receive.

Provincial and territorial governments are responsible for regulating the credit counselling companies and investigate consumer complaints.

Tips to consider

If you are thinking of getting help from a credit counselling company is important to implement the following tips:

Comfort level with the credit counsellor:

Make sure the person you’re working with builds confidence and takes into account your concerns. If you feel uncomfortable with the counsellor, try to clarify those disagreements before continuing with the advice, a counsel in your first language often helps to break the barriers of trust and communication.

Documents easy to understand:

A management plan should clearly indicate how much debt you’re paying in fees, when you are going to process payments, what your responsibilities are and what you can expect from the company.

*Please Note

Ask your counsellor what could happen if your financial circumstances change and can no longer make the payments, or if on the contrary, that you will be able to pay off your debt faster.

Read all documents carefully before signing them and ask questions if you do not understand any of the terms and conditions. Make sure you have your own copy of the contract for your records.

If you have no credit history, or if you have a poor credit history, you might find it difficult to obtain credit. There are things that you can do, however, to improve your odds of being able to borrow money:

  • Ensure that you are current with any existing financial obligations, such as rent, mortgage, utilities, lease payments, or debts.
  • Ask your landlord or utility companies for a letter indicating your good payment history; typically these monthly bills do not get reported to the credit bureau unless they are in arrears.
  • Maintain a balance in your bank account, and be careful not to bounce cheques.
  • Talk to your financial institution about your situation; if you have been a good customer for some time, they might be willing to give you a credit card or a small loan.
  • Some financial institutions offer “secured credit cards”, whereby you place a sum of money on deposit with the lender, and they issue you a credit card with a credit limit equal to or slightly less than what you have on deposit. The money you place on deposit is frozen, and used by the card issuer to cover the balance if you default on payments.
  • Consider an RRSP loan, which will also serve to reduce your income tax payable.
  • If you are a student, you can apply for a credit card through one of the various student credit application kits available on campus.
  • Ask if a family member is willing to co-sign for a loan; if you use the funds to invest outside an RRSP, the interest you pay might be tax-deductible.

Keep in mind that a credit rating forms only part of the scoring process used to determine whether or not you qualify for the credit you have applied for. You might be able to influence the score through some factors, while others are mostly beyond your control:

  • Age
  • Gender
  • Marital status
  • Annual income
  • Length of time at current or previous jobs
  • Length of time at current and previous addresses
  • Property owner vs. tenant
  • Other existing debt payments
  • Security offered for debt
  • Amount requested
  • Repayment period

If you do have a bad credit rating, beware the companies that offer to “fix” it for you, for a sum of several hundred dollars. The Credit Reporting Act in Ontario specifies how long items must remain on your credit report (usually seven years), and a credit bureau will not remove legitimate information before the appropriate time.

The bottom line is that “credit repair clinics” can do nothing for you for several hundred dollars that you cannot do for yourself for no cost.

WE CAN HELP

If your debt problems seem insurmountable – we can help. At CDMP, our Certified Credit Counsellors have the experience and knowledge to help you get out of debt. During your consultation, we will help you understand what your current financial situation is, how best to fix it, and how to move on to a better life. Call us today for a confidential and free initial consultation – 1.800.379.4249!