Posted On: February 19, 2015

Divorce in Canada can be complicated when it comes to debt. Divorce can cause bankruptcy and bankruptcy can cause divorce. Study after study show that financial problems can lead to marital breakdown.

Filing for bankruptcy as you go through a divorce, or after, can make both processes more difficult and stressful.

Not off the Hook

If you are separated or divorced and have joint debt, you’re not let off the hook. Both of you are still liable for the money owed. If one of you files for bankruptcy, the creditors can go to the other ex-spouse and try to collect.

If you are in the process of going through a separation, one way of dealing with this is to have both of you take out new loans to pay off your old debt, so each of you know what you owe and aren’t affected by how your ex-spouse deals with the problem.

Of course, if you can’t get the loan and the two of you are overwhelmed by the debt, then you both may be forced to file for bankruptcy or a consumer proposal.

And Even if You Agree . .  .
Your ex might play nice and stipulate in  the separation agreement that he/she will be responsible for the joint debt. Problem solved? Not necessarily.

This agreement  is not binding on the creditor who gave the money in the first place. Unless the creditor actually signs the agreement, too, the court can’t give you a pass on debt that was jointly signed.

So to get such an agreement written into your separation requires the cooperation of your ex and creditor, as well as help from a lawyer.

Courts Like to Play Nice With Each Other
Family and bankruptcy courts tend to respect each other’s decisions and one won’t usually overrule the other. So if a family court order decrees that you sign over your share of the matrimonial home to your ex, the equity transfer isn’t likely to be attacked in bankruptcy court.

Conversely, if you file for bankruptcy, then your non-exempt assets, such as your equity in the house, are vested with the trustee. It is generally taken off the table and not considered in a divorce.

Trust Your Trustee
If you are dealing with joint debts and only one of you is declaring bankruptcy, it’s best to let the trustee know which ones are held in common. If you aren’t sure, get  a copy of your credit report or check with each of your creditors. If you situation is complicated, the trustee may also refer you to a lawyer to help you sort out the legal aspects.

The point is, when divorce and bankruptcy come together, there are a lot of thorny issues you must address. Come in for a free consultation at Richard Killen & Associates, and we’ll set you on the path to emotional and financial healing.

Posted On: June 22, 2014

The Gail Vaz Oxlade budget calculator can be used to calculate the true cost of debt. Many people do not have a clear idea of what their debt really costs them, whether it is a credit card balance or a student loan.

Financial writer Gail Vaz-Oxlade points out in “How Much is Your Debt Costing You?” that if someone buys a $2,000 TV on credit, with an 18% interest rate, the minimum monthly payment would be about $40. Of that payment, only about $10 would go to the principle and rest would cover the interest. So if you just made minimum payments, the $2,000 TV would cost you $7,000 and would take 30 years to pay off.

To tally up the true costs of your debts, the sites for many financial institutions and credit-counselling agencies have calculators available for free use. All you need to do is to punch in your numbers and weep.

Credit Counselling Canada,  the national association of non-profit credit counselling and government agencies, offers links to a variety of calculators. They include ones designed to help you to get a clear picture of your debt situation,  change your spending patterns for your home budget,  determine repayment strategies for your loans and lines of credit, track your weekly expenses and show you how to reach your savings goal. Its SMART (Specific, Measurable, Attainable, Relevant, Time-Bound) Worksheet can aid you in setting financial goals and putting them in action.

Most banks offer calculators to help you figure the cost of loans before you sign on the dotted line. Typical is TD Canada Trust’s Debt Repayment Calculator. Select your type of debt, the amount of the loan and interest rate, and then you’ll get back the numbers for how much you’ll pay in total, over what period of time. If the numbers for your debts become oppressive, TD also offers a Debt Consolidation Loan Calculator, showing how you can ease your situation by consolidating all your debts into a single loan, with one monthly payment that is probably lower than what you are paying overall now.

Students about to enter university or college, and their parents, should point their browsers to the Government of Canada’s CanLearn Loan Repayment Estimator. Enter your settings and it will help you estimate the monthly payments you’ll need to make to repay your Canada Student Loan or other government student loans. Simply enter the total amount of your loan(s), select the interest rate and grace period options, and decide on the number of monthly payments that you would like to make.  You can also compare repayment options. The trick is to pay off the student loan before you hit retirement age.

Just dial 1-888-545-5365 and we can start talking about how you can improve your financial situation.

If you are in debt and have questions about the Gail Vaz Oxlade budget calculator, we would be happy to help you find a proper solution to your problem.

Posted On: June 18, 2014

“I thought the process was going to be hideous, humiliating and shameful,” Karen recalls of her bankruptcy more than a decade ago. “I was terrified when I went to see Richard Killen. I was in tears as I walked into his office.”

Karen’s story of battling debt is a familiar one. She had decided to make a brave midlife career change from working as a bartender. Finding employment in a Toronto health food store, she made the decision to go back to school to get certified as holistic nutritionist.

In classes for two years and working for close to minimum wage, she had to get student loans to make ends meet. And when this money fell short, she dipped into a line of credit.

“I found myself in about $30,000 of debt,” says Karen. “Things had gotten out of hand. I was scared and didn’t know what to do. But I talked to a friend who had gone through a similar crisis and he suggested I go to see Richard at Richard Killen & Associates.”

Karen was quickly reassured in her first meeting with Richard. “I sat down in the chair and he just made me laugh – in a nice way. He was just very kind to me. He assured me that this kind of thing happens to people and it doesn’t mean that they are bad or that they have to go through a humiliating experience.”

Killen points out that making mistakes simply qualifies all of us for membership in the human race. “We all make mistakes – every day,” he says from his Toronto office. “It’s what we do about them that defines who we are. This is something we forget when we are swamped by the problems.”

Killen then outlined her options, helping Karen to realize that not only could she survive but successfully manage the bankruptcy process. Most importantly, he made her realize that the choices were hers – nobody else’s. “He never left me hanging. If I called he was always available,” she says. “I always knew how I was doing during the nine months of the bankruptcy process.”

Karen was fortunate to able clear away her student loans along with her other debts when she received her bankruptcy discharge. “Student loans are different from regular debts such as credit cards,” explains Killen. “They are not given for normal profit-making reasons. They are meant to help us improve our future life by improving our education, so it’s understandable that they should be given special status under the law. A person has to make a reasonable effort to pay them back. However, sometimes no matter how hard a person tries they just can’t do it. If after seven years a person still can’t pay then the student loans qualify to be treated like any commercial debt. This is what happened with Karen”

Within a year of going bankrupt, Karen hit her new career path with full force. She managed a series of health food stores, worked in an holistic apothecary and had clients on the side for her holistic nutrition counselling.

A couple of years ago, she decided to make another major life change – less a career shift than giving herself space to understand and act upon her priorities, truly achieving that elusive work-life balance. She returned to the support network of friends and family in small-town Nova Scotia. And while she considers her next move, she is doing part-time work and volunteering in the kitchen of a Buddhist centre, practising meditation and finding a measure of serenity in the combination.

“The great thing is,” says Karen, “if I hadn’t gone through the bankruptcy process I wouldn’t be where I am today. It’s given me the space to get on with my life. As hard and distasteful it was to contemplate beforehand, it turned out to be one of the best things I could have done.”

Posted On: June 17, 2014

People looking forward to retirement usually try to retire their debts first, especially their mortgages, so they can enjoy their leisure without financial worries. But a story in the Globe and Mail reveals that more and more Canadians are going into their golden years with a substantial financial burden.

“Pre-retirement Canadians in the their 50s are taking on an alarming amount of debt and are most at risk of bankruptcy,” says April Dunn, owner of the Red Door Mortgage Group in Vancouver, citing  a new study that examined about 7,000 insolvency filings. She reveals in the Globe interview that about half of all retired people in this country are carrying debt, “with many stuck managing two or more payments a month.”

Even so, not all of these people are getting into debt as a desperate measure. Some want to free resources for other uses and believe they have the wherewithal to manage their debt. Others are seeking to take advantage of historically low interest rates, or they are leveraging their property to pass money to their kids, so they can perhaps buy their own homes.

Posted On: June 16, 2014

Getting a student loan can be double-edged sword. Many kids can’t afford a higher education without one. But the downside is that a lot of students either they doctors, engineers or business students are graduating with huge debts that they many find hard and in some cases impossible to pay off.

The problem of student debt in Canada is on the rise. According to a September 2013 Globe and Mail article, accumulated student debt is now more than $15 billion nationally, and perhaps as high as $23 billion, if you take into account credit card debt, lines of credit and provincial loan programs.

The problem is worsening as government levels of funding for post-secondary education decrease and students are left with bearing more of the cost. The Globe article points out that the government share of funding has declined from 84 to 58 per cent, at the same time as tuition fees have jumped 12 to 15 per cent.

What if I simply can’t repay my student loans when the time comes?

Well, let’s hope this doesn’t happen, but if you have no other options bankruptcy may be necessary. The question then arises: “If I have a student loan, will bankruptcy take care of it for me?”

The answer is technical. When a person goes bankrupt, they are applying to the courts to simply “get rid” of their debts. It’s called getting discharged from the bankruptcy and therefore the debts. Whether your discharge would eliminate your student loans along with any other debts you had when you filed depends on time. When did you officially end your career as a full- or part-time student.

If you left school seven or more years before you filed your bankruptcy, then your student loans should be discharged. If you left school less then seven years before filing, they won’t be.

The definition of exactly when you “left school” has been the subject of at least three court cases with different results. The general and safest definition of when you left school is the last day of the month in which your class graduated. When you last physically attended classes doesn’t really matter. Finishing early or dropping out doesn’t change this date. At Richard Killen & Associates, we advise you to be as sure as you can about your school leaving date. You can usually get the correct info from the government by calling 1-888-815-4514, but some people may have to go back to their learning institution to find out.

How would all this apply to a consumer proposal?

Pretty much the same way, except you don’t actually get discharged from your debts when you do a consumer proposal. When you successfully complete your payments in a consumer proposal, you receive what’s called a Certificate of Full Performance to prove to the world that you succeeded in paying off your creditors. Since a consumer proposal captures all your unsecured creditors (and a student loan is an unsecured debt), the successful completion of the consumer proposal payments should get rid of the student loans, too, right? Yes, but only if you had been out of school seven years on the date you filed the proposal.

So what if I am in debt trouble but I haven’t yet been out of school for seven years?

Well, you still have the same legal option under the Bankruptcy and Insolvency Act: a bankruptcy or a proposal/consumer proposal. The difference is that when you get to the end of either one, your discharge or full-performance will not include the student loans. You will still need to pay them back.

But what if I’m still unable to pay the student loans?

If you were under the magic number seven when you filed, but still cannot handle the student loans after your discharge, there is another relief option. You have to wait until you have been out of school five years. Then you can apply to the bankruptcy court for an order to have your student loans covered by your bankruptcy discharge (or certificate of full-performance from the consumer proposal). You would need to hire a lawyer to get this done and it cannot be done before your bankruptcy or consumer proposal are successfully completed.

Pretty convoluted, eh? That’s why we simply say call us. At Richard Killen & Associates we can make it make sense to you in a way that will empower you to make the right decisions.

We also want to add that you can look for some student debt relief by going to the National Student Loans Service website and finding out about the Repayment Assistance Plan. Available on both Canada and Ontario portions of student loans, RAP offers both interest relief and debt reduction, which could include lowering monthly payments and extending you loan repayment period for up to 15 years.

Posted On:

People sometimes ask: “If I go bankrupt will the trustee take all my income?” Well the simple answer is NO. But to understand that answer you need to wade through some layers of legal complexity.

While you go through bankruptcy, the trustee is required to monitor your income to see if maybe some part of it should go to your creditors. Remember, you have stopped making any payments directly to those creditors, so they are not getting anything from you. But, assuming you’re working and have  income, it’s fair to ask whether any portion of your income should go to the creditors.

In the old days this question had to be answered by the court on a case-by-case basis. But since the early 1990s, the courts couldn’t keep up with the rising number of  bankruptcies, so the government decided to let the trustee handle this question. After all, the trustee takes care of practically everything else. However, to ensure that consistency and fairness is maintained across the country, the government gave the trustees a strict formula that enables them to work out a solution that is fair and protects both your rights and your creditors’.

Every year, using the latest cost of living statistics, the federal government sets a “Standard” based on how many people live in a household. (Obviously the more people in the house, the more money these people need to get by.) This standard establishes a threshold. If your family income exceeds the applicable threshold, you are deemed to have “Surplus Income.” If you have a surplus, you may pay half  the amount to a trustee for the benefit of the creditors. The formula is  fair and most people have no problem with it.

Here’s an example:  You’re part of a family of two who has a total combined after-tax income of $2,908. This is exactly $400 more than the standard threshold for a two-person family ($2,508). So the bankruptcy law requires you to pay half of this $400 surplus income, $200, to the trustee for the creditors. The Industry Canada website has all the details.

While this formula is  fair,  it can get complicated, especially since everyone’s situation is different. For instance, you have the right to question and disagree with whatever number the formula comes up with. There is a mediation procedure in place that can help you to work out a compromise.

Since the issue of surplus income may  affect your decision about what course to take to solve your debt problems, you need to know the facts and your options. The best way to do this is have a trustee at Richard Killen & Associates explain them to you. It doesn’t matter how much surplus income you may or may not have, the consultation with us is truly FREE.

Posted On:

No one wants to go bankrupt. It is the last resort when faced with insurmountable financial problems. But even if your payments are in arrears and you are getting collection calls, there are other options besides a bankruptcy, which we at Richard Killen & Associates are glad to explain. These include:

Getting a Consolidation Loan
If you can qualify for a consolidation loan, you can bundle all your debts into a single package and make a  monthly payment that will probably be lower than what you are faced with right now with all the individual payments. You can usually reduce interest and stretch out your repayment period. The trick is qualifying for the loan if your credit rating has taken a beating because of your financial difficulties. To get approved, you may need collateral, or a co-signor or guarantor – not always easy to find.

Making an Informal Arrangement

You can, perhaps, negotiate with creditors to reduce monthly payments. Or you might be able to get them to accept less than the full amount owed, if you have a lump sum payment you can make. In either case, you should use the services of a licensed trustee, lawyer, accountant or reputable credit counselling agency to do this, and beware of the many unscrupulous sorts out there poised to take advantage of your situation. Other pitfalls of this method include: the high degree of difficulty in conducting negotiations; creditors who can still sue you; no protection from garnishees; it doesn’t stop interest accumulation; and it needs to be accepted by all creditors before it can be effective.

Offering a Consumer Proposal
A consumer proposal is a legally binding agreement between you and your unsecured creditors to settle all your unsecured debts. It is filed with the government and managed by a licensed trustee, such as Richard Killen & Associates, under the supervision of the court. You will probably wind up paying back only a portion of what you owe – for instance 10, 20, or 30 per cent – and so get the debt relief you need without going bankrupt.

How this differ from the  two options above? The three main advantages are:

1. You don’t have to negotiate with each creditor separately.
2. You only need a simple majority of the debts to be in favour, not all of them, to get it accepted.
3. The creditors have to listen  to you. If they ignore your offer they will be stuck with it, so you will have their attention.

In other words, you will be negotiating a settlement of all you unsecured debts from a position of more-or-less equality with your creditors. We usually don’t think of ourselves as being in that position with the banks and credit card companies, do we?

A proposal also stops all interest charges, halts lawsuits and garnishees, and does not require direct individual negotiations (the trustee handles this for you).

Everyone’s situation is different. To decide what is the best method of dealing with your debt problems, you need expert advice. At Richard Killen & Associates we offer a free assessment consultation, so you will have a clear picture of what your options are.

Posted On: June 14, 2014

Too often credit cards seem like easy money. Just hand it over to the clerk or type in the card number for your online purchase and, presto!, you have stuff. But you may pay to play. If you don’t take care of  your credit card balance on time, you can get penalized with late fees and bad credit scores.

While most of us know this on some level, it’s worth the reminder.  Canadians continue to fall further and further into debt, with their love of bank loans, car loans, lines of credit and credit cards leading the way. Last month the average Canadian consumer’s total debt rose $225 to $27,355 according to the latest analysis of credit trends by TransUnion.

So here’s five things you should know about the plastic plunderer in your pocket:

1. Don’t Live Without Grace: When buying with a credit card you are basically taking out a loan, which means paying interest. Usually the interest is waived if you pay within a “grace” period. Check to see whether your card’s grace period is 30 days, 20 days or one of the lovely “specialty” cards that has no grace period at all.
2. Minimum Payments Maximum Pain: What’s wrong with just paying the minimum balance cited on your credit card invoice? If you were to figure out how much time and money, in the form of interest payments, you would spend to pay off a balance with minimum payments, you would be staggered.
3. Never Be Late: Not only does missing the deadline for a credit card payment carry a financial penalty, it may bump up your interest rate and damage your credit rating. Ouch!
4. Dangers of Juggling: You might be tempted to transfer your balance to a credit card with a lower interest rate. This could be OK if  you pay off the balance during the period the low rate is offered. If not, check the fine print, because you may wind up paying  a higher rate than before.
5. Doesn’t Advance Your Cause: Doing cash advances with a credit card at an ATM is not a good idea. Not only are you charged a high interest rate there is no grace period. As soon as the money leaves machine, the credit clock is ticking.

Posted On:

The fear is eating away your stomach lining. You can’t sleep. You can’t concentrate. You feel like a failure in the eyes of the world.

The envelopes of the unopened bills have changed to new ominous colours. The days you could juggle minimum payments between credit cards is coming to an end as you reach your limits. You stop answering the phone calls for fear of bill collectors . . . and then the phone stops working altogether.

Many people come to Toronto Licensed Insolvency Trustees gripped by the worst fear of their lives. They are looking at the end of their world, and who could be complacent in the face of that?

When people arrive at one of our offices for the first time, turning the handle of the front door feels as hard as moving a boulder. What our trustees try to convey at this meeting is that their visitors are not the first to have faced this situation. And while things might be dire, we are no longer a society that sends people to debtor prison. You can take concrete steps to deal with the crisis and begin the trip back to solvency and self-respect.

Of course, not all severe debt problems need to be dealt with by bankruptcy. But let’s assume you must face the worst. Does it mean that your world is over? No, absolutely not. While we cannot wave a magic wand and make everything go away, we can help you manage the process so that the road to recovery is seen clearly and followed sooner.

People ask if they will lose everything they have. No. Contrary to popular belief, you don’t lose all your assets when you go bankrupt. While there might be some things you have to give up, you will probably get to keep your furniture, personal effects, car and business tools.

What will stop the lawsuits and wage garnishees? some ask. A bankruptcy immediately stops anyone from suing or garnisheeing you, even the CRA. Only Family Responsibility Office Garnishees aren’t stopped.

Will my spouse and their property be affected by my bankruptcy? Probably not, except perhaps indirectly.

The above only touches on some of the issues a first free assessment covers. To get a full appraisal you need to come in and move the boulder on our front door. We guarantee that the knob will be a lot easier to turn on the way out.