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By: Laurie Blake  09-12-2011
Keywords: bankruptcy, Credit Rating, debts

Services « Laurie Blake .com

STUDENT LOANS

If your student loan is over 7 years, it will be cleared in bankruptcy. Upon filing of bankruptcy or making a proposal the student loan collectors will not be able to demand repayment as long as you are in bankruptcy but the interest continues to accumulate. We understand that if you were bankrupt and a student loan was not affected that you will be eligible for future student loans however; plans are to change this so a credit rating will be used to determine eligibility.

SECURED CREDITORS

Bankruptcy and Consumer Proposals do not deal with secured debts unless you give up the security (these are debts where a creditor has a lien or a charge on something like a car or house). Some finance companies secure their loans through “chattel” or “collateral” on various things you own. It is common for a finance company to take out security on your furniture and other items. As long as you are paying these finance companies regularly, they will allow you to keep the assets. If you do not wish to keep these assets, or cannot afford them, arrangement must be made with the Trustee to surrender them at time of bankruptcy filing. Bankruptcy will take care of secured debts if you turn the asset over to the trustee at the time of bankruptcy. The secured creditor then files the proper paperwork with the trustee and the trustee releases the item to them. Fortunately, almost all creditors will allow you to continue with secured loans as long as your payments are current.

A secured asset such as a vehicle or a property (real estate) is never a part of the bankruptcy proceeding unless you cannot afford to keep them. These assets belong to the lenders. Trustee will make a note of these assets in your bankruptcy application, and it is up to the secured creditors whether they will allow you to keep the assets. Neither the Trustee nor the Court interferes in this matter. If you intend to keep the house for instance, trustee has to determine the net equity in the property; and it is this net equity that he will take from you, and not the house. For example a car or house will be appraised upon a bankruptcy and any equity (the value above the amount of the secured loan or mortgage) must be realized for the creditors of the trustee.

IMMIGRATION

You cannot sponsor someone to come to Canada while you are bankrupt (usually 9 or 24 Months) However, if your financial situation is not good then you probably won’t be able to sponsor someone as you won’t be able to support that person. If you wish to sponsor relatives or are applying for citizenship, you should check with the Federal government to determine whether bankruptcy will impact your plans. Problems arise in this area and trustees are not immigration specialists.

DEBTS NOT ERASED IN BANKRUPTCY

There are certain debts that fall under s. 178 of the Bankruptcy & Insolvency Act. These debts are never cleared in a bankruptcy or proposal. These include any debts arising from court fines (including parking tickets) proven fraud, alimony and support, student loans (as noted above) and some over payments for government programs such as Employment Insurance as well as awards regarding personal injuries.

SURPLUS INCOME

The Federal government has rules on how much take home pay a family can have before you must pay additional funds in the bankruptcy. This amount changes depending on family size. Any amount above the Standards set by the Superintendent of Bankruptcy is called “Surplus Income” and half of this must be paid to the trustee for your creditors for nine months, provided there is no “surplus income payment obligation” (SIPO). If your average income over the initial nine months exceeds the Standards set by the Superintendent of Bankruptcy’s limit for your family then the payment is extended for twenty one months, or thirty-six if you were previously bankrupt. You can ask for mediation to settle any disagreement over the amount or how much longer you will have to pay. If this fails the court will decide the appropriate payment requirement under the Surplus Income. If the bankrupt fails to make the fees, and misses his or her mandatory counseling, he or she does not get an “automatic discharge” and his or her discharge is heard in the Court. Monies not paid under these rules can be collected by a garnishee of the bankrupt’s wages.

SETTLEMENT

A settlement (giving an asset away and not receiving fair market value) shortly before bankruptcy is seen as being unfair to all creditors. Thus, the trustee must review such settlements and demand value of the asset back. If not returned the trustee will either request the court require the asset be given back or turn the pursuit of the payment over to the other creditors.

RESP’S

These have been found to be the property of the contributor and are often found to be an asset that the trustee can pursue for creditors. RESPs are not an “exempt asset”.

EXEMPT ASSETS

Some assets are not available to your creditors in a bankruptcy. In other words, these are things you can normally keep in a bankruptcy. These include a basic vehicle (value of less than $5,650), basic clothing (personal items valued at less than $5,650), basic furniture (furniture valued at $11,300 or less) RRSP except any contributions made within 12 months prior to bankruptcy, tools required to perform your work (up to $11,300) pensions as well as cash value of some life insurance. If you have a lien on exempt assets they still have a right to those goods if they are not paid in full. NOTE: What a bankrupt gets to keep is listed above applies to Ontario. Such exemptions are set by provincial governments and vary by province.

CREDIT RATINGS

Usually when someone is thinking about a Proposal or Bankruptcy, they already have a credit rating problem. A credit rating problem is really a credit history. Creditors share both good and bad payment information amongst themselves. Nobody can fix a credit rating as some advertise. Often a bankruptcy will not make a credit rating worse, but will put an end to the debt and start the clock ticking on the time frame to have your credit history cleaned up. Record of a bankruptcy can be kept on your credit history for a period of seven years in Ontario for a first time bankrupt. Normally we find the average of two years after bankruptcy is when you can expect to be considered for credit again. Most people can re-establish their credit immediately after their discharge from bankruptcy as well. These are decisions of the creditors and will also depend on your income and the stability of your employment.

The information in this article was current at 06 Dec 2011

Keywords: bankruptcy, Credit Rating, debts, Student Loan, Student Loans

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