What is personal bankruptcy in Canada?

What does it mean to be bankrupt in Canada?
The concept behind bankruptcy in Canada is this: you assign (surrender) everything you own to a trustee in bankruptcy in exchange for the elimination of your debts. Through bankruptcy, a person hopelessly burdened with debt gets a chance to start fresh. For a first time bankruptcy, this process is fairly easy to go through. For a repeat bankruptcy, the process is much more difficult to go through.

Personal bankruptcy is a legal process that is governed by federal law – the Bankruptcy & Insolvency Act. This law is designed to permit an honest but unfortunate debtor to obtain relief from his or her debts while treating creditors equally and fairly.

To go into bankruptcy in Canada, a person must live or do business in Canada, and must be insolvent. To be insolvent means:

1. To owe at least $1,000.
2. Not to be able to meet your debts as they are due to be paid.

Bankruptcy trustees are federally licensed and their fees are regulated and moderate, so the cost of bankruptcy is reasonable. Because bankruptcy is a legal process, there is a “stay of proceedings” that prevents a garnishment or any legal action from happening, and stops your creditors from calling.

You may be entitled to an automatic discharge from bankruptcy in 9 months, the minimum time set by the Court to be bankrupt, provided you have never been bankrupt before and you complete various duties and responsibilities as outlined through your trustee.

Your ability to obtain credit in the future could be affected, since bankruptcy will remain on your credit report for up to seven years. Continue reading What is personal bankruptcy in Canada?

October 24th, 2009 | Tags: , , , , , | Category: Bankruptcy | One comment

How Credit Scores Work… Part I

We apply for credit for many reasons — maybe it’s to buy a new car, house, computer, or get a student loan. Did you know, however, that there is a special number that can determine whether you can do these things, or at least how much it will cost you? Your credit score is a three-digit number that can do just that.

How can a single number be meaningful enough to determine whether you can buy a house or car? If you’ve read How Credit Reports Work, you know that your credit report contains a history of how you’ve paid your bills, how much open credit you have, and anything else that would affect your creditworthiness. Your credit score boils down all of that information into a three-digit number.

In this article, we’ll find out how this formerly secret number is used and how it affects how much you pay for credit, insurance and other life necessities.

A credit score is a number that is calculated based on your credit history to give lenders a simpler “lend/don’t lend” answer for people who are applying for credit or loans. This number helps the lender identify the level of risk they may be taking if they lend to someone. While the same end result can come through reviewing the actual credit report (which lenders usually do), the credit score is quicker and less subjective. The system awards points based on information in the credit report, and the resulting score is compared to that of other consumers with similar profiles. With this information, lenders can predict how likely someone is to repay a loan and make payments on time. It’s the credit score that makes it possible to get instant credit at places like electronics stores and department stores.

Although there are several scoring methods, the score most commonly used by lenders is known as a FICO because of its origins with Fair Isaac and Company. Fair Isaac is an independent company that came up with the scoring method and software used by banks and lenders, insurers and other businesses. Each of the three major credit bureaus (Experian, Equifax and TransUnion) worked with Fair Isaac in the early 1980′s to come up with the scoring method.

The three national credit bureaus each have their own version of the FICO score with their own names. Equifax has the Beacon system, TransUnion has the Empirica system, and Experian has the Experian/Fair Isaac system. Each is based on the original Fair Isaac FICO scoring method and produces equivalent numerical results for any given credit report. Some lenders also have their own scoring methods. Other scoring methods may include information such as your income or how long you’ve been at the same job.

September 26th, 2007 | Category: Credit Bureau, Credit Report | Leave a comment

How to dig yourself out of debt

It’s really quite elementary if one really stops to think about it. The main secret to paying off credit-card debt is really very simple: All you need to do is earn more than you spend and then apply the savings toward paying down your debt.

So then what makes tackling credit-card debt so hard? Sadly, many seem to be losing the battle of the credit-card balance. Consider that 57% of all credit-card holders carry a balance, according to CardWeb, an industry tracker. And among families that have at least one credit card, the average balance is a staggering $9,313. Ten years ago it was $4,301.

“People are out of control,” says Howard Strong, a consumer attorney and author of “What Every Credit-Card User Needs to Know.” “They’re out buying love at the malls.” And they aren’t succeeding. According to a recent survey of 1,500 consumers by Consolidated Credit Counseling Services, a whopping 71% said debt is making their home life unhappy.

Part of the problem is that the credit-card companies have made it easier than ever to carry a balance. “People are addicted to minimum-payment crack,” says Steve Rhode, co-founder of Myvesta, a debt-counseling service. (Click here for other costly credit-card tricks.) But many fiscally responsible people can also find themselves woefully in debt after some sort of personal crisis, such as a divorce, illness or the loss of a job.

So what are the warning signs that your credit-card debt has changed from nuisance to crisis? For starters, if you think that you might be having a problem, then you probably are, says Rhode. Generally speaking, your debt-to-income ratio (not including mortgage payments) shouldn’t exceed 20%, which means that you shouldn’t be devoting more than 20% of your net monthly income to paying off credit cards and other nonmortgage debt. Other signs of trouble, according to Gerri Detweiler, author of “Slash Your Debt,” include:

· Only being able to make the minimum payments on your debt.
· Maxing out several or all of your credit cards.
· Frequently charging items with the intention of paying them off at the end of the month, but then finding that you’re financially unable to do so.
· Using credit cards for everyday purchases like groceries.
· Using credit cards to pay for things you know you can’t afford.
· Worrying that people close to you will find out just how deep in debt you really are.

If the creditors are calling or if your credit report is already suffering due to late payments or bills that you’ve been unable to pay at all, then you probably should consider visiting a credit counselor. But if your credit rating remains intact and you’re feeling disciplined, you should be able to dig yourself out of this hole on your own.

Here’s a little advice:

The first thing you need to do is figure out just where you stand financially. This means knowing how much you owe (and how much you’re paying for it) as well as how much you’ve saved. In other words, you need to know both your net worth and your cash flow. Ultimately, you’re going to have to come up with the ever-dreaded budget, so you can know just how much you have to spend and how much you can use to pay down your debt each month. Based on your answers, our calculator will give you a reasonable estimate of when you can kiss that debt goodbye — and how much it will cost you before you do.

September 11th, 2007 | Category: Debt Management | Leave a comment
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