Tag: car loan

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CAN YOU FILE BANKRUPTCY AND KEEP YOUR HOME AND CAR? [2019 CAR EDITION]

Can you file bankruptcy and keep your home and car? Introduction

We are often asked the question, can you file bankruptcy and keep your home and car? In my last Brandon’s Blog, I described the circumstances to answer the question can you keep your house if you file bankruptcy in Canada. Here is the link to the blog, IF I FILE FOR BANKRUPTCY ONTARIO WILL I LOSE MY HOME? [2019 EDITION]. In this blog, I will tell you what happens to your automobile when you file bankruptcy.

Can you file bankruptcy and keep your home and car? Do they take your car if you file bankruptcy?

Can I keep my car if I file bankruptcy in Ontario is also a common question. The answer is if you need to or want to and can afford to, then yes. Let me explain. The most common range of situations involving a person filing for bankruptcy and their car are:

If the wheels are owned by an employer, then there is no issue. If you file for bankruptcy, the employment continues and access to the company automobile also does.

If the auto is owned by your spouse, then it is not your asset and is not directly impacted by your bankruptcy. In the case of a leased automobile, the vehicle is owned by the lessor, not you. So again, a leased car is not directly impacted by your bankruptcy.

However, if the car is leased, do you really need that specific car? Can you keep up with your lease payments? If you fall behind in payments, the lessor can retrieve its vehicle, bankruptcy or no bankruptcy.

In the case of where your car is financed, whether it is owned by you or your spouse, the same question remains. Can you afford to keep up the payments as part of the household budget? Do you need that specific vehicle?

Can you file bankruptcy and keep your home and car? Can you file bankruptcy on car loans?

This may seem like an odd question, but in a way of speaking, the answer is yes. The same is true if the car is leased by you.

If you have decided that you can no longer afford the financing or lease payments and you don’t need that specific vehicle, it is possible to return the car to the lessor or lender and have the fallout from that termination count in the debts caught in the bankruptcy proceedings. That is what I call filing bankruptcy on car loans. However, to do so, you must follow certain steps very carefully.

What I always advise people who cannot afford to keep the car payments and are going to lose it anyway, is to return the car BEFORE they file either a consumer proposal or for bankruptcy. Then you must wait to receive notice of default from the lessor or lender and that they are accelerating their claim for the breach of the lease or the shortfall from the sale of the vehicle.

The reason you have to wait is if you file a consumer proposal or for bankruptcy before they make this demand on you, they could take the position that their debt crystallized after you filed. The last thing you want is for their debt to be a post-filing claim. A post-filing claim is payable in full by you. So with some planning and patience, it can be a pre-filing claim, caught in your consumer proposal or bankruptcy.

If your spouse has guaranteed payment of the car lease or car loan, then this strategy may not be the best for you. The lessor or lender, in this case, would have the right to demand full payment from the guarantor. So, you may not have accomplished anything by doing this.

If you choose to do this, but you do require a car, then you, your spouse, a good friend or your employer will have to arrange for a new auto for you that your family budget shows you can afford to pay for. As you can see, the decision is not a simple one. You must very carefully analyze this situation before taking any action.

Will I lose my car if I declare bankruptcy if I want to keep the car I own?

Not automatically. In bankruptcy, like with your home, the Trustee is not entitled to the car. What the Trustee is really entitled to is the equity in the auto. The Trustee would rather receive cash representing the car’s equity, and not taking possession of your car.

Think about it. By taking possession the Trustee has to store and insure the car and then sell the used car. It is much easier for a Trustee to just accept cash; either a one-time payment or in regular monthly installments.

The equity in a car is calculated as follows:

  1. Find the car’s current market or black book value. The price you paid for the car is not the current value of the auto. A Trustee always runs a black book desktop appraisal of a car and can tell you what that number is.
  2. If you have a car loan and the lender registered security against the auto, you have to deduct the current amount outstanding on that loan. If you don’t have any such financing, then you would not deduct anything. After performing this part of the calculation, move on to step 3 below.
  3. In Ontario, under the regulations to the Ontario Execution Act, RSO 1990, c. E.24, a person is entitled to an exemption of $6,600 for one vehicle. So you need to deduct $6,600 from the amount you arrived at in your calculation in number 2 above. If you end up with a negative number, there is no equity. If you get a positive number, that is the equity you have in the car.

As I mentioned before, the Trustee would rather make arrangements with you to get that value in cash during your bankruptcy administration, rather than taking possession of your auto. Don’t get me wrong. If you have a high-end valuable car, or you can’t come up with the cash over time to pay the Trustee your equity, the Trustee will have no hesitation to take possession of your car. It just isn’t the Trustee’s first choice to do so.

So I hope that by now you understand why I say the answer to the question, will I lose my car if I declare bankruptcy, is if you need to or want to and can afford to, then yes!

What Will filing for bankruptcy do?

As I have written many times in earlier Brandon’s Blog articles, bankruptcy should be the last choice. Bankruptcy will allow the honest but unfortunate person to get financial rehabilitation. It will allow that insolvent person to reenter society as a person free from their debts.

Do you have way too much debt? Are you having trouble making your month-to-month expenses? Is your business having a difficult time managing its financial challenges that you simply can not figure the escape of?

Call the Ira Smith Team today so you can end your stress and anxiety that your monetary troubles have caused. With the unique roadmap, we establish special for you, we will immediately return you right into a healthy and balanced trouble-free life.

If so, call the Ira Smith Team today. We have years and generations of experience helping people and companies searching for financial restructuring or a debt settlement strategy. As a licensed insolvency trustee, we are the only specialists acknowledged, certified and supervised by the federal government to offer insolvency advice and options to assist you to avoid bankruptcy.

You can have a no-cost assessment now to assist you so we can fix your debt troubles. Call the Ira Smith Team today. This will most definitely allow you to get back to Starting Over Starting Now.

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BANKRUPTCY IN ONTARIO CANADA & CONSUMER PROPOSAL ONTARIO

Bankruptcy in Ontario Canada: Introduction

Bankruptcy is sometimes necessary for the financially troubled individual or company. In Canada in 2017, there were 125,807 insolvency filings; 60,669 bankruptcies and 65,138 proposals. Bankruptcy in Ontario Canada accounted for 15,968 of the 2017 filings. The majority of these across Canada filings were people, not companies.

Bankruptcy in Ontario Canada: Not entirely unexpected

This is an expected statistic once you understand the purpose of the Canadian insolvency system to get rid of financial obligations. It is also for the financial rehabilitation of people and companies and if possible, allow them to do so while retaining their assets.

In a down economic climate, even more, debtors use bankruptcy to protect their wide range of interests. Although on a per capita basis Canadians are savers, more recently, especially related to real estate, we are a country of borrowers. A lot of people are overloaded with debt, including credit card debt.

Bankruptcy in Ontario Canada: Bankruptcy is not always right

Any debtor with severe monetary troubles must think about bankruptcy. Bankruptcy isn’t always the right response though. In my practice, we first run through the various options available to avoid bankruptcy.

It is proper only when you have too many financial obligations that you cannot realistically repay, in whole or in part, from your future earnings or from selling your assets. This is the meaning of the financial state of insolvency.

If you make $100,000 a year and your financial obligations are only $20,000 (assuming you have no assets), why go bankrupt? Temporary financial sacrifice on your part could pay off your debts in full. This is definitely more suitable for bankruptcy.

What about a proposal?

Although each case is unique, generally speaking, if your unsecured financial debts are less than 60 percent of your net yearly pay, stay clear of bankruptcy. You could use a self-help remedy to pay off your debts in full. Alternatively, you could look to the proposal or consumer proposal mechanisms under the Bankruptcy and Insolvency Act (Canada).

Under the proposal provisions of the BIA, a person or company could take up to 5 years to pay off part of the debt. A successful proposal forgives the balance of your debt (subject to certain ones indicated below). Many creditors will wait if you show good faith and make organized repayments that provide your creditors with a better result.

A filing may protect some assets

A bankruptcy or proposal filing may also be necessary to secure your assets; this is especially true for companies looking to restructure. In a BIA filing, all civil actions against you instantly stop— whether they are legal actions, CRA garnishments or secured creditor seizure and enforcement (the last under specific conditions). Every creditor must obey the automatic stay of proceedings imposed by the BIA. A proposal filing gives you the possibility to solve your economic issues with lenders who would certainly otherwise seize and sell your assets.

Timing is everything

I advise every person and company in need of restructuring that timing is crucial. It is human nature for debtors to regularly wait far too long. By waiting too long, they shed possible advantages from an earlier restructuring filing. The longer a person or company waits, the fewer options they have. Also, if you wait too long, the less creative I can be to protect your assets.

5 general tips

  1. Collect your tax refunds prior to your filing. When you file for bankruptcy, any tax refund owing to you prior to the date of bankruptcy belong to your bankruptcy estate. Your licensed insolvency trustee (Trustee) collects the payments.
  2. The insolvency process is meant to treat all creditors fairly and all ordinary unsecured creditors equally. Seek the advice of a Trustee prior to making payments to specific unsecured creditors prior to filing. Your good intentions may prove to have created transactions that the Trustee can attack. The Trustee will then seek recovery from those parties.
  3. Consider how the causes of your insolvency will look to your creditors. Uncontrolled lifestyle spending looks a lot different from ongoing costs due to a mental or physical illness or an addiction. The causes of your insolvency sometimes dictate whether a proposal or bankruptcy filing is preferable.
  4. Have you contributed to an RRSP in the 12 months before filing for bankruptcy? That amount will have to be paid over to your Trustee under bankruptcy or accounted for in what type of proposal can be successful.
  5. If you have student loans, was the last time you were either a full or part-time student more than 7 years prior to your filing? If no, you won’t be able to end the student loan debt. However, it may be enough to relieve yourself of your other unsecured debts to have enough funds every month to start repaying the student loans.

Some debts can’t be discharged

Bankruptcy will not end every debt. There are certain debts that cannot be discharged through bankruptcy. Examples are:

  • student loans as described above
  • child support and alimony under either a court order or written separation agreement
  • fines or restitution ordered by a Court
  • debts arising out of fraud, embezzlement or misappropriation while acting in a fiduciary capacity
  • amounts owing to secured creditors registered against your assets, such as a mortgage or car loan. Any amount still owing after the asset is sold, if any, is an unsecured claim which is discharged in a bankruptcy

Bankruptcy must be your last option

Bankruptcy could be your ideal choice if the amount of your debt and the amount you can realistically repay will not settle it. If you have few possessions to lose in bankruptcy, then a bankruptcy filing may be your best choice. By meeting with a Trustee early to discuss your options, you will get a good understanding of what may be possible.

I always advise every person or company never file for bankruptcy without first striving to solve a case without bankruptcy. Bankruptcy must be your last option, not your very first – avoid bankruptcy if you can.

Think about all readily available options prior to determining that bankruptcy is genuinely the best decision for you and your situation. If you find you are in too deep and can’t dig out fast enough, then you do need professional help.

Seek the advice of a professional trustee

Many people and companies facing serious financial issues don’t know where to go for professional help or are too embarrassed. There’s no shame in seeking professional, financial help. Licensed insolvency trustees evaluate your situation and help you to arrive at the best possible solution for your problems.

Ira Smith Trustee & Receiver Inc. is here to help. We’re federally regulated and subject to a strict code of ethics. We offer a depth of expertise and provide a high quality and cost-effective service. I understand your pain and we can end it. You will find that we use a friendly, non-judgmental method.

Give us a call today and let us help you solve your financial problems Starting Over, Starting Now.bankruptcy in ontario canada

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DIMINISHED CAR VALUE CLAIM: ARE CAR AND TRUCK DEALERSHIPS FORCING YOU TO CAR LOAN DEBT CONSOLIDATION BECAUSE OF DIMINISHED CAR VALUE

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Diminished car value claim: Introduction

You need to know just how car and truck manufacturers and dealerships have achieved higher sales in Canada. By forcing a diminished car value claim on you. Everything starts with pitches like this: 112 bi-weekly at 0%, reduced payments extended over a longer time period. Over half of brand-new vehicle loans are for 7 years or longer. This is a huge change from exactly what was the standard for perhaps 5 years.

Diminished car value claim: What is the best term for a car loan?

The very best time period for an auto loan, on average, is no greater than 5 years. If you are the type of person that hangs on to your car for a very long time, then you could also opt for a 7 or 8 year loan. Regardless of your choice, the key is that you have to hang on to your car for at least the length of the loan.

Letting go of your car earlier than when the loan is fully paid off, either through a forced sale, accident write-off or trade-in for a new set of wheels, will cause you to suffer the dangers of negative equity. This will produce a diminished car value claim. Continue reading below as I make the case.

Diminished car value claim: “Oh I could manage that vehicle payment”

Canadians have purchased much more pricey cars and trucks as a result of those reduced monthly payments. The typical customer sees that they believe “Oh I could manage that vehicle payment, I could handle that no worry”. For the vehicle manufacturers and dealers, it is simply an extra means of bringing customers right into the car dealership. They are marketing them something that they actually cannot pay for. It doesn’t take much to produce a diminished car value claim.

Diminished car value claim: A recipe for problems

Seven year financing, “that to me is short-sighted just a recipe for problems” says John Carmichael, Chief Executive Officer of the Ontario Motor Vehicle Industry Council (OMVIC). Salesmen ought to be discussing all the financing choices and the dangers of the financing choices and negative equity. Customers need a lot more information about a diminished car value claim. Thus people can easily get involved in a treadmill of debt.

Diminished car value claim: There is so much negative equity in a car being financed

Let me show you an example of how a diminished car value claim works. Here is a negative equity comparison on a $31,300 car with a 4% interest rate.

Source: Government of Canada, Financial Consumer Agency of Canada

diminished car value
diminished car value claim

This chart highlights 2 vital factors:

  1. With five-year financing, you would not start gathering “favourable or positive equity,” until completion of the 4th year. By comparison, with an eight-year term, you would stay in an adverse or negative equity circumstance up till the 7th year of your financing.
  2. Negative equity has the tendency to be greater in the first 2 years of an auto loan. This is since automobiles drop rapidly in the very first year of use. Thus, a bigger section of each of your payments goes to interest in the very first couple of years.

You can find a diminished car value calculator website online. You can calculate how much negative equity you have in your vehicle for free online.

Diminished car value claim: The economic dangers of negative equity

If something unforeseen occurs and you should have to offer your auto for quick sale, you will probably lose on the loan. What you will be able to sell the car for will be less than what you owe on it. If this were to happen, you would need to have to put your hands on cash to cover your loss, i.e. the difference between the sale price and what you still owe on it.

If you are in an accident and your insurance company tells you that your car is a write-off, the cash you get from the insurer won’t cover what you still owe on your vehicle loan unless you have added insurance policy protection. Then if your insurer decides the current value of your auto is $10,000 however you still owe $16,000 on your financing, you will be required to cover the $6,000 shortage.

If your car is worth less than the amount you owe on your vehicle loan and you trade-in your vehicle at a car dealership to purchase another, you could wind up paying a great deal of extra money. You would spend for the brand-new car and have to cover the amount still owing on the old loan.

All these examples show how you could be forced to part with your car before you planned to. You will be taking on more debt because your vehicle was worth less than the amount of the loan against it. This would amount to a bigger financing and even more interest costs.

This will then snowball to produce a larger negative equity on your new vehicle because you are starting with a loan equal to more than your new car is worth. That is if you can find someone who would even lend on that basis to you. Certainly they would need more than just the new car as collateral.

Diminished car value claim: What to do if you have debt problems

Do you have debt problems, negative equity in your vehicle and zero or not enough equity in your other assets? If so, you need professional help and you need it now. More debt isn’t an answer for you. Don’t seek out a car loan debt consolidation lender.

Contact the Ira Smith Team. We can help you get out of your debt problems. We will put you back on track for debt and stress free living Starting Over, Starting Now. Book an appointment for a free, no obligation consultation today and take the first step to ending the cycle of debt.

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diminished car value claim
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STUDENT LOAN DEBT, DOES IT AFFECT THE ECONOMY?

STUDENT LOAN DEBT, DOES IT AFFECT THE ECONOMY?Student loan debt is not just a problem for students and their families to deal with. It’s a serious problem that has invaded all facets of our society and has significantly impacted our economy. According to the Canadian Federation of Students:

  • The average student loan debt is $27,000
  • Between 2012 and 2013 more than 400,000 students borrowed money to help pay for more schooling
  • The CSLP (Canada Student Loans Program) expected to lend approximately $2.46 billion during the 2013-14 academic year

Statistics Canada’s Survey of Financial Security reports that student debt grew 44.1% from 1999 to 2012, or 24.4% between 2005 and 2012. And, one in eight Canadian families is carrying student debt. The average student is having a great deal of difficulty paying off their student loans and according to the Canada Student Loans Program, most students take nearly 10 years to pay off their loans – with some taking the maximum 14.5 years. In September 2010 the amount of student loans owed to the Government of Canada was more than $15 billion dollars, which is greater than the debt of some provinces. The federal government has written off another $231 million in unpaid student loans this year from more than 44,000 cases, after exhausting all avenues attempting to collect.

A study last year from TD Bank found that students are increasingly delaying major life milestones due to the rising costs of education. How can someone who is still paying off student loans assume a mortgage or car loan? Students are shackled by their student loan debt and there is no relief. Student loans can only be discharged by bankruptcy if you have been out of school entirely (full time or part time) for 7 years or more. Student loan debt has significantly impacted our economy because university graduates lack the disposable income to create a buoyant housing market, brisk car sales and restricts the purchase of high ticket items which all fuel the economy. The CSLP does not have a program for student loan debt forgiveness or student loan debt relief.

If you’re facing financial crisis or bankruptcy, you need a plan for Starting Over, Starting Now. Ira Smith Trustee & Receiver Inc. can solve your problems with immediate action and the right plan. Contact us today.

Call a Trustee Now!