Debt-Free Forever Gail Vaz-Oxlade (best ereader for epub TXT) 📖

you are determined to co-sign, make sure you’re prepared to assume the payments should that be necessary. If you can’t afford to take on those payments, don’t co-sign.

STEP 5: LEARN WHAT ASSETS YOU MAY KEEP

Some assets are protected from liquidation as part of the bankruptcy settlement. These vary from one region to another, so your trustee is the best person to ask about what won’t be touched. For example, RRSPs and RRIFs are exempt from seizure except for the contributions made in the year prior to bankruptcy.

STEP 6: FIGURE OUT HOW MUCH YOU’LL HAVE TO LIVE ON

While your trustee will take you through the steps to see how much you will have to live on and how much you must repay each month, it’s good to have an idea before you start down this road. If you find you’re better off on the bankruptcy budget, that’s a big clue that bankruptcy is actually a good idea for your situation.

Under the bankruptcy system, the more you earn, the more you have to pay toward your debts. Limits are set for what an individual or family is allowed to keep. The more people in your family, the more of your income you are allowed to keep.

In 2008, individuals could keep the first $1,836 that they earned net each month and then had to pay half of everything above that toward their debts.

Families of two could keep the first $2,286 and pay half of everything above that.

Families of three could keep the first $2,811.

Families of four could keep the first $3,413.

Families of five could keep the first $3,870.

Families of six could keep the first $4,365.

Families of seven or more could keep the first $4,860.

Let’s look at an example to see how this works. If you and your partner had two kids (so you’re a family of four) and earned $5,600 a month net of tax between you in 2008, you could keep the first $3,413 toward your living expenses. You’d have to pay half the difference (50% of $5,600 – $3,413), or $1,093.50 toward your debt. So you would have been left with a total of $4,506.50 a month to live on.

STEP 7: LIVE THROUGH THE BANKRUPTCY

This is the tough part. So much is going to have to change. You’re going to have to learn how to manage your money if you don’t want to be back in this mess. And you’re going to have to deal with the stigma of the bankruptcy, and the black mark on your credit history.

Here’s what you won’t have to deal with: creditors calling you and trying to get blood from a stone. Once you file for bankruptcy, all the calls stop. You deal only with your trustee, and as long as you follow the rules, you can look forward to far less stress in your life.

The number-one question I get when I talk about bankruptcy is, “Will I lose my home?” Well, that depends on whether you’ve kept up to date with your payments and your taxes, how much equity you’ve built up, and whether you can carry the property.

If you haven’t kept up to date with your payments, your lender will likely call your mortgage as soon as you declare bankruptcy. If you have, the lender may have faith in your ability to continue making your payments on time, and cut you some slack.

If you have equity built up in your home, that equity has to be used to repay creditors. The less equity you have, the less you’ll have to come up with to give your creditors. So being in a down housing market could have its upsides if you’re planning on going bankrupt and want to stay in your home.

Let’s say your home is currently worth $220,000 and you have a mortgage of $200,000, so you have equity of $20,000. That’s the first step. Now you have to take into account all the costs associated with selling the home to realize the assets for debt repayment. Here’s an example to illustrate my point:Fair Market Value$220,000Less: Selling Costs @ 6%– 13,200Legal Fees– 1,000Mortgage Penalty– 4,500Mortgage– 200,000Tax Arrears– 300Utility Arrears– 150Equity in the Home $850

So you’d have to come up with $850 to give to the trustee for creditors before your bankruptcy was completed to be able to stay in your home.

There are, of course, people who don’t want to keep their properties. People who can’t keep up with the maintenance, who are way behind on mortgage payments or taxes or utilities, or who can’t come up with the “equity” to give a trustee and decide to just walk away.

As part of living through the bankruptcy, you’ll also have to take some lessons on how to manage your money. This may be with your trustee, or it may be in a group setting, but since you got yourself into a mess once, this is a good idea to avoid doing the same thing again.

You must stay current with your payments to your trustee. If you miss a payment, you’ll delay your discharge date. And the faster you get to your discharge, the sooner you can start rebuilding your credit history and return to a “normal” life.

Most discharges for first-time bankruptcies happen at the nine-month mark. If your discharge is opposed by a creditor, by your trustee (because you haven’t followed the rules), or by the courts, you could receive a conditional or suspended discharge. Yuck! Just do what you’re supposed to, and never make a mess again!

STEP 8: RECOVER FROM BANKRUPTCY

No doubt living through bankruptcy will have been tough. Once you get to the other side, you still have some work to do. You must now re-establish your credit rating while avoiding the mistakes that got you into trouble in the first place.

Start by rebuilding your credit history. It’s going to be pretty tough getting a lender to trust you if you’ve declared bankruptcy (or gone through a consumer proposal or even gone to credit counselling). The key tool you’ll use