Modern Law And Debt Restructuring
The principal focus of modern insolvency legislation and business debt restructuring practices no longer rests on the elimination of insolvent entities, but on the remodeling of the financial and organizational structure of debtors experiencing financial distress so as to permit the rehabilitation and continuation of the business.
For private households, some argue that it is insufficient to merely dismiss debts after a certain period. It is important to assess the underlying problems and to minimize the risk of financial distress to re-occur. It has been stressed that debt advice, a supervised rehabilitation period, financial education and social help to find sources of income and to improve the management of household expenditures must be equally provided during this period of rehabilitation . In most EU Member States, debt discharge is conditioned by a partial payment obligation and by a number of requirements concerning the debtor’s behavior. In the United States , discharge is conditioned to a lesser extent. The spectrum is broad in the EU, with the UK coming closest to the US system . The Other Member States do not provide the option of a debt discharge. Spain, for example, passed a bankruptcy law in 2003 which provides for debt settlement plans that can result in a reduction of the debt or an extension of the payment period of maximally five years , but it does not foresee debt discharge.
Does A Bankrupt Person Have To Surrender Every Asset
Most of the assets that are owned by a bankrupt individual will be sold and used to pay off the creditors. However, certain assets are exempt from this rule:
An HDB flat that is owned by a Singapore citizen will not be compulsorily sold to pay off a bankrupt persons debt. However, the flat can be sold to pay off the financial institution that has advanced money to buy the flat.
Amounts lying in the CPF account cannot be used by the Official Assignee to pay off a bankrupt individuals debt.
Certain types of life insurance policies are also exempt.
When Is A Good Time To Declare Bankruptcy
The good rule of thumb before filing for bankruptcy is toask yourself an important question: what are my financial prospects in the next5 years? If you think it will take you more than 5 years to pay off your loans,its time to file for bankruptcy.
The reason for this is simple: declaring bankruptcy was designed to give everyone a second chance after financially collapsing, not to punish them for their misfortune. If a combination of mortgage debt or medical bills have wrecked your finances, and you dont see things changing any time soon, bankruptcy is usually the best answer, even if you dont qualify for it.
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Surplus Income Adds To The Cost Of Bankruptcy
In addition to the trustee fee and potential loss of assets, you may be required to pay a portion of your monthly income towards your debts, depending on how much you earn and the size of your household. The principle is that, if you earn more than your household needs to survive, you must pay a portion of the surplus income to your trustee for the creditors. The formula is prescribed by law. The idea is that the more you earn, the more you can presumably afford to repay to your creditors. In general, the greater your level of income, the greater the cost of a bankruptcy and the more attractive the alternatives to bankruptcy become.
When Should I Declare Bankruptcy
When asking yourself Should I file for bankruptcy? think hard about whether you could realistically pay off your debts in less than five years. If the answer is no, it might be time to declare bankruptcy.
The thinking behind this is that the bankruptcy code was set up to give people a second chance, not to punish them forever. If some combination of bad luck and bad choices has devastated you financially, and you dont see that changing in the next five years, bankruptcy is your way out.
Even if you dont qualify for bankruptcy, there is still hope for debt relief. Possible alternatives include a debt management program, a debt consolidation loan or debt settlement. Each one of those choices typically require 3-5 years to reach a resolution, and none of them guarantees all your debts will be settled when you finish.
Remember that bankruptcy carries significant long-term penalties. It is stuck on your credit report for 7-10 years, which can make getting loans in the future very difficult.
The flip side of that is there is a great mental and emotional lift when all your debts are eliminated, and youre given a fresh start.
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Role Of The Case Trustee
When a chapter 7 petition is filed, the U.S. trustee appoints an impartial case trustee to administer the case and liquidate the debtor’s nonexempt assets. 11 U.S.C. §§ 701, 704. If all the debtor’s assets are exempt or subject to valid liens, the trustee will normally file a “no asset” report with the court, and there will be no distribution to unsecured creditors. Most chapter 7 cases involving individual debtors are no asset cases. But if the case appears to be an “asset” case at the outset, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002. A governmental unit, however, has 180 days from the date the case is filed to file a claim. 11 U.S.C. § 502. In the typical no asset chapter 7 case, there is no need for creditors to file proofs of claim because there will be no distribution. If the trustee later recovers assets for distribution to unsecured creditors, the Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of claim. Although a secured creditor does not need to file a proof of claim in a chapter 7 case to preserve its security interest or lien, there may be other reasons to file a claim. A creditor in a chapter 7 case who has a lien on the debtor’s property should consult an attorney for advice.
Will Bankruptcy Affect My Job Or Future Employment
Twenty-nine percent of employers run a credit check on new job applicants, according to a survey by CareerBuilder. As a result, declaring bankruptcy could affect your ability to get a new job, especially if that job is in the financial services industry or with a government entity.
They do this primarily to make sure you’re a good fit for the jobssuch as handling moneyand that you’re not financially stressed, which could increase the likelihood of theft or fraud.
If an employer simply runs a routine criminal background check, however, your bankruptcy won’t show up.
It’s less likely that employers would conduct background checks on current employees. So if you’re not planning to switch jobs, you likely don’t need to worry much about a bankruptcy affecting your employment.
Signing A Bankruptcy Petition
To file for bankruptcy protection, you sign various bankruptcy forms, including an Assignment and a Statement of Affairs. In your bankruptcy assignment, you state that you are handing over your property to the Licensed Insolvency Trustee for the benefit of your creditors. The statement of affairs is a list of all your assets and liabilities.
You will also be required to answer several questions about your situation including details about your family, work, and disposition of assets before bankruptcy. It is an offence under the Bankruptcy & Insolvency Act to sell or hide assets from your creditors when you know you intend to go bankrupt.
With the advent of COVID-19 and the required social distancing, it is now possible to file bankruptcy online by video-conference and electronic signature. However, you must still file with a trustee in the province where you live or where most of your assets are if you live outside of Canada.
Consider All Of Your Other Options
Bankruptcy is one of several options for dealing with significant debt.
But it also has some of the most serious consequences.
Theres a possibility you could lose your home, and your credit rating will be affected for several years, even after youre no longer bankrupt.
Some of the other options available to help you deal with your debts include a debt consolidation loan, a debt management plan or a consumer proposal.
To help you establish which solution is right for you, you should consult a Licensed Insolvency Trustee to help you.
They will be able to assess your situation and make recommendations based on your personal circumstances.
Bankruptcy can seem like a simple solution to your debts, but with serious long-term consequences, its important to consider other options first.
Getting help with your debts
Dealing with debt can be stressful and exhausting.
Taking the first steps towards clearing your debts will help you lift a weight off of your shoulders and help you enjoy a fresh start.
If you want to talk to someone about your debts, we can help.
Well provide you with a free consultation to help you understand your options so that you can become debt-free.
If you decide to file for bankruptcy, one of our Licensed Insolvency Trustees will be able to action this on your behalf.
Start your debt-free journey today by contacting us on 879-4770.
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What Is A Trustee And What Is A Trustees Role
A Licensed Insolvency Trustee is the only professional who can administer a bankruptcy in Canada.
Licensed Insolvency Trustees are federally licensed and regulated by the Office of The Superintendent of Bankruptcy. Trustee fees are regulated under the Bankruptcy and Insolvency Act and are moderate, so the cost of bankruptcy is tends to be reasonable.
Youll Probably Get To Keep All Of Your Stuff
Folks in more than 95% of all Chapter 7 bankruptcies filed in the United States keep all of their belongings. Thatâs because the law protects certain property – called exempt property – from your creditors. Whether thatâs your monthly social security check, your watch, or your kitchen table, if itâs protected by an exemption, you get to keep it.
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You Cant File Chapter 7 If You Make Too Much Money
If youâre making less than the median income, youâre probably wondering how thatâs even possible. Donât fret this is not about you. This is about folks who have money they can put into savings after paying their main living expenses.
Thatâs called having disposable income and itâs calculated by the means test. Having too much disposable income means youâre not eligible to simply walk away from your debt. But, while you canât file Chapter 7, you can still get a bankruptcy discharge after completing a Chapter 13 repayment plan.
What Happens To Your Motor Vehicle
Your motor vehicle will be sold to pay for your bankruptcy debts, unless you need it:
- for your work or vocation
- to meet basic domestic needs where alternative transport is not practical
If the official receiver agrees you need the vehicle, it will be classed as exempt and not included in your bankruptcy. This does not apply if you own your vehicle through an ongoing hire purchase agreement .
If you are allowed to keep the vehicle you remain responsible for road tax, MOT and insurance.
If your vehicle is exempt but valuable it can be replaced with a cheaper alternative. The official receiver will use the money from the sale to either pay for the new vehicle directly or give you the money to buy one. You must provide proof of purchase for your new vehicle within 1 month. The guide price for a replacement is £1,000.
Stop the sale of your vehicle
If your vehicle is not exempt you may be able to keep it if a third party can pay to transfer it to them for you and you provide a:
- current insurance certificate
- vehicle registration document
- a valid MOT
The price paid will be the market value of the vehicle but must at least cover the agents costs for the sale of the vehicle.
If you dont want to keep the vehicle the official receiver will dispose of it.
Vehicles under finance agreements
A finance agreement can be a:
- hire purchase
- conditional sale
- leasing agreement
If the trustee decides they wont be claiming the vehicle they will give notice to you and the finance company.
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Your Creditors May Hold A Meeting
Sometimes, a meeting of creditors is required or requested. The purpose of this meeting is to
- allow creditors to obtain information about the bankruptcy
- confirm the appointment of the LIT
- appoint up to five inspectors to supervise the administration of your estate and
- allow creditors to give direction to the LIT.
If a meeting is called, you will be required to attend.
S To File For Bankruptcy
Start by collecting all your financial documents, debt, income, assets, and expenses. This will give you a birds eye view of your financial situation and give the court a better understanding. The next step is to seek credit counseling at least 180 days ahead of filing for bankruptcy. You must go to an approved provider on the official website here.
Next, you have to file for the petition for bankruptcy. A bankruptcylawyer may be useful at this pit, although they are not required for eitherChapter 7 or Chapter 13 bankruptcy.
Once your petition is submitted, a court trustee will beassigned to you, who will set up meetings with your creditors. You have to bepresent in the meetings, but the credits are not obligated to be there.
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Why Would A Person File Bankruptcy
There are several reasons why a person might want to consider declaring bankruptcy. Here are some of the most common:
There are additional reasons to declare bankruptcy that are less common, such as inheriting property, moving to a state with less favorable bankruptcy exemptions or avoiding a lawsuit. However, the five reasons we have listed here are the most likely to apply to the average person.
Stop A Foreclosure Repossession Or Eviction
The automatic stay will stop these actions as long as theyre still pending. Once complete, bankruptcy wont help.
- Evictions. An eviction thats still in the litigation process will come to a halt after a bankruptcy filing. But the stay will likely be temporary. Keep in mind that if your landlord already has an eviction judgment against you, bankruptcy wont help in the majority of states. Learn more about evictions and the automatic stay.
- Foreclosure and repossession. Although the automatic stay will stop a foreclosure or repossession, filing for Chapter 7 wont help you keep the property. If you cant bring the account current, youll lose the house or car once the stay lifts. By contrast, Chapter 13 has a mechanism that will allow you to catch up on past payments so you can keep the asset. Find out more about bankruptcys automatic stay and foreclosure and car repossession and bankruptcy.
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Are You Getting A Refund
Refunds that are issued as a result of returns for years prior to the year of bankruptcy are considered to be the property of the estate in bankruptcy. As a result, these refunds will be sent to the trustee. Any refunds issued in relation to returns for years subsequent to the year of bankruptcy will be sent to you, unless the trustee has obtained a court order.
For the year of bankruptcy, any issued refund related to the pre-bankruptcy return will be sent to the trustee. Issued refunds related to the post-bankruptcy return will also be sent to the trustee if your bankruptcy assignment date is July 7, 2008, or later. Post-bankruptcy refunds that are issued for bankruptcies with an assignment date prior to that will be sent to you, unless the trustee has obtained a court order or has provided us with an Authorization and Direction letter.
What Not To Do Before Filing Bankruptcy
If you are considering bankruptcy, there are certain things you should not do before filing.
- Dont max out your credit cards and lines of credit or take on new debt just before filing.
- Do not sell or transfer any assets to someone else with the intent to hide them from your creditors.
- Dont omit creditors from your creditors list thinking you can keep that debt or pay them separately.
- Dont make a preferential payment to or pay off any single creditor at the expense of your other creditors.
- Dont hide information about a potential future inheritance, bonus, or windfall.
- Dont forget to tell your trustee if you have filed a bankruptcy or consumer proposal before.
Activities like this will affect the advice you are given by the trustee, at best, and if viewed as fraudulent, could jeopardize your bankruptcy discharge. Your trustee is required to ask a series of general questions to review past transactions like these, so avoid these reviewable actions and be honest with your trustee in your disclosure.
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