Questions Before Filing for Bankruptcy

This is a bit long.  I am 64  and will be retiring in 2 years.  My husband passed away 5 years ago and was the one who earned most of the money.  When he passed away, I was left with no money.  I have an adult daughter living with me who is on disability.  I am working full time at a low paying job and received one raise in 3 years and it was only .16 cents an hour.  Until last month I paid everything on time but have been paying only the interest on credit cards and line of credit which totals $35,000.  I will never be able to pay any principal and won't even have as little as I have now when I retire.  I own a small condo in expensive Vancouver BC with a $300. Strata payment.  I just got a 5 year loan on a used 2012 small car.   

My place needs major work.  I still have credit.  How will it affect me if try to go bankrupt after I spend a few thousand dollars on credit to fix my place?

I am getting a tax refund.  How will it look if I spend this money before applying?

My husband and I went bankrupt 15 years ago in the US.  Do I have to tell the trustee about this and will the discharge be longer because of it? 
 
Thank you for any advice you can give me.

My place needs major work.  I still have credit.  How will it affect me if try to go bankrupt after I spend a few thousand dollars on credit to fix my place? The trustee is required to investigate your affairs, and will likely look into your spending history. In this case, it may be obvious that you've planned your spending knowing that you were going to go bankrupt, which would not be a good thing.

I am getting a tax refund.  How will it look if I spend this money before applying? It depends. The trustee is entitled to the refund from January 1st-The date that you file for bankruptcy and will investigate if there are any previous years that he can file for. He will notice that a refund was already issued for this year. I don't fully know the answer, but if you get a substantial amount of money (in the trustee's opinion) he would have a reasonable cause as to ask where the money went.

My husband and I went bankrupt 15 years ago in the US.  Do I have to tell the trustee about this and will the discharge be longer because of it?  I know that there used to be a question something like 'Have you been bankrupt in Canada or elsewhere'. Not sure if this is the case anymore. If the trustee asks if you have been bankrupt before, the answer would be yes. I'm not certain if this will make your bankruptcy longer.

Thank you for your reply.  If I do decide to file after I spend my tax refund, will they expect the money back?

I need the repairs in my house to try to sell it to pay off some of the debt.  If I can't sell it and end up having to go bankrupt (which I'd rather not do),  will they still think I just wanted to spend any available credit and tax return money that I have?

The first thing I would advise you to do before you do ANYTHING is speak to/meet with a trustee. She or he will be able to give you a much better overview of your situation and what your options really are.

If you know you're insolvent and likely going to have to file for bankruptcy (or even a consumer proposal), stop using your credit unless it's to keep food in your belly.  The reason is when you meet with a trustee they're going to ask to review all your credit and bank statements for 3 months and up to 12 months prior to your first meeting. If they  see questionable spending it will signal red flags. What could happen is when your discharge comes up your creditors will accuse you of fraudulently accruing debt when you knew your were going to file for bankruptcy and it you could be forced to pay it back by the court before you are discharged....in extreme circumstances, your trustee or creditors could ask the Superintendent of Bankruptcy to investigate you which could lead to criminal charges (rare but possible).

When you file for bankruptcy you must report any assets you've sold within 12 months prior to filing and you have to account to your trustee on where every single penny of any profits you made went to (and it should be debt). This would apply if you sell your condo.   And if you do sell your condo you MUST spread all profits between ALL your creditors EQUALLY. If you only pay one creditor a large lump sum it will be seen and preferential treatment towards one creditor and your other creditors would likely object at the time of your discharge.

Also DON'T spend your tax refund yet because if you file for bankruptcy this year, your trustee has a right to your refund from the year prior to your filing bankruptcy to the year after you're discharged.

As I stated at the start, go and talk to a trustee! It'll be free, your under no obligation and it's confidential which means none of your creditors will know you went.

Thank you for the information.  How can someone pay back money from a tax return if they don't earn enough money?

If I speak to a trustee and ask them the same questions as in my previous posts, won't the trustee document everything and then use it against me if I do end up having to file bankruptcy?

If I go to a different trustee should I decide to file for bankruptcy, will they be able to access any information I gave the first trustee I spoke to?

I really don't understand what the role of a trustee is.  Are they  similar to notaries or lawyers?  Do they work for/with me or for someone else?  If it's someone else, who is it?

Please also explain what a trustee does.

Is the information I give to the trustee confidential?

Than you again for your responses.

The reason why a trustee can (not always but can) request the refund funds is that the expectation are that if you receive a tax refund is that the exception from your creditors is that it should be applied to outstanding debt.

A meeting with your trustee is 100% confidential remember it is just a consultation you're not signing anything etc. You are giving them your financial records to review and they will give you options.  They aren't allowed to contact your creditors or discuss you situation with anyone but you. 

You can go to as many trustees as you'd like before making any decisions about bankruptcy (I went to 4).  I view it in the same way as shopping for a real estate agent. You want someone who is going to work for you and your best interest (that can sometimes be hard).

And no trustees do not communicate with each other. So if you talk to a trustee at one firm then go speak to another one at another firm they will know nothing about you.

 

 

Thank you for the information.   How did you choose your trustee?   Did they give you an impression that they understood why you needed to file for bankruptcy and would help you through the process?

For instance, if someone explains why the spent their tax return refund in an interview with the trustee, would the trustee be honest and say it's a problem or not be upfront until you sign with them?

Has anyone chosen a trustee they thought they could trust but when they filed the trustee 'became' a different person?

Thanks again for your input.

Also DON'T spend your tax refund yet because if you file for bankruptcy this year, your trustee has a right to your refund from the year prior to your filing bankruptcy to the year after you're discharged.... The reason why a trustee can (not always but can) request the refund funds is that the expectation are that if you receive a tax refund is that the exception from your creditors is that it should be applied to outstanding debt.
I mostly agree with this, except that the trustee doesn't have the automatic right to your 2014 tax return if you have already filed it, but does have the right to the year so far, so from January 1st to the date that you file for bankruptcy.
 
And no trustees do not communicate with each other. So if you talk to a trustee at one firm then go speak to another one at another firm they will know nothing about you. There are rare exceptions to this rule i.e. if a trustee feels that there is a risk of someone committing fraud. This wouldn't apply in your case.

For instance, if someone explains why the spent their tax return refund in an interview with the trustee, would the trustee be honest and say it's a problem or not be upfront until you sign with them?. It's difficult to know the situation until all paperwork is received from CRA. You might have an in-depth consultation, but until everything is underway, the trustee won't really know what's going on with your affairs.

They aren't allowed to contact your creditors or discuss you situation with anyone but you. As above, if the trustee feels that there is a risk that a law will be broken they must report it to the proper authorities.

If I go to a different trustee should I decide to file for bankruptcy, will they be able to access any information I gave the first trustee I spoke to? No, but the information should be identical. There must be a good reason for any discrepancy.

I really don't understand what the role of a trustee is.  Are they  similar to notaries or lawyers?  Do they work for/with me or for someone else?  If it's someone else, who is it? Please also explain what a trustee does. A trustee is an officer of the court, like a lawyer. They represent the interests of your creditors generally. That is, they are required to liquidate your property (subject to provincial legislation - you won't have to sell your clothes or furniture, etc.) to repay the debts that you owe. They distribute a proportional share of the funds they receive to the creditors proportionally (after they've taken their fees). That's why they would be concerned about spending immediately before bankruptcy. They, or the people they represent (i.e. banks) would have a right to say that you were spending their money without any reasonable expectation that you would be able to repay the funds.

Is the information I give to the trustee confidential? Yes and no. Bankruptcy records are public. Anyone (for a fee) can access basic information - name, address, date of birth, monthly income, total debts and a few other things. Specifics, such as your personal situation are only barely mentioned.

For what it's worth (and free advice is worth what you pay for it...) is that no matter what you choose to do, you've got to be honest. If you do decide to spend your tax return and do the work on your house, it's your business. However, if the trustee asks about it, you've got to be truthful. If the trustee finds out that you haven't been entirely forthcoming, there could be legal consequences.

I really appreciate your responses.  I have another question.   I have a contract with one company for cell phone, internet and cable.  My disabled daughter also has a cell phone under the same contract.   

Will the contracts be broken so that I won't have cable, internet or cable?

As long as you don't owe the company any money at the time of filing, you don't have to include them in your bankruptcy. You don't have to notify them of your bankruptcy and everything stays the same - no contracts are broken.

However, if you do owe them money, they are able to terminate the contract and/or require you to pay a deposit, etc.

Thank you for your post.  I am not up to date in paying one bank where I'm behind a couple of months iin paying a credit card, a line of credit and overdraft charges.  Everything else is up to date including 2 credit cards from other companies (I owe $1500. each). 

Are these 2 credit cards part of the bankruptcy?  I can afford to pay them on time and  can pay more than the interest.  Do I continue to pay the monthly payments but have to give up these 2 credit cards or are they part of a bankruptcy?  Also, is this my choice or the trustee decides?  If I get to pay monthly on these cards, can they still be used for emergencies?

Thank you again for all the information.

You are very welcome.

The law specifically requires you to deliver all credit cards to the trustee when you file for bankruptcy and you will no longer be able to use them.

Thank you for your reply.  Since I owe so much less on these credit cards, will a trustee let me pay them off?  My problems are with the one creditor who I can't afford to pay off.

There's a general prohibition against giving some creditors preference over others but in practice, it usually applies to situations where you pay off a loan to a friend or family member before your other obligations.

You can choose to pay off those credit cards before filing, but it doesn't help your situation since you can't keep or use those cards after you file. There would be no benefit to paying off the cards after you file because the debt will be wiped out.

I am being told by friends in the U.S. that if I don't go bankrupt, the debt I owe to the one bank will come off my credit report in 7 years.  Is this what  happens in Canada or is it a different amount of time that it comes off my credit report?  Or does it never come off without going bankrupt?

My friends are saying that if it comes off the credit report, there is no reason to go bankrupt.   If this is the case, please explain the advantages of going bankrupt.

I have another question.  Is owing one bank money on a line of credit and overdraft charges basically the same as owing them money on one credit card?  Does  the bank come after someone for nonpayment on the line of credit and overdraft charges by going to collections or do they go after someone in a different manner?  If it is different,  what do they do?

Thank you again for your help.