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Second time bankruptcy

bankrupt is brokeSecond time bankruptcy

Hi Ross, looks like I have to do a personal bankruptcy. I owe $59,000 across several credit cards and my minimum monthly payment is over $1,700! Back in 1997 I declared bankruptcy (for only $10,000 in debts), and it went pretty smoothly. Now I am making around $70,000 per year, and I live on my own. (I rent) How does it look? ZR, North York, Ontario.

I can see how you feel it’s unlikely you will be able to repay that $59,000 anytime soon – especially if you are only able to make minimum payments. You could be looking at forty years or more to finish!

But since 2009, bankruptcy rules toughened up a bit. As it is your second time around, you are looking at a three year (minimum) bankruptcy).

And you will not be able to simply walk away from your debts. The OSB guidelines tell us you have a monthly surplus income. If nothing changes, you will be expected to pay over $750 per month for three years before you can receive a discharge from your personal bankruptcy.

Important!

Your personal finances will be under the trustee’s microscope during this period. You will be expected to produce monthly income reports and also disclose your income tax returns with the trustee.

And it will take fourteen years after your discharge date before the second bankruptcy is removed from your credit history – that’s a total of seventeen years of bad credit. Ugh!

You should give serious consideration to a consumer proposal instead.  It’s possible your creditors might agree to a single monthly payment of only $400, spread over sixty months. And if you are able to pay it off quicker, so much the better!

Related article: Is filing a second proposal like filing a bankruptcy?

Related article: Homeowners eliminate debts without declaring bankruptcy

Related article: So many ways to reduce debts; which way is best?

You will not have an ongoing reporting relationship to your trustee (who is also an administrator of consumer proposals) Just make your regular payments, attend two credit counselling sessions, and notify them of any change in your personal contact information.

And the very existence of the proposal will drop off your credit report only three years after you complete the payments ( a total of $24,000). That’s way better than seventeen years later!

 

Notice

Ross Taylor is a credit specialist and mortgage agent who blogs frequently at ASKROSS.  If you have any questions about anything financial, send him an email at info@askross.ca, he answers everyone.