Accept this without guilt and without “beating yourself up”. At the same time don’t cheat. Play by the rules and your fresh financial start will come about smoothly, without stress and investigation and without guilt!
What bills to pay first:
Here are some tips on how to prioritize debts and protect yourself before you file for bankruptcy:
- Family Necessities – Provide the basic essentials for your family; food, medicine and utilities. Postpone non-essential purchases such as electronics, toys, a car or new clothes;
- Child Support and Maintenance Payments – Keep these up to date. This sort of debt cannot be erased in a bankruptcy so it has to be paid;
- Secured Debt – House mortgage and car loan payments should be made if there is equity to protect. Refer to your province or territory’s bankruptcy exemptions;
- Income Taxes – You are required by law to pay income taxes. If you are self-employed, you must pay the periodic payments required. Even if you don’t have enough money to pay your taxes in full, you should always file your tax returns on time;
- Unsecured Debt – Unsecured debts include credit card bills and bank signature loans; any loans without collateral. Although these payments are the lowest priority, often when these payments get behind, their bill collectors are the first to start harassing you to pay.
Get legal advice:
If your assets are significant we strongly suggest you seek legal advice from an experienced insolvency lawyer.
You can find an experienced insolvency lawyer by asking an accountant or lawyer you deal with or by referring to this link.
Trustees in bankruptcy will refer a debtor to an insolvency lawyer if the trustee feels there is a potential conflict of interest and the debtor should have legal counsel.
- Don’t make significant purchases on credit prior to bankruptcy or a proposal;
- Don’t make significant payments to creditors out of the ordinary course of your payment history. Many people want to pay a relative, for example, ahead of a credit card company. Don’t do this. The law doesn’t distinguish between types of creditors and severe court penalties can be imposed;
- Don’t cash in RRSP’s or stocks on the eve of bankruptcy or a proposal;
- Don’t “sell” or transfer assets to a friend or family member;
- Don’t purposefully neglect to list some of your creditors. All debt must be listed.
Dealing with awkward situations:
Uncle John – Your uncle John co-signed a loan for you. If you go bankrupt you know the bank will look to your Uncle John for repayment. You don’t want to include this debt in your bankruptcy but want to pay this debt yourself. This is not allowed and if you attempt this and are caught you risk severe penalties.
A better way to handle this situation is to talk to your Uncle John explaining the situation. It is not allowed for you to make an agreement to repay Uncle John. But, after you receive your discharge you will be free to pay back Uncle John or any creditor.
You must have a credit card for work – You know you cannot keep any of your credit cards if you file for bankruptcy but you have to have A credit card for your job.
- Solution # 1 – Have your spouse or a friend get a supplemental card for you. It will have your name on it but the responsibility for payment will be the primary card holder;
- Solution # 2 – Use a debit card.
Note: A person filing a proposal is allowed to retain a credit card that has a zero balance.
You are self-employed by being a director of a small company
You know that you cannot be the director of a company while in bankruptcy.
You are self-employed and in conjunction with your small business you incorporated a company with yourself as sole director.
The business earns you the equivalent of wages and you know you can keep the business while in bankruptcy since there are no assets in the business.
What to do? One solution is to have your spouse or a friend appointed as a director and you resign and become an employee of the business.
This should be done just before the bankruptcy and the change in directors registered by a lawyer.
Copies of the changes should be supplied to your trustee so he/she knows everything is “above board”.