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5 Crucial Things To Keep In Mind About Bankruptcy

5 Crucial Things To Keep In Mind About Bankruptcy

Whether you’re on the road to bankruptcy, or thinking about declaring your business in a state of bankruptcy, this process isn’t as clear-cut and simple as you might initially think.

In Canada, it is largely due to the fact that it is a federal government affair and requires a fair amount of paperwork and legal proceedings. This can take a huge amount of time and money out of your life. Fortunately, the bankruptcy system has been designed to keep the cost of bankruptcy as low for you as possible.

However, you should know that you’ll also lose all your possessions and all your money unless, of course, your possessions are assets – then they’re exempt (as long as they are in your particular province).

Let’s quickly delve beyond the surface of bankruptcy and discern what it’s all about.

1. Bankruptcy Costs

Usually, the process of bankruptcy includes fees, such as administrative costs, government-fees (for the bothersome task of filing all the paperwork), mailing costs, court fees, etc. This, as you can imagine, takes a lot of money out of your account(s).

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The average cost of bankruptcy (usually – as it varies between provinces) is between $1,500-1,900. The differences in cost is wide because, largely, the fee is set by your Insolvency Trustee. The trustee’s charge is a reflection of the Office of the Superintendent of Bankruptcy (OSB).[1] Keep in mind that the trustee’s charge is a reduced fee. This fee is based on what number your chosen trustee charges to file your bankruptcy paperwork.

You need to pay due diligence when it comes to picking an attorney to represent you in bankruptcy court. This is because there are some reports of attorneys collecting their fees and “dumping” the filing process and proceedings on another attorney’s shoulders. This is why it’s necessary to perform thorough background checks on attorneys and lawyers. Luckily, looking for reviews and testimonials and public ratings about such attorneys are easy to find, thanks to the internet.

However, if bankruptcy costs are more than you can pay, it’ll be to your satisfaction to contact a licensed Insolvency Trustee.[2]

2. What’s the Difference Between Lawyers And Trustees?

A trustee is a licensed official (by the federal government) who works with specific insolvency issues.[3] Many trustees are chartered accountants.

Bankruptcy lawyers, on the other hand, are solicitors who are experts when it comes to insolvency law.

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Unless a bankruptcy filing has several discrepancies, lawyers are not generally required in most cases.

3. How Bankruptcy Lets You Rise From The Ashes

Since bankruptcy is governed by federal law, the process is similar from state to state and it’s a process that will keep you busy.

Be careful when filing for bankruptcy. Your credit score can take a serious beating, since bankruptcy lowers your score by as much as 250 points, which, as you know is not peanuts.[4]

It’s a great way to erase your debt, however. Bankruptcy gives you a fresh start, a chance to wipe the slate clean, and a way to rebuild your credit score. If your bills haven’t defaulted (and your debts are through the roof), there’s a possibility your credit score is high enough to pass you through a mortgage refinance. This could potentially qualify you for a lower interest rate.

Since lower interest rates reduce monthly house payments, this means more freed-up cash in your budget so you can pay off any outstanding debts.

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4. What Does Bankruptcy Affect?

Don’t worry, if you’ve invested in 401k, IRA, or ERISA accounts, they’ll (in all probability) remain unaffected by the bankruptcy.

That means you do not take any money from these accounts to pay bills. Even if you’re pressed against the wall and these look like great last resorts, do not. The reason for this is simple: you’ll be hit with staggering penalties and taxes. These can never be discharged and will forever remain on your credit score. This makes it extremely hard to attain home loans in the future, which is why you should NOT take bankruptcy lightly. That is why you should check your credit report 60 days after you bankruptcy case closes. That way, you can check if there are any errors. It’s critical to stay on top of the report after bankruptcy, as there may be some mistakes.

After filing for bankruptcy, check your mail every single day. The court should send you legal paperwork that needs your signature by a certain date. Missing this paperwork means your case loses momentum and you’ll be stuck in this state for an even longer period. Once these documents arrive in your mail, review them carefully. And review them again to make sure you haven’t missed anything crucial.

And once you’ve set up an appointment or discussion with your attorney, update him/her on any relevant information that’s happening in your life because the more your attorney knows, the more successful your case will turn out. Your life and income (even your family’s life) is on the line here. Good, constant communication is key.

5. You Shouldn’t Declare Bankruptcy If…

You don’t need to go bankrupt just because you’re unable to pay your debts or are insolvent. Declaring bankruptcy seems like a smart thing to do when tides are low, but the reality of the situation is this:

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Sometimes bankruptcy is not a good option.[5]

It honestly depends on your situation. Let’s say a huge number of your debt is because those debts aren’t dischargeable. It would be inadvisable to file for bankruptcy. This is because non-dischargeable debts, such as child support, fines and penalties, student loans, etc. will remain on your record. Bankruptcy means that only debts that are dischargeable will be erased from your record.

Even so, it’s more important to know if you even need to file for bankruptcy. This is because a large amount of cases come down to credit or debt counseling. Knowing how to expertly handle your debt and credit scores/cards increases the likelihood that you won’t have to file for bankruptcy in the end.

Conclusion

Now you know more about bankruptcy and how to make wiser decisions. If, however, it’s too late and filing for bankruptcy is an absolute must, it is essential for your sanity and happiness that you remain cool, calm, and collected as you go through this process.

Featured photo credit: palmistryextraordinaire via palmistryextraordinaire.com

Reference

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Maya Levine

Passionate Writer & Researcher

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Published on September 17, 2018

How Being Smart With Your Money Leads to Financial Success

How Being Smart With Your Money Leads to Financial Success

Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

1. Avoid being “penny wise but pound foolish”

It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

2. When you want something big, wait

Impulsivity can get you in trouble in most aspects of life. Finances are no different.

It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

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So, you get the itch.

You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

Here’s where you have to take a step back.

Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

The impulse faded. And you just saved yourself a ton of money.

3. Live smaller than you can afford

You finally get that big raise. And you want to celebrate – and why not?

You’ve been looking forward to this forever. And after all, it was all due to your hard work.

That’s fine, splurge a little. However, make it a one-time deal and be done.

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Don’t get caught in the trap that just because you’re now making more money, you should spend more.

Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

4. Practice smart grocery shopping

Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

Create a grocery budget

Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

Make a list… and never deviate

Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

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You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

These impulse decisions will lead to overspending, which will derail your grocery budget.

Eat before going grocery shopping

It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

This makes it much easier to stick to your grocery plan.

5. Cancel your gym membership

Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

The average gym membership costs around $60 per month. That’s $720 a year.

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Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

It’s baby steps… And baby steps can start now!

I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

Featured photo credit: Unsplash via unsplash.com

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