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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

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Maya Levine

Passionate Writer & Researcher

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Published on May 7, 2019

How to Invest for Retirement (The Smart and Stress-Free Way)

How to Invest for Retirement (The Smart and Stress-Free Way)

When it comes to stocks, I bet you feel like you have no idea what you’re doing.

Everyone who’s not a financial expert has been there. I’ve been there. But, time is passing and you need to be crystal clear with how you’re investing for your retirement.

Otherwise, it’s back to work until you can afford not to. So, how can you invest for retirement when you’re not a financial expert?

You take the time to learn the fundamentals well. If you do, you can grow your wealth and retire happy. The best part is that you don’t need to be a financial expert to make smart investment decisions.

Here’s how to invest for retirement the smart and stress-free way:

1. Know Clearly Why You Invest

Odds are you already know why should invest for retirement.

But, maybe you know the wrong reasons. It’s time you get clear on why you’d like to retire. Here are some questions to help you get started:

  • Will you spend more time with your family?
  • What does retirement mean to you?
  • Are you looking to launch that business you’ve been holding off for years?

Everyone wants to retire but not for the same reasons. Once you’re clear for why retirement is important for you, you’ll focus on making it happen.

Investing in the stock market allows you to take advantage of compound interest.[1] All this means is that your money earns money on top of its interest. A reason why investment in the stock market is one of the best ways to plan for retirement.

2. Figure out When to Invest

“The best time to plant a tree was 20 years ago. The second best time is now.”– Chinese Proverb

It’s true if you’d had started investing when you were 10 years old, you’d have a lot more money than you do today.

The reality is that most people don’t start investing until it’s too late. So, if you’re currently waiting for the perfect time to start an investment, it would be today. Open your calendar and block out 2 to 3 hours to choose how you’ll invest for retirement.

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A quick way to get a snapshot of where you stand is to use Personal Capital. Input all your personal information and spend some time setting your retirement goals. Once completed, you’ll know where you stand with your retirement.

Having a savings account for retirement isn’t planning for retirement. Why? Your money loses value when you factor in US inflation.[2]

3. Evaluate Your Risk Tolerance to Create the Perfect Portfolio

Investing your money well depends on your emotions.

Why?

Because when the market drops most people panic and withdraw their money. On average, the US stock market yields an annual 6% to 7% ROI (return on your investment.) But, this won’t happen if you’re worried about short-term loses.

Before you invest your next dollar, know your risk tolerance.[3] Your risk tolerance determines the number of risky and safe investments you’d have.

Regardless of your investing style, you need to view investing for retirement as a long term game. Know that some years you’ll lose money but recoup this in the long-term.

Avoid watching market-related new. Also, create a double authentication to log in your investment account. This way you’re less likely to withdraw your money.

4. Open a Reliable Retirement Account

Depending on your circumstance, you may need to open a new brokerage account. This is the account is where you’ll invest your money.

If you’re currently working for a company, odds are that they offer a 410K investing account. If so, here’s where you’ll invest most of your money. The only problem with this is that you’re limited to the stock options that are available.

You do have the option to open a separate IRA (individual retirement account.) Here are some of the best brokers:

  1. Vanguard
  2. TD Ameritrade
  3. Charles Schwab

5. Challenge Yourself to Invest Consistently

Committing to invest for retirement is hard, but continuing to do so is harder.

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Once you’ve started investment for your retirement, you run at risk from stopping. Often you’ll want to contribute less, so you’d have more money in your pocket.

That’s why it’s important that you create a budget that allows you to invest each month. If you’re working for a company, you can set a percentage for the amount you’d like to contribute each month. Most people by default contribute 1% but aim to contribute 10% to 15%.

Be the judge for how much you can afford to contribute after covering important expenses. To stay motivated, use Personal Capital to view your net worth.

A benefit to contributing money to your retirement account is not taxed. For example, if you earn $100 and invest 10%, you’d contribute $10, then get taxed on the remaining $90. As of 2019, the most you’re able to contribute towards your 401K is 19K but this can change.

6. Consider Where to Invest Your Money

The most common way to invest your money is in stocks, but it’s not the only way. Here are other ways to invest:

Robo Advisors

Robo-advisors[4] are fancy algorithms that’ll choose the best investments for you. Sites like Wealthfront make it easy for first-time investors to invest their money. You’d input information about yourself and set your risk tolerance.

Then, set your monthly contribution amount and your robo-advisor would do the rest. Robo-advisors charge a fee to manage your money, but less than regular advisors.

Bonds

Think of bonds as “IOUs” to whomever you buy them from.

Essentially, you’re lending money and charging interest. Like stocks, not all bonds are equal. Some will be riskier than others depending on their rating.

Here are the different types of bond categories:[5]

  1. Treasury bonds
  2. Government bonds
  3. Corporate bonds
  4. Foreign bonds
  5. Mortgage-backed bonds
  6. Municipal bonds

Mutual Funds

Picture a group of people dumping all their money in a jar that’s managed by a professional. This is how mutual funds work. The fund manager manages the money looking to earn capital gains (interest.)

One of the best types of mutual funds is index funds. Since these funds don’t try to beat the market and instead follow it, they need less research. Because of this they often charge the lowest fees and yield the best long-term results.

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Real Estate

Yes, buying a home is an investment when done correctly.

Imagine buying a home and using it as a rental property. After repairing it, you receive a monthly surplus check of $100 to $200.

This may not sound like a lot, but repeat this process enough times and you’d earn a large amount of passive income. That’s why real estate is one of the best investments to not only retire but become wealthy.

But, it requires a lot of money to start and you should expect losing money along the way as you learn the process.

Savings Accounts

Your money can still grow in a savings account. Nowadays most online banks offer a 2% annual return. Although the average inflation is higher your money will be available when you need it.

7. Master Disincline to Dodge Short Success

Investing for retirement is a long-term strategy. That’s why you need to master delayed gratification. All this means is delaying short-term pleasure for something bigger in the future. Research shows that those who have delayed gratification are more successful.[6]

So how can you master delayed gratification?

By building your discipline.

Think back to what retirement means to you. A clear purpose will help you avoid withdrawing your money during a market downturn. It’ll help you contribute more towards retirement when you’d want to waste it instead.

Your journey towards retirement will be long, so reward yourself along the way. Choose a reward that’s relevant and meaningful, so that you reinforce positive behavior. For example, after contributing more towards retirement, treat yourself to dinner.

8. Aggressively Invest on This One Investment

I’ve mentioned several types of investments but haven’t covered the most important one.

It sounds cliche but here’s why you’re your best investment towards retirement. The more you know, the more money you’ll be able to make. The more good habits you adopt, the more secure your retirement will be.

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More importantly, investing in yourself is an investment that no one can take away. There’s no market downturn nor tragic circumstance that’ll wipe your knowledge and experience.

But, how can you invest yourself?

Reading books, blogs, and anything that’ll help you learn new topics daily. Listen to podcasts and audiobooks on your commute to/from work.

Save money to buy courses and hire coaches. I used to believe hiring coaches was a waste of money when I could learn the subject alone.

But, coaches see your blind spots and hold you accountable. Hiring the right coach will help you achieve your goals faster than you would’ve alone.

Retire Happy with Excess Money

The key to a secure financial future doesn’t only belong to financial experts.

It’s possible for you and I. What if you were able to retire earlier than most people and weren’t a financial planner? What if you were able to focus on what you enjoy doing the most while your money was working hard for you?

I know this sounds impossible now, but the truth is you’re capable of taking charge of your retirement. I’m not a financial expert but I’ve learned how to invest my money by reading books and learning from others.

Investing your money is scary. So start small and invest a small amount of your money with a robo-advisor. Feel your money drop and rise for a month or two. Then, invest more and keep this up until you’re aggressively saving for retirement.

One day, you’ll wake up with a net worth you’re proud of – confident about your retirement. You now know a few strategies you can use to invest in your retirement. Will you take action to retire happy?

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Featured photo credit: Matthew Bennett via unsplash.com

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