519-646-2222How to Avoid Bankrupt – some strategies to consider.
In this blog we are going address how to avoid bankruptcy, using various strategies .
DISCLAIMER: we are not advocating for all of these strategies, just discussing the merits of some of the approaches we have seen over the years.
The first strategy for avoiding bankruptcy is really simple – “don’t go into debt”.
Sounds easy enough, right? The last time I looked out from my cave, I noticed that with runaway inflation, low incomes, excess taxation, and fewer opportunities for success coupled with easier and more frequent access to credit (including eighty (80) million bank issued credit cards in circulation) there is a lot more debt around.
Assuming you are one of the average Canadians who owe about twice as much as they earn each year, you probably have a substantial amount of debt, and challenges paying it back. Our second strategy – which we do recommend is “pay your bills on time”. There is no better way of avoiding meeting with an LIT.
For people who are starting to fall behind, but who still have good (steady) incomes and a lot of different creditors with high interest, a consolidation loan may be a good option. Consolidation loans are less risky than second or third mortgages. Refinancing unsecured debt through mortgages creates a risk that you may lose your home if you default on the mortgage.
Some of the strategies we have seen that are distasteful, questionable, or just plain wrong-headed include the following:
Suspend all payments to your creditors and hope they don’t sue you in the next two years. The debt would still exist, but the creditor has less collection options – if they don’t sue before the debt becomes statute barred, they can’t sue. Without a judgement creditors cannot garnishee your income or seize your property. The debt remains as a negative entry on your credit report and will ensure that access to further credit is limited.
Play the “shuffle game” – this is the one where you keep your debt moving around, shuffling from one credit card to another and so on. We once spoke an individual who had not made a real payment on tens of thousands of dollar for several years. “What, how could that happen?” Well, our punter would get offers from credit card companies allowing a balance transfer from one card to another, the critical thing being the transfer had to take place before a payment was expected.
Another part of the strategy was using one credit card to pay another or transferring balances to lines of credit. Some balances were also transferred from the punter’s credit cards to the spouse’s credit cards and lines of credit, the indirect nature of the transfers made it less obvious to the lenders what was happening. The result was that the punter was totally stressed and had not reduced any debts at all in several years. There were absolutely zero out of pocket payments made.
The problem with this approach is that the punter is staving off the inevitable LIT office visit and not paying debt, on the contrary the debt was increasing exponentially. An admirably clever work around if it were only a short term proposition – such as waiting for a real estate deal to close before paying debts off in full. The downsides are unbelievable stress, timing is everything, increased debt service ratio, and some creditors not allowing the extension of further debt after passing a threshold value test.
Borrowing money from family members is convenient but can also burn bridges really quickly, especially if it is not being paid back. This strategy may also include having a family member co-sign for some debts. While it is probably true that we expect family members to be there for us, to help us along when we run into trouble, the obverse is they expect us to reciprocate and not put them and their financial lives in jeopardy.
The same holds true for co-signers, related or otherwise – a co-signer must be prepared to assume full responsibility for any debt they have guaranteed. If the principal debtor files a bankruptcy or proposal the co-signer is still responsible for the unpaid liability.
Footnote:
Many of the people we see, procrastinate for long periods of time before deciding to act, and while they are languishing, their situation gets worse. Most will say “I wish I had called you sooner”. Keep in mind too that bankruptcy is not your only option, 80% of people filing an insolvency proceeding file a proposal.Call today to get started on a better debt solution: 519-646-2222.