Reducing Monthly Spending Tips

Reducing Monthly Spending Tips

Here is a link to a great blog post on HER Success on reducing expeditures:

http://www.hersuccess.ca/look-a-little-deeper-ways-to-reduce-your-monthly-spending

Take a look!

Role of a Trustee - What exactly do we do?

So if you are wondering what I do and how I can help check out the list from the Canadian Association of Insolvency and Restructuring Professionals website: 

http://www.cairp.ca/general-public/role-of-the-trustee-in-bankruptcy/

Any question? Give me a call and I would be happy to answer them.

Rebecca Frederick, CIRP
Trustee in Bankruptcy
(587) 400-3344
 

Cash or credit: it’s all money, right?

Every day, we’re surrounded by “buy now, pay later” temptations. When we don’t have the actual cash to spend, it can be easy to convince ourselves that a credit card is essentially the same thing— money at the ready, just waiting to fill in the gaps in our budget, enticing us to buy.

Of course most of us know it’s not really our money. If it were our money it would be income or an asset, but it’s neither. In reality, this “money” is just another expense, and using our credit cards reduces the amount of money available to us in our budgets.

Paying later for something that’s not affordable today means we end up paying interest for the privilege of doing so. The shift from thinking of credit as income to credit as an expense is a simple one but not one we tend to readily make.

Imagine you’re walking along and you see your favourite item on sale in your favourite store for the rock bottom price of $1,200. You have never seen the price so low and, since it is in your favorite colour and this sale isn’t likely to last long, it goes without saying that you are seriously considering making this purchase.

Unfortunately you don’t have any room in this month’s budget for the purchase, but you have a credit card with an available limit of $2,000. Do you buy it? What are your considerations when making the decision?

Now imagine the same scenario — your favourite item on sale in your favorite store and you have never seen the price this low. You don’t have any room in this month’s budget for the purchase but you have $2,000 in your savings account. Do you buy it? What are your considerations when making the decision. 

Now consider that you saved this money by limiting your spending and putting away $500 a month over the last four months — do you buy it now? Is this an important consideration when making the decision? Does this change your decision about buying it?

Spending money on your credit card can feel very different than spending your savings: you have been given credit, but you had to work hard for your savings. You had to be conscious of your spending and make deliberate choices about where you were going to spend your money — and where you would not spend your money. It required a big commitment on your part to stick to your intention to save.

So why doesn’t the money your going to spend on your credit card feel the same? The payments you make to your credit card are made with the same hard earned money, are they not? But spending money on credit feels less concrete somehow, more indirect and less transparent.

For some reason we don’t relate using credit to spending cash. The separation between spending (on credit) and paying (for the credit) is minimal — at least until the next monthly credit card statement arrives — but it seems to be enough to make reality more abstract. Somehow through this process it’s become easy to ignore that credit is an expense that our income will eventually have to pay.

We all need to be more mindful and not  let making purchases with credit muddy the waters because the truth can be distilled down to one salient point: whatever you buy — by way of credit card or debit card — is purchased using your hard-earned income. You have the choice to buy it with your cash now or buy it with your cash later. And if you choose to pay later, you will be required to pay for the privilege of using someone else’s money for the purchase — by paying interest.

So when you are making decisions about whether to spend your money, don’t let debit or credit be the deciding factor. Either way it will be your cash on the line, so make sure any expenditure — regardless of payment method — is given your full consideration.

Rebecca Frederick
Frederick & Company (587)400-3344

Bankruptcy vs Proposal :Protecting your assets

This is our second article in our series comparing bankruptcy and proposals discussing some of the differences between bankruptcies and proposals. While both proceedings offer you protection from your creditors under the Bankruptcy and Insolvency Act there are some key differences. 

One significant difference between a bankruptcy and a proposal is what happens to your assets in the process. In a bankruptcy you are required to vest assets with the Trustee, while in a proposal you are not.  But what does that really mean and how does it impact you? 

Bankruptcy

  • You are required to surrender assets (with some exceptions) with the Trustee

Proposal

  • You are not required to automatically surrender assets.
  • You can choose to surrender certain assets.

When you file for bankruptcy, you make an “assignment in bankruptcy” which involves assigning all your assets to the Trustee to be divided between your creditors.  Some of these assets are exempt, meaning your creditors cannot take them – nor can the Trustee.  An example of an exempt asset is household furnishings. 

Some assets are non-exempt, which means either the value of those assets must be contributed to the estate or those assets must be sold.  An example of a non-exempt asset would be an ATV.  

There is a limit to the value of the exemption for each type of asset and, as a result, an asset can be exempt but still have a partially non-exempt amount that would need to be collected by the estate. To clarify, here are some examples that discuss vehicles, which are exempt up to the value of $5,000:

  • A vehicle worth $4,000 that is free and clear (there are no outstanding debts tied to the car) is exempt.
  •  A vehicle worth $7,000 that is free and clear is exempt up to $5,000, and the remaining $2,000 would need to be paid into the estate.
  • A vehicle worth $17,000, with a secured loan of $4,000, has an available equity of $13,000 — $5,000 of which would be exempt, with the balance being non-exempt.

The Trustee is responsible for collecting on non-exempt assets, pooling that money together with other realizations — such as surplus income — and ultimately dividing it appropriately amongst the creditors.

 The minimum duration of a bankruptcy can range from 9 months to 36 months, and it is important to know that any assets you acquire during that time will vest with the Trustee . That means if you win the lottery or get an inheritance, the value of those non-exempt assets go into the pool of money for your creditors. If your bankruptcy is extended beyond the minimum term then your assets will continue to vest with the Trustee until you are discharged.

In a proposal, the trustee will complete the same assessment of your financial situation as they would in a bankruptcy, taking stock of all exempt and non-exempt assets. They will then determine the total estimated realizations that would be available to creditors in a bankruptcy and suggest a proposal amount that exceeds that. 

You can choose to surrender some assets to the trustee, as part of your proposal contributions, but it is not a requirement.  Generally the proposal simply sets up a new payment schedule that offers your creditors more than they would get in a bankruptcy. For the term of the proposal, any and all assets you currently own, or new ones you acquire, are yours to deal with as you see fit. 

For contemplating selling your assets outside of a bankruptcy or proposal there is some good food for thought here.

 If you would like maintaining control of all assets - current and future – think about a proposal when you are weighing your options. Feel free to call us to chat over a coffee – figuring our your next step is just a phone call away.

 

 Rebecca Frederick, CIRP, Trustee in Bankruptcy
(587)400-3344

 

Bankruptcy vs. Proposal: How long will it take?

This a first of a series of articles on comparisons between a bankruptcy and proposal.  Sometimes it can appear that bankruptcy would much quicker than a proposal but take a look at this article - you will see there are a lot of factors that determine the duration of a bankruptcy that you should be aware of. 

When it comes to paying off your debts, the quicker you can be done with it the better, right? At first glance, it seems like bankruptcy would be the swifter way to go, but the actual term of each option isn’t as cut and dry as you might think. Here’s a breakdown of what you can expect with both options.

Bankruptcy

When you file for bankruptcy, there is a minimum duration that is determined by two things: your surplus income and how many times you have filed for bankruptcy. 

  1.  Surplus income isn’t determined by how much unspent money you have at the end of the month. It’s actually a result of a calculation using your income and a set amount determined by the government based on income and the number of people in the household. Learn more about surplus income here.

  2. If you’ve filed for bankruptcy before, it will impact your minimum term as follows:

    • First-time bankrupt:
      No surplus income: minimum 9-month term

      Surplus income: min. 21-month term

    • Second-time bankrupt:
      No surplus income: min. 24-month term

      Surplus income:  min. 36-month term

    • Third-time bankrupt:
      Must go to court for discharge

Generally the minimum term of the bankruptcy is 9, 21, 24 or 36 months. You cannot shorten the term of the bankruptcy, but it can get extended if your actual income increases and you are unable to pay the required amount during the minimum term, or if your duties have not been completed on time.

If you file for bankruptcy you must complete, at a minimum, the following:

  • File a report with your Trustee detailing your income and your expenses each month;
  • Pay any surplus income owing, depending on the income actually earned during the term of the bankruptcy;
  • Provide your Trustee with your income tax information for the year of your bankruptcy; and,
  • Attend two counselling sessions.

As your minimum term is coming to an end, your Trustee will review your file.  If you have completed everything required of you, the Trustee can grant you an automatic discharge from your bankruptcy, and you will be released from your obligation to pay your debts.

If you have not completed all your duties on time, the Trustee will oppose your automatic discharge and make an application to court to have your discharge reviewed by the registrar. 

Wait times for court dates, multiple court dates and possible additional duties can add several months to your term.So what started out as a 9, 21, 24, or 36-month process has now become significantly longer.

In summary, you are required to stay in bankruptcy for the entire minimum term of 9, 21, 24, or 36 months in length. If you are diligently making payments and doing your duties, your minimum will also be your maximum. If you are not diligent, the term will be extended and can be postponed indefinitely until your trustee is satisfied you have completed all the duties.

 Proposal

A proposal is a new payment arrangement you propose to your creditors.  Sometimes the new arrangement acts as a consolidation of all your debts into one payment, or it can be a compromise or reduction of the total amount owing.

The term of the proposal is impacted by two things:

  1. The amount your creditors are offered in a proposal must be more than in what they would receive in a bankruptcy

    A proposal must always offer more money to the creditors than a bankruptcy and is usually three to five years in length.

    A proposal is set and fixed from the beginning – there are no interest charges or unexpected fees to impact the monthly payment or, ultimately, the term of the proposal. A proposal must be completed within the initial time period set but can be completed early with no penalties.
     
  2. The monthly payment you can afford, taking into consideration your budget and its restrictions
    Once we have determined the proposal amount we can work with you to create your own unique budget that sets up an achievable schedule for payments.

One big benefit of a proposal is that, once your creditors have accepted the proposal, the monthly payment will not change regardless of changes in income. So if your actual income turns out to be higher than projected, it doesn’t impact the amount you need to pay into the proposal or the term of the proposal.

On the flip side, if your income decreases, your proposal payment also stays the same. So it’s important to be realistic about your anticipated income and impacts on that income, so we can ensure the proposal payments are maintainable over the term.


Bankruptcy

  • If your surplus income has increased, the term of your bankruptcy can be extended until all funds have been paid;
  • You must remain in bankruptcy for a minimum period of time, regardless of whether you are compliant with your obligations or not.
  • Your bankruptcy will be delayed until all duties have been completed and an application to court can be made. 

 Proposal

  • The amount owing is fixed, regardless of changes in your income – the maximum term of the proposal is set but there is no minimum number of months you must be in a proposal;
  • If you get a raise, a second job or work overtime, any additional income will provide you with the opportunity to pay off your proposal faster, thereby reducing the term of your proposal.

In summary, while at a glance the proposal appears to be the more time intensive option for resolving your financial difficulties, there are other factors that can impact that comparison. 

Rebecca Frederick, CIRP, Trustee in Bankruptcy
(587)400-3344