Tag Archives: bankruptcy

New mortgages up 63% among Canadians aged 73-93: TransUnion

NEWS: MONEY 123: WEIGHING THE COSTS AND BENEFITS OF REVERSE MORTGAGESX

https://globalnews.ca/video/embed/4359268/#autoplay&stickyiframe=video_4359268&mute

WATCH: Reverse mortgages have recently increased in popularity as nearly one-third of Canadians are approaching retirement with little or no savings.

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The volume of new mortgages across Canada has been slowing down in recent months, amid rising interest rates and tougher federal regulations, a new TransUnion report shows. But the country’s oldest homeowners are bucking that trend – big time.

Among Canadians aged 73 to 93, the so-called silent generation or pre-war generation, the number of mortgages issued between January and March of 2018 was up a whopping 63 per cent compared to the same period last year, TransUnion data shows. Baby boomers are also getting new mortgages, although the increase in loan originations among Canada’s 54- to 72-year-olds is a more modest 18 per cent.

 

That stands in stark contrast with what’s happening with the country’s first-time homebuyers and younger generations in general. Mortgage originations were down 19 per cent among millennials (ages 24-38) and 22 per cent among gen-Z (18-23).

 

Overall, the number of new mortgages issued between January and March was down 3.4 per cent compared to the same period last year. This follows at eight per cent drop in the last three months of 2017 compared to the last three months of 2016. (New mortgages include brand new loans, loans renewed at a different lender and refinancing.)

Older generations could be re-mortgaging or borrowing against their home equity in order to “support retirement or to financially support younger generation family members,” the TransUnion report reads.

Research shows that retirement expenses tend to skyrocket around age 80, due to health care and long-term care costs.

WATCH: Why women need to save more for retirement

But the pre-war generation is also joining forces with boomers to help the younger kin.

“We hear of parents and grandparents supporting their children and grandchildren, whether it’s student loans or buying a house,” Matt Fabian, director of financial services research and consulting for TransUnion Canada, told Global News.

 

That said, as large as the six-fold surge in new mortgages issued to Canada’s 70-to-90-year-olds may seem, the volume of mortgages in that age group remains very small, Fabian said. (The data does not include reverse mortgages, TransUnion said.)

Still, the numbers do suggest that the stricter mortgage rules introduced on Jan. 1 of this year are having a much bigger impact on newer generations.

“The stress-testing rules are about affordability,” Fabian said. Younger mortgage applicants may be either finding out that they don’t qualify or that they can’t get the amount and loan type they want, he added.

Older Canadians who have enjoyed remarkable home-equity gains in the last few years don’t have to worry about stricter standards on things like loan-to-value ratios, Fabian said.

The data also shows significant variations across cities. While new mortgages dropped by almost 18 per cent in Toronto, they remained virtually flat in Vancouver, with growth of less than one per cent in the first three months of 2018 compared to the previous year.

But new mortgage volumes rose in Ottawa (up 8.4 per cent) and Montreal (up 5.2 per cent), where relatively low real estate prices have been attracting an influx of buyers.

WATCH: How mortgage stress tests are affecting millennials

More credit cards and higher balances

Canadians may be having a harder time getting a mortgage, but they aren’t giving up their credit cards.

TransUnion reported a “surge” in the number of credit cards issued in the first three months of 2018, which was up 5.6 per cent year-over-year across all age groups.

“This represents a dramatic shift compared to an approximate 10 per cent decline year-over-year from [the first quarter of] 2016 to [the first quarter of] 2017,” the report said.

The average consumer now carries a balance of $4,200, the data shows. Collectively, Canadians now owe $99 billion through their credit cards.

READ MORE: Here’s what happens to $1K in credit card debt when you make only minimum payments

Total non-mortgage debt still rising, although at a slower rate

Overall, the average Canadian had almost $29,650 in debt excluding mortgages in the period between April and June, an increase of almost four per cent compared to the same three months in 2017, TransUnion said.

“This is the third consecutive quarter where the quarterly change is less than the change seen in the previous year,” the report noted.

In other words, Canadians continue to borrow more, but at least the pace at which they’re piling on debt has slowed.

Source: Global TV – 

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The solution to debt isn’t more credit

Here’s the litmus test for determining if you have too much debt: if your income was delayed, could you pay your monthly bills? “If you couldn’t meet those expenses, you’ve got too much debt,” says Doug Hoyes, licensed insolvency trustee for debt relief experts Hoyes, Michalos & Associates. “We often see our clients facing this situation. They might think the answer is to borrow to alleviate the immediate problem. But the solution to too much debt is not to get into more debt. You have to get off the hamster wheel.”

The cycle Hoyes is talking about goes something like this: Something happens to cause an initial shortfall. It might be that you get sick, injured, lose your job, split with your partner. You start to put too much on your credit cards and you can’t pay them off. “Then, you get an additional credit card and you continue to rack up more and more debt on your cards. The number of cards and balances keep going up.”

When you’re finding it difficult to make ends meet, more borrowing isn’t the answer.
When you’re finding it difficult to make ends meet, more borrowing isn’t the answer.  (CONTRIBUTED)

Now you have a problem, so you decide to solve it by consolidating your debt. You might try and apply for a line of credit, which you may not qualify for, or get a payday loan with monstrous interest rates. “Once you start getting payday loans, it’s very difficult to recover,” warns Hoyes. “In some instances, payday loans cost you $15 for every $100 you borrow. In order to pay it off, many of our clients have to get another payday loan.”

So how do you stop this cycle of debt? “Rather than continuing to add more to what you already owe, it’s important to stop borrowing and stop the bleeding,” says Hoyes. He suggests taking an inventory of what you owe and then making an honest budget to see if you can find a way to pay it back on your own. “You might also consider ways to add income rather than just deal with expenses. Perhaps you get a second job or a roommate to help with expenses.” In the likely situation where you discover you can’t do it on your own, consider talking with a Licensed Insolvency Trustee to help you find a way to pay off a few debts.

For most clients, the best way to deal with debt is a consumer proposal or bankruptcy, explains Hoyes. “In a consumer proposal, we make a deal to pay back considerably less than the amount owing. Instead of making minimum payments for decades or declaring bankruptcy — your last resort — with a consumer proposal, you pay an agreed amount that’s much less than what you owe over a five-year period. Then three years later, it comes off your credit report.”

As Hoyes explains, it’s not about consumers running from debt. “It allows them an opportunity to make manageable payments and ultimately, get a fresh start.”

 

Source: The Star – Thu., Aug. 16, 2018

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Bankruptcy scores: Why lenders may turn you down despite a good credit score

Few borrowers know about bankruptcy scores, but lenders have been using them for years.

Few borrowers know about bankruptcy scores, but lenders have been using them for years.

Few have heard of them, but they’ve been around for a few years: Bankruptcy scores.

Most Canadians know about credit scores, and some are acutely aware of their three-digit number. Where you fall on a scale from 300 to 900 can affect whether or not you qualify for a mortgage for your dream house, a car loan or a credit card and how much you’ll pay for the privilege of borrowing that money.

 

But there’s often another set of numbers that could cause lenders to deny you a loan or hike your interest rate — even if your credit score doesn’t look so bad. Financial institutions often rely on bankruptcy scores to gauge the probability that you’ll go financially belly up in the next 12 to 24 months.

Credit reporting bureau Equifax has a Bankruptcy Navigator Index that it says allows lenders to “uncover the financial red flags not so obvious at first glance.” And competitor TransUnion has its own CreditVision Bankruptcy Score.

 

The latter “is an empirically-derived model designed specifically for the Canadian market,” TransUnion Canada told Global News via an emailed statement. “The score ranges from 100 to 950, with lower scores indicating a higher risk of filing for bankruptcy or [a consumer] proposal,” the company added, noting that financial institutions, telecom companies and lenders in the auto-loan industry, among others, use it.

TransUnion has had bankruptcy scores for a number of years but introduced its CreditVision score in 2015, it said.

Equifax did not respond to two requests to provide additional information on its Bankruptcy Navigator.

 

How bankruptcy scores work

Bankruptcy scores are aimed at detecting risky borrowers that sometimes go under the radar with traditional credit scores, licensed insolvency trustee Doug Hoyes told Global News.

“It turns out that there is a significant difference in behaviour between the person with bad credit who will not file bankruptcy and the person with a similar bad credit score who will declare bankruptcy and this is what your bankruptcy score measures,” Hoyes, co-founder of Ontario-based debt-relief firm Hoyes Michalos, wrote in a blog post.

 

Sometimes, there’s a lag between when an overstretched borrower reaches the point of no return and when that reality will be reflected in his or her credit score. It’s possible for people with scores in the 600-700 range to be on the verge of defaulting on their debt repayments, said David Gowling, senior vice-president at debt consultancy MNP.

“Some people come in telling me how great their credit score is, but then you find out they’re using one type of credit to pay another type of credit,” Gowling told Global News. And because they’re still able to make minimum payments, “the credit score hasn’t caught up,” he added.

According to Hoyes, compared to someone with a bad credit score who will stay afloat, someone who is at high risk of going bankrupt tends to:

  • Use credit more often;
  • Apply for credit more often and have more recently acquired debts or credit accounts;
  • Have fewer accounts in collection. (This is because people who rely on debt to pay more debt are often careful about not missing payments in the belief that this will grant them access to more credit);
  • Have a higher credit utilization rate, i.e. carrying a credit balance that takes up a large percentage of your borrowing limit.

 

While credit scores are a look at your borrowing history in the rear-view mirror, bankruptcy scores likely pick up on these telltale signs of might happen in the near future, Hoyes told Global News.

In general, the credit file of someone at high risk of bankruptcy tends to show much more recent activity, which is why applying for new credit in an attempt to improve your credit score can backfire, according to Hoyes.

WATCH: Lenders behave like car insurance companies: If you don’t have a driving record, you’re automatically a very risky driver.

What bankruptcy scores mean for you

Bankruptcy scores affect borrowers in three main ways, Hoyes said. Like credit scores, they can influence both how much you’ll be able to borrow and at what rate. But they could also result in lenders deciding to sell your debt to so-called debt buyers.

 

Debt-buyers are companies – sometimes collection agencies – that buy delinquent debt at a deep discount and then try to collect some of that debt.

If a lender has, say, 100 borrowers who are late making debt repayments, it can use a bankruptcy score to decide which ones to offload to a debt-buyer. Selling the riskiest accounts for a fraction of the face-value of the credit balance means writing off some debt, but the loss for the lender might ultimately be less than if the borrowers filed for bankruptcy.

The thing is, though, that there’s no way to know what your bankruptcy score is. While consumers can review their credit reports and purchase their credit scores, bankruptcy scores are typically only available to lenders.

The key takeaway, though, is that if you’ve reached the point where you’re using new debt to pay old debt, your decent-looking credit score is probably meaningless.

Source: 

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10 most common bankruptcy myths

 

“The Act permits an honest debtor, who has been unfortunate…” to “…make a fresh start…”.

So reads page two of the 1,841 page annotated Bankruptcy and Insolvency Act (BIA) regarding a person who files bankruptcy. The legal process of bankruptcy effectively assumes one’s ‘innocence’ and is intended to be financially rehabilitative rather than punitive in nature. The days of debtor’s prisons have been assigned to the scrapheap of history.

Yet bankruptcy—and legal insolvency generally—is one of the more mercurial and misunderstood areas of personal finance. Recently I wrote an article arguing that unsustainable debt loads have become the new normal in Canada, in which I drew on my first hand experience with people struggling with debt trouble. As such, I have personally met with thousands of clients and have fielded every type of question imaginable about debt, assets, income, investments, businesses, taxes and just about anything else you could conjure up.

Myths about bankruptcy abound. Licensed insolvency trustees and their staff, such as ours, spend a lot of time dispelling misinformation when we are asked about what is involved with bankruptcy.

From what I’ve seen there are three possible explanations for the myths that exist about bankruptcy. Firstly, the majority of people will simply never have any personal involvement with it; secondly, our proximity in Canada to our giant neighbour, the U.S., from which we get most of our TV, film and even news consumption, means we hear tales of “Chapter 7” or “Chapter 13,” yet Canadian bankruptcy law differs greatly from the U.S. Bankruptcy Code. And thirdly, we have that font of unending opinion masquerading as fact known as the Internet.

Faced with such formidable competition for legal knowledge, it’s worth taking some time to address the most common bankruptcy myths in Canada, ones we hear on a daily basis in our offices. Canadians should be aware of their rights and options in the event of financial trouble.

Here are the top 10 bankruptcy myths (in no particular order):

1. I will lose my home

Very few people who file bankruptcy in Canada actually lose their homes these days. The net equity in your home is what is of interest to the creditors, specifically. And there are even exemptions for this depending on the province you live in ($10,000 in Ontario).

If there is non-exempt equity in your house when you file for bankruptcy,  you make a settlement payable to the estate (via the Trustee). Upon discharge, the trustee would release its interest in the property. Or you could file a Consumer Proposal as an alternative to bankruptcy (in which case your assets are yours to keep, anyway). Either way, you would keep your home. Or you can choose to have the Trustee sell the home and use the proceeds to pay the creditors only the amounts they are owed by proven claims.

2. I will lose my possessions

Personal effects, furniture and household goods are exempt in bankruptcy. Exceptions would be made if you had items of extraordinary value such as fine art, which you would be asked to declare on your sworn Statement of Affairs to the creditors. You can exempt one car with a net value of $6,600 or less. So if you have a fully encumbered car (financed or leased), keep it if you wish, provided you continue to make the payments in the normal course of business. Keep your stuff.

3. I will lose my job

It is illegal for an employer to terminate employment simply for filing a bankruptcy. In fact, unless there is a wage garnishing order in place, your employer will not be informed of your filing. Some professions have rules in place precluding your filing a bankruptcy, such as having a broker’s license in which trust accounts are managed. In that case, a proposal could be filed instead as it does not include such restrictions.

4. I will go to jail

Laugh if you like but we get asked this a lot. I hesitate to even mention it, but it is possible to be imprisoned under s. 198 of the BIA for Bankruptcy Offenses, but it is rare and you’d have to work hard to get there. Example: fraudulent sworn statements or conveyances (transfers of property) without disclosure. In well over two decades of practice, we’ve never had a bankrupt person go to jail.

5. My spouse’s credit will be affected

An almost universal question for married people who file bankruptcy. You cannot affect another person’s credit by filing a bankruptcy, period. If you have joint debts with your spouse and he or she does not also file, they are 100 per cent liable for those debts and only those debts.

6. I will not be able to get future credit/buy a house

As stated earlier, bankruptcy is intended to be rehabilitative in nature, not punitive. It would not be fair to punish someone forever for filing a bankruptcy, so the record of it stays on your credit report for six years following discharge for first-time bankrupts. After that, it is gone. Your ability to buy a house will always be governed by your financial circumstances: your income, your assets, your spending and obligations. Many former bankrupts have been taught budgeting by their Trustee as part of the process and are now, of course, debt-free. So on paper, as long as they have the downpayment, many look pretty attractive as a lending risk. Even while the bankruptcy is still on your report when you apply for a mortgage, most still get approved in our experience. CMHC will guarantee a mortgage within three years of your discharge from bankruptcy depending on your financial situation.

7. I will not be able to renew my mortgage

Everybody who has an existing mortgage has asked this, and we’ve never had one client not get renewed, provided they remain with their existing lender and are current with the payments. Most are set up for auto-renewal.

8. I cannot include the taxes I owe in bankruptcy

Absolutely untrue. All taxes owing are unsecured debts fully dischargeable by bankruptcy (and proposals). This includes not just personal income tax but HST and, in the case of a business, payroll tax, which is a director liability and would trail you personally. The myth about taxes not being dischargeable in bankruptcy likely derives from the U.S. Bankruptcy Code, in which only certain tax debt for specific periods are dischargeable and only in certain situations. Canadian bankruptcy law discharges all tax debt universally, unless the Canada Revenue Agency has taken steps to secure it (a lien on a property) or in the case of fraud or tax evasion.

9. I will not be able to keep any lottery winnings

Despite how few people actually win the lottery, almost everyone asks about this. Any unexpected windfall of money during a bankruptcy is considered a non-exempt cash asset of the estate that vests in the Trustee for the general benefit of creditors. In normal parlance: the Trustee would pay out all proven claims by unsecured creditors in the bankruptcy in full, and the remaining lottery winnings would be returned at the time of discharge.

10. My trustee will restrict the income I can make

The bankruptcy act sets out surplus income standards, updated annually, which govern the portion of the bankrupt’s income which should be paid to creditors. The standards are based on the number of people in a given household. So a bankrupt is technically not restricted in what they can make, but they must pay more if they make more above these levels. The bankruptcy would also be longer (before discharge) if there is surplus income.

Bonus Myth (11): Mortgage shortfalls can’t be included in bankruptcy in Canada

Wrong. Mortgage shortfalls certainly can be included in a bankruptcy (or consumer proposal). But it only matters in the provinces with power of sale legislation: Ontario, Newfoundland, New Brunswick and PEI. Let me explain by way of some background.

In Canada, certain provinces have power of sale legislation in place. In that system, a lender will commence proceedings when the homeowner defaults on their mortgage. The borrower remains responsible for any losses the lender may incur from the sale, and the lender will then commence legal action to recover the shortfall.

By contrast, a foreclosure (also the prevailing law in the U.S.) is undertaken by a lender when the homeowner defaults on their mortgage, but in this case the borrower is not liable for any loss incurred by the lender. In the U.S., many homeowners walked away from their properties during the 2008 housing crisis and were not liable for the shortfalls.

A bankruptcy (or a consumer proposal) stops or prevents any legal action taken against a homeowner for the shortfall incurred by the lender. It becomes a debt fully dischargeable in bankruptcy or via a completed proposal. This includes any type of mortgage (first, second, HELOCs, privates). The secured debt gets paid out as much as possible from the property’s sale, and any shortfall is unsecured, and therefore eligible for discharge in any insolvency proceeding.

So if you are upside down on your mortgage (you owe more than the home’s value), you could file a bankruptcy or proposal and include that shortfall amount amongst your other unsecured debts in that insolvency. That is a sizeable advantage to a debtor versus being on the hook for any loss in a foreclosure.

Source: MoneySense.ca – Scott Terrio is an estate administrator at Cooper & Co. Ltd, a licensed insolvency trustee in Toronto. Follow him on Twitter at @CooperTrustee

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