Debt Free in 30

If you are over-mortgaged and facing negative equity in your home, can you walk away from your mortgage in Canada? We explain what you can do if there is a shortfall on your mortgage after a sale or bank foreclosure.

A theoretical shortfall is not a real shortfall. You don't have to sell. If you can keep your mortgage payments current, and expect that the market will return before you intend to sell you can hold tight.

If you are in default your lender will begin proceedings to collect. If you do not respond and cannot catch up on missed mortgage payments, your bank or lender will likely begin proceedings to sell your home through a power of sale.

If you sell with a shortfall, or your bank forecloses, you still owe your mortgage lender any deficiency between the money realized from the sale and the balance owing on your mortgage.

Should you sell your home for less than you borrowed and find yourself unable to repay the shortfall, in Ontario, your lender can pursue you to collect the difference, as they have full recourse:

A recent Twitter headline claimed that actor Charlie Sheen is having a 'dire financial crisis' with less than $10 million to his name. While that might be a bit extreme, no matter how much money you have, if you have high debt obligations, you can face money troubles.

On today's podcast we talk with Robert Brown, author of Wealthing Like Rabbits, about what it means to be facing a personal debt crisis and what's in your control to change.

Student loans are only automatically discharged when you file bankruptcy in Canada if you have ceased to be a student for more than seven years at the time you file. However, there are cases in which clients cannot afford to wait for the seven year mark to discharge their student debts automatically. Financial hardship for student loans is an application you can make to bankruptcy court to have your student loans discharged five years after you cease to be a student. If the court agrees, it is possible to go bankrupt and have your student loans discharged after as little as five years instead of seven. It's important to note that the time frame is not based on when you got the loan, but when you stopped being a student.

On today's podcast, we dive deeper into what financial hardship for student loans is and how it works with Richard Howell, a bankruptcy lawyer with Clark Farb Fiksel in Toronto.

September is a time for a fresh start. The kids are back in school, everyone's back to work after their summer vacations, and it's a whole new season here on Debt Free in 30.

On today's show we announce our plans for the fifth season of Debt Free in 30, and also announce our YouTube channel where you can find all 200+ episodes of Debt Free in 30.

On today's final rebroadcast of the summer, I give my thoughts on how to manage your spending without a budget, and I explain how the 80/20 rule, known as the Pareto principle, can be used in all areas of money management, and in life.

I call this episode "how to cheat your way to financial success", but really it's about the 80 20 rule, which works in finances, and in life.

Please enjoy, and I'll be back next week with an all new episode, and an all new season of Debt Free in 30.

For the month of August we are replaying the most downloaded podcasts of the past year; not surprisingly, the first two rebroadcasts were about debt, and so is this one.

Originally broadcast back in January, on this podcast Ted Michalos and Doug Hoyes answer the question: which debts should you pay first?

Should you knock off the small ones first, or go for the high interest rate ones first? Does it matter if the debts are secured, like a car loan or mortgage, or unsecured, like a credit card?

This is a short podcast, less than 18 minutes, but that's all we needed; I have strong opinions on this topic, which I why I addressed this in both chapter 18 and chapter 19 of my book, and Ted also has no shortage of opinions, so here's a rebroadcast where we answer the question what debts should you pay first?

It's the month of August, and we are replaying the most downloaded episodes from the past season of Debt Free in 30.

This episode was inspired by all of those personal finance bloggers who love to write stories about how they paid off a massive amount of debt in a short period of time. That's great if you have a massive income and can do it, but what if you can't?

That's the topic on today's rebroadcast, so please enjoy our take on a Realistic Approach to Paying Down Massive Debt.

As is our tradition here at Debt Free in 30, during the month of August we rebroadcast the most popular episodes of the past year.

Today's episode is short, only 15 minutes, but I think it resonated with listeners because I discussed the concept of minimum payments. Since September, 2010, banks are required to show you, on your monthly credit card statement, how long it will take you to pay off your balance if you only make the minimum payment. That's a scary number, and it's a big reason why people call the Hoyes Michalos 310-PLAN debt helpline; they see how long they will be in debt, and they reach out for help.

So what can you do if you can only afford to make the minimum payment, or less?

That's the topic on today's rebroadcast of our episode titled Minimum Payments are Keeping you in Debt.

On today's show, recorded in July, 2018, I give my thoughts on what the bankruptcy of Tesla Inc., the electric car company, can teach us about how we manage our own personal finances.

And yes, I realize that Tesla is not (yet) bankrupt, and in fact they have a market value of approximately $50 billion (in US Dollars), which is comparable to the market value of General Motors, so on the surface it appears that everything is going great at Tesla.

Perhaps, but looks can be deceiving.

Is someone who drives a new car successful? Perhaps, or perhaps they are leasing it, and can't afford the lease payments. Outward appearances do not tell the entire story.

When I use my skills as a chartered accountant and Licensed Insolvency Trustee to analyze Tesla's financial results, I see the same warning signs that I see with my clients just before they file bankruptcy. What are the warning signs?

First, negative cash flow. At the moment, Tesla has a negative cash flow from operations of over $100 million per month. My clients have a similar problem, although obviously with much smaller dollars. My average client has around $300 available each month to pay their debts, but their average interest costs alone are over $900 per month. They, like Tesla, have a negative cash flow, and can only stay afloat by further borrowing.

Second, Tesla has bad Liquidity Ratios. They have more debt than assets, so, as we accountants say, they are not "liquid". If you have $800 in the bank but your rent of $1,000 is due today, you are not liquid, and that's the exact same issue Tesla is facing.

There is another attribute that my clients and Tesla have in common: they won't give up without a fight. Elon Musk, the CEO of Tesla, is working hard; he's even building cars in tents to meet production targets. My clients often take on second or third part time jobs to make ends meet. I admire a fighting spirit, but there comes a time when you have such an overwhelming level of debt that a bankruptcy is the only logical option.

My advice, in that case, is to reach out for help.

(Sorry Elon, I only help people, not companies, so you are on your own).

There's a saying that you shouldn't put all your eggs in one basket, and this rings true for bank accounts. While it is convenient to have all your finances located at one bank, what happens in the event that the bank's systems are down and you can't access your money for a little while? Or, a more common scenario my clients have faced is having their bank account frozen due to missed debt payments. This makes their financial situation more frustrating because they can't access their chequing account to take care of their other bills and rent.

Even though having one bank account can be convenient and may seem cheaper, on today's show, I share 3 reasons why you should bank at more than one bank for your own protection.