Ira Smith Trustee & Receiver Inc.

CORPORATE BANKRUPTCY FAQ: USE OUR HACK TO SOLVE YOUR CHALLENGING INSOLVENT COMPANY ISSUES

Post author By Brandon Smith
Post date May 23, 2022

Corporate bankruptcy: An overview

Corporate bankruptcy is a legal process by which businesses can reorganize their financial affairs or liquidate their assets. Although bankruptcy can be complicated and stressful, it can provide businesses with a fresh start.

When it does happen, the corporate bankruptcy process can be complicated. Insolvency can take a toll on your company’s employees, customers, and shareholders. A solid understanding of corporate bankruptcy can help you properly restructure and reorganize your company using an insolvency process without killing your business.

Last week, I gave my best FAQ answers to common questions about personal bankruptcy services. A business partnership or sole proprietorship means that the individual(s) operate the business in their personal name. Answers about business bankruptcies for those forms of business would fall under the personal bankruptcy process that was covered in last week’s personal bankruptcy FAQ blog.

When a corporation conducts business, some of the questions, and answers, are different. In this Brandon’s Blog, I answer the most frequently asked questions about corporate bankruptcy.

**Can a business declare corporate bankruptcy?**

As stated previously, only a corporation can declare corporate bankruptcy. A corporation is its own legal entity. A “person” is eligible for relief under federal bankruptcy law. A “person” is typically defined in the Canadian bankruptcy legislation to include an individual, part of a partnership, a proprietorship, a company, an unincorporated association, a cooperative society, or a cooperative organization. corporate bankruptcy canada

What are the different types of corporate bankruptcy in Canada?

There are 2 different types of bankruptcy that a company can file for under the Bankruptcy and Insolvency Act Canada (BIA). They are:

Liquidation: This is when the insolvent company is unable to pay its debts and its business is no longer viable. The only real option for it is to sell off its assets to repay its secured creditors and unsecured creditors as best as possible since it files for bankruptcy in the priority outlined in the BIA.
Restructuring: This is when the company is insolvent and is incapable to repay its debts due to its financial difficulties, yet all or a sufficient portion of the company’s business is still viable. So, the company negotiates brand-new terms with creditors to lower its financial obligations and also might have the ability to sell some assets to settle its financial debts. Restructuring is the most well-known alternative to bankruptcy. Restructuring under insolvency legislation is also described in the media as bankruptcy protection.

**What factors lead to corporate bankruptcy proceedings?**

A company always shows signs of trouble before it needs to file for corporate bankruptcy. Some of the early danger signals are:

continued history of losses;
dwindling cash position;
the departure of key management or employees;
difficulty meeting loan or lease obligations;
the breaking of loan covenants; and
difficulty meeting payroll.

Corporate bankruptcy: What does it mean for a company when it liquidates?

As stated above, when a company liquidates it means that the company is unable to pay its debts and its business is no longer viable. The only real option for it is to sell off its assets to repay secured creditors and unsecured creditors as best as possible through bankruptcy and then shut down. corporate bankruptcy canada

**What happens to debt in corporate bankruptcy?**

If the purpose of the corporate bankruptcy is to shut down and have liquidation of business assets, then we first need to see what the net proceeds of sale from those assets are. The BIA describes the order in which funds must be distributed by a licensed insolvency trustee (formerly called a bankruptcy trustee) in bankruptcy. The order in which the debts must be repaid, in whole or in part, is called the priority.

The priority of the rights of creditors to be repaid in a corporate bankruptcy is:

Trust and deemed trust claimants – These are parties whose property is being held or is deemed to be held in trust for them by the bankrupt corporation. The most common type of deemed trust claim in a corporate bankruptcy is Canada Revenue Agency for unremitted employee source deductions.
Secured creditors – Creditors who hold valid security over the assets of the company get paid next. There could be more than just one secured creditor. Within the secured creditor group, the order of priority is based on the ranking of the security registration dates.
Preferred creditors – These are unsecured creditors who have been given certain priority in a corporate bankruptcy under federal bankruptcy laws. The most common examples in a corporate bankruptcy would be Trustee fees, the Trustee’s lawyer’s fee, the levy payable to the Office of the Superintendent of Bankruptcy Canada on any distribution made by the Trustee to a creditor and certain salary, wages or commissions due to employees.
Ordinary unsecured creditors – This group comes after the preferred creditors. They are all creditors who have supplied goods or services and do not hold any security and do not fit into the definition of a preferred creditor.

The balance of any unpaid debt ends up getting written off on the books of the creditors because there are no assets left in the company to claim against.

**How does a company get into corporate bankruptcy and what happens to the company?**

The way a company gets into bankruptcy is the exact same way an individual can. For a liquidation, either the company can file a voluntary assignment into bankruptcy. If it is one or more creditors owed at least $1,000 trying to push the company into bankruptcy, then they would file a Bankruptcy Application with the court requesting the court to make a Bankruptcy Order. corporate bankruptcy canada

**Why might a company choose to file for corporate bankruptcy protection and restructure under a BIA proposal?**

Corporate bankruptcy protection and restructuring under a BIA proposal can provide a company with financial difficulties a much-needed relief and a chance to return to profitability. When a company files for protection, the BIA proposal offers an orderly and reliable process for restructuring, which can be appealing to businesses that have a good chance of a turnaround.

A corporation that has a viable business and can return to profitability after restructuring, with support from creditors, has all the right ingredients for a successful restructuring. This is why a company might choose to file for corporate bankruptcy protection and restructure under a BIA proposal. The company will survive and jobs will be saved.

Who is responsible for developing the reorganization plan for the company?

Reorganization is the restructuring of a business to gain efficiency, improve workflow, and drive profits. Reorganization plans vary in length and detail and take a certain period of time to properly develop. They generally describe desired outcomes and final goals. Sometimes a company will undergo a complete reorganization, while other plans focus on aspects that require reorganization, such as a business unit or department.

The reorganization plan of a company is essential to ensure its smooth transition. The reorganization plan involves restructuring various departments of the business, reducing operational costs, and streamlining the workflow. Writing a reorganization plan requires a lot of time, effort, and money.

When a business downsizes, it reduces its workforce to a smaller number. Such a reduction can be a painful process that even threatens to collapse the business. The company needs to have a plan in place to accomplish this reorganization while still running the business. When downsizing occurs, businesses require reorganization plans. Involving and informing employees of the process makes them more likely to follow new plans and less resistant to change.

All of the various individual department organization plans and product sales plans need to be combined into an overall business plan. This overall business plan must also include financial information to show how the company, emerging from restructuring, will operate profitably.

Now that the overall plan is set, senior management must work with its outside financial and legal restructuring professionals to establish the restructuring commercial proposal or plan of arrangement to be presented to the creditors to be voted upon. An excellent communication program must be put into place so that creditors can understand the benefits to them of supporting and voting in favour of the restructuring proposal. Normally negotiations with certain creditors or creditor groups must take place in order to come up with a final and successful restructuring plan that will gain both creditor support and pass through the legal proceedings of court approval. corporate bankruptcy canada

**What becomes of a corporation after corporate bankruptcy?**

Going through corporate bankruptcy means your company’s assets have been sold to pay off some portion of its debts. Bankruptcy also by operation of law terminates all of the employees. So the corporation is left with no assets and no employees. All it has is debt and a deficit equal to the total debt less the amount that is shown on the balance sheet for the company’s preferred and common stock.

Therefore, the corporation, as a legal entity, is then left to just float away into the stratosphere. There are only 2 ways that a company can survive a corporate bankruptcy:

from the sale of the corporate assets, pay off 100% of all of its business debt plus interest; or
file a BIA proposal, obtain creditor support and court approval and successfully complete it.

The first way will almost never happen. The second way can happen if there is a good reason to try to make sure that the corporation as a legal entity survives. A reason for doing this might be that there is value to the shares. After becoming bankrupt, a successfully completed proposal annuls the bankruptcy. By definition, the proposal will discharge all of the company’s outstanding debt. The company is now debt-free.

The common stock may have value because it is a public company and the shares can be relisted on the stock exchange. Now the corporate shell is attractive to a private company that wishes to go public and can do so by amalgamating with this public shell. Alternatively in a private company, or in a public company, there may be significant tax loss carryforwards available for use if this corporate shell is merged with the right kind of profitable company. the only way to use the tax losses is first by owning all the shares.

This is all possible, but, the normal outcome for a company that has gone through a corporate bankruptcy is just to fade away, never to be heard from again.

**When a company declares corporate bankruptcy, what will happen to your stock or bond?**

When you invest money in a company by investing your capital, your money is legally represented by the stock or bonds that you purchased. When you see a company declaring bankruptcy, it means the company can no longer afford to pay its debts.

If a company just liquidates its assets during corporate bankruptcy, the existing shares will likely be worth very little or nothing at all. For a private company, a successful corporate restructuring might increase the value of the shares as the company will emerge from its restructuring with much less debt than before.

The value of a company’s shares is most likely to lower if it effectively restructures its financial affairs. It might have to issue brand-new stock to creditors that will not be paid back in full, watering down the value of the business’s shares.

As far as corporate bonds are they secured or unsecured against the company’s assets? If secured, they could be repaid in whole or in part depending on where they stand in the secured assets pecking order. If unsecured, then it just becomes part of the larger unsecured creditor pool. In a corporate bankruptcy that is a liquidation, those bondholders will receive their share of any distribution made by the Trustee to the ordinary unsecured creditors if there is such a distribution made.

Corporate bankruptcy and insolvency at a glance

In conclusion, bankruptcy and insolvency of course go together, although many people prefer to think of bankruptcy as an economic failure while insolvency is more accurately a sign of a business’s financial failings.

In the same way I hoped last week’s personal bankruptcy blog helped your understanding, I hope this Brandon’s Blog on corporate bankruptcy was helpful to you in understanding more about the corporate bankruptcy system in Canada.

If you or your company has too heavy a debt load, we understand how you feel. You’re stressed out and anxious because you can’t fix your or your company’s financial situation on your own. But don’t worry. As a government-licensed insolvency professional firm, we can help you get your personal or corporate finances back on track.

If you’re struggling with money problems, call the Ira Smith Team today. We’ll work with you to develop a personalized plan to get you back on track and stress-free, all while avoiding the bankruptcy process if at all possible.

Call us today and get back on the path to a healthy stress-free life.

CLICK HERE TO GET THE FREE HOW TO CLOSE YOUR BUSINESS WITHOUT BANKRUPTCY OFFER

Brandon Blog Post

BEYOND BANKRUPTCY SERVICES: OUR BEST PERSONAL INSOLVENCY FAQ 2 JUMPSTART YOUR FINANCIAL LIFE

Post author By Brandon Smith
Post date May 16, 2022

Bankruptcy services and FAQ information

Bankruptcy is a last resort for Canadian individuals, entrepreneurs and companies looking for a debt solution. However, bankruptcy services are just one of the available options we canvass with you to provide the opportunity to rebuild your financial affairs and your life.

I help people and senior company management understand bankruptcy and the other options available to rebuild their life. Frankly, bankruptcy is always the last option and hopefully in most cases, can be avoided.

In this Brandon’s Blog, I provide my best FAQ answers to common questions about personal bankruptcy services. The answers below will contain all the information you need to know. So here we go. In the future Brandon’s Blogs, I will talk about corporate bankruptcy services in addition to personal and corporate restructuring as alternatives to bankruptcy services.

Bankruptcy services: Who files for bankruptcy and why?

Many people who are considering looking into the need for the bankruptcy process may feel alone and lost. This is because they may not know anyone who has gone through the same thing, making them feel like they have no one to talk to about it. Bankruptcy can be very scary and intimidating, especially if you feel like you’re the only one experiencing financial difficulties.

Financial problems affect people from all walks of life and all income levels. It doesn’t discriminate, affecting married and single people alike, regardless of age. Seniors and those just starting out in life, consumers and companies are all susceptible to needing bankruptcy services.

The Office of the Superintendent of Bankruptcy Canada (OSB) keeps insolvency statistics. It used to be affiliated with a part of the federal government called Industry Canada. Now it is part of what is called Innovation, Science and Economic Development Canada. The OSB has not yet released the 2021 annual insolvency statistics. In 2020 99,244 insolvencies were filed in Canada. This was a 29.5% decrease in insolvencies filed with the OSB in 2020 compared to 2019. This is the largest annual decrease ever. The decrease can be largely attributed to the outbreak of COVID-19 and the various emergency response measures that followed.

The number of consumers filing for insolvency decreased from 137,178 to 96,458, while the number of businesses filing for insolvency decreased from 3,680 to 2,786. The proportion of proposals among consumer insolvency filings increased from 60.3% to 65.9%.

There are two things to remember from these statistics:

You are not alone. Many people face financial difficulties.
There are options available for avoiding bankruptcy services.
bankruptcy services

Bankruptcy services: Can bankruptcy clear debt in Canada?

Most outstanding debt owed to unsecured creditors is cleared not by a person filing for bankruptcy, but by that person receiving their absolute bankruptcy discharge.

Even after bankruptcy, some debts still need to be paid. This includes a student loan if it has been less than 7 years since you stopped being a student, alimony and child support, fines and penalties imposed by the court, and any debts due to fraud.

Also, any secured debts, such as a registered car loan or mortgage against real estate are not discharged by a bankruptcy – either personal bankruptcy or corporate bankruptcy.

What debts cannot be discharged through personal bankruptcy services in Canada?

See the section “Bankruptcy services: Can bankruptcy clear debt in Canada?” directly above.

Bankruptcy services: How much debt must you accumulate in order to file for bankruptcy in Canada?

The minimum amount of unsecured debt needed to file for bankruptcy in Canada is $1,000, as stipulated by the Bankruptcy and Insolvency Act (Canada) (BIA). In addition, the person, partnership or company must also be insolvent. Bankruptcy is a legal process. Insolvency is a bad financial situation.

Bankruptcy services: What debts are not erased in bankruptcy?

See the section “Bankruptcy services: Can bankruptcy clear debt in Canada?” directly above.

bankruptcy services

Bankruptcy services: What are the three types of bankruptcies?

There are several ways I could answer that question. For example, there are:

Personal bankruptcy is also sometimes referred to as consumer bankruptcy.
Small business bankruptcy. This would mainly be for a proprietorship or partnership.
Corporate bankruptcy – small or large companies.

Another way of answering the same question would be:

Voluntary bankruptcy – an assignment in bankruptcy being filed by the person or company.
Involuntary bankruptcy – a bankruptcy happening because one or more creditors issued a bankruptcy application resulting in a bankruptcy order.
Bankruptcy protection is not bankruptcy at all. It is a financial restructuring performed by a licensed insolvency trustee. The Office of the Superintendent of Bankruptcy Canada maintains a searchable list of individuals licensed to act as a licensed insolvency trustee in Canada.

My final way of answering the same question is:

Consumer proposal – This is a financial restructuring under the BIA to avoid bankruptcy for a person who owes $250,000 or less not including any debts secured against the person’s principal residence.
Proposal – This is a financial restructuring under the BIA to avoid bankruptcy for a person who owes more than $250,000 (not including any debts secured against the person’s principal residence) or for a company with any amount of debt.
Financial restructuring under the Companies’ Creditors Arrangement Act – This is what the media calls bankruptcy protection in order to restructure and avoid bankruptcy. To qualify to file under the Companies’ Creditors Arrangement Act statute, the company must have a debt load of $5 million or more.

All of the above bankruptcy services can only be administered by a licensed insolvency trustee (formerly called a bankruptcy trustee or trustee in bankruptcy), but they are not all bankruptcy.

I guess these are really 9 types!! It all depends on how you wish to look at it.

Bankruptcy services: What are the consequences for your assets when declaring bankruptcy?

A bankruptcy does not mean you have to give up all your assets. There are rules about bankruptcy exemptions in bankruptcy law. Also, every province/territory has laws that say what assets you can keep and how much equity you can have. These types of assets are called exempt assets. There are certain assets that you are allowed to keep that are not accessible to your creditors during a bankruptcy. These assets are exempt under federal law, provincial law or both.

In order to understand what exempt assets are in bankruptcy in Ontario, we must first look at the BIA. Section 67(1) of the BIA addresses the bankruptcy exemption issue specifically. It outlines what property of the bankrupt is available to creditors does and does not include.

Property that is not included is:

Property that is held in trust by the bankrupt for any third party.
Assets that are not subject to seizure under provincial law.
Payments to the bankrupt are made under a program that can be described as social assistance provided by the federal or provincial government.
Retirement Savings Plans – The bankrupt’s RRSP (other than for the total of payments made in the 12 months before bankruptcy) or RRIF cannot be touched even in bankruptcy.

As mentioned before, one type of asset that cannot be seized during bankruptcy is any property that is protected under provincial law. In Ontario, the amounts prescribed for exemptions are outlined in the Ontario Execution Act.

These exemptions include:

Household furnishings and household appliances – $14,180.
Tools and other personal property used to generate income:
Exemptions for farmers, being a debtor engaged exclusively in cultivating the soil or farming (and therefore it is that farmer’s principal source of primary income), $31,379 for livestock, fowl, bees, books, tools and implements, and other chattels ordinarily used by the debtor; $14,405 for any other case.
$7,117 for a motor vehicle.
$10, 783 for a principal residence.

Since these exemptions are provincial, you need to look at provincial/territorial laws for other jurisdictions in Canada.

bankruptcy services

Bankruptcy services: What are the implications of personal bankruptcy on retirement plans?

There are 4 main ways Canadians save to live comfortably in retirement. They are:

The principal residence.
RRSP..
Investments.
Private pension plan.

#1 – The principal residence and bankruptcy

For many Canadians, their house is the biggest investment they make and the majority of their savings are tied up in it. Owning a home makes people more confident about their financial future.

If the owner of a home becomes bankrupt, either through an assignment in bankruptcy or bankruptcy order, the debtor’s equity in the home is an asset for the licensed insolvency trustee to sell. The exception is if the home is fully encumbered so that there is only $10,783 or less of equity (in Ontario) in the home.

If the bankrupt is a joint owner, then the Trustee only has access to the bankrupt’s interest, which would be half the equity.

The loss of wealth from the sale of the house or the encumbrance of the house will make it take much longer to build back the equity by paying off the mortgage(s). In the case of joint ownership, the natural purchaser would be the non-bankrupt spouse or partner who owns the other half. The person would likely have to take on more debt to buy the equity from the Trustee.

The loss of wealth as a result of bankruptcy can mean having to work longer than originally planned. This is one way that bankruptcy can affect retirement.

#2 – Your RRSP and bankruptcy

It is the rare debtor that seeks an insolvency option and has a significant amount in their RRSP. This is notwithstanding that a creditor cannot seize your RRSP funds in Ontario.

If you think about it, if you have a 7-figure RRSP and a 6-figure total debt, then you are not insolvent. To be eligible to use the Canadian insolvency process, you must meet certain conditions, one of which is being insolvent.

The only amount of your RRSP that is affected by bankruptcy is any contributions made to the RRSP in the 12 months before the bankruptcy happened. That amount is subject to seizure by your Trustee. Rather than seizing that amount from your RRSP, the Trustee will require you to pay that amount to the Trustee for the benefit of your bankruptcy estate.

Not having a sizeable RRSP to start withdrawing at retirement obviously will affect your retirement plans.

#3 – Bankruptcy and investments

People who are able to save for retirement invest their money to make it grow in addition to an RRSP and principal residence. Investments such as stocks, bonds and mutual funds are very typical. There are two general ways these investments can be held: (i) investment in funds maintained by a life insurance company naming a designated beneficiary (either a spouse or blood relative); and (ii) investments held with your broker.

If you have investments through a contract of insurance and you name your spouse, child, parent, or grandchild as the beneficiary, then those investments are exempt from seizure in Ontario. If you file an assignment in bankruptcy will not have any effect on these investments, and you will be able to keep them. Therefore, this will not affect your retirement plans.

If your investments are through the brokerage arm of your bank, then your investments can be seized in Ontario. These investments will be lost in your bankruptcy and this will affect your retirement plans. If your spouse or partner purchases your interest in these investments from the Trustee, then whatever debt the purchaser had to take on to buy them may affect retirement plans.

#4 – Bankruptcy and a private pension plan

Not everyone in Canada has a private pension plan through their employer. Individuals who are self-employed certainly don’t have it. Having a private pension plan can relieve some of a person’s financial worries as they head toward retirement.

In Ontario, private pensions are protected from seizure and therefore not available for the Trustee. However, if you are already retired and are receiving the private pension income, that income is taken into account when calculating any surplus income payments you may have to make to your Trustee.

bankruptcy services

How bankruptcy services work in Ontario: What is the average length of time for a person to be discharged from bankruptcy in Canada?

To be discharged from bankruptcy in Canada can differ based on whether it is a first or second bankruptcy, and whether the bankrupt has any surplus income contributions to make. For a first-time bankrupt it can take 9 months (no surplus income) -21 months (with surplus income contributions). For a second time or more bankruptcy, it takes 24 months (no surplus income) to 36 months (surplus income).

Bankruptcy services: Surplus income

Surplus income is not an ideal term to describe the extra money an individual has. Many people would not feel they have surplus income, especially when they are dealing with debt. However, in the bankruptcy context, surplus income refers to a calculation that determines how much money a bankrupt individual must pay into their bankruptcy estate for the benefit of their creditors.

When you file an assignment in bankruptcy or have a bankruptcy order made against you in Canada, your monthly income is taken into consideration. To have what is supposed to be a practical standard of living during the bankruptcy period, the Office of the Superintendent of Bankruptcy Canada establishes a standard on an annual basis.

The earnings criteria are adjusted for inflation each year and based on information collected by Statistics Canada. Your licensed insolvency trustee decides how much you pay by making monthly payments into your bankruptcy estate each month based on these standards.

It is really the Canadian poverty line that is established by the Office of the Superintendent of Bankruptcy Canada. Regardless of where you reside in Canada, there is no difference between an expensive city as well as a remote area. Just the most fundamental demands of individuals in addition to members of the family are considered.

Bankruptcy services: Debt problems got you down? Feeling overwhelmed?

I hope this Brandon’s Blog on personal bankruptcy services was helpful to you in understanding more about the personal bankruptcy system in Canada.

Call us today and get back on the path to a healthy stress-free life.

Brandon Blog Post

LEGAL PROCEEDING JUDGMENT LIEN: 2 KINDS OF JUDGMENT LIENS WITH HUGELY DIFFERENT RESULTS IN BANKRUPTCY

Post author By Brandon Smith
Post date May 9, 2022

Legal proceeding: What are some things I can do if someone owes me money and refuses to pay?

In Canada, there are several options in what you can do when someone owes you money and you do not hold any security against any of their property. First, a person or company should obviously make one or more demands on the party that owes them the money before starting any legal proceeding.

If that proves to be unsuccessful, your next steps will probably be governed by how that creditor reacted to your demand. Did they just ignore you or did they put up either a false or somewhat valid dispute to your claim?

One possible next step is that you can retain a lawyer to make a demand to collect the money owed. If those initial efforts to collect payment prove unsuccessful, your lawyer can begin a legal proceeding against the person or company you believe owes you the money. If your legal action is successful in proving your case in court, you will receive a judgment against the party. One option is you can then take this judgment to a debt collector to try to collect on it.

In this Brandon’s Blog, I first explore several issues surrounding being a judgment debtor, having a judgment debt to collect and what happens if the judgment creditor files for bankruptcy? As the title of this Brandon’s Blog suggests, there are 2 kinds of judgment liens and in bankruptcy, the results are very different.

So I first look at what it means to get a judgment and what happens to a judgment creditor and the judgment debt if the debtor files for bankruptcy. To do this, I look at a recent decision from the Court of Queen’s Bench of Alberta which looks at the 2 kinds of judgments in detail.

Legal proceeding: Retrieving payment from a debtor

If you are having financial difficulties collecting a debt from another person or company, you may need legal assistance. If the other person (or their lawyer) refuses to pay, then you can take a legal proceeding to collect the money you are owed.

If you are owed money by someone, your lawyer will want as much information as possible before starting any legal action. The first step is to collect as many details and supporting documents as you can about the debt. Make sure you have a comprehensive overview of the debt, including the amount owed, the name of the debtor, and any relevant deadlines or timelines.

Next, collect the name, address, and phone number of the individual or company who owes the debt – the debtor. Finally, make sure that your proposed legal proceeding is going to be handled for the person or company who is actually owed the debt – the creditor. You need to be precise in who the legal proceeding is against and who it is for.

Finally, make sure that your proposed legal proceeding is going to be handled for the person or company who is actually owed the debt – the debtor. You need to be precise in who the legal proceeding is against and who it is for.

Your lawyer will take the first step of issuing a demand letter to the debtor who owes you money. The letter will most likely threaten that your lawyer will begin a legal proceeding by filing a lawsuit on your behalf if the debt is unpaid after a specific number of days or weeks. If you win, you now have the amount owing as a proven judgment debt.

Legal proceeding: In Ontario, after how long does debt become uncollectible?

The law in Ontario prevents anyone from beginning a legal proceeding against you for debts that you owe that are over 2 years old. This law is called the Limitations Act, and it applies to any debts that you owe, even if the creditor stops trying to collect the debt.

The Ontario Limitations Act establishes a maximum timeframe within which court proceedings relating to a “claim” may be initiated. In general, someone has 2 years from the time they either knew or ought to have known, that they had suffered a loss or damages as a result of an action or omission on your part.

In general, debt is uncollectible and you cannot be sued on it after 2 years have passed from the time the debt went into default resulting in the party’s claim against you. This result has even been extended to Canadian insolvency proceedings where a creditor files a proof of claim. If there is no judgment, and the claim is over 2 years old, that debt may very well be statute-barred in Ontario and the licensed insolvency trustee would have to disallow that claim.

Legal proceeding: Collecting money that is owed to you after winning a court case in Ontario

A judgment is the result of a successful legal proceeding against one or more parties in order to prove the existence of a debt. Getting a judgment made by a provincial court is just the first step. Now the money must be collected. A judgment claim can then be registered against a debtor’s personal property or real property to become a judgment lien. A successful plaintiff in their legal proceeding, now a judgment creditor, would do this to secure payment of the debt. A lien is a method of ensuring payment of money owed by registering against a debtor’s property as security.

The lien arising from a legal proceeding judgment can be properly registered to attach as a security interest in either personal property or real property. Examples against personal property would be:

to garnishee wages;
obtaining funds from a bank account or non-exempt investments; or
amounts to be paid in the future, such as the accounts receivable of a business from various customers.

When it comes to real property, if the judgment debtor is a property owner, a registered judgment lien attaches to the real estate just like a mortgage if properly registered to secure amounts payable.

In Ontario, if you wanted to register a judgment lien against a judgment debtor’s personal property, you would do so under the Ontario Personal Property Security Registration System.

Legal proceeding: What could happen if you were to lose a lawsuit and be unable to pay?

What are the judgement proof laws in Ontario?

Being judgment proof means that creditors cannot take your assets if you cannot pay what you owe. The first way this could be is because the only assets you have are the type that is exempt from seizure under provincial law. The Ontario Execution Act stipulates which assets are exempt from seizure.

The second way you may be judgment proof is that your non-exempt assets are fully encumbered by secured loans, such as mortgages and lines of credit, and that there is no value in your property for anyone else, including the judgment debtor. So if you’re judgement proof, your assets are safe from seizure.

If you’re judgment-proof in Ontario, then you don’t have to worry about having your assets seized. However, you will have to learn to live without a bank account, as cash in the bank is not an exempt asset. You also need to be the type of person who doesn’t worry.

You can’t be the type of person who worries about unsatisfied judgments against them or their credit rating taking a hit because of that. You have to plan never to own any non-exempt property in your name because that can be seized.

The non-judgment proof debtor can take action as soon as judgment is given

What if the judgment debtor is not judgment proof but the judgment renders them insolvent? In that case, the assets owned by the judgment debtor are insufficient to pay off the judgment and all of the other debts of the judgment debtor in full. Therefore that judgment debtor may very well need to look at an insolvency proceeding to deal with their debts. Depending on their debt load, they may have to consider either a consumer proposal or a full restructuring proposal or even bankruptcy. Each of these insolvency proceedings is conducted under the Bankruptcy and Insolvency Act (Canada) (BIA).

This is the introduction to the court decision I will now discuss from MNP Ltd v Canada Revenue Agency, 2022 ABQB 320.

Legal proceeding: What does it mean to have a judgement against you in Canada when you file for bankruptcy?

At the beginning of Brandon’s Blog, I said that there are two types of judgment liens with very different outcomes in bankruptcy. The Alberta court decision released on May 3, 2020, supports this view. The Reasons for Judgment of the Honourable Mr. Justice M. J. Lema are quite clear and well-reasoned.

The issue that the court had to decide on was “What does a writ of enforcement’s “binding interest”, acquired on registration against a debtor’s land, mean after the debtor’s bankruptcy?”. The fact that the Canada Revenue Agency (CRA) and Royal Bank of Canada (RBC) are respondents, hopefully, gives you a clue as to the 2 kinds of registered judgment liens against a judgment debtor.

The licensed insolvency trustee argued that the pre-bankruptcy priority arising from that interest continues after bankruptcy, that the Trustee acquires that priority position on the debtor’s bankruptcy, and that, on behalf of registered writ-holders (and, in fact, all unsecured creditors). The Trustee further argued that it can assert the binding interest and resulting priority position against a down-title secured creditor (here, CRA) and a secured-against-personal-property-only secured creditor (here, RBC).

Unfortunately, the Trustee’s position as Trustee in the bankruptcy of the judgment debtor was incorrect, according to the Honourable Mr. Justice M.J. Lema. From here on, I will refer to the judgment debtor as the bankrupt.

The key facts are that, before bankruptcy, various registered judgment liens/writs of enforcement were done against various of the bankrupt’s lands. Those writs included writs in favour of the CRA for unpaid taxes and associated amounts. The CRA writs were registered after most or all of the other writs.

The bankrupt was also indebted to the RBC, which held a general security agreement giving it a security interest in all of the debtor’s present and after-acquired personal property. After bankruptcy, via both foreclosures and trustee-initiated sales, various proceeds were harvested from the debtor’s lands.

Legal proceeding: #1 – How a CRA judgment lien becomes their competitive advantage in bankruptcy

How does CRA get a judgment against a tax debtor? CRA can take its assessment of the taxpayer to Federal Court without notice to the taxpayer or anyone else. Before this happens, CRA has already sent the taxpayer the notice of assessment and if it was not appealed, tried to collect the money. If the taxpayer fails to pay, then CRA’s lawyer through the Department of Justice can go to Federal Court to get the judgment. The judgment that CRA obtains is called a “memorial”.

Read together, s. 223 of the Income Tax Act (ITA) and s. 87 of the BIA clearly provide that:

if the Crown registers a memorial against a property in the land titles office
under ss. 223(5) and (6), it is an ordinary judgment creditor by statute; however,
subsection 223(11.1) deems the memorial to be a secured claim in bankruptcy, provided that the requirements of s. 87(1) are met.

There is no ambiguity.

The Trustee acknowledged that, on bankruptcy and per the combined effect of ss. 223(11.1) of the ITA and ss. 86 and 87 BIA, CRA is deemed to be a secured creditor in the bankruptcy. However, the Trustee argued that CRA’s secured position is subordinate to any writs that were registered before the memorial was registered. The court shot down that argument so there is no need to go through the Trustee’s rationale for making it.

By virtue of the ITA, CRA not only has a secured claim but gets to leapfrog everyone else – for sure judgment lien creditors but also prior registered secured creditors registered in the land titles office against the bankrupt property owner. This assumes that the registration is done in the proper land titles office.

The CRA memorial registered against any parcels of land is the first kind of judgment lien. As you can see, Parliament intended that CRA gets a priority secured position ahead of everyone else upon the bankruptcy of the taxpayer landowner. Ahead of not just anyone with a judgment or construction lien, but also any prior registered secured creditors, normally mortgagees.

This takes care of the 1st type of a registered judgment lien in bankruptcy. CRA’s judgment lien moves into a #1 deemed secured lien position if the judgment debtor goes bankrupt.

Legal proceeding: #2 – What happens if a judgement lien is not paid and the judgment debtor goes bankrupt

The court’s analysis proves that the 2nd type of judgment lien, being that of an ordinary judgment creditor does not retain any special status. The judgment creditor is an unsecured creditor and the fact that they registered a judgment lien before the judgment debtor filed for bankruptcy means nothing.

The possibility of a judgment lien-enforcement sale of land or building by the judgment creditor in question or other judgment creditors is effectively eliminated once the debtor is bankrupt. The same is true for a sale of land or building or other disposition of the debtor’s assets by the debtor him-, her-, or itself, regardless of the purchase price. The Trustee is installed to realize the debtor’s non-exempt assets and make sure the creditors are paid, in priority according to the provisions of the BIA.

What is the significance of a judgment lien’s binding interest after the debtor becomes bankrupt? The answer is none.

If there is no bankruptcy, a judgment lien’s binding interest has been interpreted to mean that it:

anchors the judgment creditor’s right to seek a sale of the property;
protects that creditor’s position against sales or other dispositions (e.g. mortgaging or charging) of the property by the judgment debtor; and
provides that the creditor will get actual notice and can share in the proceeds of any legal disposition of the property, such as a writ-based sale by another enforcement creditor, a foreclosure, or a sale by the owner.

A registered judgment lien holder’s binding interest does not make it a “secured creditor” under the BIA. This means that the holder’s interest is not equal to or equivalent to a mortgage or other security against the property for a debt that is due or accruing due. So with the bankruptcy of the judgment debtor, all registered judgment lienholders are merely ordinary unsecured creditors. They have no special rights and can only expect to receive a distribution from the bankruptcy estate once any deemed trust, secured and preferred claims are paid in full, subject to the levy of the Office of the Superintendent of Bankruptcy.

The Trustee tried to argue that the judgment creditors who registered against the real properties of the bankrupt company somehow retained their priority position against each other based on their respective dates of registration. The court decided that this could never be the case. Rather, the BIA prescribes how their ordinary unsecured claims are treated.

The Honourable Mr. Justice M.J. Lema confirmed in his decision that this 2nd kind of judgment lien has no priority of any kind once the judgment debtor is bankrupt. Whether the bankrupt is a man, woman or corporation, the answer is still the same.

Legal proceeding: After judgement and bankruptcy

The judgment debtor’s bankruptcy changed the priorities landscape. The binding interests stemming from judgment lien registration against one or more parcels of land were undercut. Judgment lien creditors other than CRA were relegated to waiting and watching the Trustee gather and sell the assets, regardless of what period of time it takes.

Under that scheme, secured creditors are given priority over unsecured creditors, regardless of their position before bankruptcy. In this case, both CRA (via its deemed security interest against real property) and RBC (via its GSA against personal property) are secured creditors. According to the BIA, they must be paid in full before the unsecured creditors (both preferred and ordinary) are entitled to receive any money.

I hope this Brandon’s Blog on a successful legal proceeding leading to a judgment was helpful to you in understanding more about the 2 kinds of judgments and how they are treated very differently in bankruptcy. It does not matter if it is a personal bankruptcy or corporate bankruptcy.

If you or your company has too much debt, we understand how you feel. You’re stressed out and anxious because you can’t fix your or your company’s financial situation on your own. But don’t worry. As a government-licensed insolvency professional firm, we can help you get your personal or corporate finances back on track.

Call us today and get back on the path to a healthy stress-free life.

Tags Bankruptcy, deemed secured creditor, judgment, judgment creditor, judgment debt, judgment debtor, judgment lien, land titles office, legal action, legal proceeding, MNP Ltd v Canada Revenue Agency, personal property, personal property security registration, purchase price, real estate, real property, registered judgment, secured creditors, unsecured creditors

Brandon Blog Post

DECLARING BANKRUPTCY: REAL ESTATE COMPANY LOSES CHALLENGE ON CORPORATE BANKRUPTCY APPEAL

Post author By Brandon Smith
Post date May 2, 2022

Declaring bankruptcy: Business insolvency

When the corporate finances are such that the business has an insufficient cash flow to cover its operating expenses and pay its debts when they come due, these financial difficulties create the financial condition of insolvency for the business. Another indicator of insolvency often exists at the same time: if you were to sell all of the company’s assets, you would not be able to raise enough money to pay off its outstanding debt.

Medcap Real Estate Holdings Inc. (Medcap) is an Ontario corporation that owns certain commercial real estate. Medcap’s principal, through other companies which he owns or controls, operates various fitness facilities.

Several creditors made a bankruptcy application to the Court to wind up Medcap’s business through a corporate bankruptcy. In December 2021, the Judge released his decision to issue a bankruptcy order and place the company in the legal position of bankruptcy. Medcap appealed the decision to the Court of Appeal for Ontario.

In this Brandon’s Blog, I discuss the two ways there are for declaring bankruptcy and highlight the reasoning of the Court of Appeal for Ontario in dismissing this company’s appeal for its corporate bankruptcy.

Declaring bankruptcy: An overview of corporate bankruptcy

In Canada, a company is a separate legal entity from its shareholders or Directors and Officers. So a company can go into corporate bankruptcy, as opposed to a person entering personal bankruptcy, also known as consumer bankruptcy. There are two ways a company (or a person) can go bankrupt.

The first way is that a company (or person) files for bankruptcy by filing an assignment in bankruptcy with a licensed insolvency trustee. This is called a voluntary assignment into bankruptcy. The second way, which is what happened to Medcap, is that they are pushed into bankruptcy.

To push a limited company (person) into bankruptcy, one or more creditors, each owed at least $1,000, make a bankruptcy application to the court. The application will include a sworn affidavit from the people with knowledge of the situation providing evidence as to why the company (the person) is insolvent, what acts of bankruptcy the business (person) committed within 6 months preceding the date of the application and requesting that a bankruptcy order be made against the debtor.

Regardless of the types of bankruptcy proceedings that may be involved, these are the only two ways for companies with crippling debt to become bankrupt. It is either voluntary or an involuntary one.

declaring bankruptcy

Declaring bankruptcy: Types of Corporate Bankruptcy

A company that ends up declaring bankruptcy may be doing so for a variety of reasons, all of which relate to significant financial losses. In Canada, there are two primary types of bankruptcy filings under the Bankruptcy and Insolvency Act (Canada) (BIA).

Once the company is insolvent and no longer viable, declaring bankruptcy in order to have liquidation of assets and end the business in that legal entity is the next step. In this situation, there may be certain business debts that are also a personal liability of the corporate Directors. Unremitted source deductions and HST and unpaid wages and vacation pay fall into this category.

Bankruptcy is a tricky topic. Many people tend to fear it, thinking of it as the end of the road. Given my description above of bankruptcy being for liquidating the company assets, that is understandable.

But what about the company that is insolvent but the business is very viable if the bad parts are cut out? In this kind of situation, filing under the BIA using the restructuring provisions of this federal statute, or for larger companies, the Companies’ Creditors Arrangement Act (CCAA), is a legal way for the company to restructure its debts to get its finances back in order. In a successful restructuring, the good parts of the business are restructured and preserved, the company’s finances are right-sized and most if not all jobs are saved. This form of declaring bankruptcy is what is referred to in the media as bankruptcy protection.

So in Canada, declaring bankruptcy is one type, but declaring bankruptcy protection is also possible. That is why I suggest in Canada, there are 2 types of business-specific options in corporate bankruptcy filings.

Declaring bankruptcy: Does corporate bankruptcy affect personal assets?

The legal separation of personal and corporate assets is clear. However, a company declaring bankruptcy may have an impact on the personal assets of certain people. There are situations where personal assets may be at risk. If you are concerned about your personal assets, you should consult with a legal professional to assess your individual case.

Before making any business or investment decisions, is when you should get that professional advice. Once a corporate bankruptcy filing has been made, it will be too late to properly plan for that situation. Personal assets could be at risk if it is a bankruptcy liquidation and not a successful restructuring.

Examples of when personal assets may be at risk because of business bankruptcies include:

the entrepreneur who had to give a personal guarantee of certain corporate debt financial obligations to the company’s primary secured creditor lender and in a liquidation of the company’s assets, the lender suffers a shortfall;
there is not enough money left over from the liquidation after any trust claims and secured creditor claims to pay the outstanding wages and vacation pay so the Directors’ personal assets may be at risk;
the liquidation value of the assets is essentially zero so the Directors are called upon by Canada Revenue Agency to repay any unremitted employee source deductions or HST amounts;
in bankruptcy liquidation, there is generally nothing available to repay investors or shareholders so the money an individual investor or shareholder loses certainly affects their personal assets and personal property. The stock of companies that liquidated their assets after declaring bankruptcy is worthless; and
any creditors that are unincorporated, being either a proprietorship or partnership who lose some or all of the amounts owed to them as ordinary unsecured creditors clearly affect the personal assets of those business owners.

Declaring bankruptcy: The Medcap case

With this discussion of corporations declaring bankruptcy, there are some interesting points to be learned from the Medcap appeal case and the bankruptcy process. The application judge dismissed the bankruptcy applications of all but one of the applicants. He issued the bankruptcy order and appointed the licensed insolvency trustee (formerly called a trustee in bankruptcy or bankruptcy trustee) which began Medcap’s administration of bankruptcy.

The Medcap company appealed the bankruptcy order on only one ground; the judge who made the original order failed to exercise his discretion on whether or not to dismiss the application. Medcap did not appeal the application judge’s finding that the prerequisites to the making of a bankruptcy order – a debt owing to an applicant of at least $1,000 and the commission of an act of bankruptcy within six months of the commencement of the application – had been met!

The most interesting part of the Court of Appeal’s decision is the discussion of the two factors that a court could look at where a judge could exercise discretion to justify refusing an otherwise proven bankruptcy application.

declaring bankruptcy

Declaring bankruptcy: Appealing a bankruptcy order

As mentioned previously, Medcap did not contest the judge’s conclusion that the creditor whose bankruptcy application was allowed had met the requirements under s. 43(1) of the BIA. This is that Medcap owed them a debt exceeding $1,000 and that Medcap committed an act of bankruptcy within 6 months before the filing of that bankruptcy application.

The application judge found that Medcap had failed to pay that creditor’s debt, for which a judgment was issued, despite demands. This is defined as an act of bankruptcy in s. 42(1)(j) of the BIA. In its appeal, the Medcap company argued that, even though the debt and the act of bankruptcy were proven, the application judge made a mistake by not using his discretionary power under s. 43(7) of the BIA to dismiss the application.

Medcap made three arguments to support its appeal: (i) that the trial judge erred in finding that Medcap was unable to pay its debts; (ii) that he erred in finding that the application was brought for an improper motive; and (iii) that he erred in finding that the bankruptcy order would serve no purpose.

Let’s see what the Court of Appeal for Ontario said about this.

Declaring bankruptcy: Unable to pay its debts

This is the first of the three bankruptcy issues that the Court of Appeal looked at. Medcap argued that the application judge dismissed the applications of all applicants but one because there was potential that they were not creditors. Medcap also stated that the application judge had not taken into account that Medcap had reached a settlement with the one creditor whose application was allowed to be heard. Medcap submitted that the application judge erred in not taking this into account as there was no debt owing because of the settlement and the payment of that settlement.

The appellate court found that the lower court judge did not err in rejecting Medcap’s argument. An application for bankruptcy is not solely for the benefit of the applicant creditor, but for the rights of creditors, ALL creditors. Further, the arrangements between the applicant creditor and the debtor will not be able to justify the withdrawal or dismissal of a bankruptcy application, unless the court is satisfied that the debtor is solvent and that other creditors will not be prejudiced by the withdrawal or dismissal.

To be able to pay debts as set out in the BIA, the evidence must be provided for all debts owed, as well as the debtor’s ability to pay them. In other words, the debtor must prove that they are solvent. Medcap did not provide such evidence. Therefore this ground of appeal was dismissed.

Declaring bankruptcy: Bankruptcy application for improper motives

Medcap argued that in cases where a creditor has an ulterior motive for filing a bankruptcy application, this can be sufficient cause for dismissal of the application. The Court of Appeal said that the existence of a motive is a question of fact, and the application judge considered and rejected the suggestion that there was such a motive in this case.

The Court of Appeal found that the application judge was within his rights to reject the argument based on the record. Therefore, the Court of Appeal for Ontario found no justification to interfere and dismissed the appeal on that ground. declaring bankruptcy

Declaring bankruptcy: There is no purpose for this bankruptcy

Medcap argued that the application judge erred in failing to find that no purpose would be served by bankruptcy. He ought to have dismissed the application on the basis that there was nothing to be gained by making a bankruptcy order.

The Court of Appeal emphasized that safeguarding creditors is crucial to insolvency proceedings. A debtor who has (a) committed an act of bankruptcy by not paying debts when they come due, and (b) failed to provide evidence to the court demonstrating the ability to do so, carries the burden of proving that bankruptcy would be pointless. The judge was correct in finding that Medcap had not met that burden.

The three-panel judge went on to say that, in order to demonstrate that there is no purpose for the Medcap bankruptcy, they would need to show that a better result would be achieved for creditors if it were allowed time to restructure under the commercial proposal provisions of the BIA or the provisions of the CCAA.

Medcap did not argue that doing either would have the requisite creditor support but rather suggested that leaving it up to them would be best.

The three appellate court judges hearing this case unanimously rejected Medcap’s appeal, upholding the lower court’s ruling and allowing the bankruptcy process legal proceedings to continue. At this point, the licensed trustee named in the bankruptcy order begins administering the bankruptcy legal process.

Declaring bankruptcy: The final word

What fascinated me most about this case was the nerve of Medcap to argue that the application judge should have declined to make the bankruptcy order, regardless of all the evidence against it.

The Court of Appeal for Ontario soundly rejected the appeal of the bankruptcy order being issued after analyzing the bankruptcy application process in Canada. It concluded that only a real possibility of a successful restructuring under either the BIA or CCAA to avoid bankruptcy liquidation would be a reason to do so.

I hope this Brandon’s Blog on the Medcap case was helpful to you in understanding more about declaring bankruptcy, corporate bankruptcy and how the Ontario court would decide if it was appropriate to issue a bankruptcy order. Hopefully, you have also gained insight into how a corporate bankruptcy decision is made and how a successful corporate bankruptcy protection filing and restructuring can be beneficial.

We understand how you feel. You’re stressed out and anxious because you can’t fix your or your company’s financial situation on your own. But don’t worry. As a government-licensed insolvency professional firm, we can help you get your personal or corporate finances back on track.

Call us today and get back on the path to a healthy stress-free life.

Brandon Blog Post

CONSUMER PROPOSAL TORONTO: THE COMPLETE #1 WAY TO ELIMINATE DEBT IN ONTARIO

Post author By Brandon Smith
Post date April 25, 2022

Consumer proposal Toronto: What is a consumer proposal in Ontario?

If you’re drowning in debt and find you are falling further behind every month, there may be options available to help you regain total control over all aspects of your life and eliminate your stress. If you’re struggling with debt, a consumer proposal may be a good option for you. This guide will explain what they are, and the benefits, and answer some frequently asked questions. If you’re struggling with debt and live in the GTA, a consumer proposal Toronto may be a good option for you. This guide will explain what they are, and the benefits, and answer some frequently asked questions.

This debt settlement plan is a legal process administered under the Bankruptcy and Insolvency Act (Canada) (BIA). It allows you to pay back part of your debt over a period of time. The benefit to you of a consumer proposal Toronto is that once you finish paying back the portion that you agreed to, you will be totally debt-free.

Consumer proposal Toronto: Who can file a consumer proposal?

To qualify for this government-sanctioned debt settlement plan, you must be insolvent and owe $250,000 or less to all your creditors (excluding any secured creditor financial debts secured by registration against your personal residence such as mortgages or lines of credit).

This is a good option for people who:

are employed
can budget their money to make the required monthly payments
want to avoid bankruptcy
can’t stand all the collection calls from the collection agencies anymore
consumer proposal toronto

Consumer proposal Toronto: How to make a consumer proposal in Toronto

Under the BIA, a licensed insolvency trustee (formerly called a bankruptcy trustee) will administer the consumer proposal. In fact, the licensed insolvency trustee is called the consumer proposal administrator.

The licensed insolvency trustee will submit the required documents to the Office of the Superintendent of Bankruptcy (OSB). Your payment to unsecured creditors will stop as of the date of your filing. You will also have stopped paying any secured creditors if you have decided to do so because you could not afford to keep the secured assets and you, therefore, handed them over to the lenders.

When you file a consumer proposal Toronto, any legal action your unsecured creditors have started against you in the Greater Toronto Area will be stopped. If a creditor already has a judgment against you are issuing wage garnishees, that will also stop. This will give you some relief and the time to work out the debt settlement plan.

The licensed insolvency trustee will present your creditors with your proposal, a list of your assets and liabilities, as well as the reasons for your financial difficulties.

The creditors will have 45 days to decide whether to accept or reject the proposal. They can do this either before or at the meeting of creditors if one is held.

Consumer proposal Toronto: Why would my creditors be willing to agree?

To have a consumer proposal Toronto approved, a majority of your creditors by the dollar value of their unsecured debts, who have filed a proof of claim for their unsecured debts, need to authorize it. If creditors who have filed a proof of claim choose not to vote, that is considered a vote in favour.

Creditors who hold 25% or more of the total dollar amount of submitted claims may request a meeting, or the OSB may request one. If no meeting is requested, the proposal is considered accepted by the creditors.

There is not a whole lot to understand. As I mentioned, a simple majority by dollar value tells the tale. There is either a majority to accept or refuse your consumer proposal. Why would your unsecured creditors agree to your consumer proposal? Simple. The licensed insolvency trustee acting as the administrator in your consumer proposal has clearly shown them that it is a better deal than they will get in your bankruptcy.

If your proposal is accepted, then for the next 15 days, either the OSB or a creditor can ask to be put on the Court docket to seek Court approval. If no such demand is made, the proposal will be considered to have been approved by the Court.

consumer proposal toronto

If your consumer proposal Toronto is accepted

An accepted proposal is a legally binding agreement between you and your creditors. You have committed to making regular payments to the licensed insolvency trustee for a period of up to 60 months. You will fulfil your obligations under the proposal by making all the required payments on time.

If you attend two mandatory credit counselling courses run by the licensed insolvency trustee and make all the required payments, you will have discharged the balance of your debt. This also means you have successfully avoided bankruptcy as a consumer proposal Toronto is the best alternative to bankruptcy in Toronto.

Can you pay off a consumer proposal earlier than the specified timeframe?

A consumer proposal in Ontario is an interest-free loan that is much less than what you originally owed your unsecured creditors. So, it may be beneficial to you not to pay it off early to get the full benefit of the proposal.

However, we structure all of our proposals to give you flexibility. You can take the full 5 years if you need to. If you are able to pay it off early and you have good reasons for wanting to do so, then you can.

When we word it this way, we won’t have to go back to the creditors or the court to make any timeline changes. It’s all included. Also, with other loans, there’s usually a penalty for paying them off early. But with this loan, there’s no penalty for doing so.

If your consumer proposal Toronto is not accepted

If your proposal ends up being rejected, you have a few options:

Try again with different, improved terms
Look into other options for solving your financial issues
File for bankruptcy

In other words, if you finish making all the payments and attend the two financial counselling sessions, you will have paid off your debt in full. Additionally, you will have avoided having to declare bankruptcy.

consumer proposal toronto

Consumer proposal Toronto: A consumer proposal will have an impact on your credit rating

A person who files this kind of proposal is typically given the lowest credit rating.

The information that affects your credit report is typically removed after a certain period of time. In Ontario, the notation of your consumer proposal insolvency proceeding stays on your credit record for 3 years after you have completed all of your payments and received your certificate of full performance.

Once you are done you can then start to rebuild your credit. One way to do so is by demonstrating that you can handle credit responsibly. This will involve making timely payments on your debts and maintaining a good credit history going forward. Over time, these positive steps will help to improve your credit score.

Consumer proposal Toronto: Are consumer proposals a good way to get out of debt?

You had financial difficulties and your assets and employment income were in jeopardy. Perhaps you even had wage garnishments. You needed debt solutions and you chose the only government-sanctioned debt settlement plan available in Canada. You were successful in completing it and as a result, you were able to shed all your debt in return for paying only a portion of it. You also avoided personal bankruptcy.

Without a doubt, that makes it worth it.

consumer proposal toronto

Consumer proposal Toronto: Benefits of filing a consumer proposal making it better than bankruptcy

There are several advantages to filing this kind of proposal, including:

the elimination of all unsecured debt in return for paying only a fraction of what is owed;
filers are able to keep their home, vehicle, and other assets as long as they can afford to make any mortgage payments or other loan payments against them;
a successful consumer proposal will let you avoid bankruptcy;
your proposal payments will be spread out over a longer period of time, making them more affordable.

Consumer proposal Toronto: Potential drawbacks of filing a consumer proposal

Some potential drawbacks to consider before filing a proposal include:

you may not be able to borrow money for a few years after your proposal is completed;
your credit score will be negatively affected but not as bad as someone who files for bankruptcy;
if you cannot afford to keep up the debt payments on a secured loan, such as a car loan, you will have to give it up;
the BIA says that your proposal must be a better alternative for your creditors than in a bankruptcy, so, working with the licensed insolvency trustee, you have to make an offer that will be approved by a majority of your creditors, and they may not agree to the first set of terms you propose.
consumer proposal toronto

CRA income tax debt can be included in consumer proposals

Definitely. CRA is an abbreviation for Canada Revenue Agency, whose purpose is to manage Canada’s revenue by collecting income taxes and other taxes owing by Canadians. CRA is the government department responsible for collecting income tax and GST/HST. CRA Canada tax debt refers to any outstanding tax debt owed to the Canadian government. If you have CRA tax debt, then you can eliminate it through a consumer proposal with a licensed consumer proposal administrator.

I have helped many people with CRA income tax debt. Examples are people who:

were a Director of a company and became personally liable for unremitted HST
filed their income tax returns and paid their income tax every year, but who are now faced with a large income tax reassessment that they cannot afford to pay
did not keep up with their tax filings, and once caught up, realize that they have a huge debt they cannot afford to pay

For all these people, a consumer proposal Toronto was a better alternative for both them and their creditors than a bankruptcy. If you fall into one of these categories, then I can help you eliminate that debt.

Debt consolidation versus consumer proposals

You already know from this Brandon’s Blog what a consumer proposal in Toronto, Ontario is and can do for you.

A consolidation loan is financing that lets you consolidate numerous financial obligations and pay them off with one lower interest rate loan. This aids you to conserve cash because of the lower rate of interest. Your regular monthly payment on the one loan is now much more workable. To qualify, you’ll need to have a good credit score and demonstrate that you have the income and assets to repay the loan.

Financial debt consolidation can assist you to get your finances in order, however, a consumer proposal may be a much better option if you’re struggling with financial obligations.

What will happen if I am unable to make payments on my consumer proposal?

If you stick to the terms you agreed to, your creditors and collection agencies can’t hound you. If you break the terms of your proposal or miss 3 months of payments, the proposal becomes void. If that happens, you won’t be able to file another one.

This is another disadvantage of a consumer proposal. If it becomes annulled, the only thing left would be a bankruptcy filing.

Consumer proposal Toronto: What is the popularity of consumer proposals in Toronto?

Consumer proposals are the only government-approved debt repayment program. It has become quite popular in recent years. Consumer proposals are a great option for those who are struggling to meet their financial obligations and who want to eliminate their debt.

How popular are they? The OSB recently reported that across Canada, the proportion of proposals in consumer insolvencies increased to 70.2% of all consumer insolvency filings during the 12‑month period ending February 28, 2022. So consumer proposal Toronto filings and for the rest of Canada, represent the huge majority of consumer insolvency filings.

As I already stated, you can only do this if you are insolvent and your outstanding debts to creditors are less than the maximum allowed for a consumer proposal discussed above.

consumer proposal toronto

For those who owe more than the consumer proposal limit, we use another section of the BIA allowing them to restructure and eliminate debt.

What is the cost of a consumer proposal Toronto?

To see if this choice is best for you, you’ll need to weigh the costs. There are two different types of costs to take into account: 1. the amount you need to offer to get creditor approval; and 2. the professional fees that you will be responsible for.

During your free consultation with the licensed insolvency trustee, you will learn what your creditors could expect from your bankruptcy. As I have already said, the BIA requires your creditors to have a better outcome than they would in your bankruptcy. The licensed insolvency trustee will make the recommendation to you of what a successful debt settlement strategy would be.

The professional fee and disbursements that a licensed insolvency trustee is allowed for administering your proposal are fixed by the BIA regulations and are called a tariff. The tariff is the same whether you live in Toronto, Ontario or anywhere else in Canada. The proposal document reads that the licensed insolvency trustee is allowed to take its tariff from the total of the proposal fund that you will pay over time. As you have already read in this blog, what you need to offer your creditors is driven off of what they can expect from your bankruptcy. The cost of the proposal administration is not taken into account in that calculation.

In a successful consumer financial restructuring, the tariff is taken from the amount the creditors would otherwise receive. So your creditors are paying the cost, not you. Therefore, you do not pay anything for the professional fee and disbursements.

Consumer proposal Toronto: What happens after a consumer proposal?

After you have successfully completed your proposal, including the credit counselling sessions, you have hopefully learned proper budgeting skills. You are now better equipped to make wiser credit decisions and know that you cannot spend more than you earn, on an after-tax basis.

There are now ways for you to start rebuilding your credit:

Get a secured credit card. You put down a cash deposit and that amount is your credit limit. When you pay your secured credit card debt balance in full each month and do not let the credit card company take it from your cash deposit, this will be reported to the credit reporting agencies. This improves your credit score over time.
You can take out a small RRSP loan when you first get your certificate of full performance. You can then pay off the loan within the next 12 months. If you make your loan payments on time, it will be reported and this improves your credit score.

You don’t want to get into debt problems again. Be careful with credit.

consumer proposal toronto

Consumer proposal Toronto: How to avoid being ripped off

No one wants to be cheated, especially for something as important as picking from available debt management plans or debt-relief options, the best one for you for resolving your unmanageable debt problems. Here is what you can do to protect yourself from getting taken advantage of. Before making a decision on which debt settlement company to go with, be sure to do your research. This means reading online reviews and talking to people who have gone through a restructuring proposal, to get as much information as possible.

Keep in mind that there are a lot of debt settlement companies who will promise you that either they can eliminate your debt without using a BIA insolvency process or through a consumer proposal. They charge upfront fees. Check to see if such companies are actually licensed insolvency trustees. You can do so through the OSB website.

Anyone who charges an upfront fee is not a licensed insolvency trustee. As I said, an insolvency trustee like me provides a no-cost initial consultation. As I have also told you, in a successful restructuring, it is your creditors who pay the professional fee tariff. Remember, a licensed insolvency trustee is the only debt professional who is both licensed and supervised and is the only one able in Toronto or anywhere else in Canada to be the consumer proposal administrator.

For help with a consumer proposal Toronto, please contact us

I hope you found this consumer proposal Toronto Brandon’s Blog informative. Hopefully, you now see how a successfully completed proposal can eliminate their unsecured debt from their name. It is a legally binding agreement with your creditors that can only be filed through a licensed insolvency trustee.

We understand how stressed out and anxious you have become because you cannot fix your financial situation on your own. As a government-licensed insolvency professional firm, we can help you get your finances back on track.

Trustees, like we are, are the only government-licensed and accredited professionals who provide insolvency advice and debt relief solutions. A consumer proposal is a federal government-licensed debt settlement approach that can eliminate your debt. We can help you choose what is right for you.

If you’re struggling with debt, the Ira Smith Team can help. We have the experience and knowledge to assist individuals and companies in restructuring their debt to prevent a bankruptcy legal proceeding. Everyone’s debt story is different. We offer a free debt assessment to help you identify the best solution for your personal debt issues. Call us today and get back on the path to a healthy stress-free life.

Brandon Blog Post

LAURENTIAN UNIVERSITY SUDBURY: AUDITOR GENERAL ONTARIO LAURENTIAN UNIVERSITY TERRIBLY SCATHING INTERIM REPORT ISSUED

Post author By Brandon Smith
Post date April 18, 2022

Laurentian University Sudbury: About Laurentian University

I have been following the attempt by Laurentian University Sudbury to restructure under the Companies’ Creditors Arrangement Act (CCAA). As notable events occur, I write a blog about this Northern Ontario institution and try to relate the restructuring issues in a way that every entrepreneur can relate to and hopefully, use some of the principles in their own financial management toolbox.

My last Brandon’s Blog on the Laurentian University Sudbury CCAA proceedings was December 6, 2021, and it is titled: LAURENTIAN UNIVERSITY UPDATE: LAURENTIAN UNIVERSITY SPECIAL AUDIT SIMPLY NOT GOING WELL.

In that Brandon’s Blog, I provided an update on Laurentian University Sudbury‘s disagreement with the Office of the Auditor General of Ontario (AGO) over the information and documents the Auditor General was requesting access to.

The AGO recently released its scathing April 2022 interim report titled “Preliminary Perspective on Laurentian University”. Here, in this Brandon’s Blog, I describe the findings of this report. I believe this is very instructive for all entrepreneurs not to ignore danger signals in their business.

An ugly stain for years to come: Laurentian University Sudbury students, staff reeling from cuts

Laurentian University Sudbury filed for creditor protection under the CCAA on February 1, 2021 in the Ontario Superior Court of Justice (Commercial Division), becoming the first public university in Canada to take such action. Laurentian University Sudbury held discussions with its students, faculty, other staff, trade suppliers, research-granting agencies and donors after the issuance of the court order approving the Laurentian University Sudbury CCAA filing. Laurentian needed to make drastic changes if it was to survive going forward. It is the extent of the changes that shocked students, faculty and the local mining industry community resulting in many saying that this will be an ugly stain on the institution for years to come.

Laurentian University Sudbury has closed 38 English-language undergraduate programs and 27 French-language undergraduate programs. This represents a decrease of 39% in the undergraduate programs, be it an English, French or bilingual programs offered as of February 1, 2021. This impacted approximately 772 undergraduate students (557 in English language programs and 215 in French-language programs). In addition, Laurentian closed 11 graduate programs (4 in French; 7 in English).

It follows that if programs are being cut, then teaching costs and other staff costs also need to be reduced. At the start of the CCAA proceedings, around 612 employees were unionized, including both faculty and other staff. The faculty’s union was the Laurentian University Faculty Association (LUFA). Many faculty members had tenure at Laurentian University Sudbury.

After taking part in insolvency negotiations and mediation in an accelerated process, LUFA and Laurentian came to a new agreement on labour terms including job losses. Since academic programs were cut, faculty cuts had to follow. The new agreement calls for a five-year term expiring on June 30, 2025. It eliminates 116 full-time faculty and 42 non-faculty positions.

Furthermore, those faculty and staff who were not dismissed will experience salary reductions. All faculty, whether they were dismissed or not, will have cuts to their pension benefits. That is why everyone affected was reeling from the cuts.

laurentian university sudbury

Laurentian University Sudbury: Auditor General’s Office Continues to Work for the Legislature and Ontarians

The Standing Committee on Public Accounts (Committee) of the Ontario Legislative Assembly unanimously passed a motion on April 28, 2021, requesting that the AGO conduct a special money audit on Laurentian University Sudbury’s operations for the 2010-2020 period. The Committee indicated that it wanted the AGO to audit Laurentian University Sudbury due to the many years of financial difficulties the institution has faced.

The Committee said that it wanted the AGO to look into what caused Laurentian to go into the CCAA process, figure out what happened, and learn from it so that something similar doesn’t happen at another academic institution.

Instead of cooperating with the AGO audit, the Laurentian President and Board of Governors, guided by external legal counsel, took unprecedented measures to restrict the AGO’s access to Laurentian’s information claiming solicitor-client privilege on many documents. Even non-privileged information was difficult to obtain.

The senior university administrators put in place protocols that made it difficult for staff to speak freely or provide unfettered access to financial documents and information without fear of reprimand. These restrictive protocols created a culture of fear amongst the university and its staff surrounding interactions with the AGO, putting further pressure on the university. What’s more, the AGO faced an unprecedented legal pushback.

Despite these challenges, the AGO pushed forward with its work. Thanks to the Legislature’s efforts, the AGO was eventually given access to thousands of university documents and emails. However, its ability to communicate freely with certain past and present staff members remains difficult. The delays have meant that the AGO has continued to receive and review information from Laurentian University Sudbury into this month. Eventually, the AGO lost the privileged documents, litigation privilege and settlement privilege fights in the Ontario Superior Court of Justice.

Here are the main findings of the AGO to date disclosed in its interim report.

Laurentian University Sudbury: Poor management, new buildings led to Laurentian University insolvency

The AGO team’s findings are very critical. It shows a long history of poor management and bad financial governance. The AGO found that although external factors such as tuition fees freezes and the COVID-19 pandemic impacted Laurentian, the primary cause of the university’s financial deterioration from 2010 to 2020 was caused by its pursuit of poorly considered capital investments. Procedures were not in place requiring senior administrators to assess the value and viability of expansion plans or to fully consider the risks associated with rapid growth in debt due to the university going on a building spree.

One example of poor governance and lack of financial responsibility is that, in the face of growing debt, Laurentian amended its internal capital debt policy in 2010 to allow it to incur more debt for capital activities. Another example is in 2016, when its primary lender, Royal Bank of Canada, declined to provide more long-term debt, and Laurentian sought short-term lines of credit to fund its long-term capital expansion. Funding long-term assets with short-term debt is a severe mismatch that should be avoided. This is taught in every Finance 101 course!

The university increased its use of money from other sources, such as employee health benefits and funds provided specifically for academic research projects, when access to funding decreased. The restricted funds were not segregated into separate bank accounts and were inappropriately labelled as “internal financing,” obscuring the strategy.

As new capital-project spending took center stage, Laurentian pushed needed repairs and upgrades on existing infrastructure to the backburner. With little immediate return on its capital investments, the university focussed its attention and resources elsewhere. As of December 2020, Laurentian estimated that it had $135 million worth of repairs that had not been addressed.

This AGO audit covers a period of at least 10 years. The provincial government-funded approximately 40% of Laurentian University Sudbury’s revenue requirements. Why weren’t periodic reviews of institutions funded by provincial governments done so that these problems could have been exposed prior to the CCAA filing? I would direct these poor oversight criticisms equally at the provincial government and Laurentian.

laurentian university sudbury

Laurentian’s CCAA move a mistake AGO says: Influence from outside parties

The AGO believes that Laurentian did not have to take the steps it did to file for CCAA protection on February 1, 2021. While Laurentian’s financial situation grew increasingly dire, the university did not follow the normal broader public sector precedent by making comprehensive and clear efforts to seek funding from the government. The focus instead was on advocating to elected officials and their staff, as advised by external consultants.

In August 2020, Laurentian brought up the possibility of CCAA to the Minister but did not go into detail about how much financial help was needed from the province to keep from filing for CCAA protection. In December 2020, a request for funding was made to the Ministry, which was significant and the timeline for intervention was short.

If Laurentian University Sudbury had, the AGO believes:

sought to work earlier and more transparently with Ministry staff;
not prematurely paid off and relinquished its line of credit in 2020; and
arranged for and accepted specific temporary funding assistance from the province;

Laurentian would have been given more time, its financial situation could have been reviewed jointly with the province and a plan for moving forward could have been put in place, potentially without the need for filing for CCAA protection.

Laurentian University Sudbury: Professors react

The AGO states that the contract the university had with LUFA contains a clause that is designed to deal with such extreme financial circumstances. It is known as a financial exigency clause. This clause is present in most university faculty labour contracts throughout Canada. Implementing this clause would have required the senior administration to work together with LUFA to address Laurentian’s financial situation.

Also in the AGO interim report is a section stating that LUFA requested in 2020 that Laurentian’s senior administration take action in accordance with that clause and provide additional information on the university’s finances. However, Laurentian’s senior management intentionally delayed providing this information and never put the clause into play.

The AGO stated that the senior administration, with the Board of Governors’ approval, retained external consultants to review strategic options, but focused on the CCAA option almost exclusively. The AGO says that the process of hiring external advisors has been costly in the millions of dollars, less transparent, and has had a greater impact on students, faculty, and this Northern Ontario Nickel Belt community of Sudbury. It is likely that this will continue to be the case, and the university’s reputation will suffer as a result.

The AGO calculates that as of March 3, 2022, the Laurentian University Sudbury has incurred more than $24 million in legal, court-appointed monitoring and other financial consultant fees associated with its insolvency.

laurentian university sudbury

Laurentian University Sudbury: Beleaguered University Restructure Operations summary

I hope you found this Laurentian University Sudbury Brandon’s Blog informative. There are a lot of valuable lessons here for Canadian entrepreneurs from the mistakes made by the university. The danger signals were readily apparent and in plain view, but the Administrators and Board of Governors of the university ignored them and put into place plans to circumvent restrictions that would have stopped their poor financial management. If you’re an entrepreneur reading Brandon’s Blog, I urge you not to ignore danger signals that may be showing up in your business.

Are you worried because you or your business are dealing with substantial debt challenges, showing financial danger signals and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

Tags about laurentian university, auditor general ontario, auditor general ontario laurentian university, Auditor General's Office Continues to Work for the Legislature and Ontarians, Beleaguered University Restructure Operations, interim report, Ira Smith Trustee, laurentian university sudbury, Laurentian University Sudbury students, Laurentian's CCAA move a mistake AGO says: Influence from outside parties, new buildings led to Laurentian University insolvency, poor management, Professors react, staff reeling from cuts

Brandon Blog Post

CEBA LOAN BUSINESS CLOSED: THE #1 DRASTIC ULTIMATE CEBA LOAN FORGIVENESS PLAN

Post author By Brandon Smith
Post date April 11, 2022

ceba loan business closed

CEBA loan business closed: Program overview

The Canada Emergency Business Account (CEBA) program offered interest-free loans of up to $60,000 to small businesses and not-for-profits. CEBA was available from more than 230 financial institutions across the country.

As of October 26, 2020, eligibility for CEBA was expanded by removing the previous requirement that applicants demonstrate that their business had suffered a revenue loss of at least 15% due to the COVID-19 pandemic.

As of December 4, 2020, CEBA applicants who have been approved are able to receive a $60,000 loan. CEBA applicants who had received the original $40,000 CEBA loan were eligible to apply for the CEBA expansion, which offered businesses an additional $20,000 of financing.

Many businesses in Canada have lost confidence in their financial prospects due to the uncertainty over the fate of the ongoing federal pandemic support, according to the Canadian Federation of Independent Business (CFIB). Many businesses could not survive even with this emergency government support.

I have written several blogs on the CEBA program. The federal government in its budget presented last week is trying to turn the page from COVID relief. However, many businesses still struggle. In this Brandon’s Blog, I look at what it means for the entrepreneur for CEBA loan business closed businesses.

CEBA loan business closed: Eligibility

There were two streams of eligibility for the CEBA application process for a qualifying business:

the Payroll Expenses Stream (Applicants with employment income paid in the 2019 calendar year between Cdn.$20,000 and Cdn.$1,500,000); and
the Eligible 2020 Non-Deferrable Expense Stream (Applicants with Cdn.$20,000 or less in total payroll expenses paid in the 2019 calendar year).

All Canadian operating business applicants must have satisfied the following requirements:

An active CRA Business Number (BN) was registered on or before March 1, 2020.
In order to apply for CEBA, the Borrower must have had an active business chequing/operating account with the business bank lender at the time of application (with an active operating business in operation).
This business has not used the Canada Emergency Business Account Program (Program) in the past and will not apply for support through the Program at any other financial institution.
The company plans to keep running its business or start operating again.

If you meet the following criteria then you qualify for the Non-Deferrable Expenses Stream:

To be eligible for the program, your non-deferrable expenses must fall between CDN$40,000 and CDN$1,500,000. This could include costs such as rent, property taxes, utilities, and insurance. Please note that these expenses are subject to verification and audit by the Government of Canada.
Filed an income tax return for the 2019 fiscal year, or 2018, if the return for 2019 has not yet been filed.
ceba loan business closed

CEBA loan business closed: Are any borrowers excluded from CEBA?

As required by the Government of Canada’s Program, the Borrower confirms that:

It is not affiliated with any government organization or body, nor is it an entity wholly owned by a government organization or body.
This organization is not a registered charity, non-profit organization, union, or fraternal benefit society or order, nor is it an entity owned by such an organization unless the entity is actively carrying on business in Canada (including a related business in the case of a registered charity) that earns revenue from that business.
It is not owned by any Federal Member of Parliament or Senator.
It is not a promoter of violence, hateful, or discriminating activities against sex, gender identity or expression, sexual orientation, colour, race, ethnic or national origin, religion, age, or mental or physical disability, according to applicable laws.

CEBA loan business closed: Program repayment deadlines have changed

The CEBA government support program has now been shut down. The application deadline has long passed. The federal government reviewed the original repayment deadline and saw that Canadian businesses were still struggling. So the program repayment deadlines were changed.

The terms of CEBA loans originally required that the outstanding balance (other than the amount eligible for forgiveness) must be repaid by December 31, 2022, in order to be eligible for partial loan forgiveness. The Government of Canada has announced a change to that requirement, and borrowers will now have until December 31, 2023, to repay the outstanding balance net of the amount forgiven.

As there are no payments due as of December 31, 2022, as long as your business is continuing to operate, your business CEBA loan is in good standing. Conversely, a CEBA loan business closed is not in good standing.

ceba loan business closed

CEBA loan business closed: What are the terms of the forgiveness?

CEBA loans are partially forgivable loans concerning principal repayments. Originally the loan program offered a loan of $40,000 assistance for businesses. The program was then amended to provide for an additional loan of $20,000.

As long as your company meets the CEBA eligibility criteria, it will have the following key features of forgiveness:

If your business borrowed $40,000 or less, you may be eligible for forgiveness of up to $10,000. To receive forgiveness, you must repay the outstanding balance of the loan (other than the amount available to be forgiven) on or before December 31, 2023.
If your company borrowed between $40K and $60K, the remaining balance of the loan (excluding the amount available for forgiveness) is repaid by December 31, 2023, a single tranche of loan forgiveness up to $20,000 will be issued. The amount of forgiveness will be calculated as follows:

25 percent of the first $40,000; plus
50 percent of any amount above $40,000, up to $60,000.

CEBA loan business closed: Small business bankruptcies on the rise

The number of insolvencies filed by medium businesses and owner-operated small businesses in the fourth quarter of 2021 was 9.7% higher than in the fourth quarter of 2020 and 36.8% higher than in the third quarter of 2021. These filings were either restructuring proposals or liquidation bankruptcies under the Bankruptcy and Insolvency Act (Canada) (BIA).

During the same time period, the number of large company restructurings under the federal Companies’ Creditors Arrangement Act (CCAA) has decreased. This suggests that small business insolvency filings are increasing.

Over the last two years, government support programs have helped eligible Canadians and Canadian eligible businesses. Therefore there was a reduction in consumer and business bankruptcies. However, now that the support has ended, Canadians and their businesses will have to deal with and fix the underlying problems they face.

ceba loan business closed

CEBA loan business closed: Considering closing your business?

From time to time I’ve spoken to entrepreneurs who applied and received the $60K CEBA loan, only to still not have sufficient confidence in their business’s financial prospects in this challenging time. The company is in financial trouble. These business owners are wondering what will happen if they have an outstanding CEBA loan and they have a business closure. What happens if business operations shut down?

If you have a CEBA loan business closed, that is a default under the loan agreement. A CEBA loan is a loan that does not require collateral from the borrower. The lender does not take security against the company’s assets as a condition of making the loan advance. Even though the language in the loan document may be unclear, if the CEBA loan borrower is an incorporated company, there were no personal guarantees required from the owners.

However, other creditors may have a personal guarantee either because the entrepreneur was required to give it, or it is a liability that attracts personal liability for the Directors of the company. Normal examples of such personal liability are:

other bank loans from the same or other banks;
the commercial landlord for the premises lease;
unremitted source deductions or HST; and
unpaid wages and vacation pay for employees.

It’s crucial that you consider all the risks before making any decisions to close your business. Seek professional guidance from an Insolvency Trustee (Trustee) to get an accurate assessment of your circumstances and learn what the best way is to safeguard your remaining finances.

CEBA loan business closed: Two options for small business in financial distress

A restructuring proposal under the BIA may be a good option for your business if it is viable but insolvent. With a viable core business, the unprofitable parts can be cut away so that the business can once again generate a positive cash flow. The benefit is that management never has to stop operating the business and you remain in control. The business avoids bankruptcy.

If the company is not viable and is insolvent, it is not worth it to keep funding it from personal resources, as it will only result in more money being lost from insufficient business income to cover all the operating expenses. Corporate bankruptcy is the legal process governed by the BIA and administered by a Trustee.

In a business bankruptcy, the Trustee is responsible for overseeing the process. The Trustee seizes the business assets and sells them. The resulting proceeds (minus any claims by secured creditors or trust claimants) are used to cover the cost of bankruptcy administration and make a distribution to the unsecured creditors.

ceba loan business closed

CEBA loan business closed: CEBA and CERB loans can be included in bankruptcy

The Canadian government’s COVID-19 Economic Response Plan (CERP) provided much-needed financial assistance to many businesses, including family-owned corporations, in the form of interest-free loans. The federal government also helped Canadians through other now-closed programs. There was an array of government support.

Some people who received CERP benefits were ineligible, overpaid, or found themselves owing taxes through no fault of their own. Likewise, many businesses that received government assistance through the CEBA loan and other programs cannot continue. In spite of their owners’ hard work, many businesses now have numerous debts, including a CEBA loan for a closed business.

If your or your company has a liability from one of the government response programs, including tax obligations or from a different contractual obligation, those liabilities can be discharged through a successful restructuring proposal, consumer proposal or bankruptcy under the BIA.

CEBA loan business closed: Summary

I hope you enjoyed this CEBA loan business closed Brandon Blog post. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

Tags are any borrowers excluded from CEBA, CEBA and CERB loans can be included in bankruptcy, ceba loan, ceba loan business closed, considering closing your business, covid-19 pandemic, eligible businesses, Federal government, Ira Smith Trustee, loan forgiveness, non-deferable expense stream, owner-operated small businesses, partial loan forgiveness, program overview, program repayment deadlines have changed, repayment deadline, small business bankruptcies on the rise, two options for small business in financial distress, what are the terms of the forgiveness

Brandon Blog Post

INHERITANCE DURING BANKRUPTCY: OUR BEST ANSWER TO HOW IS AN INHERITANCE TREATED IN A BANKRUPTCY?

Post author By Brandon Smith
Post date April 4, 2022

Inheritance during bankruptcy: Family situations

Your assets are considered yours in Canada. In other words, if during your bankruptcy you inherit money from a family member, the property belongs to the bankruptcy estate. Your property, including cash, will be distributed by your licensed insolvency trustee (“Trustee”) to your unsecured creditors.

Whenever an insolvent person comes to us for a free consultation, we always inquire whether or not the insolvent person is in line to inherit anything in the near future. Our recommendations will depend on the answer.

Many Canadians wonder whether the bankruptcy process will affect their inheritance. The Court of Appeal for Ontario recently reviewed a bankruptcy judge’s decision that bankruptcy would impact an estate in Richards (Re), 2022 ONCA 216 (CanLII).

This Brandon’s Blog examines this Court of Appeal decision about inheritance during bankruptcy. The case looks at would you lose your inheritance if you filed for bankruptcy, or can you use family situations to protect it from your creditors and eventually be able to get it back?

Inheritance during bankruptcy: Bankruptcy, winnings, gifts, inheritance property and the Bankruptcy and Insolvency Act

Section 67 (1)(c) of the Bankruptcy and Insolvency Act (Canada) (“BIA” ) sets out the bankruptcy law and the bankruptcy procedure regarding the property of the bankrupt as:

“all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge, including any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year — or the fiscal year of the bankrupt if it is different from the calendar year — in which the bankrupt became a bankrupt…”

This includes any assets that you own as of the date you filed for bankruptcy, as well as any assets that you have acquired after filing for bankruptcy and before you get your bankruptcy discharge. Additionally, it includes assets that you were entitled to but hid or contracted out of.

There are two parts to that sentence that are simple, but the second part is more complicated. Gifts, lottery winnings, inheritance during bankruptcy, and any other unexpected financial gain are included in this category.

Inheritance during bankruptcy

Inheritance during bankruptcy: What happens if I receive property, assets or an inheritance while I am bankrupt?

Receiving an inheritance or gift of a property while in bankruptcy can be a mixed blessing. A gift or inheritance can relieve financial stress by allowing you to pay off debts that would otherwise require you to file for bankruptcy. Receiving assets, property, or inheritances during bankruptcy will be for the benefit of creditors and will also affect how your bankruptcy file is handled including your discharge, as well as whether you were really qualified for bankruptcy at all. Of course, timing is everything.

The reason is the section of the BIA I quoted above. Your windfall could have paid off all your creditors without making an assignment in bankruptcy if it was large enough. In the event that it happens during your period of bankruptcy and before you apply for discharge, but the windfall is not large enough to pay off all your debts, it will affect the type of discharge from bankruptcy you may be able to get, whether it is an automatic discharge or a conditional discharge.

If it occurs after you have made your bankruptcy filing and is large enough to pay off all your debts, then perhaps you can apply to annul the bankruptcy. So all of these factors have to be taken into consideration when you experience an inheritance during bankruptcy or if you otherwise have a windfall.

Inheritance during bankruptcy: Will I lose my Inheritance in a bankruptcy?

By now, you should know that you will lose whatever part of your inheritance during bankruptcy. It will be whatever portion is required to pay off your creditors in full (plus interest). But what happens to an inheritance during bankruptcy if you try to contract out of receiving your inheritance if you are an undischarged bankrupt? Can the Will or trust set up that provides you with the inheritance be used to stop you from losing it during your bankruptcy?

That is what the Court of Appeal for Ontario decision in Richards (Re), 2022 ONCA 216 (CanLII) is all about which I will now describe.

Michael Richards filed an appeal with the Court of Appeal for Ontario on March 11, 2022, challenging the bankruptcy judge’s order from June 3, 2021. The issue at stake concerned the interpretation of a trust of which Mr. Richards was a beneficiary (the “Trust”).

A judgment against him was owed to The Royal Bank of Canada (“RBC”) for $987,613 plus costs and interest. Mr. Richards was struggling financially. RBC filed a Bankruptcy Application against him on September 16, 2019. The Bankruptcy Order was issued the same day.

A trust set up by his father in 2001 gives Mr. Richards the right to either the property at 61 St. Clair Avenue West or the proceeds of its sale (the “Property”). His parents were able to live in the house during their lives, with a life interest in the Property. In 2010, his father died. His mother remained in the Property and she died in July 2020. The date of death of the second parent is called the “Time of Division” in the Trust.

Before his mother died, the trustees of the Trust sold the property with the net proceeds from the sale, totalling $1,172,120.90, held in trust. Trust funds had to be distributed to Mr. Richards if he was alive at the time of division. Obviously, he was.

Inheritance during bankruptcy

Inheritance during bankruptcy: RBC and section 38 of the BIA

In October 2020, RBC obtained an order under s. 38 of the BIA (the “s. 38 order”). Section 38 allows one or more creditors to take an assignment of a claim or action that the Trustee may have if the Trustee is unable or unwilling to enforce that claim or action.

The s. 38 order gave RBC (in this case alone) an assignment of rights of the Trustee of the bankrupt estate to make a claim against the sale proceeds of the Property. The Trustee had not wanted to pursue the claim due to a lack of funding. RBC now stood in the shoes of the Trustee with respect to the sale proceeds of the Property.

RBC filed a motion to recoup the sale proceeds up to the amount owed to them (including the costs of the s. 38 action). They sought a declaration that Mr. Richards was the beneficiary of the Trust and had an interest in the Property under the terms of the Trust. RBC argued that the sale proceeds should go towards satisfying their outstanding debt because it was the property of the bankrupt.

Inheritance during bankruptcy: The undischarged bankrupt’s position

Mr. Richards responded that his interest in the Property was suspended while he is bankrupt, under the provisions of a different section of the document establishing the Trust. That very unusual provision reads as follows:

“Any right of a Beneficiary to receive any income or capital of the Trust Fund…. shall be enforceable only until such Beneficiary shall become bankrupt … whereupon… the Beneficiary’s Interest shall cease until the cause of the Beneficiary’s Interest becoming vested in or belonging to or being payable to a person other than such Beneficiary shall have ceased to exist … and then the Beneficiary’s Interest shall again be allocated to such Beneficiary as aforesaid unless and until a like or similar event shall happen whereupon the Beneficiary’s Interest of such Beneficiary shall again cease and so on from time to time.”

Mr. Richards submitted that his interest in the Property could not vest in his Trustee as he had no rights to the Property until such time as he was discharged from bankruptcy. He contended that, during his bankruptcy, any rights he had were suspended. It is only on his discharge from bankruptcy that the Property will vest in him and only then will he own it outright.

Inheritance during bankruptcy

Inheritance during bankruptcy: The trial judge’s decision

The bankruptcy judge overseeing the bankruptcy case trial held that the Property vested in Mr. Richards at the Time of Division. This meant that the Property was his and vested in his Trustee upon becoming bankrupt. Since the Trustee had transferred its rights in the action against the Property to RBC, the bank was legally entitled to receive the proceeds of sale up to the amount owed.

Inheritance during bankruptcy: The Court of Appeal for Ontario decision

The Court of Appeal for Ontario made a very clear and concise decision. It said that Mr. Richards had not shown any mistakes in the bankruptcy judge’s decision. The appellate court ruled that her interpretation of the Trust document was entitled to deference on review, stating that it agreed with her interpretation. The court found that her interpretation was consistent with the plain wording of the relevant section and also consistent with the stated purpose of the Trust.

This case demonstrates that actions that violate the public policy underpinning the BIA by individuals trying to shield their assets from creditors are not tolerated.

Inheritance during bankruptcy

Inheritance during bankruptcy: Could the inheritance have been shielded from the creditors?

In the beginning, I want to make it clear that I am not a lawyer and I do not give advice to insolvent people on how to protect their assets from their secured creditors, preferred creditors or unsecured ordinary creditors. Instead, given these specific facts, can I think of a way the Trust could have been structured differently?

When the Trust was prepared, obviously his parents were concerned about their son’s financial situation and legal proceedings against him. Rather than having the Property transferred to him at the Time of Division, the Trust should have kept the cash from the sale of the real property invested and paid Mr. Richards a monthly allowance for life.

That monthly allowance could not have been treated directly as his property. Rather, it would be considered part of his income, subject to the surplus income rule. Mr. Richards may have very well may have had to make surplus income payments to his Trustee as part of getting his bankruptcy discharge, but the bulk of the inheritance could have been shielded from his creditors.

Inheritance during bankruptcy: With the right Trust personal bankruptcies can be avoided

If the Trust was worded as I suggest, only providing Mr. Richards with a lifetime allowance but never able to have the asset itself transferred to his ownership, Mr. Richards could have avoided bankruptcy altogether. He could have filed a Proposal.

If his financial situation was such that he owed $250,000 or less, he could have filed a consumer proposal. If he owed more than $250,000, it would be a Division I BIA restructuring proposal. Either way, he would have avoided filing for bankruptcy or having a Bankruptcy Order made against him.

Although the RBC judgement against him was an ordinary unsecured claim, without their vote in favour of his proposal, it could not have succeeded. However, with the differing approach for the Trust that I suggested, it would not give RBC access to the entire amount of cash. They would have been facing the reality that they would not have been able to collect in full on their judgement for a very long time. There wouldn’t be a pot of money to attack.

This is how Mr. Richards’s parents could have made sure that the inheritance was protected for him and shielded from his creditors.

Inheritance during bankruptcy

Inheritance during bankruptcy: Summary

In conclusion, the BIA allows a bankrupt’s assets to distribute property to creditors based on a “just and equitable” standard.

I hope you found this inheritance during bankruptcy Brandon’s Blog. Are you on the edge of insolvency? Are bill collectors hounding you? Are you ducking all your phone calls to the point where your voicemail box is always full?

If so, you need to call me today. As a licensed insolvency trustee (formerly called a trustee in bankruptcy) we are the only professionals licensed, recognized as well as supervised by the federal government to give insolvency assistance. We are also the only authorized party in Canada to apply remedies under the Bankruptcy and Insolvency Act (Canada). I can definitely help you to choose what is best for you to free you from your financial debt issues.

Call the Ira Smith Team today so we can get free you from the stress, anxiety, and discomfort that your cash issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right to a healthy and balanced problem-free life, Starting Over Starting Now.

Brandon Blog Post

WHAT IS FINANCIALLY LITERATE? GOOD NEW FLORIDA LAW LATEST TO REQUIRE HIGH SCHOOL STUDENTS TO PASS FINANCIAL LITERACY COURSE

Post author By Brandon Smith
Post date March 28, 2022

what is financially literate

What is financially literate? When should it be learned?

Florida high school students will soon start learning more about how to stay financially healthy. Florida’s new financial literacy law requires high school students to take a personal finance course, and for the first time, administrators will be able to report how well they’ve met the requirement to the state Department of Education. The requirement, approved by the Florida Legislature last year, is a graduation requirement.

The course is required of all Florida students. Last week, Governor Ron DeSantis signed the legislation into law. Every high school student must take the course. I think this is great.

Financial literacy transcends national boundaries. Financial literacy is a necessity. Students in Ontario are now required to take a financial literacy course as part of the grade 10 curriculum. Students in high school now take a financial literacy course as part of the course curriculum. The purpose of Brandon’s Blog is to provide you with an understanding of what is financially literate and why it is important to have the proper financial knowledge to be able to make good financial decisions.

What is financially literate?: Financial literacy background

Despite there have been some improvements, there are lots of Canadians that still have a tough time with money abilities and living the best financial life possible. The Financial Consumer Agency of Canada was created in 2013 to aid with financial proficiency and increase the financial skills of Canadians.

Many Canadians have a post-secondary education but lack knowledge when they enter the workforce. People of all ages need financial literacy. Through financial literacy programs, students are now learning about budgeting, debt management, and retirement planning.

The United States also has a financial literacy problem. Lacking basic knowledge in financial matters, financial literacy isn’t something that comes naturally. While most of us have savings in our bank accounts, few of us have the money management skills or know-how to make our money last. You can learn the skills you need to succeed, and there’s no better time than now to start.

what is financially literate

What is financially literate?: What is the best definition of financial literacy

Exactly what is financial literacy? Whats the best definition of financial literacy? Managing money, budgeting, and investing. Individuals should manage their financial affairs in a reliable manner.

Money can be used as a tool with such education. A person with financial literacy is able to save money, make wise investments, spend wisely, and manage debt. What is financially literate? It involves having access to, understanding, and effectively using financial management skills, knowledge, and information in order to make informed decisions.

What is financially literate?: What is financial literacy and why is it important?

Students in Grade 10 in Ontario are expected to gain an understanding of good financial health from the following concepts:

fiscal responsibility; and
Services are available to help them prepare for post-secondary life in a financially proficient manner.

Students are expected to:

Understand the principles of financial responsibility.
Identify various options for financial savings.
Explore banking and other financial planning tools.
what is financially literate

What is financially literate?: Examples of the Ontario financial literacy program

The new financial literacy component of the Ontario career studies program consists of several parts for teaching money matters and increasing financial awareness. It includes:

How to set up and follow a budget with monthly payments
What a credit union is versus a bank
Managing its own accounts
Interest-bearing accounts and their interest rates
TFSAs (tax-free savings accounts)
RRSPs (registered retirement savings plans)
Student loan debt
Student loans (and the resulting student loan debt) from federal and provincial governments, such as those offered through the Ontario Student Assistance Program (OSAP)
Bursaries and loans from local governments
Loans from financial institutions (unsecured), such as banks or credit unions
Lines of credit, credit cards, and overdrafts
Understanding the advantages and disadvantages of different types of credit
When used properly, a bank loan can be used to purchase a costly item, such as auto loans or a home mortgage and monthly mortgage payments
The advantages of borrowing from family or friends, as well as the downsides of defaulting on repayment

What is financially literate?: Financial literacy for students in Florida

In Florida, Gov. Ron DeSantis signed a bill last week which is a financial literacy strategy. It requires high school students to take a financial literacy course before graduation. Students will need to take a half-credit course in personal financial literacy and money management under the Dorothy L. Hukill Financial Literacy Act. Under the law, the course must include basic skills with various financial products like managing a bank account, balancing a cheque book, credit cards, filling out a loan application, and calculating federal income taxes.

Students will also learn about other financial concepts such as local tax assessments, disputing incorrect billing statements, basic insurance policies, and simple contracts. The hope is that by learning financial literacy principles, they will have a brighter financial future.

Students should learn financial literacy as part of their overall education. Everybody benefits when students can have financial stability, know how to access financial resources, and get a leg up on their financial well=being. They will be prepared to manage their finances and possibly own a business one day. Financial literacy is a good cause that everyone should support.

With the new law, Florida becomes the 11th state in the country to require financial literacy as a graduation requirement. The states of Alabama, Mississippi, Missouri, Nebraska, North Carolina, Ohio, Rhode Island, Tennessee, Utah, and Virginia already had a law requiring the teaching of what is financial literacy to young adults.

In 2021, nearly 7 out of 10 high school students in the U.S. would have access to a standalone personal financial education, but only 1 of 5 would be required to take it to graduate.

Yanely Espinal, Next Gen‘s director of educational outreach, said several other states are considering a wide range of legislation requiring in-depth knowledge of personal finance courses, including Michigan, Georgia, and South Carolina. He believes that every state should require that financial literacy resources be available and that passing a course like the ones already in existence should be mandatory for graduation from high school.

what is financially literate

What is financially literate?: What are some popular personal budget rules?

Budgeting can be stressful, but it doesn’t have to be. With a little patience and the right tools, you can learn how to budget so you know exactly what your money is doing, and where. It’s no exception with personal finance, either. With popular budgeting websites like Mint, YNAB, and You Need A Budget, it’s easy to learn how to budget so you can be in control of your money. But which tools should you use?

People talk about rules all the time. There are rules to live by, rules to obey, rules to prevent you from breaking them, and rules to prevent others from breaking them, too. When it comes to personal finance, there are some common rules that come up again and again when people talk about budgeting. Here are five of them:

Live below your means when considering your monthly expenses.
Pay yourself first. You never know when a life event will require you to find money fast.
Start small and build up.
Track your progress.
Stick to it.

To abide by a budget is, above all, about control. Being in control of your finances will bring you peace of mind. Money is spent for a reason, and if we take the time to analyze our purchases, we can decide where to direct our money. Financial literacy and proper money management is a lifelong journey so that people will be able to overcome their financial hurdles.

What is financially literate? Key takeaways

Financial literacy for beginners is so important. More students need to come out of high school and begin their post-secondary careers, whatever that may be, by having better financial management skills. If so, then hopefully more people will be able to stay clear of insolvency. All Canadian provinces and all US states should make it mandatory to have to pass a financial literacy course in order to graduate. Rather than just having a financial literacy month, we should think in terms of a financial literacy year. Everyone should possess knowledge of the basics of money management.

I hope you found this what is financially literate Brandon’s Blog. Are you on the edge of insolvency? Are bill collectors hounding you? Are you ducking all your phone calls to the point where your voicemail box is always full?

Tags credit cards, financial concepts, financial decisions, financial education, financial health, financial knowledge, financial literacy, financial literacy for beginners, financial literacy program, financial planning, Governor Ron DeSantis, Ira Smith Trustee, personal finances, what is financial literacy and why is it important, what is financially litertate, what is the best definition of financial literacy

Brandon Blog Post

WHAT DOES A LICENSED INSOLVENCY TRUSTEE DO TO HELP IN YOUR MANAGING DEBT FOR A PROFOUND QUALITY OF LIFE?

Post author By Brandon Smith
Post date March 21, 2022

what does a licensed insolvency trustee do

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

What does a licensed insolvency trustee do?: What is a licensed insolvency trustee?

Frequently I am asked what does a licensed insolvency trustee do? How is it different from a bankruptcy trustee? The answer is it isn’t different. The term bankruptcy trustee is dated.

The new title is Licensed Insolvency Trustee. The Office of the Superintendent of Bankruptcy (OSB) changed it in 2015. Among the reasons for the name change were the submissions made by the Canadian Association of Insolvency and Restructuring Professionals. As the name suggests, a licensed insolvency trustee can offer a wider array of financial solutions.

This Brandon’s Blog is intended to describe what does a licensed insolvency trustee do and to provide useful information for you to help you better understand the debt relief advice that a Trustee provides to people, entrepreneurs, and their companies experiencing financial trouble.

What does a licensed insolvency trustee do?: Licensed insolvency trustees are professionals who are federally regulated

There are many terms in the insolvency field that the average person isn’t familiar with, which is why it’s important to understand what the licensed insolvency trustee does. Trustees are licensed and supervised by the federal government through the OSB to act as personal and corporate insolvency administrators. This means they act to protect the interests of all involved parties while assisting debtors, acting as a debt counselor, a restructuring advisor, and if required, overseeing the bankruptcy process.

Licensed insolvency trustees are professionals with a background in finance, law, accounting, and insolvency. They assist businesses and individuals who are struggling financially. Typically, licensed insolvency trustees meet with clients to discuss their financial situation and offer advice and recommendations to help get the client out of a financial bind.

What does a licensed insolvency trustee do?: The credit counselor or a debt management program as an alternative

Financial guidance is offered by licensed insolvency trustees, credit counselors, and debt management programs. These services differ greatly from each other.

A licensed insolvency trustee can simply offer you financial advice and help you plan on how to repay your debts if that is all you need. A trustee is also the only person who can file a bankruptcy or consumer proposal for you. A Trustee will provide you with an initial no-cost confidential consultation to see if there are alternatives to bankruptcy for you. Credit counselors, credit counselling companies, and debt management businesses can give you financial advice and information. They can help you make a budget and make plans to repay your debt.

What does a licensed insolvency trustee do when you have debt but do not need to resort to one of the insolvency processes? During the free initial consultation, if a consumer proposal or bankruptcy is not right for you, the Trustee will refer you to see a community organization-based credit counselor who will be able to help you and also will not charge you a fee.

What does a licensed insolvency trustee do?: The Consumer Proposal Process

Consumer proposals to creditors are made by debtors and are legally binding agreements. You group all your debts into a consumer proposal to creditors. This is a debt solution to avoid bankruptcy. Your creditors agree to accept a reduced amount as full payment. The consumer proposal is a legal alternative to bankruptcy. Only a licensed insolvency trustee can administer it.

The only consumer insolvency restructuring proceeding regulated by the Canadian government is referred to as a consumer proposal (which is the only one of the consumer insolvency government-regulated insolvency proceedings that allow debt consolidation, debt settlement, or debt adjustment). In the end, your creditors write off the remainder of your debt, and you are released from those legal obligations.

If you owe $250,000 or less (not including any personal mortgages) and are insolvent, then you can qualify for a consumer proposal. Month-to-month payments over no more than 60 months need to be made to the Trustee. You pay just a part (generally 25%) of your total financial obligations gradually to the Trustee and when ended up, the rest of the balance owing to your unsecured creditors is written off.

What does a licensed insolvency trustee do?: The bankruptcy process

Canadian bankruptcy is a process whereby a person or company can declare itself bankrupt. The bankruptcy process starts in the provincial or territorial office of the OSB where the debtor is located.

In Canada, personal bankruptcy entails a number of stages. The debtor must be insolvent, meaning that they cannot repay their debts with the assets that they own or the income they earn. With the help of the Trustee, they must file statements of affairs and a statement of current income and expenses. There are other obligations on an undischarged bankrupt but that is not the purpose of this blog.

Upon receiving their discharge from bankruptcy, that is the moment that the debtor’s debts are forgiven or discharged.

What does a licensed insolvency trustee do?: The assignment of assets

When people file assignments in bankruptcy, what does a licensed insolvency trustee do with the assets? Any assets not charged by a secured creditor are available for the Trustee to take possession of. Those assets are usually things like real estate, cash, and vehicles. When assets are seized in bankruptcy the proceedings usually lead to them being sold and the proceeds are shared with creditors.

This is the main difference between a consumer proposal and bankruptcy. In a consumer proposal, there is no assignment of assets to the Trustee like in a bankruptcy. The debtor in a consumer proposal keeps their assets and makes monthly payments. It is the total of the monthly payments that the Trustee distributes to the creditors in a consumer proposal. In a bankruptcy, it is the proceeds of the asset sales.

What does a licensed insolvency trustee do?: Opting for a consumer proposal

Many people I deal with have significant debt problems. However, a consumer proposal may not be the best option for everyone. Opting for a consumer proposal means not only do you qualify under Canadian insolvency legislation to use one. It also means that it is a better alternative for you than personal bankruptcy. It means that you are able to restructure and not need bankruptcy services from a licensed insolvency trustee.

A consumer proposal is a way to get out of debt without declaring bankruptcy. If you are having trouble paying back credit card bills, medical bills, rent payments, and you don’t want to declare bankruptcy, a consumer proposal might be right for you.

Before opting for a consumer proposal, you must meet the following requirements:

Total liabilities of $250,000 or less.
Monthly payments can be made to your creditors, but not 100% of the total amount due.
You cannot repay all of your debts with the money you have.
If you work and are able to budget, you can pay your budgeted monthly expenses and have money left over for regular monthly payments to the Trustee. Under a debt management plan, your creditors will agree to write off a portion of your debt if you pay a fraction of what you owe.
You may also be lucky enough to have a relative willing to put up a lump sum of money that represents a fraction of what you owe so that your unsecured creditors will accept it instead of all that you owe. This means that you can be in and out of your consumer proposal fairly quickly if you are in this fortunate position.

To summarize, consumer proposals are best suited to people with a sufficient disposable income. Consumer proposals offer the best way of restructuring, eliminating your unsecured debts, and avoiding bankruptcy.

There are restructuring provisions in the Bankruptcy and Insolvency Act (Canada) for people who owe more than they can discharge in a consumer proposal or in business insolvency. Despite some differences in the rules, the overall theme of restructuring remains the same.

What does a licensed insolvency trustee do?: Going the bankruptcy route

Given the above, what can a person do to eliminate their unsecured debt if they cannot qualify for filing a consumer proposal as an alternative to bankruptcy? Going the bankruptcy route will probably make the most sense.

Bankruptcy is when a person cannot pay their bills. They file Canadian personal bankruptcy to get a fresh start. Filing a consumer bankruptcy must be your last resort after exhausting all other options to avoid bankruptcy. Bankruptcy means debts are written off when the person receives their absolute discharge from bankruptcy. The bankruptcy law in Canada protects people from dishonest, unfair, or abusive practices by creditors.

However, in return for getting the relief of eliminating debts through bankruptcy, an undischarged bankrupt also has certain responsibilities.

These include:

Making full disclosure to the Trustee.
With the assistance of the Trustee, preparing the sworn Statement of Affairs and Statement of Income and Expenses.
Delivering all assets and properties to the Trustee to be sold (other than for certain provincial exemptions).
Attending the First Meeting of Creditors if one needs to be held.
Attending two financial counselling sessions with the Trustee or a member of the Trustee’s staff. Attendance at credit counseling sessions is also the case in a consumer proposal.
Providing monthly statements of income and expenses while an undischarged bankrupt.
Generally providing any assistance requested by the Trustee.

In providing debt-relief options, the Canadian bankruptcy system is designed to provide fairness to both debtors and creditors while allowing the person to financially rehabilitate themselves.

what does a licensed insolvency trustee do

What does a licensed insolvency trustee do?: Final thoughts

What does a licensed insolvency trustee do? Licensed insolvency trustees are insolvency practitioners. They are debt professionals who deal with and provide services to individuals and businesses with debt problems that are experiencing financial issues that can only be resolved through an insolvency process. Licensed insolvency trustees are professionals, offering affordable solutions to financial struggles.

I hope you found this what does a licensed insolvency trustee do Brandon’s Blog about helpful. Sometimes things are too far gone and more drastic and immediate triage action is required.

Do you have too much debt? Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.

We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

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