Ira Smith Trustee & Receiver Inc.

BANKRUPTCY PROTECTION: THE UNDENIABLE BEST THING YOU NEED TO KNOW TO CASH YOUR INSOLVENT CUSTOMER’S CHEQUE SAFELY

Post author By Brandon Smith
Post date November 12, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Bankruptcy protection: What happens if a company gets into financial trouble?

A Canadian company seeking bankruptcy protection has two choices when it is financially troubled and wants to reorganize. By hiring insolvency legal counsel and a licensed insolvency trustee to get both insolvency and bankruptcy law advice and financial advice, they can protect themselves from their creditors, either by:

using the Companies’ Creditors Arrangement Act (CCAA) to file for bankruptcy protection; or
working with an insolvency trustee and filing a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act (BIA) you can obtain bankruptcy protection.

In order to reorganize in Canada, an insolvent company files for bankruptcy protection. If you are insolvent in Canada, then you must file for bankruptcy protection, which is equivalent to Chapter 11 in the United States. The process is called financial restructuring or financial reorganization. By doing this, the company will try to restructure while it continues to operate to come up with a restructuring plan that allows the company to survive while satisfying the needs of the creditors to some degree.a

This Brandon Blog discusses a recent court decision that demonstrates that there is a risk to creditors who receive payments from the insolvent company under bankruptcy protection for goods or services supplied if the restructuring fails.

What happens to the company that files for bankruptcy protection?

An organization that files for bankruptcy protection, or as it is sometimes called, creditor protection, differs from an organization that files for bankruptcy. A pure bankruptcy procedure consists of a liquidation. The company ceases to operate unless the Trustee sees value in continuing to operate the company for a limited period of time.

The trustee in bankruptcy takes possession of all assets that are either not subject to valid claims by secured creditors (typically financial institutions) or that belong to third parties (for example, equipment under lease or goods undergoing repair that are in the company’s possession). A licensed insolvency trustee then formulates a plan for selling the unencumbered assets of the company to maximize the proceeds. Afterwards, the Trustee distributes the funds in accordance with the BIA.

In the case of a company filing for bankruptcy protection, this is one of the alternatives to bankruptcy. The intention is to continue operating while it tries to restructure. Most of the time, this entails downsizing. A plan will be devised to repay some of the remaining debt in exchange for the creditors writing off the balance that is owed. With success, the company can retain employees and continue to operate. Creditors will be able to earn money by supplying the reorganized company in the future.

The CCAA allows companies that owe at least $5 million to their creditors to file for bankruptcy protection. Either the business will be restructured and continue to exist on new financial terms or a wind-down will be supervised to pay back anyone owed money by selling assets. BIA restructuring provisions can be used by companies that owe less than $5 million.

In other words, a company that goes bankrupt will shut down. Those who file for bankruptcy protection want to keep operating. As disruptive as bankruptcy and restructuring are, they can be beneficial for businesses, individuals and the economy since they preserve value and prevent assets from being wasted.

As soon as the company enters bankruptcy protection (or bankruptcy), proceedings against it are stayed. As a result, all collection rights for creditors are suspended. A “time-out” gives the company a chance to restructure, or the Trustee can handle its duties in bankruptcy without interference from creditors. Additionally, it “freezes” all creditors at the time of the filing, so that one cannot gain an advantage over another.

bankruptcy protection

A record number of companies have sought creditor protection under COVID-19 and more are on the way?

The list of large Canadian companies with outstanding debts looking for bankruptcy protection from creditors got to a decade high in May and June 2020. Numerous financial commentators believed there would be a full-blown financial crisis and that a lot more would certainly file as a result of COVID-19 caused the economic downturn. Despite this, the number of corporate insolvency filings appears to have stabilized and also slowed down in 2021. One main reason is the number of government programs supporting Canadian business. In the same way as the virus itself, COVID-19 has actually taken a hefty financial toll on companies with pre-existing conditions.

Some familiar Canadian corporations in the list of companies that filed in that time due to their financial situation were:

Reitmans
Frank & Oak
Aldo
DavidsTea
Cirque Du Soleil
Mendocino
Bow River Energy
FlightHub
Christian charity, Gospel for Asia
Cequence Energy
Delphi Energy
Sail

Twenty-two major Canadian companies sought creditor protection in May and June 2020, almost four times the usual rate. The list obviously does not include major U.S. names such as Chesapeake Energy, J Crew, Neiman Marcus, Brooks Brothers, Pier 1 and Boy Scouts of America.

**The bankruptcy protection court case facts**

I want to tell you about Schendel Mechanical Contracting Ltd (Re), 2021 ABQB 893. On November 9, 2021, the Honourable Mr. Justice Douglas R. Mah released his decision.

Schendel Mechanical Contracting Ltd. (Schendel) was one of three associated companies that at one time collectively formed a major construction concern in Alberta under the Schendel name. As a result of financial difficulties, it was an insolvent entity and it filed a Notice of Intention to Make A Proposal under the BIA on March 22, 2019. Schendel continued operations as part of its restructuring effort. On various Schendel projects, Schendel bought HVAC equipment from the supplier between April 2018 and May 2019.

Ultimately, Schendel’s debt restructuring plan failed. Schendel was deemed to have filed for bankruptcy when it failed to implement a successful BIA Proposal restructuring. Schendel went bankrupt immediately. Its secured creditor applied to the Court for the appointment of a Receiver, which was granted.

As a result of reviewing the company’s books and records, the Receiver found and disputed the legality of a $40,000 payment from Schendel, an insolvent company, to one of its suppliers. According to the Applicant Receiver, the payment was prohibited for a number of reasons and the funds should be returned. The recipient supplier asserted that the payment was both innocent and validly received and that it was entitled to retain it.

In this case, a cheque dated July 8, 2019, to make the payment. Due to an unknown reason, the supplier did not negotiate the cheque until 11:48 AM on July 19, 2019. Schendel was also deemed to have filed for bankruptcy and the Court made the Receivership Appointment Order all on the same day, July 19, 2019. The Court had, however, no evidence regarding the exact moment the receivership and bankruptcy decision was made on that same day.

bankruptcy protection

**The bankruptcy protection case: The Receiver’s position**

It is noteworthy that the action to recover the $40,000 was brought by the Court-appointed Receiver and not the insolvency trustee of the bankruptcy estate. According to the Receiver, the funds should be returned on the following grounds:

the automatic stay under section 69(1) of the BIA was in effect at the time of filing and throughout the extension of the proposal period, so the supplier was without recourse against Schendel;
the Court-ordered stay contained in the Receivership Appointment Order of July 19, 2019, as well as the concurrent stay imposed by a deemed bankruptcy under the BIA, deprived the supplier of all collection remedies as of that date;
as an alternative, the payment may be prohibited under the Fraudulent Preferences Act; or
it may be in violation of the Statute of Elizabeth (see note below).

NOTE: The English Parliament passed this statute in 1571 with the purpose of prohibiting transfers that would defraud creditors or hinder their collection efforts. As a result of widespread fraudulent transactions designed to defraud creditors, the 13 Elizabeth Statute was passed. It is still in effect in Alberta today.

**The bankruptcy protection case: The supplier’s position**

The recipient supplier said that it received the payment both innocently and legally and that it is entitled to retain it. In addition, the recipient supplier said:

besides some routine questions about payment, the supplier had not engaged in any activity to try to collect the debt;
the relationship with Schendel was arm’s-length;
both of the last two extension orders for the NOI define a process by which Schendel may pay, and the Receiver has fallen short to prove that the procedure was not followed when it comes to the subject payment; and
for either the Fraudulent Preferences Act or the Statute of Elizabeth, the required intent cannot be shown.

Since the bankruptcy trustee was not involved in this case, nobody was claiming that the payment was a preference or transfer under value under the BIA.

bankruptcy protection

**The bankruptcy protection case: The Judge’s decision**

The Court was not presented with evidence on whether the $40,000 payment in question was approved within the proposal extension process or whether it was not approved. There was evidence to support Schendel’s compliance with approved procedures. In the post-NOI period, the supplier was found to have provided goods to various Schendel projects worth $34,476.75.

There was evidence that the payment was not just a payment on account of a pre-filing debt without further transactions post-filing. According to the Judge, the stay would not apply to indebtedness arising from goods or services supplied to Schendel after the filing of the NOI. This is because such indebtedness would not be a claim that could be a proven claim in the bankruptcy.

The Judge further stated that it is the Receiver’s responsibility to prove that the payment violated the stay. Schendel and the supplier did continue to do business together after the NOI was filed, according to the evidence. During the hearing, the Judge said that he should not simply assume facts in the Receiver’s favour. Additionally, the evidence indicated that some of the $40,000 payment was applied to the post-NOI supply of goods. A total of $34,476.75 worth of product was supplied to Schendel after the NOI was filed.

As a result, the Judge rejected all of the Receiver’s arguments and dismissed his Application in its entirety. Consequently, the supplier kept the $40,000.

Bankruptcy protection: How to cash your insolvent customer’s cheque safely

Companies filing for bankruptcy protection, whether under the CCAA or BIA, are reorganizing to stay in business. Businesses require purchasing goods and services and paying for them. It’s possible that some pre-filing debts will be paid after the filing date even though the debts are frozen from a collection perspective.

The stay does not necessarily prohibit every post-NOI payment by an insolvent company to a creditor. Such payments are valid when they are necessary to enable the company to move forward with restructuring. For example, a creditor may require payment of all or a portion of its pre-filing debt in order to supply post-filing.

Parties can agree to repay past debts in order to secure future supplies. First and foremost, the BIA process aims to encourage a debtor to reorganize as a going concern. Both creditors and debtors benefit from the debtor’s continued operation during this critical time. The BIA’s stay provisions and preference provisions give debtors breathing room to reorganize their finances. Setting up legitimate agreements with key suppliers is an integral part of that process.

In the end, it is critical to determine whether the payment of past indebtedness is a valid condition of post-NOI supply, which is required for restructuring to proceed. In that case, the post-filing payment of the pre-filing amount will be valid. If not, the insolvency trustee can recover it from the supplier.

Creditors seeking to recover pre-filing debts must make the payment as a condition of a post-filing supply arrangement. Additionally, because all of this is playing out in real-time in higher-risk settings, a supplier is free to amend the pricing post-filing. Similarly, if the supplier can secure it, there is no reason for them to not try to go from an unsecured creditor to a secured creditor on the post-filing supply by taking security or requesting a letter of credit. This would all be done out of an abundance of caution because as stated above, unpaid post-filing debts are not a claim provable in the company’s bankruptcy if the restructuring is unsuccessful.

bankruptcy protection

Bankruptcy protection summary

I hope you found this bankruptcy protection Brandon Blog post informative. Are you worried because you personally or as business owners are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, 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.

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. Even though we are licensed insolvency trustees, we have found that 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.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Brandon Blog Post

TO CALCULATE HST IS EASY: PAYING IT AND SOLVING OTHER GIGANTIC COVID-19 BUSINESS DEBT PROBLEMS ARE NOT

Post author By Brandon Smith
Post date November 8, 2021

calculate hst

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Calculate HST and Canadian small business

I read two business reports this week, one from the Canadian Federation of Independent Businesses (CFIB) and one from the Canada Revenue Agency (CRA). They both contain troubling information. The combined effect is bad news.

CRA reports that businesses owe $14.3-billion in unpaid sales tax. CFIB estimates that small businesses in Canada owe a collective $139 billion in debt due to the COVID-19 pandemic as of August 2021.

Almost three-quarters of small businesses that took on debt expect it to take more than a year to repay. For businesses in the hospitality sector, the number jumps to 87 percent, with most saying it will take longer than two years to pay it off. Nearly a quarter worried about ever being able to pay off their debts.

These two reports clearly illustrate that one of the debts Canadian business owners have amassed is collected but unremitted Harmonized Sales Tax (HST). This Brandon Blog will not only describe how to calculate HST but also explain what will happen if you do not pay it over to CRA.

***Calculate HST* Amounts in Sales and *Purchase Documents***

You must register for GST/HST if you bill more than $30,000 per year. You do not need to register if you don’t exceed this amount. The HST calculation varies according to the province or territory you operate in. Several provinces have harmonized their provincial sales tax with the Goods and Services Tax (GST) and charge HST on taxable goods and services. GST and provincial sales tax have to be charged in provinces with PST; GST is calculated on the price of each taxable sale of goods or services before PST is added.

HST is calculated on the revenue from each taxable sale that is collectible or collected. The HST on each taxable supply produces an input tax credit that can then be deducted from the HST owing. HST on taxable sales less input tax credits from taxable supplies is the net amount of HST due or refund for the period. Your HST return may need to be filed annually, quarterly, or monthly, depending on how large your business is as measured by total sales and therefore sales taxes also.

CRA has created an HST calculator to help you calculate HST.

calculate hst

Calculate HST is just one part of small business debt and the COVID-19 impact

In their August 2021 research study, the CFIB uncovered a variety of issues that show the Canadian small business sector is struggling. They found:

It is estimated that 71% of Canadian small business owners have taken on new debt loads to deal with the effects of the COVID-19 pandemic.
CFIB estimates that total Canadian small business debt loads related to the coronavirus is around $139 billion, and 76% of businesses that took on debt said it would take them more than one year to repay it.
Governments should continue business relief measures as government support is winding down since Canadian small businesses are carrying such a burden and are having difficulty regaining their footing. Rent assistance is one such support program.
Only 39% of small businesses in Canada are currently making sales they consider to be normal for this time of year, despite recent improvements. Most continue to experience declines in revenue.
About 17% of small businesses in Canada have sales that are half or less of what they should be.
Four in five businesses are using one or more sources of funding to cope with COVID-19.
In the arts, recreation & information, and hospitality sectors, 9 of 10 businesses are using some federal, provincial, or other funding to cope with COVID-19.
In three out of five cases, government relief programs replace less than 30 percent of the COVID-19 shortfall.
Scaling back federal relief programs comes too quickly for most business owners.
According to half of the entrepreneurs, repaying their debt is the biggest challenge their business faces on the road to recovery.

Now for the CRA news release that has to do not only with how to calculate HST, but who is and is not paying their HST.

How to calculate HST is only the first part: Businesses owe $14.3-billion in unpaid sales tax, Canada Revenue Agency says

The number of companies falling behind on federal sales tax remittance indicates financial distress, as companies battle the pandemic and supply chain issues. In March 2020, when pandemic restrictions began, the nation owed $11.5 billion in GST and HST to the government. By September 2021, it owed $14.3 billion, an increase of 24 percent over that amount.

As of 2020-21, the CRA has received about 500,000 fewer sales tax returns than the year prior. There were approximately 105,000 fewer sales tax filers, the agency reports. Despite the fact that so many businesses are still operating at some level, they are not even bothering to file their tax returns.

Most businesses file their HST returns on either a once-a-year reporting period or on a quarterly reporting period. Some larger companies report and remit monthly. Quarterly remitters with annual taxable income between $1.5 million and $6 million showed the largest drop in returns by reporting period.

Therefore, it is clear that Canadian businesses are using the tax amounts collected as another source of financing since the pandemic hit. There is no mention of HST in the CFIB study. HST collected but not remitted was not even considered as a source of financing, which it is.

calculate hst

***Calculate HST* but if you don’t pay, it is a *deemed trust***

Regardless of the business legal structure, the GST/HST amounts you collect from your customers are considered a deemed trust in favour of the federal government. In an operating business, it takes precedence over whatever debts you owe to other creditors, including secured creditors. The CRA can still get payment from your bank even if the bank does not lend money to you. They can go to the bank where you keep your business funds and get payment there. All that is explained in my blog post about Canada v. Toronto-Dominion Bank.

However, the CRA has the following options:

garnish bank accounts, accounts receivable, and all other sources of income;
confiscate and sell assets; and
pursue other legal remedies.

In my experience, CRA does not typically seize and sell assets. Instead, they pursue garnishments. As in the TD Bank case, they can also just go to whichever of the financial institutions the business banks with and demand the HST funds that have been deposited. When a company owns real property, they may get a judgment from a federal court without notifying the owner, and register that judgment against the title to the real property. Upon refinancing or selling the property, the business owner is required to repay the judgment, plus interest.

Calculate HST: Are HST and COVID debt crushing the life out of your business?

In an environment hamstrung by manufacturing and shipping backlogs, businesses may experience supply shortages and higher delivery costs. Even though paying your bills may be the most emotionally satisfying course of action, it may not be the most practical.

It’s better for your business and your employees if you seek professional advice if you believe that you cannot make next month’s payroll. The following issues cannot be ignored: lenders demanding loan repayment, landlords threatening to end your lease or seize your assets as payment, suppliers cutting off credit or halting deliveries.

The first thing I do as a licensed insolvency trustee is to determine what stage of the business the company is at. The stage the business is at is crucial for me to understand. The choices are:

Solvent and viable.
Solvent but not viable.
Insolvent and viable.
Insolvent and not viable.

The business can probably restructure with some simple changes to its operations if it is solvent and viable. Insolvent companies that are still viable may be restructured under the provisions of the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act.

The business can be liquidated or sold if it is not viable, but it is solvent. If it is insolvent and not viable, we are probably looking at bankruptcy or receivership.

A deep dive is required to find out what the correct answer is. For sure I would need to calculate HST collected but unremitted, as that is a deemed trust claim, apart from one exception I describe below.

calculate hst

Calculate HST: What happens to the deemed trust claim in a bankruptcy?

The Excise Tax Act (ETA) defines GST/HST as a deemed trust claim. Under the ETA, a deemed trust claim will include amounts for GST/HST that was collected by the business but not paid to the CRA. There is only one exception. A bankruptcy of the business will rearrange the priorities. In a bankruptcy, the deemed trust GST/HST claim becomes an ordinary unsecured claim. There is no statutory authority for this same outcome in a BIA restructuring Proposal. However, sometimes, as an administrative issue, CRA will allow this treatment also.

According to one school of thought, unremitted amounts included in deposits or loan repayments to a financial institution before bankruptcy continue to be deemed trust claims. Nonetheless, the Supreme Court of Canada clarified GST/HST deemed trusts and secured creditors’ responsibilities for funds received.

The Callidus Capital Corporation v Her Majesty the Queen decision was reversed by the Supreme Court of Canada in 2018. For secured creditors, the decision that the deemed trust provisions of the ETA become inoperative on bankruptcy, and therefore secured creditors are not liable to account for proceeds received from a debtor pre-bankruptcy, is significant.

Calculate HST: GST/HST liability For directors

ETA section 323 increases the CRA‘s power to collect unremitted GST/HST when efforts to collect against corporations prove futile. As a result of the failure of the corporation to remit GST/HST, its directors will be liable for any tax the corporation should have remitted. The directors are jointly and severally liable for the corporation’s unremitted GST/HST.

CRA has the right to look to the directors whether the corporation is in bankruptcy or not. When we calculate HST and discover a company owes net HST, there is another downside to bankruptcy. CRA may now want to claim on the directors sooner because of the HST liability becoming unsecured.

Calculate HST summary

I hope you now see why I feel the combination of the CFIB survey results and the announcement from CRA spells upcoming trouble for Canadian businesses. I also hope you found this calculate HST Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, 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.

Brandon Blog Post

3 TOP WAYS TO SUCCEED IN CREDIT REPAIR USING A CREDIT CARD FOR REBUILDING CREDIT

Post author By Brandon Smith
Post date November 4, 2021

Credit card for rebuilding credit: Introduction

Money mistakes in the past can negatively impact your credit score and your ability to qualify for a loan or obtain a good interest rate. Fortunately, there is hope. Bad credit scores can be improved in Canada by the use of perseverance and some time. You might even qualify for a credit card for rebuilding credit in Canada.

This Brandon Blog shows you how to take control of your finances, including learning how to use a credit card for rebuilding credit to improve your credit rating.

credit card for rebuilding credit

A credit card for rebuilding credit for people with bad credit is not your first step

Getting a copy of your credit report is the best way to determine which areas need improvement when it comes to repairing your credit. How many late or missed payments have you had in the past? The credit bureaus can report past due utility payments, outstanding cell phone bills, and old parking tickets. Have you exceeded your debt utilization ratio? Did you experience bankruptcy in your past?

Could your credit report be inaccurate? This is something that needs to be brought to the creditor’s attention so that they can fix the problem and revise their reporting. As an alternative, you can provide proof to the two credit reporting agencies in Canada, so that each can correct the error.

credit card for rebuilding credit

A credit card for rebuilding credit Canada is not your next step either

Now that you know your debts need to be addressed, you need to figure out how to get your payments in order. You need to develop smart spending and saving habits to rebuild your credit score. One of the best ways to do this is to create a budget that reflects your income and expenditures. In my Brandon Blog, I have written extensively about the importance of household budgets. Budgets are essentially a plan for how you will spend your money. Following a budget will help you with having normal and current payment activity.

Getting comfortable with not overspending and living within your means should become a habit. You don’t have to give up every nice dinner or outing just because you have a budget, but you do have to be aware of how much income you have available to spend and save after taxes. This will allow you to be able to make all necessary payments on time.

Next, you must establish better credit history through consistent payments. Your payment history is the most important factor in determining your credit score, so if you’ve fallen behind on your payments – or haven’t been paying on time – your credit situation is unlikely to improve until you catch up on your accounts. Without improving on this, you cannot fix a poor credit score. Spoiler alert – making only the minimum payment each month against your regular credit card is not keeping current on that debt.

If you cannot pay your overdue accounts right now, call up your creditors. Maybe you can negotiate a special repayment plan that fits your budget. Cut your debt as much as possible. Credit utilization ratios are very important. If your various types of credit, such as credit card balance, line of credit, or overdraft are used more than three-quarters of your available credit, that will bring down your credit score.

With time, patience, and financial discipline, building a better credit history and credit score – even rebuilding credit after bankruptcy – can be done. In the beginning, you may need to only use cash, and preferably not your debit card, for all of your necessary everyday purchases. Put your credit cards away to avoid temptation. Knowing that if you do not follow your budget you will run out of money is a strong motivation to stay on track when you only take out the amount of cash your budget says you can afford to spend.

One of the first steps to rebuilding credit with a credit card might be to lock each traditional credit card away and not use them!

credit card for rebuilding credit

Prepaid Credit Cards vs. Secured Credit Cards: What’s the Difference?

Prepaid cards are sold at many retail locations, such as grocery stores and pharmacies. A service fee is charged when you load money onto the card and when you use it. So not all the money you load onto the card is applied to your purchases. Whenever you do buy something with this kind of credit card, the dollar amount of your purchase is deducted from your cash balance.

You can still get a prepaid credit card without having a good credit score. That is because by getting this type of card, you are not applying for or getting credit from anyone. To load it, you use your own money. To put money onto a prepaid card you can: (i) transfer money from your bank account onto the card; or (ii) give cash to the clerk who will add it to the card at the store that sold it to you.

Prepaid cards are not credit cards in the traditional sense, so they won’t help you build credit or repair credit. In the same vein, it is not a credit card for rebuilding credit.

One of the requirements of a secured credit card is that you need to pay a cash deposit. Once the deposit is made, the credit limit is equal to the amount of the deposit. The security deposit that you pay is collateral held onto by the credit card issuer in return for the credit they are extending to you. If you don’t repay your balance on time, the credit card company can use this security deposit to pay off your debt. Once you have paid the security deposit, you can use the secured credit card.

The normal size of payment of security deposit typically varies from $500 to $10,000. You can get a secured charge card if you do not get approved for a standard unsecured credit card. Those with a poor credit history looking for a credit card for rebuilding credit will certainly find a charge card of this kind beneficial. Secured cards do not require a credit check because the financial institution is protected by the down payment. Consequently, you are practically certain to be authorized.

You will boost your credit rating as you make purchases and repay your full balance outstanding every month with this type of card. It is because the issuer of the secured credit card is really giving you credit. Your balances as well as payment history are reported frequently to the two credit bureaus in Canada. You can enhance your credit score over time by making your full regular monthly payments when due. Any individual aiming to use a credit card for rebuilding credit should seriously look into getting a secured credit card.

credit card for rebuilding credit

Credit card for rebuilding credit: Secured credit cards vs. unsecured credit cards

There are differences between secured cards and unsecured credit cards. An unsecured credit card is a routine charge card that can be made use of day-to-day as much as the credit limit allows. The issuer of these types of traditional charge cards makes a hard credit check inquiry right into your credit report when you apply for one. An unsecured card does not need a down payment. An unsecured charge card normally has a higher credit limit, and some credit card companies offer with their unsecured cards benefits like cashback, price protection, a better interest rate on purchases or travel points.

You can ask if your secured card can be turned into an unsecured one after an amount of time (and your security deposit returned). I would say that a reasonable time period would be six months to a year of making consistent payments on time as well as staying within your credit line. You have to demonstrate that you can handle credit properly.

Credit cards, both secured and unsecured, report your activity to the credit bureaus. If you use the card responsibly, you can build or rebuild your credit. Look around carefully to find the right credit card for your financial and credit score situation that will help you rebuild your credit. Secured, unsecured, low-interest rate, travel benefits and even guaranteed approval credit cards are available from many financial institutions in Canada.

Picking the ideal credit card for rebuilding credit is really crucial. While some bank cards have an annual cost, others do not. You must constantly check out the fine print in the contract when picking a credit card. I wish you great success in your financial journey.

credit card for rebuilding credit

Credit card for rebuilding credit: Summary

I hope you found this credit card for rebuilding credit Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Your situation may be so dire that a redone budget and a secured credit card may not be enough of an answer. If it is too much debt for any reason, 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.

Brandon Blog Post

BAD CREDIT LOANS TORONTO: DO YOU NEED TO BORROW WITH ALARMING HIGH-INTEREST INSTALMENT LOANS?

Post author By Brandon Smith
Post date November 1, 2021

bad credit loans toronto

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Bad credit loans Toronto: How Canadians are dealing with higher rates

Low- and moderate-income people make up the membership of the Association of Community Organizations for Reform Now (ACORN) Canada. A report about high-interest loans was published by the organization in February 2021. The study found that instalment loans and high-interest online loans are becoming more popular. This loan type differs from payday loans in the category of bad credit loans Toronto.

According to the study:

Loans with high-interest rates are growing in popularity.
We need to protect consumers from unfair and deceptive practices.
To stop unfair lending practices, the Federal Government needs to act.

Since the publication of the study, nothing has changed. The COVID-19 pandemic, the vaccination program, and the continuing stimulus to the Canadian economy have certainly taken the spotlight. I discuss these new high-interest loans in this Brandon Blog, which are akin to long-term payday loans for bad credit loans Toronto.

bad credit loans toronto

Bad credit loans Toronto: Forget payday loans, this is Canada’s new generation of high-interest loans

Provincial laws regulate payday loans, which usually have to be repaid within two weeks. These loans have very high-interest rates and are for relatively small amounts – enough to tide the person over until the next regular payday. In the event that a borrower cannot repay the loan on time, the payday lender rolls the amount owed, with more fees, into a new loan.

Typically, this results in annualized rates of interest between 400 percent and 500 percent. Canadians are struggling at a time when this form of legalized loan-sharking continues. Anti-poverty groups like ACORN have long targeted the industry, but it is being increasingly targeted by legislation.

In the midst of government efforts to rein in the payday loan industry, payday lenders as well as new online lenders offering an alternative to payday lenders are extending lines of credit and instalment loans to cash-strapped borrowers. At 47% annual interest, these lines of credit and instalment loans create debt traps.

Lack of regulation of high-interest personal loans has contributed to the growth of lenders offering bad credit Toronto instalment loans. According to ACORN’s report, nine out of 13 provinces have specific rules to regulate payday loans, but far fewer have rules to address other forms of high-cost lending, such as instalment loans.

bad credit loans toronto

Bad credit loans Toronto: Why Canadian borrowers are still taking on the high-interest loans steep commitment

Due to a lack of regulation, these high-interest instalment loan lenders have grown at a rapid rate. Why do Canadian borrowers continue to take on debt when interest rates are so high? It is because they cannot avoid it. People who borrow this way often have no other option.

It was brought to light by the pandemic that there are essentially two classes in Canada: those with solid credit scores, savings, an emergency fund and collateral, and those without. The major banks and credit unions can lend to the former at a competitive interest rate but won’t to the latter. So many Canadians need this type of alternative lender.

Payday lenders are not the only players in the high-interest instalment loan industry in Canada. Equitable Bank and easyfinancial are also major players. The most common uses of the funds borrowed on these high-interest installment loans since the pandemic began are:

Financing furniture and appliances purchases.
Paying rent and other expenses both before and while receiving federal government COVID-19 support payments.
Supporting other family members while unemployed.
Buying Christmas presents.

Let’s learn how installment loans work. Suppose you want to purchase a $1,500 piece of furniture for your apartment and the store offers you the option of an instalment loan financing. It costs almost $2,000 to borrow to pay for the furniture and the additional charges and administration fees. A 29.99 percent annual interest rate applies. In this example, the cost of borrowing is just over 39 percent annual percentage rate (APR), which includes interest and other charges.

The loan term will ultimately come to an end. The loan does not amortize so that there is nothing owed at the end of the term. They may refinance the loan for you if you are unable to repay the outstanding balance of the loan on time at the end of the term. If they do, it is at a higher interest rate than the original loan (with more fees and charges of course.) It becomes a never-ending circle debt trap. This is how high-interest instalment loans work.

bad credit loans toronto

Bad credit loans Toronto: Budget 2021 sets up a fight over high-interest loans

In order not to be guilty of charging a criminal rate of interest on those long-term loans, they need to adhere to the maximum annual interest limit of 60 percent. This rate, however, has been in effect for almost four decades already. Despite the fact that annual interest rates on these high-interest rate instalment loans are less than 60 percent, critics contend that they charge a criminal rate practically, if not legally. There are faint rumblings of some political will to try to rein in what many call predatory lending.

bad credit loans toronto

Bad credit loans Toronto summary

I hope you found this bad credit loans Toronto Brandon Blog post both informative and eye-opening. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, 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 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. Even though we are a licensed insolvency trustee, we have found that 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.

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.

Brandon Blog Post

WHAT DOES BANKRUPTCY DISCHARGED MEAN FOR 1 BANKRUPTCY TRUSTEE AND SOMEONE WHO IS SERIOUSLY BANKRUPT?

Post author By Brandon Smith
Post date October 28, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

What does bankruptcy discharged mean: Restrictions placed on undischarged bankrupts

By enabling debtors to file an assignment in bankruptcy or consumer proposal, the Bankruptcy and Insolvency Act (BIA) provides relief to an honest but unfortunate debtor. Garnishment of wages (other than marital support) ceases, legal actions and collection calls cease, and the debtor receives some breathing space. If a bankrupt fails to fulfill his or her obligations, what happens? Can they receive a discharge from bankruptcy?

This Brandon Blog examines a recent case from Nova Scotia dealing with what does bankruptcy discharged mean for both a bankrupt person and for the licensed insolvency trustee. I also describe what does it mean for an undischarged bankrupt if the bankruptcy trustee gets its discharge when the bankrupt person does not have their bankruptcy discharge.

I will eventually get to the Court case, but there is first some background information that I will provide which sets the stage for a better understanding of the Court decision.

What does it mean to be an undischarged bankrupt?

In the event, you were unable to fulfill your obligations under your personal bankruptcy proceedings, your Trustee, and maybe a creditor or two would have opposed your discharge from bankruptcy. A bankrupt who has not been discharged poses many potential problems. Therefore, if you are an undischarged bankrupt, it is because you have failed to fulfill one or more of your obligations as a bankrupt.

what does bankruptcy discharged mean

What does bankruptcy discharged mean: Debts eliminated by bankruptcy discharge

A bankruptcy discharge means that you have completed your personal bankruptcy process and are no longer legally liable for any outstanding debt you included in the bankruptcy filing (with the exception of a few which I will describe soon). Upon receiving an absolute discharge from bankruptcy (we’ll get to that shortly), you are no longer responsible for any discharged debts.

The discharge in bankruptcy eliminates most of your debts, including unsecured debts such as credit card bills, medical bills, and payday loans. When you are discharged from bankruptcy, not the fact that you filed for bankruptcy, is what eliminates your debts. You need your discharge to get rid of your debts, which explains why it’s so important. That is what does bankruptcy discharged mean, really means.

What does bankruptcy discharged mean: Bankruptcy law can resolve tax debts

As well as the usual unsecured debts mentioned above, if you owe Canada Revenue Agency (CRA) money because you were not able to pay your whole personal income tax obligation when you filed your taxes, then a payment arrangement makes sense.

Collections officers from the CRA contact taxpayers regarding outstanding income tax debt arising from their tax filings and notices of assessment. They attempt to collect from delinquent taxpayers. When you say that you cannot pay the full amount at that time, they will offer you the option of a payment arrangement. The interviewer will ask you about your financial situation and may ask you to submit documents to support your income and expense claims.

They recommend a settlement plan after evaluating the information. Only if all attempts at collection have failed will legal action be taken. You must send the CRA postdated cheques to cover the agreed-upon monthly payment to participate in such a plan. Additional payments can be made if you have money to spare. The interest clock does not stop with a CRA payment plan. Be certain that all your cheques clear the bank as well. The entire payment plan can be cancelled if only one is returned NSF.

Should you enter into a payment plan? Yes. You should demonstrate to CRA that you want to work with them, and avoid tax debt collection activities that will disrupt your life. The most common enforcement activity involves freezing and taking money from your bank accounts, as well as garnishing your salary or wages if you’re employed. If you are a proprietor, they can notify your customers and claim your receivables. Furthermore, a federal judgment can be obtained without your knowledge to place a lien on your home.

You do not need to experience CRA’s more drastic collection methods. Be sure to pay your obligations on time. A tax garnishment, third-party assessment, or an asset lien is never pleasant. The consequences are severe and disruptive. In most cases, CRA only takes this step if you fail to comply with their efforts to enter into and maintain a CRA payment arrangement.

CRA tax debts can be discharged under bankruptcy law if no payment plan can be arranged. If bankruptcy is successfully discharged or a consumer proposal is fully completed, the income tax debt can be eliminated. We assume that CRA hasn’t already obtained a judgment against your interest in your home and registered it against it. Upon doing so, the CRA has successfully turned an unsecured debt into secured debt, and bankruptcy law no longer applies.

Several other things to keep in mind are:

A bankrupt who owes more than $200,000 in personal income taxes and whose personal income tax debt represents at least 75% of their total unsecured proven claims is considered a high-tax debtor. In this situation, you cannot be automatically discharged. It is unavoidable that the Trustee will object to your discharge and there will be a discharge hearing before the Bankruptcy Registrar in the Bankruptcy Courts. Additionally, the CRA will oppose your discharge and will make submissions at your hearing. I am certain you will receive a conditional discharge, at least with the condition that you pay a portion of your income tax debt to the Trustee for distribution among your creditors.
Unremitted employee source deductions owed by a proprietor or partner of an unincorporated business will not be helped by bankruptcy law. Generally, bankruptcy will eliminate HST obligations. For now, CRA ranks the debt as unsecured in a consumer proposal, but as CRA provides the accommodation, it is not a part of bankruptcy law. If the outstanding HST is extremely large, the CRA may argue that since you held the HST in trust for them, it still remains a claim even if you declare bankruptcy. Under Canadian bankruptcy law, they can do this, but I have not seen them do it yet.
Director liability for unremitted employee source deductions or HST is an unsecured claim against you for your personal liability as a Director. Bankruptcy and a properly worded Proposal will both eliminate that debt.
what does bankruptcy discharged mean

What does bankruptcy discharged mean: Debts never discharged in bankruptcy

In personal bankruptcy, there are certain types of debts that are not discharged. Section 178(1) of the BIA outlines the following debts that are nondischargeable debt:

Any type of fine, penalty, restitution order, or other order similar to a fine, penalty or restitution order, imposed by a court for an offence, or any kind of debt arising from a recognizance or bond;
Damages awarded by a court in a civil case for:
- bodily injury intentionally caused, or sexual assault, or
- wrongful death as a result of these acts;
the payment of spousal support or an alimentary pension;
any financial obligation or liability arising under a judgment establishing an association or regarding support, maintenance, or an agreement for maintenance and support of a spouse, former spouse, previous common-law partner, or child who is not living with the bankrupt;
a financial obligation or liability that results from fraud, embezzlement, misappropriation or defalcation in a fiduciary capacity or, in the Province of Quebec, while acting as a trustee or administrator;
apart from debts and responsibilities arising from equity claims, any debt or liability resulting from getting property or services by false pretenses or fraudulent misrepresentation;
unless a creditor had notification or understanding of the bankruptcy and didn’t take reasonable action to prove a claim, the liability for the dividend that a creditor would have received on any provable claim not disclosed to the trustee; or
student loans if the bankruptcy occurred before the bankrupt stopped being a full- or part-time student or within seven years of the date the bankrupt stopped being a full- or part-time student.

***What does bankruptcy discharged mean:* *Absolute discharge vs. conditional discharge and so on and so forth***

In order to obtain a discharge, a bankrupt person must have fulfilled all of their bankruptcy duties. These personal bankruptcy duties include:

providing all books, records or documents to the Trustee that identify the assets and liabilities of the debtor;
prepare and submit to the Trustee within 5 days after filing for personal bankruptcy, unless the Office of the Superintendent of Bankruptcy Canada extends the time, a sworn statement of affairs detailing the person’s assets and liabilities, and for each of the bankrupt’s creditors, their respective names, addresses and the amount owing;
disclose to the Trustee complete details of all dispositions of property within 1 year before the date of the bankruptcy;
make a disclosure to the Trustee of all the details of property disposed of by gift or settlement without adequate valuable consideration within a 5 year time period before the date of bankruptcy;
if a creditors’ meeting is called, attending it;
making any required surplus income payments to the Trustee;
participating in two mandatory financial counselling sessions; and
offering whatever assistance is requested by the Trustee.

If the bankrupt fulfill all of their duties, then the Trustee will not have a reason to oppose the discharge. If no creditor opposes, then the bankrupt is entitled to an absolute discharge. As already stated, the discharge is what eliminates unsecured debts.

In addition to an absolute discharge, there are other types of discharge under bankruptcy law available to a bankrupt person upon having a discharge hearing:

conditional discharge;
suspended discharge; and
refused discharge.

To read more on the different kinds of discharges available to be applied to a bankrupt person, and for what does bankruptcy discharged mean, take a look at my August 2021 Brandon Blog “A BANKRUPTCY DISCHARGED IS THE KEY TO HEARTWARMING DEBT ELIMINAT1ON“.

what does bankruptcy discharged mean

What does bankruptcy discharged mean: At long last, the Nova Scotia case

The Nova Scotia bankruptcy case deals with the discharge of the Trustee in a personal bankruptcy matter. Once the Trustee brings on the bankrupt’s application for discharge and a discharge Order is made by the Court, and the Trustee completes the rest of the administration of the bankruptcy estate, the Trustee is entitled to a discharge. If the bankrupt did not receive an absolute discharge and has not completed his or her duties, including complying with a conditional discharge order, eventually, the Trustee can still apply for its discharge. Upon the Trustee’s discharge two things occur:

The bankrupt goes into bankruptcy purgatory. No discharge occurs. The Trustee has fulfilled its obligation to present the bankrupt’s discharge request to the court and the court has issued an Order. Whenever the bankrupt wants to prove they have fulfilled all their obligations, obeyed the discharge order, and now deserve an absolute discharge, he or she will need to retain a bankruptcy lawyer and apply to the Bankruptcy Courts.

On the day the Trustee is discharged, the stay of proceedings that had protected the bankrupt from any enforcement action by creditors whose debts were owed at the date of bankruptcy no longer applies. As a result, creditors can now pursue the bankrupt person since the debts have not been eliminated and the stay of proceedings is no longer in place.

It is interesting to examine how far the Registrar in Bankruptcy directed the Trustee in this Nova Scotia bankruptcy case to ensure that all creditors understood that they still had the right to pursue the bankrupt.

The decision in Frost (Re), 2021 NSSC 296 can be boiled down to the following facts:

Mr. Frost went bankrupt.
He failed to fulfill his duties and moved to the UK permanently.
He didn’t inform the Trustee of his new address and telephone number.
His actions left his Trustee and other stakeholders to fend for themselves, explicitly telling the Trustee he wasn’t going to fulfill those duties and didn’t intend to do so.
A hearing was held for the bankrupt’s discharge and Mr. Frost was refused discharge.
The Court previously directed the Trustee to appear before it to be heard on the Trustee’s application for discharge.

The Court concluded that the Trustee completed the administration of the bankruptcy estate and gave the Trustee its discharge. However, the reason why the Registrar in Bankruptcy wanted the Trustee to attend such a hearing was so the Registrar could take things one step further. In the normal course, the Trustee sends out a notice to all those whose proof of claim was admitted of the results of the bankruptcy administration and of the Trustee’s discharge. However, the Registrar wanted to make sure that it was crystal clear to all creditors.

The Registrar wrote a cover letter for the Trustee and directed the Trustee to send it along with the normal statutory notice to creditors (or their debt collectors of record). Here is a copy of that letter:

what does bankruptcy discharged mean

What does bankruptcy discharged mean summary

I hope you found this what does bankruptcy discharged mean Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, 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 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.

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.

Brandon Blog Post

FIGHT FOMO-RELATED DEBT: FOLLOW OUR STEPS TO FINANCIAL RECOVERY

Post author By Brandon Smith
Post date October 25, 2021

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Why is FOMO a thing?

Are you experiencing FOMO right now? In the modern-day, FOMO, or fear of missing out, is a significant stressor in people’s lives. You’re wondering how you are going to make it through life at such a fast pace. Social media posts constantly tell you what your friends are doing, what you should do with your life, and what to buy. People suffering from FOMO have lost track of what’s important in life, and you have lost track of what you want to accomplish. If you want to keep your mind (and your bank account) and financial situation healthy, there are steps you can take to make sure that you have proper spending habits.

Missing out on important events or social gatherings is the feeling of being excluded. The term FOMO was coined and popularized by Patrick J. McGinnis in The Harbus, the Harvard Business School’s magazine, in 2004.

It is often difficult to bring up the subject of money with friends, yet it is one of the most important. I discuss how FOMO can lead to runaway debt and how to avoid it, in this Brandon Blog.

The internet has created a social media engagement platform for bragging; things, events, and even happiness itself can appear competitive on social media. You do not just feel as if there are better things that you could be doing at this moment, but you also feel as if you are missing out on something fundamentally important that others are experiencing right now.

It is difficult to identify the nuances of FOMO since social media users have different social priorities. FOMO users share one common characteristic: the feeling of social exclusion.

Self-concept and perception of oneself play a role in FOMO. Individuals’ perceptions of and experiences of the world – and what they feel they are excluded from – play a critical role in their fear of missing out. There is a very strong connection between self-perception on social media and FOMO.

FOMO has become an all-too-common affliction. FOMO can strike anyone at any time, but it is usually strongest in children, teenagers and young adults. FOMO can also have serious financial repercussions.

FOMO debt on the rise: Nearly 50% of millennials overspend to keep up with friends

Credit Karma/Qualtrics surveyed 18-38-year-olds in both Canada and the United States prior to the pandemic. With November being financial literacy month in Canada, the topic of FOMO debt is timely, notwithstanding when the surveys were done. Findings were strikingly similar in each country. Millennials are overspending on food and drinks, music events and tattoos because of rising social pressures.

In the Credit Karma surveys, 48% of Americans and half of Canadian young adults reported spending money they did not have and going into debt to keep up with their peers. Over a third of respondents said it is hard to turn down friends who suggest activities they cannot afford.

Almost one-third of young Canadians who got into FOMO-related debt owed more than $500. Key survey findings show that among those who have borrowed to keep up with friends:

49% said they did it to avoid being excluded from future events if they did not participate in spending time with friends.
A similar 49% said they didn’t want to miss something once-in-a-lifetime or novel in their social lives.
45% of respondents said they didn’t want to be seen as an outsider.
34% feel it is the way to keep friendships strong because they feared losing friends.
29% feared being judged.

According to Credit Karma, the items and experiences that push Millennials into FOMO-related debt include:

social situations requiring the purchase of meals and alcohol (47%);
clothes (41%);
travel (38%).
Autos (15%);
body art (11%); and
residential (9%).

In other words, FOMO-related debt is a real problem among young adults.

How to Avoid Overspending Due to FOMO

The temptation to think you won’t have it later or your friends won’t like you if you don’t buy it now can be quite strong. This may not always be true. Perhaps you would be better off finding new friends who don’t spend money so obsessively all the time.

Simply stopping spending is the first step toward overcoming FOMO unnecessary spending! Not forever, just until you figure things out. You might also consider limiting your use of credit cards or even debit cards and making most of your purchases with cash. If you feel FOMO creeping in, you will be less likely to impulse spend. It will also prevent you from incurring more FOMO-fueled debt.

You can avoid FOMO-fueled debt by working within your budget and becoming comfortable with saying no to overspending. Having a budget doesn’t mean you have to give up every nice dinner or outing, but you have to understand what is within it.

I have written on the need for household budgets many times on my Brandon Blog. You can prevent FOMO-fueled debt by creating a monthly budget or even a weekly budget.

Buying things out of impulsiveness might seem to make us feel better because we’re getting what we want right away, but there’s actually another side effect to consider. In the end, we pay more interest and fees when we buy items without considering future needs and end up falling behind in monthly payments.

Whether you’re trying to pay off debt, add to your savings, create an emergency fund for unanticipated events, plan for retirement, or save for a new home, be sure to keep your bigger goals in mind. There’s no reason to let your friends get in the way of your longer-term goals, such as paying off your debt, saving for retirement, or buying a house.

FOMO summary

I hope you found this FOMO Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is FOMO-fueled debt or too much debt for any other reason, 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.

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 Credit Karma, Credit Karma/Qualtrics, financial situation, fomo, FOMO and the rise of social media-induced debt, fomo debt, FOMO debt on the rise: Nearly 50% of millennials overspend to keep up with friends, FOMO-fueled debt, FOMO-related debt, How to Avoid Overspending Due to FOMO, Ira Smith Trustee, key survey findings, monthly payments, music events, rising social pressures, social situations, spending habits, spending time with friends, unanticipated events

Brandon Blog Post

THE RISING COST OF LIVING IN TORONTO AND ELSEWHERE: WILL YOU BE PUSHED INTO HUGE DEBT?

Post author By Brandon Smith
Post date October 21, 2021

Cost of living in Toronto and elsewhere: Canada’s rising annual inflation rate is a cost-of-living crisis

Two articles about living costs for Canadians were published this week. According to a recent Angus Reid poll, many Canadians’ quality of life is further diminishing as more debt is accumulated and the pandemic continues. Then Statistics Canada announced that the annual inflation rate reached its highest level since February 2003 in September.

When you hear the term “cost of living“, it’s often accompanied by the phrase “rise” or “have risen”. Recent data shows that Canada as a whole has experienced an increase in the cost of living. In this Brandon Blog, I describe how the rising cost of living in Toronto and elsewhere has the potential to create more debt and therefore more stress on Canadians.

cost of living in toronto

Cost of living in Toronto and elsewhere: What is the Consumer Price Index?

Consumer Price Index (CPI) is a national measure of prices based on living costs across major cities in Canada. As the most quoted measure of living costs today, the CPI shows how costs have changed from year to year and illustrate that not everything is as cheap as it once was.

It is inflation that tells the whole story. A rising cost of goods and services reduces the purchasing power of the dollar. Cost increases are measured by this indicator. A CPI calculation represents the average cost of an accepted basket of the standard of living items, such as:

food prices;
cost of housing;
transportation costs; and
medical costs

How does inflation affect our daily lives? Inflation increases food, gasoline, and utility costs, reducing savings and discretionary spending. Price increases create economic inequity. They are tough on the middle class, and even harder on the lower class.

What is behind the rise in prices? The federal government, via Statistics Canada, reports that the consumer price index in September was up 4.4 percent compared to last year. In August, the reading grew by 4.1% year-over-year. Last month, consumers paid 32.8 percent more for gasoline than in September 2020. This increase in gas prices is what drove most of the increase.

cost of living in toronto

***Cost of living in Toronto* and elsewhere: The negative side of the *cost of living increases***

As the cost of living and the inflation rate rises, Canadians are often caught short by unexpected financial burdens that can quickly devour their earnings. At the same time, the cost of day-to-day living, like food and housing, is increasing, which makes it hard for Canadians to save money for the future. Research shows that for low-income families, housing, food, transit and child-care costs generally are all increasing at a faster rate than incomes. This can easily push poorer households below the poverty line.

All of us have heard about the cost of living increases, and so far it has been a controversial topic. We haven’t reached a consensus regarding this issue. Some say we shouldn’t worry about it, while others say we need to act.

The surge in inflation highlighted the failure of Prime Minister Justin Trudeau’s economic policies, said Erin O’Toole during the recent federal election. How did PM Trudeau respond? In his view, monetary policy is not one of the top priorities for his government after the election. He continued:

“When I think about the biggest, most important economic policy this government if re-elected, would move forward, you’ll forgive me if I don’t think about monetary policy. You’ll understand that I think about families.”

Canadians were encouraged by Erin O’Toole to vote out the government. Well, that did not happen!

cost of living in toronto

Cost of living in Toronto and elsewhere: How the rising Consumer Price Index affects you

Researchers at Angus Reid Group conducted an online poll of 2,015 Canadians in September to determine the affordability of living in Canada. The survey found 26% of respondents had incurred at least one new debt, with 72% reporting that this debt has negatively affected their lives. The most common type of new debt was credit card debt.

In a previous Brandon Blog, I reported that many households were able to pay off higher-rate credit card debt during the lockdown while receiving payments from federal government COVID-19 pandemic support programs. After a return to normal, however, that will look, those same households run the risk of increasing their credit card balances again. The reality is that most people used their credit cards as a supplement to their income to pay for living expenses and/or lifestyles due to insufficient income.

According to the new survey, Canadians have now started taking on new credit card debt. As a result, their quality of life is further diminished as more debt accumulates and the pandemic continues. Canadians’ savings have also been impacted by increased spending on essentials, job loss and lower-income, according to the survey.

High real estate prices are forcing many Canadians to delay home ownership, according to the survey. Meanwhile, we have seen that the one thing the pandemic couldn’t stop was the booming real estate market in large Canadian cities. Even areas not typically associated with significant price increases are showing growth in real estate prices now that more big city dwellers are opting for a more flexible lifestyle by working remotely. Based on these results, it is clear that there is a larger gap between those who can afford to buy a home and those who cannot.

60 percent of Canadians said they would prioritize saving for an emergency fund or nest egg. In other words, Canadians’ priorities have shifted in 2022, with most thinking about saving for emergencies, retirement, and a major purchase like a house, car, or cottage.

cost of living in toronto

Cost of living in Toronto and elsewhere: Tips to combat the financial hit of rising living costs

If we spend $10 at a coffee shop every day, what should we do differently ahead of time so that we’re not tempted to spend that $10? All of these things become habits, and habits are hard to break.

Regular readers know that in prior blogs about household debt and spending, I have stressed the importance of household budgets. Every source of family income and every expense must be considered. You need to look critically at all family expenses and separate the wants from the needs. Attempt to cut every expense you have (yes, every single one!) with the aim of saving 10% – 50% right now. Also, consider creatively if you can earn extra income in any other way.

There is no doubt that rising inflation, ongoing economic challenges worldwide, and the risk of interest rates going up are causing many Canadians to feel stressed and stretched to the limit. But it is still possible to spend less and build savings, even as your living costs rise.

As you do so, here are a few tips to help you stay on top of your finances and avoid debt in spite of rising costs:

Even though restaurants reopen, that doesn’t mean you have to buy most of your meals there. You can buy food at grocery stores instead.
Take advantage of what’s on sale or can be purchased at a discount when planning your meals.
If you can, buy bigger packages when they’re on sale for a lower price than smaller packages.
Analyze all your household and utility bills to find savings.
Savings are possible in many areas, including the bank account, cell phone, and internet plans.
Those $10 a day you spend at coffee shops add up to $170 a month if you do it 4 days a week.

When you’re looking forward to preserving your overall well-being through a sound money management plan, it’s easy to remember why you’re making frugal choices.

cost of living in toronto

Cost of living in Toronto and elsewhere summary

I hope you found this cost of living in Toronto and elsewhere Brandon Blog post informative. 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.

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.

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.

Brandon Blog Post

BANKRUPTCY AND INSOLVENCY ACT OF CANADA TR1ES TO GIVE EVERYONE UNDENIABLE EQUITABLE TREATMENT

Post author By Brandon Smith
Post date October 18, 2021

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom and click play on the podcast.

bankruptcy and insolvency act of canada

What is the purpose of the Bankruptcy & Insolvency Act of Canada?

With all the talk of the economy, supply chain problems and the uncertainty of the future these days, it’s no wonder that many people aren’t sure how they will end up when things become “normal” again.

For Canadian people and businesses with too much debt, an insolvency proceeding under the Bankruptcy and Insolvency Act of Canada might just be the answer to getting back to a healthy stress-free life. Notwithstanding that using this federal statute can be a very effective strategy for managing financial difficulties, it is a very scary one that people do not like to talk about.

The Bankruptcy and Insolvency Act of Canada is based on the principle of balancing fairness, equity and a fresh start. A recent court decision in Saskatchewan exemplifies these principles. In this Brandon Blog, I describe a little bit about the Bankruptcy and Insolvency Act of Canada, explain the court decision and how the court used these principles in reaching its decision.

What is in the Bankruptcy and Insolvency Act of Canada?

Canadian citizens, businesses, and companies who run into financial difficulties can turn to the Bankruptcy and Insolvency Act of Canada for assistance. This federal legislation contains the laws, rules, and guidelines that all involved parties must abide by. It details how different financial options work legally, and defines the roles of the various stakeholders – the Office of the Superintendent of Bankruptcy, the Licensed Insolvency Trustees, the debtor, and the secured creditors and unsecured creditors (both preferred and ordinary).

Despite the fact that provincial legislation in Canada may overlap or affect stakeholder rights, federal bankruptcy legislation has priority over provincial legislation in insolvency matters. Therefore, provincial governments cannot do indirectly what is prohibited directly. However, there are cases where provincial laws will still apply. The laws surrounding property exemptions and enforcement of court orders differ from province to province and territory to territory. These provincial and territorial regulations continue to apply even under bankruptcy laws.

It is the Bankruptcy and Insolvency Act of Canada that governs all bankruptcies and proposals (either Division I or consumer proposals) in Canada. Receiverships are also governed by the Bankruptcy and Insolvency Act of Canada. The Laws of Canada – Bankruptcy and Insolvency, are meant to give the honest but unfortunate debtor, be it a person, business or company, a fresh start in life.

bankruptcy and insolvency act of canada

Growth in consumer proposals and business proposals

A person who files for the personal bankruptcy process submits an assignment in bankruptcy and related documents to a Licensed Insolvency Trustee. These documents outline the person’s assets, liabilities, income, and expenses. An insolvent person’s reason for insolvency must also be included in the documents. Individuals typically give the reason for not being able to pay their bills in a timely manner. Consumer proposals require very similar documentation as bankruptcy, except for the assignment in bankruptcy document.

In order to file a Division I Proposal under the Bankruptcy and Insolvency Act of Canada, insolvent companies must describe their assets and liabilities and provide a realistic cash flow statement documenting how they intend to operate under the proposed insolvency process. They must also explain how they became insolvent. Personal insolvency is less complex than corporate insolvency.

Despite a long-term decline in individual bankruptcy filings, consumer proposals have gained in popularity among individuals. The decrease in bankruptcy filings and the increase in proposals can be attributed to several different reasons. Under a proposal, a financial reorganization or restructuring is what is done. Bankruptcy is simply a liquidation.

Regardless of whether it is a consumer proposal, a Division I proposal, or bankruptcy, the Bankruptcy and Insolvency Act of Canada governs these proceedings. The Companies’ Creditors Arrangement Act, another federal government statute, governs reorganizations of very large corporations. This is especially true if there are separate insolvent corporations under the corporate umbrella in different countries, requiring foreign proceedings.

Why does one choose a consumer proposal instead of filing for bankruptcy?

A consumer proposal has many advantages over bankruptcy proceedings. By filing a consumer proposal, you’re able to retain the property you own such as your home, car, boat, etc. and extinguish all of your debts while only paying back a portion. A consumer proposal doesn’t require any of those items to be sold, as long as you can afford them with the monthly payment made under the proposal and your other living expenses.

Changing your lifestyle can help you get out of debt more quickly with a consumer proposal. Bankruptcy means losing everything, except for some assets that are exempt under provincial laws. You have equity if you do not fully encumber your assets by way of secured loans from financial institutions, your house, car, boat, furniture, clothing, jewelry, or anything else of value. You can keep this equity in a consumer proposal, but you will lose it in bankruptcy.

The main reason why people should attempt to perform a successful consumer proposal instead of going straight into bankruptcy under the Bankruptcy and Insolvency Act of Canada is because of this. As you will see in the recent court case I am about to describe, if you don’t pay close attention to how you conduct your affairs once you declare bankruptcy, you might be exposed to another minefield even after receiving your discharge.

bankruptcy and insolvency act of canada

**The Bankruptcy and Insolvency Act of Canada case**

This judgment of the Registrar in Bankruptcy of the Queen’s Bench for Saskatchewan was released on October 6, 2021. It is a relatively simple case, but it described so well the equitable nature of the Bankruptcy and Insolvency Act of Canada.

In this legal process case, there are two unsecured creditors who are the Applicants. They jointly loaned money to an individual debtor, who is now an insolvent debtor and a bankrupt individual on an unsecured basis. They also filed their proof of claim for this debt with the insolvency trustee. They then applied for an order pursuant to s. 69.4 of the Bankruptcy and Insolvency Act of Canada lifting the bankruptcy stay that is in effect with regard to the bankrupt.

The purpose of section 69.3 is to prevent bankruptcy creditors from initiating or continuing enforcement proceedings against a bankrupt debtor. In bankruptcy, a creditor has no recourse against the debtor or the debtor’s property, and may not commence, continue, or seek any action for the recovery of money for a claim that is provable in the bankruptcy.

Nevertheless, Section 69.4 allows a court to lift the stay if it decides that the applicant has established that the continued operation of the stay is likely to cause material harm to him or her, or if there are other equitable grounds for lifting the stay.

**The case: How the Bankruptcy and Insolvency Act of Canada works for fairness and equity**

The bankruptcy process generally compromises the debt obligation of the bankrupt, resulting in creditor claims run through the bankruptcy claims process. Generally, unsecured creditors lose their right to enforce their types of debts and, as a result, realize less than 100% of their debt. Some creditors do not receive anything from an estate in bankruptcy.

There are two major objectives of bankruptcy (and consumer proposal or commercial proposal) proceedings under the Bankruptcy and Insolvency Act of Canada. For one thing, it provides an equitable system for distributing the proceeds from the estate in bankruptcy among the bankrupt’s unsecured creditors. According to the laws Of Canada – bankruptcy and insolvency, unsecured creditors are expected to be treated predictably and fairly. However, it does not guarantee that creditors will receive a dividend in all cases.

Secondly, it is intended to give an honest but unfortunate bankrupt an opportunity to be freed from the crushing burden of debt and receive financial rehabilitation to become a contributing member of society. That is one reason why every person who does an insolvency filing must attend two financial counselling sessions.

In bankruptcy, an automatic stay allows the bankrupt to re-establish himself or herself financially and restart his or her financial affairs so that he or she can meet his or her credit obligations moving forward without being hampered by debt enforcement proceedings.

bankruptcy and insolvency act of canada

**The case: Role of unsecured creditors trying to lift the stay of proceedings**

The Registrar, in this case, followed the reasoning of a 2001 decision from the Court of Appeal for Ontario. It is far from routine to lift the stay, and therefore the court has to make sure that the reasons for lifting the stay are sound and consistent with the objectives of the Bankruptcy and Insolvency Act of Canada.

In the case of Mcculloch (Re), 2021 SKQB 259 (CanLII), the two creditors were alleging that Ms. Mcculloch induced them to loan her the money on a fraudulent basis. It was their argument that they should be allowed to continue legal action against the bankrupt so that they could prove in a separate court action that the debt was a result of fraud and that, therefore, their claim would survive the bankruptcy and her discharge. In addition, they stated that they would be more severely affected than the commercial creditors if the bankruptcy stay bars them from taking action against McCulloch.

According to the Registrar:

Bankruptcy often disproportionately affects individual creditors over commercial creditors. Generally, creditor relationships are based more on trust than on cost-benefit analysis. When advancing a loan, the commercial creditor such as a credit card company, unpaid suppliers, or a sophisticated secured creditor, generally assesses the risk and determines whether it can absorb the loss in the event of default. Individual lenders do not usually do this.
If this form of prejudice is sufficient to support lifting the stay, other individual creditors may be able to apply to lift the stay merely on the basis of relative disadvantage to individual creditors. Lifting the stay on this basis is inappropriate.
The Trustee objects to this application on the grounds that it will significantly increase the costs of bankruptcy administration at the expense of other creditors. In this case, the Registrar sided with the Trustee.
According to the lawyer representing the bankrupt, the creditors have not established any material prejudice or other equitable grounds for lifting the stay. The Registrar agreed.
Due to the potential cost increases to other creditors, the equities are opposed to lifting the stay.
However, these 2 creditors still have rights in the bankruptcy. The court still has the right to hear their submissions at the discharge hearing. Additionally, they continue to have the right to pursue Ms. McCulloch once the bankruptcy proceedings are over.
At this time, lifting the stay would not benefit the applicants or their creditor claims since during the bankruptcy, Ms. McCulloch’s either the bankruptcy vests her assets in the Trustee for the benefit of the creditors or remain exempt from execution under Saskatchewan law. This disposition of property makes it simply impossible for these creditors to realize much from this stage, prior to the bankrupt’s discharge.
In this case, the equity does not support the court’s exercise of its authority to declare that the bankruptcy stay, established under section 69.3 of the Bankruptcy and Insolvency Act of Canada, does not apply to this litigation.

As a result, the Registrar denied the applicant’s request for what they thought was their legal rights in lifting the stay. Clearly, the Registrar was guided by the Bankruptcy and Insolvency Act of Canada‘s aims of fairness and equity to all stakeholders.

Bankruptcy and Insolvency Act of Canada summary

I hope you enjoyed this Bankruptcy and Insolvency Act of Canada 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.

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.

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.

Brandon Blog Post

NOVEMBER IS FINANCIAL LITERACY MONTH: 5 MINIMALIST STEPS TO BECOME FINANCIALLY SUCCESSFUL

Post author By Brandon Smith
Post date October 14, 2021

financial literacy month

The History of Financial Literacy Month

A national month dedicated to promoting financial literacy and financial education is celebrated every year, with the aim of teaching citizens effective financial habits. Canadian Financial Literacy Month is held every November.

Some of the country’s financial institutions and nonprofit financial educational organizations are promoting the month and supporting financial literacy efforts by creating educational materials, making financial literacy resources available and hosting financial literacy programs and events centred around personal finances.

Children are welcome to participate in Financial Literacy Month. It can be said that it is also a financial literacy for youth month. In this Brandon Blog, I describe how Financial Literacy Month can be used by anyone for personal finance education. It will equip Canadians with practical tips and financial tools to make informed financial decisions relevant to their financial situation and gain confidence around money.

financial literacy month

The Goals of Financial Literacy Month

This year Financial Literacy Month in Canada is 11 years old. It is the goal of this month to educate Canadians so that they will be able to:

Invest in their future and the future of their children by providing for themselves and their families.
Understand their rights and responsibilities when it comes to their finances.
Give back to the community in a positive way.
Increase financial literacy among students and adults alike.

All these efforts translate into promoting, advocating for, and supporting financial literacy efforts across the country.

During COVID, Canadians Need Financial Literacy Month More Than Ever

Why is financial literacy important? In order to protect consumers, the Financial Consumer Agency of Canada aims to improve their financial literacy. Canadians need to have the knowledge, skills, and confidence they need to select the right financial products and services in light of the increasingly complex financial market. Personal and economic benefits accrue from financial literacy. Learning the basics of money today is as vital as it was 2,000 years ago!

By acquiring financial literacy, people are able to know what they need to know before they take on debt or invest in assets. This is especially true when it comes to major life purchases like real estate. You should be knowledgeable about issues such as credit cards, mortgages, insurance policies, investments, retirement planning, taxes and more. Knowing your options better will help you make an informed decision. Being financially literate involves managing one’s own finances effectively.

This year is probably especially more true than ever. As Canada is trying to get its economic situation ramped up again and things back to normal, the government funding for the various coronavirus income supports is ending. People will have to get back to the basics of understanding what their after-tax income is and sticking to a balanced budget so that they do not incur budget breaker expenses.

financial literacy month

***Financial Literacy Month: 5 Steps to Financial Wellness***

Do not procrastinate. We have Financial Literacy Month for a reason. Having a good understanding of and prioritizing your finances is important. By not putting off your complete understanding of your finances you will build a healthy relationship with money.
Don’t overthink things. People think that their finances are confusing and complicated. When you are starting out on your financial journey, it’s important to not get caught up in the complexities. Just deal with the basics and build from there. Start with writing down what your financial plan is, track your after-tax income and your expenses. List your assets and your debts. This is the complete list of what you need to do to start. Those are the basics that will give you a proper foundation. It is not more difficult than that. You can then show that information to your accountant, financial planner or a relative or friend who is more knowledgeable than you. From those 4 basic items, they can then help you build a budget that works. They will help you build an even more extensive list of things to think about. It will also show you whether or not you need to think about earning extra income with a side gig.
Check your credit report. Using the search function above, you can find many of my blogs on the topics of your credit score, credit report, and Canada’s two credit bureaus: Equifax and TransUnion.Every year, you can obtain a free credit report from each bureau. However, neither of these credit reports includes your credit score. Your credit score is a number that comes from a complex math equation representing all the information contained in your credit report. There will be instructions on each company’s website on how to obtain your free credit report. Annually, you should order your credit report and check it for errors. If there is an error, write Equifax or TransUnion and request that the mistake be corrected immediately by providing your proof.
Retrace your steps. It is vital that you have an accurate picture of the amount of money you will have in the future to spend and how you will spend it. Your household budget serves this purpose. In order to do this, you need to review your historical income, expenses, and taxes. Make a decision about the source and amount of income you expect in the future and decide whether it will come from the same or different sources. Take a look also at the expenses that you will incur. Whether it was paid for with cash or first charged to a credit card, all of them. Starting with a realistic and accurate picture is the only way to plan for a successful future.
Use Financial Literacy Month to establish financial goals. Each person’s financial goals will take a different amount of time to accomplish. Short-term goals are those that can be completed within a year. Every goal should have a specific purpose, a dollar amount, and a realistic deadline. Then there are your mid – term goals. These will take more than 1 year to accomplish, but no more than say 3 years. You should make sure they are flexible and realistic. Having too high a goal will cause frustration and prevent you from achieving it. Debt reduction should be both short- and mid-term goals. A debt management plan should be part of your overall budget. An emergency savings fund should also be established. It will take even longer to achieve long-term financial goals. Regular savings is critical to achieving them. A larger savings plan should be implemented as your budget allows for it. Your success and happiness will increase the more goals you achieve. This is why you should set attainable financial goals which include long-term savings. Goals can also change over time. Occasionally, life’s fluctuations force us to reevaluate our goals or even toss some altogether. This is all part of your financial education. It’s important to remain committed to your successful financial future.
financial literacy month

As indicated above, shortly the Canadian Financial Consumer Agency, financial institutions and other financial education centres will be advertising many resources, including financial literacy books, to help you further your financial education. Whether you are looking for basic literacy basics about money or more advanced money management education, there will be something for you.

I hope you enjoyed this Financial Literacy Month 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.

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.

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.

Brandon Blog Post

CONSTRUCTION LIEN ACT OF ONTARIO: THE GRIPPING FIGHT BETWEEN LIEN FILING, A PRIOR MORTGAGE & RECEIVER FEES

Post author By Brandon Smith
Post date October 11, 2021

construction lien act of ontario

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Construction Lien Act of Ontario: What is a Construction Lien?

The Construction Lien Act of Ontario regulates how payments are made to parties who provide services or materials to a construction project. Construction liens may be filed when a project owner does not make prompt payment to the contractors or suppliers. You can register a construction lien on the title if you have provided materials or services to improve the property.

Having enacted amendments to the Construction Lien Act of Ontario (now the Ontario Construction Act, R.S.O. 1990, c. C.30), Ontario is achieving its plans to modernize provincial construction laws in order to improve efficiency and competitiveness for construction firms.

In this Brandon Blog, I examine the recent Ontario court decision regarding the treatment of court-appointed receiver fees when mortgagees and construction lien claimants disagree over the priority of their claims.

construction lien act of ontario

Construction Lien Act of Ontario: Construction lien and holdback rules

Disclaimer: I am by no means an expert in this area. Nevertheless, as a licensed insolvency trustee, I have acted as a court-appointed receiver over incomplete construction projects. Therefore, I have encountered various construction lien issues in receiverships.

General changes made to the Construction Lien Act of Ontario are related to prompt payment rules and the establishment of new dispute resolution mechanisms (adjudication). According to provincial construction law, prompt payment refers to the payment of an invoice after a “proper invoice” is issued.

A general contractor’s invoice must be paid within 28 days of receipt by the owner. The owner has 14 days to notify the contractor if he disapproves of the amount, quality, or invoice of the work as outlined in the invoice. In place of the old requirement of 45 days, liens must be filed/preserved within 60 days now.

This policy change aims to improve cash flow within the construction pyramid by resolving conflicts more quickly. The dispute resolution procedure is now an adjudication process for the adjudication of construction disputes are handled by qualified adjudicators. The is also a code of conduct for adjudicators.

In the absence of an agreement to extend the timeline, the adjudication procedures state that the adjudication decision will be made within 46 days after it is initiated. If an adjudicator’s decision is not followed, the party expecting payment is also entitled to suspend the work under the contract or terminate it.

Holdbacks are what they sound like. The holdback process requires that for any project owner, contractor, or subcontractor to hold back 10% of the price of materials or services they provide is known as a holdback. With the amendments to the Construction Lien Act for Ontario, holdbacks remain at 10% of the value of improvements, but security can be offered in lieu of cash. Now a letter of credit or repayment bond can be used to maintain holdback.

In light of modern-day construction projects’ long-term nature, the Act expands the options for the make-up of holdback payments. They may now be made annually or in phases or portions, depending on the terms of the agreement.

construction lien act of ontario

Lien Filing under the Construction Lien Act of Ontario

Now for the case. The decision of the 3 Judge panel in the Ontario Superior Court of Justice Divisional Court was released on October 5, 2021. This case essentially deals with the ranking between the fee and costs of a Court-appointed receiver, the interest and costs owing to a mortgagee whose mortgage was registered prior to the registration of construction lien actions and the construction lien claims which then arose.

It was an appeal from a Judge’s decision on appeal from a Master’s (now called Associate Judge) decision who regularly dealt with construction lien cases. This appeal is primarily about the interpretation of section 78(3) of the then Construction Lien Act of Ontario. Prior mortgages have priority over lien claimants when there are arrears in interest charges, fees, or expenses related to the mortgage. The case also discusses how priority is determined when a previous mortgage is in default.

The report by the Associate Judge was issued on May 24, 2018. At trial, the issue was a priority contest between lien claimants, who were now bankrupt and represented by their licensed insolvency trustee, and the mortgagees. There was a court-supervised receivership over the property. During the receivership, my Firm was managing the court-supervised receivership on behalf of the husband and wife who owned the company which owned the property.

According to the Associate Judge, the mortgagee had priority over the lien claimants. As a result, the court-approved receiver fee and costs, mortgage interest, mortgage principal, and other charges ranked ahead of the construction lien claims.

The Trustee appealed that decision. The appeal was successful insofar as it was determined that the Associate Judge’s report was in error and that she failed to determine whether the mortgagee had priority over lien claimants with respect to a deduction for the court-approved receiver‘s fee and costs, mortgage interest, mortgage principal, and other charges. Consequently, the Judge ruled that the mortgagee did not have such priority for interest arrears, enforcement costs, and charges and that any funds paid into court should be given to the Trustee on behalf of the claimants of construction contracts.

Now, the mortgagee has appealed the Judge’s decision. Prior mortgages and building mortgages are covered in section 78(3) of the then Construction Lien Act of Ontario. Mortgages used for property acquisition are known as prior mortgages, and building loans are used for construction funds. For the mortgage advances to be entitled to priority, they must have been made before the registration of claims under the construction lien regime.

construction lien act of ontario

**The court decision of this Construction Lien Act of Ontario case**

According to the Judges hearing this appeal, the arrears of interest and the reasonable expenses, and fees that relate to enforcing security (i.e., the mortgage) cannot be adjudicated in a priority proceeding. Arrears in interest and reasonable expenses incurred on a defaulted mortgage should be determined through proceedings such as the power of sale proceedings, bankruptcy proceedings or the appointment of a Trustee.

The court overseeing the receivership administration approved the sale of the property during the court-supervised receivership proceedings. That same court also affirmed the receiver’s fee and costs, as well as reviewing the evidence and rendering an opinion regarding what the mortgagee was entitled to under the mortgage registered and advanced before a construction lien claim arose. All stakeholders were served with the original court application to appoint the receiver. Lienholders were included in this process as well. The Appointment Order specifies the priority of the receiver’s fee and costs. Nobody questioned the priority and even the lien claimants did not object to it.

All things considered, the judicial panel had to agree with the Associate Judge that all the amounts approved by the Judge ruling on the receivership and all the advances made before any construction lien claims arose ranked in priority for all legitimate costs and arrears of interest. In deferring to the assessment of the receivership Judge, this panel showed deference. As a result, the lower court Judge’s decision was reversed and the Associate Judge’s decision was upheld. The Trustee was ordered to pay costs.

construction lien act of ontario

Construction Lien Act of Ontario summary

I hope you found this Construction Lien Act of Ontario Brandon Blog informative. This case was really one big construction dispute resolution process. The provincial court deals with receivership matters to adjudicate under the applicable insolvency law.

With too high debt levels and not enough wealth, you are insolvent. You can choose from several insolvency processes to get the debt relief that you need and deserve. It may not be necessary for you to file for bankruptcy.

If you or your business are dealing with substantial debt challenges, you need debt help, and you assume bankruptcy is the only option, call me.

If you’re thinking about bankruptcy, you’re probably in a situation where you’re overwhelmed, frightened, and feel like you’re alone. That’s natural and it is not your fault.

It’s good that you’ve come to this site, where you’ll find answers to your questions, sort through your options, and discover that you can get help. You’re not alone, and the professionals at Ira Smith Trustee & Receiver Inc. are committed to helping you find a debt solution that’s best for you.

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 with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

You are under a lot of pressure. Our team knows how you feel. You and your financial and emotional problems will be the focus of a new approach designed specifically for you. With our help, you will be able to blow away the dark cloud over your head. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out 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 as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

Because of this, we can develop a new method for paying down your debt that will be built specifically for you. It will be as unique as the economic problems and discomfort you are experiencing. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Bankruptcy protection: What happens if a company gets into financial trouble?

What happens to the company that files for bankruptcy protection?

A record number of companies have sought creditor protection under COVID-19 and more are on the way?

The bankruptcy protection court case facts

The bankruptcy protection case: The Receiver’s position

The bankruptcy protection case: The supplier’s position

The bankruptcy protection case: The Judge’s decision

Bankruptcy protection: How to cash your insolvent customer’s cheque safely

Bankruptcy protection summary

Calculate HST and Canadian small business

Calculate HST Amounts in Sales and Purchase Documents

Calculate HST is just one part of small business debt and the COVID-19 impact

How to calculate HST is only the first part: Businesses owe $14.3-billion in unpaid sales tax, Canada Revenue Agency says

Calculate HST but if you don’t pay, it is a deemed trust

Calculate HST: Are HST and COVID debt crushing the life out of your business?

Calculate HST: What happens to the deemed trust claim in a bankruptcy?

Calculate HST: GST/HST liability For directors

Calculate HST summary

Credit card for rebuilding credit: Introduction

A credit card for rebuilding credit for people with bad credit is not your first step

A credit card for rebuilding credit Canada is not your next step either

Prepaid Credit Cards vs. Secured Credit Cards: What’s the Difference?

Credit card for rebuilding credit: Secured credit cards vs. unsecured credit cards

Credit card for rebuilding credit: Summary

Bad credit loans Toronto: How Canadians are dealing with higher rates

Bad credit loans Toronto: Forget payday loans, this is Canada’s new generation of high-interest loans

Bad credit loans Toronto: Why Canadian borrowers are still taking on the high-interest loans steep commitment

Bad credit loans Toronto: Budget 2021 sets up a fight over high-interest loans

Bad credit loans Toronto summary

What does bankruptcy discharged mean: Restrictions placed on undischarged bankrupts

What does it mean to be an undischarged bankrupt?

What does bankruptcy discharged mean: Debts eliminated by bankruptcy discharge

What does bankruptcy discharged mean: Bankruptcy law can resolve tax debts

What does bankruptcy discharged mean: Debts never discharged in bankruptcy

What does bankruptcy discharged mean: Absolute discharge vs. conditional discharge and so on and so forth

What does bankruptcy discharged mean: At long last, the Nova Scotia case

What does bankruptcy discharged mean summary

Why is FOMO a thing?

FOMO and the rise of social media-induced debt

FOMO debt on the rise: Nearly 50% of millennials overspend to keep up with friends

How to Avoid Overspending Due to FOMO

FOMO summary

Cost of living in Toronto and elsewhere: Canada’s rising annual inflation rate is a cost-of-living crisis

Cost of living in Toronto and elsewhere: What is the Consumer Price Index?

Cost of living in Toronto and elsewhere: The negative side of the cost of living increases

Cost of living in Toronto and elsewhere: How the rising Consumer Price Index affects you

Cost of living in Toronto and elsewhere: Tips to combat the financial hit of rising living costs

Cost of living in Toronto and elsewhere summary

What is the purpose of the Bankruptcy & Insolvency Act of Canada?

What is in the Bankruptcy and Insolvency Act of Canada?

Growth in consumer proposals and business proposals

Why does one choose a consumer proposal instead of filing for bankruptcy?

The Bankruptcy and Insolvency Act of Canada case

The case: How the Bankruptcy and Insolvency Act of Canada works for fairness and equity

The case: Role of unsecured creditors trying to lift the stay of proceedings

Bankruptcy and Insolvency Act of Canada summary

The History of Financial Literacy Month

The Goals of Financial Literacy Month

During COVID, Canadians Need Financial Literacy Month More Than Ever

Financial Literacy Month: 5 Steps to Financial Wellness

National Financial Literacy Month: 30 Days To Celebrate, Learn And Share

Construction Lien Act of Ontario: What is a Construction Lien?

Construction Lien Act of Ontario: Construction lien and holdback rules

Lien Filing under the Construction Lien Act of Ontario

The court decision of this Construction Lien Act of Ontario case

Construction Lien Act of Ontario summary

**The bankruptcy protection court case facts**

**The bankruptcy protection case: The Receiver’s position**

**The bankruptcy protection case: The supplier’s position**

**The bankruptcy protection case: The Judge’s decision**

***Calculate HST* Amounts in Sales and *Purchase Documents***

***Calculate HST* but if you don’t pay, it is a *deemed trust***

***What does bankruptcy discharged mean:* *Absolute discharge vs. conditional discharge and so on and so forth***

***Cost of living in Toronto* and elsewhere: The negative side of the *cost of living increases***

**The Bankruptcy and Insolvency Act of Canada case**

**The case: How the Bankruptcy and Insolvency Act of Canada works for fairness and equity**

**The case: Role of unsecured creditors trying to lift the stay of proceedings**

***Financial Literacy Month: 5 Steps to Financial Wellness***

***National Financial Literacy Month: 30 Days To Celebrate, Learn And Share***

**The court decision of this Construction Lien Act of Ontario case**