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WHY CHOOSING THE EXECUTOR OF THE WILL CAN BE SO INTENSE: NECESSARY INGREDIENTS FOR CHOOSING THE RIGHT EXECUTOR

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

Smith Estate Trustee Ontario and 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.

Choice of an executor of the Will: Choosing the right executor for your estate

When a person dies, that is not the time to begin preparing for who will carry out the wishes of the dead person in connection with their assets. Without a properly drafted Will, your family could be in for a long and uncomfortable legal battle. This is why it is so essential to obtain the right advice early on and naming the appropriate person or persons as the executor of the Will.

Whether you’re single, married, or have a blended family, there’s a good chance that you will certainly need to select an executor of the Will of your estate. This is the person who will supervise accomplishing your desires after you die. The executor will make certain your wishes are accomplished in such a way that is fair to your heirs under Ontario laws. However, without proper paperwork, this may not go as efficiently as you may really hope. To avoid this, you need to carefully think about and then pick who or whom should be your executor(s).

Who can be an executor of the Will in Ontario?

Have you ever heard of the term “executor”? You will come across it when you or a loved one create a Will. In Ontario, the executor is now called an Estate Trustee. However, in this Brandon Blog, I will continue to use the old name. It is normal that one of your closest friends or family members will be named in your Will as an executor, meaning they’re responsible for carrying out the instructions in your Will.

There are really no requirements in Ontario for someone to be an executor of the Will. To be an executor of someone’s Will, you must be at least 18 years old and have the ability to comprehend what is expected of you in that role. Hopefully, the person or people selected also have no record of fraud!

The executor is essentially the person holding the purse strings when it comes to your estate. They’re to see the will through from beginning to end: paying off bills, selling off any excess belongings, and distributing the rest to your beneficiaries.

The role of executor is an extremely important fiduciary role. Performing the duties of an executor of the Will incorrectly can have a profoundly serious effect on the beneficiaries and families involved for generations to come. So by now, it should be obvious to you that not everyone who can be an executor should be chosen to be THE executor. Having the right executor best suited for your estate should be the cornerstone of estate planning.

Choosing the ideal executor of the Will for your estate

The best estate trustee for your estate will depend upon the complexity of your estate, your specific wishes and needs. You and your lawyer ought to think about several elements when choosing an executor, consisting of:

  • Given your assets and beneficiaries, what skills should the executor possess and how active will their involvement be in the estate?
  • Whether they will need to make financial decisions.
  • Do they have the necessary skill set and financial acumen to properly administer your estate?
  • Whether they have a good and trusted relationship with your heir and with various other relatives.
  • Do they have good conflict-resolution skills?

You also must be mindful as to how normal life events may have changed your needs when considering an executor of the Will. The person or people you chose under your first Will when your family was young and your biggest asset might have been the proceeds under your life insurance policy may no longer be the right choice years later when your children have their own families and your estate assets look much different. Complex estates also require executors to have different skill sets than what is needed to administer simpler estates.

executor of the will
the executor of the Will

The executor of the Will: Consider people in good financial standing

Becoming a good executor of the will requires time and effort. To act as executor means you will have legal responsibilities and you’ll be making crucial choices regarding the deceased’s properties, including:

  • Paying off debts.
  • Taking the estate through probate and calculating and paying the Ontario probate fees called the Estate Administration Tax.
  • Completing one or more income tax returns that the deceased may have not filed and paying the taxes.
  • Managing and perhaps selling assets such as real estate.
  • Distributing assets to beneficiaries.
  • Filing the estate tax returns and paying the necessary tax.

You will want to make sure that whoever you pick as executor under the Will, will be able to properly administer your estate through the entire estate administration process.

So as a starting point, you will want to make sure that the estate trustee that you pick as your personal representative who will be dealing with your personal finances, should be someone trustworthy who has both the necessary skills to handle the financial matters and has a good financial standing. In Ontario, an undischarged bankrupt cannot be an estate trustee.

How much power does an executor of the Will have over the estate?

An executor of the Will is a person who has been named to administer an estate when someone dies, but what does that involve? The executor’s responsibilities include:

  • making sure that funeral arrangements have been properly made and funeral costs are paid;
  • gathering up important documents;
  • getting official copies of the death certificate;
  • paying off any debts;
  • wrapping up any loose ends like liaising with government agencies;
  • gathering up the funds and then closing out the deceased’s bank accounts; and
  • figuring out how to handle any property.

In other words, an executor has a lot of responsibility and a lot of power. So much power that an executor may be required to post a bond with the province of Ontario to cover any potential losses.

It’s a common misconception that the executor of an estate has complete control over the assets and can freely distribute them to whomever they choose. In reality, that’s not the case. When someone passes away, their estate becomes a separate legal entity, and once the executor has finished settling the estate’s affairs, the estate’s assets must pass to the designated beneficiaries. However, the executor has many powers that can help them better manage the estate.

The powers of an executor of the Will, come from the wording of the Will. If the executor finds that they do not have sufficient powers to properly carry out their duties, then the executor would have to retain a lawyer, get legal advice and then make an application to the court to get those additional powers. Since an executor has personal liability, they should not overstep their authority by taking actions they do not have the power to under the Will.

How do I make sure an executor of the Will is honest?

Succession preparation includes the estate planning documents. As part of that process, there needs to be a properly thought out procedure of picking a proficient, responsible, and trustworthy individual to handle an estate, trust, or business, upon the death of the creator of that wealth.

It is extremely essential to have a detailed succession plan in your estate and to make certain that your executor recognizes his/her duty, has the necessary skills and is willing to carry out what they will be called upon to do.

A well-known saying is “you get what you pay for” which is more often true when it involves choosing your executor. The executor is the person responsible to execute the terms of a Will or Trust. If they are not up to the task, your estate can get involved in a great deal of trouble.

At the end of the day, you have hopefully chosen someone to be the executor of the Will that not only has the ability to perform all necessary tasks but also someone who out of respect for their relationship with you and your wishes will carry them out honestly and efficiently.

executor of the will
the executor of the Will

Can there be 2 executors of a Will?

There are numerous concerns that emerge when a loved one passes away. One that is usually asked is can there can be more than one executor of the Will? In short, yes, there can be more than one executor, but there are some instances when that may not be the very best course of action.

So what are the realistic options? There can be a sole executor, an alternate executor or co-executors. Each one has its pluses and minuses. As the name suggests, a sole executor is 1 person only who has full responsibility to take all the necessary actions involved in settling the estate and then turn the money or specifically designated property over to the beneficiaries.

What is and why have an alternate executor? Just because someone is named as an executor of the Will, it may be the case that when the time comes, the person named is either unwilling or unable to act. Perhaps the Will was drawn up one or two decades ago and now the circumstances of the named executor have changed. So just in case, an alternate executor can be named in case the primary executor cannot act.

The Ontario Trustee Act contemplated such a situation. Examples of reasons why the primary executor may be unwilling or unable to act are because they are now:

  • Having a change of heart and is now unwilling to act. An executor can recuse themselves before they start to take any action as executor. Once they start acting though, the only way they can be removed is through a court order.
  • Is now is unfit to act.
  • Predeceased the one who just died.
  • Have been convicted of an indictable offence.
  • An undischarged bankrupt or insolvent and trying to settle their debts under the Proposal provisions of the Bankruptcy and Insolvency Act (Canada).

Our sister business, Smith Estate Trustee Ontario, acts as a substitute executor when an executor of the Will needs to be replaced by the court.

In any of these situations, the alternate executor hopefully can and is still willing to act. The alternate executor would have the estate’s lawyer make an application to the court, provide proof for the reason why the named executor cannot act and the court can appoint the alternate executor (or any other party the beneficiaries may wish to nominate if proven that the alternate is unfit to act).

As the name implies, co-executors means that two or more people have been appointed to act together as an executor of the Will. This can help ensure that your estate is divided up as you intended and the co-executors can both split the work between them and also be a check on each other’s work.

They have someone they can confer with when unsure about something, rather than putting the estate to expense by consulting first with one of the professional advisors. The main disadvantage of having co-executors is that if you have an even number of executors and there is a major disagreement right down the middle, it will probably take the intervention of the court to have the decision made. This creates otherwise unnecessary cost and delay.

It is probably one of the most serious decisions in estate planning. Yu do not want to pick the wrong executor.

Choice of the executor of the Will: Using a trust company

Should you consider naming an estates professional as your executor? A trust company is such a professional executor. If you named an estate professional to oversee the distribution of your estate as executor, this approach typically results in less conflict and fewer disagreements between family members than naming a family member to be executor.

However, you should know that in naming an estate professional trust company, you are naming a corporate executor with well-established and unwavering policies and procedures to handle the estate administration process. The person at the trust company handling your relative’s estate is not going to care about the relationship issues between the beneficiaries and other family members.

They also are not going to worry about hurting someone’s feelings. The cost of using a trust company is cut and dry where a close friend or family member may waive any fee they may be entitled to as executor.

In some situations choosing a trust company as your corporate executor of the Will can be a smart option. A trust company is a company authorized to act as a trustee for a trust. The trust company is not the creator of the trust, nor is it the owner of the trust property.

The trust company is an independent third party, which is chosen by the now-deceased person to act as the executor of the Will. A trust company is an excellent choice as executor when the estate is very large and complex.

Whether one or more people or a trust company is a better choice to be the executor really depends on the size and complexity of the estate and the relationships of all the family members involved.

The executor of the Will summary

I hope you enjoyed the executor of the Will Brandon Blog post. If you are concerned because it is now time to act under the Will, but the named executor is unwilling or incapable of acting, that is where Smith Estate Trustee Ontario can be of assistance. We act as substitute trustees appointed by the court in such situations.

Have you been administering an estate and now you have determined that it is an insolvent estate? 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.

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

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

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

Call us now for a no-cost consultation.

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

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

Smith Estate Trustee Ontario and 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.

executor of the will
the executor of the Will
Categories
Brandon Blog Post

FINANCIAL WELLNESS: IMPROVE YOUR RELATIONSHIP WITH MONEY

financial wellness
financial wellness

We hope that you and your family are safe, healthy and secure during this coronavirus 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 this Brandon Blog’s audio version, please scroll to the very bottom of this page and click play on the podcast.

What Is Financial Wellness?

Financial wellness is the state of being free from financial stress or worry. By managing your financial health you can avoid the feelings of anxiety and despair that come from worrying about money. When you are financially well you have the ability to focus your energy on the things that really matter to you.

The phrase is everywhere these days. It’s a buzzword that’s getting a lot of attention. But what does it actually mean? When you boil it down, financial wellness is simply about being responsible with money. It’s about paying attention to how you spend, saving for the future, and making sure you can take care of yourself and your family.

Why is financial wellness important?

Financial wellness is important because it’s the first step to planning and achieving your goals. If you don’t know where your money goes, how can you ever be sure that there is enough for the things you want and need? Your ability to pay bills and avoid debt can determine whether or not you have a good credit score, and whether or not you can apply for a mortgage or a loan for a house or a car. This creates unnecessary financial stress.

In this Brandon Blog, I discuss the aspects of financial wellness and what it means for your overall enjoyment of life.

This blog is an expansion of a recent blog titled: “Take Care of Yourself, Take Care of Your Money” I wrote for our national association that we are a member of, the Canadian Association of Insolvency and Restructuring Professionals.

Financial wellness & stigma

It’s difficult to remember a time when the word “debt” didn’t have a negative connotation. Whether you’re talking about consumer debt, medical debt, or debt related to other services, the ominous word is never far from its less than attractive cousins “recession” and “bankruptcy“.

Yet even in the midst of a pandemic, in September 2020, credit reporting firm Equifax Canada stated increasing mortgage balances pressed average financial debt per Canadian consumer up to $73,532. This is up 2.2% from the prior year and despite the financial impact of the COVID-19 pandemic.

Financial health can be part of an overall health wellness program which will certainly aid in decreasing any kind of stigma. The Financial Consumer Agency of Canada stated that “mental, physical and financial wellness are three pillars of good health”. They say this with great certainty as almost fifty percent of Canadians have financial tension in their lives. Virtually as many, according to a 2018 survey carried out by the Canadian Payroll Association, would certainly have economic pressure and financial shock if a paycheque came late.

financial wellness
financial wellness

Financial wellness & productivity

The number one reason people will credit with helping them make and save money and make proper financial decisions is their parents. So why not make the home for your entire family the number one place to learn about money and manage it? Look for personal finance articles, books and courses that can teach you everything from general money management to specific techniques for saving money on groceries to investing. This is also known as improving your financial literacy.

Also, look for advice on your overall well-being so you can have a healthy relationship with money and your family that will last all of you a lifetime. Overall good health, taking the stressors out of your life as much as possible and financial well-being will lead to increased productivity and overall enjoyment of life.

The principles of physical health are well promoted through health institutions. It consists of a well-balanced diet regimen, exercise, and healthy life selections. The importance of psychological well-being in the form of self-care and mindfulness is obtaining awareness through networks beyond medical care specialists. Its value has been highlighted a lot more throughout the pandemic.

In my experience as a Licensed Insolvency Trustee (“Trustee”), the principles of financial well-being and financial wellness still challenge Canadians. I never see it included as a component of overall health in discussions over awareness of physical and mental health wellness. Perhaps because in our consumption-driven world, saving cash through excellent money management abilities isn’t as “awesome” a subject to brag about or to become a social media influencer in!

Nonetheless, establishing monetary objectives and achieving them is extremely rewarding. Self-control today will certainly pay dividends in the future. So just how do we get there to a nirvana state of financial well-being? The same way as we do with a physical health and wellness goal – with self-control and good habits, forming new behaviours.

I recommend that as a first step, draw up a checklist of financial planning objectives and a timeline. Take stock of your financial obligations, rates of interest you are paying, monthly payment amounts and days of the month that payments are due. Understand your assets, liabilities, income and all of your expenses.

Goals: Financial wellness programs need realistic goals

The biggest mistake people make when trying to establish financial wellness is setting financial goals they have no realistic chance of achieving. This is not an achievable goal if it is too high, or too grand. If necessary, break a larger objective into smaller-sized objectives that can be attained in a reasonable period of time to stay clear of discouragement. If you set out to lose 100 pounds, you might be scared off because of how much time that would certainly take. Going for a few pounds a week or month would certainly help keep you motivated.

If all you do is have the idea of being debt-free or have $100,000 in your bank account, that goal is probably unattainable. There is no roadmap of steps to take to get there and there is no timeline attached to such a goal. However, aiming to pay all your monthly bills on time, conserving 5% of every paycheque to have some emergency funds on hand or paying off your highest interest rate financial debts at the rate of $50 a week is reasonable and measurable.

Financial wellness: Nutrition

Barring any serious medical concerns, conventional weight loss wisdom focuses on calories. If you burn more calories than you ingest, you will certainly slim down. Budgeting takes the same approach. As long as your monthly spending is less than your monthly income, you will achieve your financial well-being monthly goals. In tracking your monthly spending you need to look at all the ways you spend in any month: cash, cheque, debit card and credit cards.

Don’t make the mistake that many people do in forgetting that the only amount you have to spend is your net monthly income, net of the income tax you need to pay to the Canada Revenue Agency. You need to look at your last year’s income tax return to see the total amount of income tax you paid, not just the amount deducted at source. If you received a refund, then you should not have to save extra to pay that income tax bill in April. If you had to pay more than what was deducted at source, you better plan to save that amount of money during the year so you will have it the following April.

Analyze every expenditure and determine just how well it aligns with your financial health goals for a better financial life. What is more important? The expenditure or the sensation of financial wellness that will be accomplished if you had that much more cash to put in the direction of paying down debt, building up an emergency savings fund or starting or adding to a retirement savings plan.

financial wellness

Financial wellness: Exercising

Running on a treadmill is excellent for your physical health and wellness. Yet unless that treadmill is powering your home, when it comes to your financial well-being you will require a different type of exercise. That is an exercise in discipline. Understanding just how a “need” is different from a “want”.

After covering the requirements of life, you need to focus on what spending will certainly get you closer to attaining your goals, and which do the opposite. I am not recommending that you lead a reclusive life yet search for financial savings and effectiveness to get you closer to the financial well-being you are striving for. Is there a less costly cafe? Can I get that same fashion look for much less? Don’t deny yourself, but at the same time do not overreach.

My grandfather’s depression-era wisdom is still appropriate today: if you pinch pennies hard, you will get nickels.

Financial wellness in the workplace

Most people have financial stress in their lives, whether they realize it or not. For some, the stress may be simply a question of meeting their bills. For others, it may be more complex such as how to:

  • reduce the stress of dealing with creditors;
  • set up a savings account to handle an unexpected financial blow; or
  • achieve financial security.

Regardless of the type of financial stress people face, a financial wellness program can help them find solutions and create a plan to reduce their stress over money. Employees that have their stress reduced will be more productive. So it is in the employer’s best interests to institute a financial wellness program in the workplace.

It all starts with a financial wellness assessment

The idea of a financial wellness assessment might seem a bit like financial group therapy. A professional looks at your situation, from your income to your debts, and asks questions about your financial goals. It can be stressful to open up about your financial situation, but it’s an important step toward taking control of your money. It’s also an opportunity to learn about products and services that may help you achieve your financial goals.

The result of the financial wellness survey will be written up in a financial wellness report. A financial wellness report is a tool that helps you identify the state of your finances, your level of financial distress and the main source of stress. It is a tool that you can use, which provides you with objective information about your financial situation and what steps you can take to improve it.

financial wellness
financial wellness

Measure the success of your financial wellness program

If you’re a company concerned about the financial wellness of your employees, don’t just rely on gut feeling to measure your program’s effectiveness. Instead, use a quantitative approach to measuring the success of your financial wellness program, as this will help you better understand where your employees are at financially and what works and what doesn’t in your program.

If you’re seeking a successful financial wellness program, you need to assess yours. You may feel as if your program is successful, but have you measured it to be sure? Any employee financial wellness program aims to improve each employee’s financial position and to reduce the amount of financial stress in their lives. The best way to measure your financial wellness program’s success would be to measure how your employees have advanced in achieving their financial goals established in the financial wellness assessment.

After an appropriate length of time, depending on each unique set of goals, another financial wellness assessment should be conducted and the results of the newer one compared to the prior one. What an employee has achieved and how they feel about it is an extremely important measure. New goals can be set, old goals can continue to be worked on or recalibrated. All this is intending to keep your employees on track to achieve their financial goals, improve the level of financial wellness peers experience and reduce the stress in their lives.

Financial wellness guide information for employees

This listing is not meant to be exhaustive. Some of the things that your employees might need to learn about in financial wellness workshops to improve their every day finances might be how to:

  • Track your finances
  • best manage assets, liabilities, income and expenses
  • Improve your relationship with money
  • Create, track and adjust your personal budget
  • Money management skills
  • Have control over day to day spending
  • Set up and maintain positive money habits to reduce your money worries
  • Understand the key elements behind your spending habits and how to fix what needs fixing
  • Know how much life insurance you may need and how to choose the best for you from the different types of insurance
  • Maintain a good credit score
  • Fix your credit
  • Deal with Canada Revenue Agency and income taxes
  • Create goals for when you have extra money
  • Deal with unexpected expenses
  • Create the financial resources to meet your household’s needs

What are the financial consequences of debt?

I hope you enjoyed this financial wellness Brandon Blog post. Sometimes financial literacy and financial education have to take a back seat to fix an immediate financial problem. Education can come both as part of the solution as well as continuing after debt problems have been solved. Student debt, bad debt, Canada Revenue Agency income tax debt, other personal debt and corporate debt, credit card debt and an unmanageable debt load are all examples of financial problems we have solved for other individuals and entrepreneurs and their companies.

If you are concerned 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.

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

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

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

Call us now for a no-cost consultation. We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this coronavirus 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.


Categories
Brandon Blog Post

EVANDER KANE CONTRACT: CAN AN INVOLUNTARY CHAPTER 11 BANKRUPTCY UNVEIL INDENTURED SERVITUDE?

We hope that you and your family are safe, healthy and secure during this coronavirus 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.

Evander Kane contract: Evander Kane to bankruptcy court – Lenders’ argument violates U.S. ban on slavery

In January 2021, I wrote about the then-recent voluntary filing of Evander Kane Chapter 7 bankruptcy on January 9, 2021. That is one of the chapters in the United States Bankruptcy Code, the federal bankruptcy law in the USA. I talked about the main reason for his personal trouble leading to his bankruptcy being gambling losses. Evander Kane is an NHL forward. The Evander Kane contract is held by the San Jose Sharks.

I also explained the issue that Arkansas-based Centennial Bank was suing both Evander Kane and the Sharks. They claim that they owe over US$8M, containing principal, interest and bank costs after both Kane and the team stopped making payments in 2019. Until then, the Sharks had been deducting loan payments from the salary they would otherwise be paying him under the Evander Kane contract. This was Centennial Bank’s only source of repayment.

According to Centennial Bank’s case, the Sharks were anticipated to make continual regular monthly distributions to the bank by subtracting funds from Kane’s wages till the total owing was fully repaid. In its claim, Centennial insists that it was Evander Kane that had in fact got the Sharks to stop payments on the loan from the Evander Kane contract with the San Jose Sharks.

Before discussing the current twist in his bankruptcy, let’s go over a few basic details.

What Is a voluntary bankruptcy?

A voluntary bankruptcy in the US and in Canada is the same concept. The process is just a little different. In the United States, in a voluntary bankruptcy, the insolvent debtor brings a bankruptcy petition before the U.S. Bankruptcy Court to declare bankruptcy because they are insolvent and cannot afford to pay their debts in full as they come due.

In Canada, the reason for filing a voluntary bankruptcy is the same. The insolvent debtor meets with a licensed insolvency trustee and files an assignment in bankruptcy. The licensed insolvency trustee then administers the Canadian bankruptcy process under the Bankruptcy and Insolvency Act (Canada).

Evander Kane filed for voluntary bankruptcy, notwithstanding the Evander Kane contract pays him millions of dollars.

What Is an Involuntary Bankruptcy?

Involuntary bankruptcy is a legal action that creditors bring against an insolvent individual or company that will force the insolvent debtor right into bankruptcy. In Canada, the requirement to bring a Bankruptcy Application by any creditor, or group of creditors is to prove that:

  • they are owed at least $1,000; and
  • that the debtor has committed one or more acts of bankruptcy in the preceding 12 months.

If the Bankruptcy Application is successful, the Court will issue a Bankruptcy Order and the insolvent debtor will officially be bankrupt.

The Evander Kane contract

It has been reported that until now, Evander Kane has earned $52.9 million over his 11-year span in the NHL. In his bankruptcy declaration, Kane stated that in each of the last 3 years the San Jose Sharks Evander Kane contract paid him:

Year US$ wage

January 1 to December 31, 2018 $6,000,000.

January 1 to December 31, 2019 $7,000,000.

January 1 to December 31, 2020 $7,000,000.

The current Evander Kane contract was originally a seven-year contract. This is a seven-year, $49 million deal. The contract had a signing bonus of $12 million and an average annual salary of $7 million. His current season salary is said to be $3 million. Evander Kane becomes a free agent at the end of his current contract in 2025. All figures are in US dollars of course. Right now in the NHL’s 2020-21 season, Evander Kane is the Sharks’ second-leading scorer

That is unless the Evander Kane contract is repudiated by him through his bankruptcy. I highly doubt he would do that, but why would he even think of it you ask? Just to add more pressure, the San Jose Sharks inform bankruptcy court of potential contract termination. This is seen as just a technical move. They are advising the bankruptcy court that it is a possibility. I highly doubt there will be an Evander Kane contract termination in bankruptcy.

OK, now for the good stuff.

evander kane contract
evander kane contract

Evander Kane contract: Evander Kane files motion claiming lenders wishes violate 13th Amendment

Remember I said that part of the payment stream under the Evander Kane contract was to be paid regularly by the San Jose Sharks directly to Centennial Bank until his $8 million dollar loan was repaid.

Five lending institutions, led by Zions Bancorp, filed a motion to be heard before a bankruptcy judge, to convert Evander Kane‘s voluntary Chapter 7, which would force him to pay creditors using only his current assets, to an involuntary Chapter 11 proceeding. Such a conversion would position the continuing years under the Evander Kane contract under the control of his creditors and allow them to garnish his earnings.

Evander Kane said that a conversion to an involuntary Chapter 11 is to make sure that the Chapter 11 Trustee control Kane’s future income for whatever duration of years left under the Evander Kane contract that the Chapter 11 Trustee, as well as the creditors, deem suitable for a suitable Chapter 11 debt settlement plan.

Evander Kane’s motion states that if allowed, such a move would place him in indentured servitude to his creditors which is illegal under the 13th Amendment of the US Constitution.

Indentured Servitude vs. Slavery

Indentured servitude initially started in America in the years after the settlement of Jamestown by the Virginia Company in 1607.

The concept of indentured servitude was born of a need for low-cost labour. The earliest inhabitants soon understood that they had a great deal of land to look after, yet no one to take care of it. With passage to the Colonies costly for anyone but the rich, the Virginia Company established the system of indentured servitude to bring in workers. Indentured servants came to be crucial to the early American economic situation.

Servants typically worked 4 to 7 years for travel, board and accommodations. While the life of an indentured servant was severe and limiting, just like slavery, it wasn’t slavery because they agreed to this arrangement through a contract. Their life was awful and harsh.

Numerous landowners began feeling endangered by newly freed indentured servants‘ need for land. The colonial elite recognized the issues of indentured bondage. Landowners turned to rely on African slavery as an extra lucrative and also an ever-renewable source of labour. That is why the shift from indentured servants to African slavery, especially slaves from West Africa, had actually started.

By 1675 slavery was well established, and by 1700 slaves had actually nearly completely taken over from indentured servants. With plentiful land and slave labour with no need for contracts in place to grow crops, southern plantations flourished. Family-based tobacco farming became an economic engine and a social standard.

The 13th Amendment of the US Constitution: The abolition of slavery

The 13th Amendment of the US Constitution was approved by Congress on January 31, 1865, and was ratified on December 6, 1865. It reads as follows:

“Section 1

Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

Section 2

Congress shall have power to enforce this article by appropriate legislation.”

evander kane contract
evander kane contract

Evander Kane contract: His motion may be outlandish, but it is not without precedent

Believe it or not, I found two recent instances of an insolvent debtor claiming that a creditor’s proposed Chapter 11 debt settlement plan would violate the Thirteenth Amendment. One of them was famous, the other not so much.

50 Cent says bankruptcy plan would be like indentured servitude

Curtis James Jackson III, the rapper known as 50 Cent had made a voluntary bankruptcy filing.

He declared bankruptcy days after he was convicted of releasing a sex tape online in June 2015, and the court ordered him to pay $5 million to the victim. The previous year, Jackson had been ordered to pay $17 million to headphone maker Sleek Audio for copying their styles.

His creditors brought forward a plan that would force 50 Cent to hand over the money he earns to a Chapter 11 Trustee, without any accommodation for living expenses. His lawyers made the uncommon claim that the plan violates the Thirteenth Amendment’s prohibition on involuntary servitude. They argued that if it was allowed, it would be a form of modern day slavery.

That argument never got tested in Court. 50 Cent and his lawyers negotiated with the creditors to come to an agreement on what payments would be made from the bankruptcy to the creditors.

Can an Involuntary Chapter 11 Ever Constitute Involuntary Servitude?

The next case I found is very recent and on point. It is Breland v. United States (In re Breland), United States Court of Appeals for the Eleventh Circuit, March 10, 2021, Decided, No. 19-14321. This case involves an uncommon claim. The debtor is a real estate developer that declared Chapter 11 in the Southern District of Alabama. The bankruptcy court designated a trustee based on proof that the debtor was defrauding creditors. The insolvent debtor declared that his Thirteenth Amendment rights had actually been violated because his income would go to the Chapter 11 Bankruptcy Trustee putting his cash beyond his control. He claimed this was debt slavery.

The bankruptcy court disregarded the claim on the basis that it was not yet ripe since no reorg plan had actually been recommended to need the debtor to work for the bankruptcy estate or his creditors. On appeal, the appellate court upheld the lower court decision on the ground that the debtor lacked standing since he hadn’t revealed an injury-in-fact. The Eleventh Circuit’s ruling dealt with only the standing issue. Yet the court also remanded the case to the lower court to consider the Thirteenth Amendment infraction claim.

For a plaintiff to have standing, the appellate court said the plaintiff must show (i) a real or imminent concrete injury-in-fact, (ii) that is traceable to the defendant’s actions, and (iii) that it can be restored with a favourable decision.

In Breland, the appointment of the Chapter 11 Trustee removed the debtor to do the normal things a debtor can do in a voluntary bankruptcy estate. The Eleventh Circuit ruled that the appointment of the Chapter 11 Trustee gave rise to an injury-in-fact. The injury could be remedied by eliminating the Trustee thereby enabling the debtor to resume his function as debtor-in-possession. As a result, the Eleventh Circuit ruled that the debtor had the standing to pursue his claim.

Time will tell how the lower court will deal with the claim and what kind of bankruptcy ruling may be made on whether there is a violation of the Thirteenth Amendment.

evander kane contract
evander kane contract

Evander Kane contract: Can an Involuntary Chapter 11 Ever Constitute Involuntary Servitude?

So from the above, you can see that the Evander Kane contract claim in his voluntary bankruptcy is not a new one. However, 50 Cent never pushed it far enough to get a court ruling. He negotiated with his creditors and came up with a mutually agreeable bankruptcy plan.

In Breland, the only issue decided so far is whether or not the bankrupt has standing to bring such a claim. The court has not yet heard evidence on the main issue. I am not aware of any court decision on this topic but then again, I am not an expert in US bankruptcy law.

I highly doubt that Evander Kane wants to either void the Evander Kane contract or go all the way to have a court ruling on the involuntary servitude issue. He clearly wants to make sure though that the Evander Kane contract does not become a servitude contract. Perhaps like 50 Cent, bolstered by the Breland decision that the issue is a live one, Evander Kane will negotiate a settlement with his creditors that he can live with rather than force a bankruptcy determination from the court. If he does that, the Evander Kane contract with Sharks will survive and he will share a portion of his future earnings with his creditors.

Evander Kane contract summary

I hope you enjoyed this Evander Kane contract Brandon Blog post. If you are concerned 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.

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

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

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

Call us now for a no-cost consultation. We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this coronavirus 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.

evander kane contract
evander kane contract
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Brandon Blog Post

RRSP BENEFICIARY: OUR REMARKABLE PLAN ON HOW THE INCOME TAX BILL ON DEATH FROM AN RRSP CAN BE REDUCED

rrsp beneficiary
rrsp beneficiary

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

Ira Smith Trustee & Receiver Inc. and Smith Estate Trustee Ontario are 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 and click play on the podcast.

RRSP beneficiary: Death of an RRSP annuitant

As I have written before, in addition to insolvency work, we also act as an independent Estate Trustee through our business Smith Estate Trustee Ontario. In our work as Estate Trustee of a deceased estate, we have come across an interesting topic when it comes to the will of the deceased and the inheritance of an RRSP beneficiary.

Understanding the tax implications of a beneficiary entitled to an RRSP inheritance can save or cost you thousands of dollars depending on how the RRSP is administered. The Canada Revenue Agency (CRA) has specific rules regarding what happens to an RRSP when its owner dies. Did you know that there are a number of tax implications that come with inheriting RRSPs? This is especially true when you are inheriting from distant relatives like grandparents, aunts, uncles, or cousins. As an assignee of a Registered Retirement Savings Plan (RRSP), you are entitled to all of the funds in the plan, but it is possible that the account balance could be taxable.

In this Brandon Blog, I discuss the income tax ramifications on an RRSP beneficiary. By definition, since it is an RRSP available to be inherited, rather than a Registered Retirement Income Fund (RRIF) or an annuity, I am talking about:

  • someone who died before turning 72 years old; and
  • never had the opportunity to enjoy retirement.

I remind you that I am not an income tax practitioner, but rather, I am a licensed insolvency trustee. So this Brandon Blog is not meant as income tax advice and should not replace the advice of your qualified income tax advisor.

RRSP beneficiary designation: Designating your estate or other beneficiaries

Setting up an RRSP is a great way to save for retirement. You contributed to your plan each year and got a tax break from the government. This is a fantastic deal, so many people take advantage of it. If you only name the heir or heiress in your will, that should be sufficient. However, a will can be challenged. If you don’t name one at all for your plan, or if you are not a special type of grantee, there can be some serious tax implications.

The inheritor you name for your RRSP during your lifetime is the person who will receive the asset after your death. You can appoint a recipient directly in your RRSP plan document much in the way that you name one for your life insurance policy. I recommend that you do this. Do not just name your estate and then maybe name the real RRSP beneficiary in your will.

The CRA has adopted a special policy regarding the tax treatment of RRSPs. This policy is referred to as the deemed disposition rule. The deemed disposition rule applies to RRSPs. When the holder of an unmatured RRSP passes away, CRA deems that the RRSP was disposed of and the funds received, right before their death.

The calculation of the funds received is an amount equal to the reasonable market price of all the property kept in the RRSP at the time of death. This amount and any other balances the deceased got from the RRSP in the year of death need to be reported on the deceased’s year of death income tax return.

rrsp beneficiary
rrsp beneficiary

RRSP beneficiary tax implications: How can the income tax bill on death be reduced?

Understanding the tax implications of an RRSP beneficiary entitled to an RRSP inheritance can save or cost you thousands of dollars depending on how the RRSP is administered. The CRA has specific rules regarding what happens to an RRSP when its owner dies.

When a person passes away and leaves an RRSP, their estate has to pay the income tax liability on the RRSP when it’s paid to the RRSP beneficiary. However, you should first ask who is a qualified beneficiary? Eligible individuals who can qualify for such beneficiary designations are a spouse, a common-law partner, or a financially dependent (infirm) child or grandchild, they can utilize the “qualified beneficiary” RRSP exemption to reduce or remove the tax obligation. If there is no qualified beneficiary, the Estate Trustee will have to pay income tax calculated based on the entire amount of the RRSP.

So the challenges for beneficiaries, in general, are twofold: 1. Are you a qualified beneficiary? 2. Can a qualified beneficiary reduce their income tax bill?

If you inherit an RRSP, is that someone will face a tax bill from CRA on the deemed disposition on death. The RRSP value will be taxed as income. Now, there are some situations in which you can reduce or eliminate the taxes. If the RRSP beneficiary is a qualified beneficiary, then the value of the RRSP can be taxed in the hands of the RRSP beneficiary, not the deceased’s estate.

RRSP beneficiary tax: Reduce the tax by rolling over

This first step of the rollover procedure is described as a “refund of premiums”. The second step is the tax-deferral portion. Where a qualified beneficiary adds the number of assets from the deceased’s RRSP in the year received (or within the first 60 days of the next year), the qualified beneficiary can declare a tax deduction under section 60(l) of the Income Tax Act (Canada) to eliminate the RRSP amount added to their income. This manoeuvre does not require the RRSP beneficiary to have sufficient RRSP contribution room. The result? This heir or heiress becomes a successor annuitant and gets a tax-deferred rollover.

To eliminate the tax on receipt of the RRSP funds, the RRSP assets are directly moved to the qualified beneficiary‘s RRSP. At tax time, the qualified beneficiary gets a T4RSP tax slip. The qualified RRSP beneficiary then includes the date-of-death RRSP amount in their taxable income but offsets it with a section 60(l) tax reduction.

The above rollover is typically seen when a qualified beneficiary is marked as the RRSP recipient. When this happens, the RRSP proceeds generally bypass the deceased’s estate, lowering probate fees (where applicable) and side-stepping the estate creditors as well as the need for complicated estate settlements.

rrsp beneficiary
rrsp beneficiary

CRA RRSP beneficiary rules: Who pays tax on inherited RRSP if the beneficiary is not a spouse, common-law partner or financially dependent children or grandchild – but is the Estate?

One of the most common errors made when determining the recipient for the RRSP is to assign the estate itself. This requires the RRSP asset to go through probate. The estate receives the tax-deferred growth that has actually been earned by the RRSP up to the date of death. However, it would additionally mean that the estate would be responsible for shouldering the tax burden on the distribution of the RRSP. This is not necessarily wrong, but from an estate planning perspective, it is the most expensive route to choose. Estate planners certainly would not choose this way unless for some reason there was no other choice.

The RRSP beneficiary problem we are dealing with or how to destroy an inheritance

The issue we are dealing with on a particular deceased estate file blends insolvency work with the work of an Estate Trustee. The deceased did not file income tax returns for the last few years of her life. We now have a pretty good handle on her income taxes and what her liability is for the years of unfiled tax returns, as well as the tax liability that will arise from the Estate trust tax return.

Based on what I have already told you about the taxation possibilities for an RRSP beneficiary, and what I am about to tell you, there is a huge problem for an RRSP beneficiary.

For confidentiality reasons, I cannot provide names and amounts, but I will explain the problem. The deceased maintained a self-directed RRSP contract through Royal Bank of Canada at Royal Bank Dominion Securities. The named beneficiary in the Registered Retirement Savings Plan document was a relative. This relative does not meet the definition of a qualified beneficiary.

So in the normal course, the Estate Trustee would work with the RRSP beneficiary to understand if there was going to be no taxable income inclusion because an RRSP rollover was taking place. If not, the estate should pay the tax, but the beneficiary obtains 100% of the value of the RRSP.

Another option is that the Estate Trustee would get the tax payable on the registered retirement income from the RRSP beneficiary and pay the income tax. The beneficiary would be left with the net amount and the tax would be paid. So everyone is square.

Which option is picked depends on if there are more assets and more beneficiaries or not.

In the situation I am acting in, the Estate is insolvent. There will not be enough money in the Estate to pay all the income tax owing, regardless of the source of the taxable income. The RRSP beneficiary also as I understand it, did not elect an RRSP rollover.

So now, in this case, where the Estate has insufficient funds to pay the taxes payable in full and the RRSP beneficiary:

  • is not a qualified beneficiary; and
  • did not do an RRSP rollover

the RRSP beneficiary will be liable for the income tax payable from the RRSP plan assets received. The real problem is that the year death, and therefore the year the RRSP beneficiary received their inheritance was 2018. We were appointed late in 2019 and we just now have been able to quantify the income tax payable.

So it will be 2021 or later that CRA may go to the RRSP beneficiary with their hand out. I don’t know if the RRSP beneficiary invested it all, spent it all, or a combination of the two. This my readers is how to destroy an inheritance.

RRSP beneficiary summary

I hope you enjoyed the RRSP beneficiary Brandon Blog post. If you are concerned 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.

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

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

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

Call us now for a no-cost consultation.

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

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

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

 

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Brandon Blog Post

IS CERB TAXABLE? EXCLUSIVE REPORT AS TO WHAT HAPPENS WHEN YOU DON’T HAVE THE MONEY TO PAY OFF YOUR TAX RETURN

We hope that you and your family are safe, healthy and secure during this coronavirus 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.

Is CERB taxable? CERB is a taxable payment

Last weekend we set our clocks ahead 1-hour. This time of year always gets me thinking of doing my income tax return. So with taxes on my mind, I believed it would certainly be appropriate to discuss CERB, which is the short-hand for the Canada Emergency Response Benefit.

So, is CERB taxable? That is what I want to discuss with you today.

Since March 2020, I have written several blogs about different issues facing Canadians with Canada’s COVID-19 Economic Response Plan, including the Canada Emergency Response Benefit (CERB). My 3 previous blogs on CERB were:

Now I look at is CERB taxable?

Is CERB taxable? What is the CERB?

Simply to freshen your memory, I think a summary of the CERB eligibility requirements will nicely establish the stage.

To be eligible for the $2,000 CERB payment by applying through the Canada Revenue Agency (CRA), you needed to have met specific CERB requirements for each of the CERB time periods you were making an application for. The Government of Canada specified the eligibility requirements to be:

  • You didn’t obtain CERB or Employment Insurance (EI) from Service Canada for the CERB dates now being requested.
  • You did not voluntarily give up your work.
  • You live in Canada and are not younger than 15 years of age.

You earned at least $5,000 (before taxes) in the preceding 12 months, or in 2019, from 1 or even more of:

  • job income;
  • self-employment income;
  • provincial benefits for maternity or parental leave;
  • your job hours have been lowered as a result of COVID-19;
  • you have actually quit or will give up work as a result of COVID-19;
  • you are not able to work as a result of COVID-19, for example, because you are looking after an individual;
  • you have been paid EI benefits for at least one week of qualifying after December 29, 2019, and your entitlement to such benefits have ended;
  • this is your first application because:
    • you have quit or will stop working, or you are working decreased hours, as a result of the coronavirus;
    • you don’t expect to earn over $1,000 in gross work or self-employment earnings for at least 14 days right during the 4-week duration.
      If you are getting a subsequent period: You are still not utilized or self-employed, or you are doing decreased hrs due to COVID-19. You do not prepare for transforming $1,000 in gross income; and
    • you expect this to continue throughout the whole 4-week period you are applying for.

      is cerb taxable
      is CERB taxable

The CERB emergency benefit: Our federal government started to attack the self-employed

The Canadian CERB program is completed. The CRA approved and paid retroactive applications until December 2, 2020. Currently, they are doing audits to see if individuals who received CERB did not really qualify.

As you may recall, this revealed a one-of-a-kind issue to the self-employed individual. CRA was inconsistent in their descriptions and definitions of the threshold to get CERB. The concern that was uncovered for self-employed people was in the computation of income. The qualification guidelines and eligibility standards concerning self-employed earnings had been misunderstood by both the public and CRA employees alike!

Self-employed Canadians have said that when they reviewed the federal government’s CERB site, they understood that their business had to have earned (before taxes) a minimum of $5,000. CRA stated that the $5,000 was net income, your business earnings after deducting all your expenses. Numerous people understood it to be gross earnings as meeting the income test requirement for obtaining CERB. The federal government originally stated that those that misunderstood this regulation would need to pay all the CERB back. Luckily for them, the government has withdrawn from that position and will just rely upon the income tax system to determine what those people will have to pay in income tax.

Now for is CERB taxable?

Is CERB taxable? Report T4E amounts on your tax return

Along with any other income you might have earned in 2020, if you got the CERB or other emergency benefits from Service Canada or any kind of EI payments, you will certainly be sent out a T4E tax slip showing the amount paid. So is CERB taxable? Sadly, yes.

These benefits are taxable. Any of this kind of payment you received prior to December 31, 2020, will certainly need to be reported on your 2020 tax return. You will receive a T4E slip at tax time or you may also get your T4E info from your My Service Canada Account.

is cerb taxable
is CERB taxable

Maximize your tax planning for CERB before our debt-ridden government comes looking for more

When I think of tax planning, I think of ways to avoid (but not evade) income tax. In the case of CERB and other such benefits, the planning is really making sure you actually have the money to pay your 2020 income tax liability. The reason for this was that, unlike employment income, no income tax was deducted at source for the CERB payments. The federal government wanted to get the money out as quickly as possible without extra bookkeeping.

How much tax will I have to pay on CERB is a question people ask. Given the duration that the benefits lasted for, the maximum CERB that Canadians might have obtained is $12,000 of revenue. Nevertheless, the amount of income tax obligation that you will owe cannot be calculated on this number alone. It will be calculated based on the full amount you made throughout the year.

Because the sum total of CERB paid to you is taxable income, it will be reported on line 11900 of the 2020 income tax return. That amount, in addition to any other sources of income, works through your income tax return to end up with your total taxable income and your total deductions. After that, you determine your income tax obligation, what taxes at source were subtracted or tax paid by you in instalments. The net amount is either tax payable or a tax refund. So the income tax payable on the CERB payments you obtained relies on what your marginal tax rate is.

Contributing to an RRSP may have been the only other way to reduce your total taxable income and therefore your total income tax. However, in a year where you had to rely on CERB, you may not have had surplus funds to contribute to an RRSP in 2020 or the first 60 days of 2021.

Is CERB taxable? When do I have to pay CERB taxes?

Unlike our 2019 income tax returns, there are no extensions being offered this year. The filing deadline for your 2020 income tax return is April 30, 2021, for most people. A self-employed person has until June 15, 2021, to file their income tax return. However, anyone who has a tax balance owing to CRA must pay it by April 30.

What if I didn’t set aside taxes for CERB? What happens when you can’t pay the tax on your CERB tax debt?

If you really did not reserve the right amount, or anything, to pay your taxes for CERB, and you find that you owe a substantial amount (possibly not hideous if CERB was your only earnings in 2020) then you’ll still have to figure out how to pay your taxes.

This situation resembles the majority of self-employed people whose taxes are not subtracted at source and need to be really attentive at reserving cash from their income to pay their income tax obligations. If they don’t have the funds readily available, they need to clamber to find the money for the CRA.

After your tax return is prepared, if you recognize you don’t have the cash to pay the tax owing, talk with your tax advisor. Perhaps they can establish a realistic timetable to offer CRA to pay your tax bill over some months using a current dated cheque and a few post-dated cheques to cover off the balance. This will give you the breathing room and financial help that you need.

However, the COVID-19 pandemic has left many Canadians in dire straits. They have barely enough money to pay for food and rent or mortgage payments, let alone income tax. If you find yourself in a situation where post-dated cheques are not even a possibility, contact a licensed insolvency trustee. We will provide you with a free consultation where we will go over your financial situation with you and make recommendations.

If you are working again and have a steady income, perhaps a consumer proposal is right for you. If you are not back at work or do not have full hours as you did before the pandemic, perhaps bankruptcy is your answer. Either way, contact a licensed insolvency trustee and find out what all your viable options are to settle your debts and eliminate that stress from your life.

is cerb taxable
is CERB taxable

Is CERB taxable summary

I hope you have enjoyed this is CERB taxable Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

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

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

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

Call us now for a free consultation.

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

We hope that you and your family are safe, healthy and secure during this coronavirus 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.

is cerb taxable
is CERB taxable
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Brandon Blog Post

STATUTE OF LIMITATIONS: IS STATUTE BARRED DEBT A BASIC PROPER BANKRUPTCY CLAIM IN ONTARIO?

statute of limitations
statute of limitations

We hope that you and your family are safe, healthy and secure during this coronavirus 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 and click play on the podcast.

Know Your Limitations: The Basic Limitation Period in Ontario

The basic limitation period in Ontario is 2 years from the date knowledge of the claim arises. The phrase “statute of limitations” is used to describe this time period. This is the time period between when you discover you have a claim and when you are legally permitted to bring that claim forward in a court of law. If you do not file your lawsuit within the 2-year limitation period, your right to sue will be extinguished and your claim will be forever lost. This is known as your claim being statute barred.

Statute of limitations: Limitations Act, 2002, S.O. 2002, c. 24, Sched. B

Each province has its very own rules, but the policies are comparable throughout the nation. In Ontario, the period is set by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (Act). The Act sets out a time limit as to when legal proceedings might be commenced by suing. It defines the time in which an aggrieved person can start a claim developing from any type of injury, loss, or damage that happened as a result of an act or an omission.

The Act sets out the two-year limitation period as follows:

“Basic limitation period

4 Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. 2002, c. 24, Sched. B, s. 4″

This is where the 2-year statute barred period of time is set in Ontario limitations law.

Can Your Debt Be Eliminated by the Statute of Limitations in Ontario?

Most people don’t realize that their debts can expire, just like the milk at the back of your fridge. In fact, while you can’t get rid of your debt by throwing it in the garbage, it can be eliminated by the basic statute of limitations under the Act. Debt is not considered timeless in Ontario.

There are two other main concepts under the Act also, which are not part of the discussion in this statute of limitations Brandon Blog. The two other main concepts are:

  • Ultimate limitation period (Section 15 of the Act).
  • The different proceedings in respect of for which limitation periods do not apply and therefore there are no time periods or time limits to worry about (Section 16 of the Act).

To keep it simple, when it comes to unsecured debt, the proceeding in respect of trying to recover on a debt by initiating legal action, and the focus of this blog, the applicable limitation period is the 2 year time statute of limitations period.

statute of limitations
statute of limitations

Statute of Limitations: How long can a debt collector pursue an old debt in Ontario

Last week I wrote a blog on various experts predicting that as the economy reopens, there will be increased activity by collection agencies and debt collectors. In that blog, I discuss the role of the debt collection agency and that they are all governed by provincial law. I also highlighted that they get their work either by trying to collect on the debts of their clients or they purchase accounts in default for less than the total amount owed and then try to collect as principal. Outstanding credit card debt is fertile ground for debt collectors and the debt collection process.

What do you do when a debt collector is pursuing you for an old debt? If it’s one you know you can’t pay, your first step should be to contact the agency and inform them of your situation. It’s important, to be honest, and precise when you tell them why you can’t pay what you owe.

Debt can be a very scary thing. When you owe money, you can feel like your life is one big bill you need to pay. It’s easy to want to hide from your creditors, but the more you avoid them, the more likely they will be to take drastic measures to collect their money. If you find yourself in such a situation, the best thing you can do is to face the music and get the matter settled. If you are in Ontario and have questions about your debt, or how to get it resolved, you can contact a Licensed Insolvency Trustee.

Statute of limitations: What does Ontario limitations law say about making a claim on debts even if I can’t sue?

In Ontario, there used to be substantial support for the interpretation that the right to be paid is not extinguished by the Act, but only the remedy of starting legal action in respect of the debt was eliminated. Various other provinces in Canada have passed provisions in their legislation that expressly states that upon the expiration of a limitation period, civil liberties are extinguished.

However, Ontario has not. In Ontario, the old way of thinking was that a financial obligation is snuffed out if an action on the financial debt is not brought within two years of its being due. Instead, the financial obligation continues to be owed.

There was even Ontario judicial authority for this position in:

But that is now in doubt given the recent decision of Master J. E. Mills (as she then was) who is now Justice J.E. Mills (the Registrar in Bankruptcy). Her decision released on March 8, 2021, In re: John Trevor Eyton, 2021 ONSC 1719 (CanLII), may have changed that. I say may, because the Temple and Duca cases were decided by a judge in the Ontario Superior Court of Justice. The Registrar in Bankruptcy sits below the Justices. However, she distinguished the Eyton case before her from the above two judicial decisions.

As you will read below, that decision may very well lead to a great statute of limitations period in respect of defence against any debts that a debt collector is trying to recover on, either by themselves or through legal action, where the debt went into default 2 years or more before.

Statute of limitations: Time limits, collections and bankruptcy

So what is the Eyton bankruptcy decision all about? The issue was a creditor appealing the Trustee’s decision disallowing the creditor’s proof of claim pursuant to s. 135(4) of the Bankruptcy and Insolvency Act (Canada) (BIA) (Form 77—Notice of Disallowance of Claim). The basis of the disallowance was that the Trustee took the position that the claim was statute barred.

The claim was for an unsecured loan where the last payment made was more than 2 years before the date of bankruptcy. Although there may have been some security agreement entered into, it was not perfected under Ontario law at the time of the bankruptcy. Therefore, there was no valid and enforceable security agreement in place.

The Trustee decided that the creditor, being a reasonable person, would have known about the default on the unsecured loan when the next scheduled payment was missed. That was more than 2 years before the bankruptcy and they did not take any action, including legal action. The Trustee went on to say that if the claim in respect of this unsecured loan could no longer be made, then the debt no longer exists.

statute of limitations
statute of limitations

Limitations analysis by the Court

It was indisputable by the creditor that the financial obligation owed by the bankrupt person was statute-barred under the Act and was not enforceable by way of legal action. The creditor relied upon the Temple and Duca cases listed above. They said that it stood for the proposition that although there was finality in respect of the fact that the creditor could not sue in court, the liability in respect of this unsecured debt remained.

The Trustee countered with a long background of case law which has held that in order to be a provable claim in bankruptcy, the financial obligation must be recoverable by legal process. If the financial obligation is statute-barred at the date of bankruptcy, the proof of claim is not sustainable. This principle was adopted by the Privy Council in 1943, the Alberta Court of Appeal in 1988 and the Court of Appeal for Ontario in 1996.

The court considered both lines of cases and decided that the cases cited by the Trustee, especially the 1996 Ontario Court of Appeal decision, bound the Registrar in Bankruptcy. She decided that the Temple and Duca cases could be distinguished and did not bind her decision.

Therefore, the creditor’s appeal was dismissed and the Trustee’s decision that if you can’t sue the debt is no longer a valid one was the correct interpretation.

What the Eyton statute of limitations analysis by the Court means for bankruptcy proceedings

There are some crazy results flowing from this Eyton decision which I am sure will result in more court decisions down the road.

First, the Registrar in Bankruptcy’s decision was in line with the Ontario Court of Appeal, but not certain judges’ decisions as decided in the Temple and Duca cases. The Temple and Duca cases were decided in a court lower than the Court of Appeal for Ontario but higher than the court in which the Registrar in Bankruptcy sits. So until a judge adopts her reasoning that the Temple and Duca cases are distinguishable, the first crazy result is that you have the various levels of the Ontario court system misaligned on this issue.

As a result of this decision in Eyton, we now have a second anomaly. In Temple, one of the judge’s findings was that a debt that is statute barred because of the statute of limitations can be used as the basis for qualification to launch a Bankruptcy Application against a debtor.

The Registrar in Bankruptcy noted that the line of cases relied upon by the Trustee in Eyton was not put before Justice Newbould (as he then was) when he heard Temple. Justice Newbould found in Temple that there was no Canadian authority for the suggestion that a statute barred debt could not support an application for a Bankruptcy Order.

The Registrar in Bankruptcy said that declaration was appropriate in the Temple case. As a result of these decisions, the legislation as it presently stands in Ontario is that a debt that is statute barred due to the statute of limitations, can be used in support of a Bankruptcy Application but after that could not constitute a provable claim in that same bankruptcy. This of course makes no sense.

Statute of limitations for unsecured debts and bankruptcy – What next?

My understanding is that the Eyton decision is being appealed. The appeal must be heard by a judge. Whatever the outcome of the appeal is, it will hopefully do away with these anomalies that currently exist.

UPDATE: THE APPEAL DECISION HAS BEEN RELEASED. TO READ OUR DISCUSSION ABOUT THE APPEAL RESULT, CLICK HERE.

The things to further consider are:

  • Has the debtor given written confirmation of the existence and enforceability of the debt prior to the expiration of the limitation period and before the date of bankruptcy? If yes, then it is a valid debt and is a provable claim in bankruptcy.
  • The disclosure of a statute barred financial obligation in the sworn Statement of Affairs by the insolvent debtor does not make up a recognition of the debt or the waiver of any limitation period for Limitations Act purposes.
  • In respect of claims, the debtor is unsure of and the debtor has not given the written confirmation identified above, then the best treatment would be to include the creditor on the Statement of Affairs but as a contingent creditor. This will give that creditor notice of the bankruptcy and they can decide whether or not to file a proof of claim with backup. If filed, the Trustee will then review the claim and make a determination as to its validity and amount.

    statute of limitations
    statute of limitations

Statute of limitations summary

I hope that you found this statute of limitations Brandon Blog interesting. If you are concerned 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.

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

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

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

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this coronavirus 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.

 

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Brandon Blog Post

HOW TO BEAT 407 PLATE DENIAL RULES EACH AND EVERY MONTH FOREVER

We hope that you and your family are safe, healthy and secure during this coronavirus 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.

how to beat 407 plate denial

How to beat 407 plate denial: What happens if you don’t pay 407?

Last week I received an inquiry from a woman who owes 407 ETR some $25,000. She wanted to know how to beat 407 plate denial. Being a licensed insolvency trustee and having written on the topic before, I thought it was already well known that there is only one real sure-fire way to beat them from denying your plate sticker when you show up to pay your renewal plate fee. So I am writing this Brandon Blog as a refresher since it is still a question people ask.

If you’re not paying your 407 tolls, chances are you’re going to get a letter in the mail asking you to pay up. You’ve probably also heard that the 407 is a hotbed for toll dodgers, but how many of them actually get found out?

According to figures from the 407 ETR, the company’s collection agencies and police forces find that only about 2% of toll dodgers pay up voluntarily. However, 407 ETR has the ultimate collection weapon; Ontario can enforce plate denials against those who have an outstanding 407 toll bill. People are always interested in how to beat 407 plate denial.

How do I fight my 407 payment?

You really cannot fight with 407 on your payment. The tolls are calculated based on your usage of the toll road. They know where you entered and exited the highway. They also have a picture of your vehicle and plate. So, unless you can prove that the amount you were billed is false charges, you cannot fight it. You may be able to negotiate, sort of, but you can’t fight it.

Can you negotiate 407 bill?

The 407 bill is one of the most intimidating bills that people receive in Ontario. It is called the 407 bill because it is associated with the 407 highway and that’s also where the tolls are collected. The 407 bill is the toll amount that you need to pay based on your trip. If you drive on the 407, you will have to pay the 407 bill.

The 407 bill is issued by 407 ETR, a company that operates the 407 highway. If you have received a 407 bill, you should pay it right away. If you do not pay it, you will receive a collection notice from the company.

407 ETR offers an Exceptional Hardship plan to aid consumers that have accumulated substantial tolls and who would suffer “exceptional hardship” with the denial of their licence plate. The plan permits a consumer to pay the amount owing over an agreed time period, rather than all at once.

Approval is at the sole discernment of 407 ETR. Their decision is final and there is no avenue for appeal. As you can see, it isn’t much of a negotiation.

As you will see below, the only way to successfully negotiate the 407 bill is with the assistance of a licensed insolvency trustee.

how to beat 407 plate denial
how to beat 407 plate denial

How to beat 407 plate denial: Does 407 affect credit?

It’s common knowledge that unpaid traffic tickets can result in fines and penalties galore, but did you know unpaid 407 ETR tolls can also result in toll fines and penalties? And, like unpaid traffic tickets, they can also affect your credit score and therefore your credit rating. When you do not pay your bills on time, they will eventually send the unpaid bills to a collection agency. Once in the hands of the collection agency, it gets reported to the credit bureaus. That reporting negatively affects your credit score.

How to beat 407 plate denial: Can 407 ETR garnish wages?

If 407 ETR sued people in court and obtained a judgement, then yes they could garnish wages. But they don’t sue. Rather, they rely upon their powers of license plate suspension to block those seeking license plate renewal.

It is stopping anyone from being able to how to beat 407 plate denial that is the real collection tool. That is the reason why 407 ETR had to amend their procedures because of a Supreme Court of Canada decision.

If you can’t pay the 407 toll charges, only a licensed insolvency trustee can show you how to beat 407 plate denial

Denying license plates were found by the court to be a collection tool. In Canada, there is only one professional who can stymie the 407 collection tool. So if you can’t fight 407 bills and you really can’t negotiate with them, then how to beat 407 plate denial seems to be a long shot, no? That is where the Supreme Court of Canada in the “Moore Decision” comes into play.

Our firm, Ira Smith Trustee & Receiver Inc., has assisted individuals in negotiating their 407 bills. A debtor who becomes our client is very easy to work with since they do not deny that they have debt and they know that they must pay. Our firm takes the 407 on. We start communicating with them by listing 407 ETR as a creditor in your bankruptcy or consumer proposal.

how to beat 407 plate denial
how to beat 407 plate denial

How to beat 407 plate denial: Highway Toll Arrears and the “Moore Decision”

In my blog titled 407ETR FAIRNESS-ONTARIO COURT OF APPEAL ENSURES FRESH START I described to you the decision of the Court of Appeal for Ontario in 407 ETR Concession Company Limited v. Superintendent of Bankruptcy (In the Matter of the Bankruptcy of Matthew David Moore) (the Moore Decision).

The highway’s owners appealed that decision to the Supreme Court of Canada (SCC). On Friday, November 13, 2015, the SCC released 3 decisions all dealing with the very same fundamental problem: does the federal government’s Bankruptcy and Insolvency Act (BIA) take paramountcy over provincial laws professing to handle the concerns of debt and bankruptcy in Canada. The SCC answer was a resounding YES!

What did the SCC decide about the provincial law about 407 debt settlement?

The SCC dismissed the appeal of the 407. The SCC considered whether the plate denial stipulations of the Highway 407 Act conflicted with the discharge provisions of the BIA. 407’s position was that provincial regulation about plate denial needs to apply after a person’s discharge from bankruptcy. The Attorneys General for several provinces, including Ontario, advanced arguments on behalf of the right of the province to enforce all laws for vehicle licensing.

The SCC’s decision supported the Moore Decision which found that the discharge section of the BIA bypasses and overrides the plate rejection arrangements of the Highway 407 Act.

What is the effect of a bankruptcy or consumer proposal on ETR debt settlement?

The effect of the SCC’s decision is that pre-bankruptcy amounts owed to the ETR are provable claims under the BIA and the plate rejection scheme under the Highway 407 Act, 1998, S.O. 1998, c. 28 can no longer be used to collect pre-filing amounts. Therefore, 407 etr financial debt settlement is possible.

Upon the filing of bankruptcy or consumer proposal, in which 407 ETR is provided for in the sworn Statement of Affairs as a creditor, 407 ETR will remove from plate rejection any amount still owing from the period before your Assignment in Bankruptcy, or filing of consumer proposal (that includes interest and any other type of charges incurred on those amounts). The Ministry of Transportation will be told to amend its records to show this change.

You will be removed from plate denial if:

  • you have not incurred any type of brand-new financial obligation with 407 ETR for which you might remain barred from how to beat 407 plate denial since the filing of your bankruptcy or consumer proposal; and
  • you have no debts with the Ministry of Transportation (e.g. parking tickets) causing plate denial.

In both instances, once the balance owing is adjusted from your account, then, the individual is allowed to get plate renewal from the Province.

How to beat 407 plate denial: This seems to be the end of the discriminatory plate denial

407 ETR must and is following the SCC decision. They have set up the procedure for those who have been rejected from plate renewal and who have filed either for bankruptcy or a consumer proposal. The 407 ETR debt, including penalty and interest, is reversed and plate revival issued.

Remarkably enough, there was no evidence whatsoever in any one of the Court hearings, including this one heard by the SCC, as to the 407 ETR’s right to reject anyone from providing credit to them. When you get your transponder, the 407 ETR is actually extending credit to you, in the form of using the toll highway with the promise to pay when your bill arrives. It is no different than you making purchases on your credit card and your bank expects you to pay them when it shows up on your bill.

How to beat 407 plate denial summary

I hope that you found this how to beat 407 plate denial Brandon Blog interesting. If you are concerned 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.

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

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

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

Call us now for a no-cost consultation.

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

We hope that you and your family are safe, healthy and secure during this coronavirus 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.

how to beat 407 plate denial
how to beat 407 plate denial
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DEBT COLLECTIONS NEWS: EXPECT MENACING DEBT COLLECTIONS ACTIVITY TO PICK UP AS THE ECONOMY REOPENS

debt collections
debt collections

We hope that you and your family are safe, healthy and secure during this coronavirus 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 debt collections Brandon Blog, please scroll to the very bottom and click play on the podcast.

Expect debt collections activity to pick up as economy reopens: experts

On March 2, 2021, The Canadian Press published an article by Salmaan Farooqui titled Expect debt collections activity to pick up as economy reopens: experts. The crux of the article is that credit specialists state Canadian consumers who owe money must prepare for debt collection agencies to increase their activities as the Canadian economy reopens.

During 2020, lenders and by extension, their collections agencies, had eased up on debt collections from Canadian households and companies. The reason for this drop in demands being made on outstanding debt was the COVID-19 pandemic. Lenders knew that all Canadians were hurting and there were even some loan deferral programs put into place.

But these credit experts are now seeing signs of debt collections picking up. Statistics Canada reported that the Canadian economy started to bounce back in January 2021. No doubt this pickup in the economic activity is making creditors consider if now is a good time to start taking action to try to collect on credit card and other delinquent debt.

As the article indicates, there is a fair bit of pent-up demand now for collection agency services. So if you are one of those expecting calls from debt collection agencies, here are some tips that they do not want you to know.

Debt collections: What is a debt collection agency?

The best answer is found in the question itself: A debt collection agency is an organization that collects debts. Now, ask yourself the follow-up question: What is a debt? It’s money that you owe to another person, company or organization.

In essence, debt collection agencies are hired by businesses and individuals to collect money that is owed to them. The agencies work for the creditors and not for consumers.

In Ontario, collections agencies or debt collectors are people or companies who:

  • obtains or arranges for settlement of debts owing to a person or company;
  • sells forms or letters claiming to be a debt collections system;
  • offers debt settlement services; or
  • buys up from lenders different types of debt that are in arrears and tries to collect on the debts.

Ontario debt collectors need to pass the eligibility requirements to register and operate a collection agency.

Debt collections: What debt collectors do

When a person or company is unable to pay what is owed, they are said to be in debt. When a creditor cannot collect the debt, the creditor may contact a debt collection agency for assistance.

A debt collector contacts the individual or business that owes the money and attempts to collect debts owed to the debt collector’s client. Debt collectors earn a commission of around 25% of the money collected. They are not allowed to harass or threaten people to get money.

In Canada, the law on debt collections and debt collectors is set by the individual provincial governments. In Ontario, the Collection and Debt Settlement Services Act, R.S.O. 1990, c. C.14 sets out all the requirements that collections agencies and each collection agent must abide by.

debt collections
debt collections

How Reputable Collectors Operate

We have all heard horror stories about collectors. Reputable collectors use their reputations to help recover funds. For example, if you are a lawyer specializing in debt collections, you use your reputation to persuade clients that you will recover the funds owed to them. If you are a supplier, you can use your reputation to persuade a debtor to pay. If you can prove your reputation, you have a better chance of collecting the monies owed to you.

Let’s say you’re a collector, and you’ve been retained to collect on a debt. The debtor has previously agreed to repay the debt but has not yet done so. What do you do next? Reputable debt collectors will first send a demand letter that also acts as a debt validation letter.

In the letter, they confirm the debt and give a certain period of time for the debtor to pay. If the debtor does not then contact the collector to try to enter into a debt settlement plan, then the collector starts calling the debtor to collect on the debt. But there’s a chance that these activities will not be enough to get the debtor to pay. In fact, the debtor might even become hostile. In that case, a lawsuit may be their next step.

What to Expect When You Have Debt in Collections

Canadian debt collectors are regulated by the province they operate in. They keep creditors from giving up on their credit delinquencies. In most cases, debt that gets to the debt collections stage is in the hands of a debt collector within a few months of the date the debt went into default. Debt collectors have the power to negotiate settlements for delinquent debt. Their success rate in collecting on debt is better than that of a creditor. The debt collector will make one or more attempts to collect on the debt, usually first by mail and then by phone.

If you have received a letter from a debt collector, or you are being sued for any outstanding debts, you are at a turning point in your financial life. You may have already begun to feel overwhelmed and don’t know where to turn. If you have been sued, the court may have already ordered you to pay. This can feel overwhelming, but there are options for you to consider.

With a debt in default, credit scores suffer. Debt collectors will report any unpaid debt to the credit bureaus, regardless of whether or not the debt is legitimate. It will negatively affect your credit score.

This is because the credit bureaus consider unpaid debt collections to be a negative financial obligation or credit risk. If you have a debt in default, you are probably worried about your credit score.

Debt collections: What Can a Collection Agency Do To Me in Canada?

A collection agency can demand payment for an outstanding debt. When the debt is handed over to a collection agency to try to recover the debt, that places a bad mark on your credit report. With you being in debt collections, you will have to pay some money if you want to settle the debt. The payment will depend on the situation, and there is a lot to consider when making a decision.

For example, you will need to consider how much money you owe and how much the collection agency will require you to pay. When you have outstanding debt, it is important that you make sure you either pay it in full if you can afford to, work out a payment plan to pay the full amount over time or, see if you can settle with the collection agency for a reduced amount you can afford to pay immediately. This will avoid the potential for the collection agency to turn the account over to a lawyer and take legal action against you.

debt collections
debt collections

Debt Collections: Can a Collection Agency Charge Interest in Canada?

The rate of interest that some debt collection agencies charge their customers is quite high. The reason is that the type of debt they are collecting, such as credit card debt, originally charged a high rate of interest on late or defaulted payments, or on the outstanding balance if you only made minimum payments.

A lot of Canadians do not know that a debt collection agency in Canada can charge interest on the outstanding financial obligation. A collection agency may be able to charge interest on the debts they are collecting. Nevertheless, this can be no greater than what was originally described in the agreement between the lender and customer.

So, while they can bill you interest just like a lender can, they cannot control how much the interest is and cannot tack on any extra charges, such as for their collection service.

Debt Collections: What Should You Do If You Are Being Pestered By a Collection Agency?

So, what should you do if they won’t leave you alone? Well, the most effective answer is to, certainly, answer them and agree to pay your financial obligations. This can be done by paying completely, setting up a payment plan, or reaching an agreement to pay a lesser amount immediately.

Each option will have its pros and cons, and its success relies upon your financial scenario as well as preferences. Typically speaking, it is best to pay the financial debt completely. However, I recognize that can be challenging, specifically if the amount of debt you owe is quite considerable. Any way that you are able to get this debt off of your credit report as well as off of your back is a good thing. Any one of the techniques I mentioned is much better than just allowing the financial debt to age and worsen.

The debt collection agencies will be calling

Information from Equifax Canada reveals that just 24 percent of debt-ridden Canadians who accessed deferral programs beginning in 2020 were able to utilize the breathing space to improve their credit situation.

So what we discussed so far is:

  • The Canadian economy seems to be starting its recovery and should show economic growth in 2021. For sure there are still people feeling pain in different sectors of the economy and we are not finished with the shutdown conditions in Toronto and elsewhere in Ontario.
  • How the debt collections business works in Ontario.
  • There are many Canadians who are debt-ridden.
  • If everyone in Canada pulled their credit report only 24% of the reports would show an improvement since the COVID-19 pandemic began.
  • The news according to the experts is that there will be growth in the debt collections industry. These businesses are going to return to make their phone calls to consumers trying to collect on old unpaid debts. They may even start legal action against some borrowers.

So what is next as the economy and consumer confidence pick up is that debt collections activities will pick up again too. What can the remaining 76% of Canadians who could not improve their situation since the COVID-19 virus hit do when the bill collectors call? There are various options for them, and the 24% that wish to still make improvements to their credit reports and credit scores. Here are some suggestions.

debt collections
debt collections

6 fantastic reasons to create and follow a household budget to track your household spending

As you know, I have written many blogs on the benefits of preparing, monitoring and following a budget for your household spending. The advantages of doing so include:

Here are 6 fantastic reasons you should have a household budget plan:

  1. A spending plan offers you control over your cash: A budget plan is a list of all sources of your monthly income and all your expenses that you need to make those monthly payments on. It enables you to plan how you will use your cash. As opposed to money just flying out of your wallet, you make willful decisions on where you desire your cash to go. You’ll never have to wonder at the end of the month where your cash went.
  2. A family budget keeps you concentrated on your financial objectives: Budgeting will permit you to fulfill your economic objectives – paying down debt should be the primary objective so that you don’t get nasty calls from the debt collectors. Then you can allocate savings for other purposes such as an emergency fund, a vacation, money for a retirement savings plan and purchasing a home. With a budget, you’ll recognize specifically what you can afford and you can choose where your cash is spent. For example, if your immediate objective is to save for that down payment on a condo or house, then you might need to abandon that vacation you intended to take. Your budget plan will inform you precisely what you can or can’t afford.
  3. A household budget will make certain that you don’t spend what you don’t have: Credit cards provide such ease of use but that is also what makes them really easy to up your spending since it does not feel like there is any real money traded in the deal. Canadians can rack up serious charge card bills and land up deep in the red before they realize what’s happened. When you create and adhere to your budget plan you have to count every little amount you spend, even if it’s a credit card purchase. You will not wake up deep in the red, wondering just how you arrived at that place.
  4. A spending plan will prepare you for the unanticipated: Every budget plan should have a rainy day fund for those unforeseen expenses. It’s suggested that you must budget for 3 months worth of costs for when there may be an unexpected layoff or various other unplanned major expenditures. Do not be alarmed; you don’t have to create that 3-month cash fund immediately. Grow your fund up gradually. If you haven’t started one yet, then even a small amount each month set aside is an improvement.
  5. A family budget minimizes stress: Many Canadians panic on a monthly basis about where the money will come from to pay their expenses. A budget will offer you peace of mind. It shows you just how much you earn and also what your expenses are. If need be you can decrease unneeded expenses or try to get added work to live within a balanced budget plan. Say goodbye to panic at the end of the month.
  6. A budget plan can help you get the retired life you’ve been dreaming of: Saving for your retirement is very crucial and your spending plan can help you save for your future. Set aside part of your revenue on a monthly basis for retirement savings. Begin early and also constantly stay with it. The money you save now will certainly determine the kind of retired life you can anticipate.

When budgeting alone is not enough and you need some debt settlement

In many previous Brandon Blogs, I have described the important role of the community-based non-profit credit counselling organization. I am not talking about for-profit debt counselling services that have inviting advertising and jingles. Those kinds of organizations you must stay away from. In fact, one is defending a class-action lawsuit in British Columbia. If the class-action lawsuit is successful, it and companies just like it will be put out of business.

These companies suck fees out of the debtor until they cannot pay anymore. Then they walk you down to their favourite licensed insolvency trustee to file a consumer proposal. Consumer proposals are the only federal government-approved debt settlement plan. Only a licensed insolvency trustee can administer consumer proposals.

You could have saved the fees that you really couldn’t afford to pay in the first place, just by going for a no-cost consultation first with the licensed insolvency trustee.

What I am talking about is the true non-profit debt counselling agency. They do not charge you fees. They can review your budget to make sure that it is realistic and give you additional help. They can also try to strike a deal with your creditors for you to either pay the full balance out over time without additional interest or penalties or, a reduced payout now.

Can you raise money on a payment plan that you can afford the monthly payments?

Should you consolidate your unsecured debts? Consolidation is the combining of unsecured debts into one low monthly payment with one creditor. These loans typically carry a lower interest rate than the original credit cards or other unsecured debts. You have to make sure that the terms of the consolidation loan are as good as or better than their current credit card terms.

When it comes to getting a consolidation loan, there are a few things you should know. First, a consolidation loan is a loan that you take out to pay off multiple other loans. Second, you may already have a consolidation loan if you have a home equity loan or a home equity line of credit. If you have an unsecured loan, you can consolidate it into a secured loan, where the creditor can take your home if you don’t pay back the loan.

Turning an unsecured loan into a secured loan is not something you should do if you are already contemplating filing a consumer proposal or an assignment in bankruptcy. However, working with your financial advisor, accountant or non-profit credit counselling services agency, you may find that the risk is worth it. That would be because your budget shows that you can afford the lower monthly payment repayment plan if you get the debt consolidation loan. It is also good if it actually helps you avoid an insolvency filing.

debt collections
debt collections

Aggressive debt collections techniques may force some into an insolvency filing

This would be the last step if any of the above options do not work for some of the 76% of Canadians with high debt levels who have not been able to improve their debt situation since the onset of COVID-19 cases. The purpose of this Brandon Blog is not to go into detail on the consumer proposal or bankruptcy processes. I have written many detailed blogs before on each of these insolvency processes. You can find them by using the search function at the top of this blog.

These two would be a great place for you to start:

Debt collections summary

Everyone is hoping that the negative effects of the coronavirus pandemic will soon be in our rearview mirror and Canada will experience continued growth. The article referred to at the beginning of this blog says that the experts feel that soon credit collectors will be increasingly active. You will start receiving those harassing phone calls again. They will be taking action from debt against you, which could even include legal action against you.

If you are concerned 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.

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 theIra Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

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

Call us now for a no-cost consultation.

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

We hope that you and your family are safe, healthy and secure during this coronavirus 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.

Categories
Brandon Blog Post

BANKRUPTCY FILINGS CANADA: THE SENSELESS TOP 12 MISTAKES TO AVOID WHEN CONSIDERING FILING FOR BANKRUPTCY

We hope that you and your family are safe, healthy and secure during this coronavirus 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 filings Canada introduction

It’s not easy to admit that you’re in over your head with debt. One way Canadians can fix their debt problems is through bankruptcy filings Canada. Availing yourself of an insolvency process can feel like an enormous weight off your shoulders. Unfortunately, that relief is often short-lived if did one or more of the things you should not do before taking the plunge into the bankruptcy process.

In this Brandon’s Blog, I discuss the common bankruptcy mistakes people make before they seek the advice of a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee). Stay away from these common mistakes and you should have a much easier time returning to a solvent and stress-free life.

What should you not do before filing bankruptcy?

If you’re considering filing for bankruptcy, be aware that there are some things you should not do, and others you should do, to protect yourself and your assets. The bankruptcy filings Canada mistakes I am going to explain in this Brandon’s Blog are:

  • Trying to hide assets from your creditors:
    • Transferring assets to a third party (such as a family member or friend).
    • Disposing of assets, for example, by giving them away or selling them for far below their fair market value.
    • Failing to declare all of your assets or all of your liabilities on your sworn Statement of Affairs under penalty of perjury.
  • Staying clear of loading up on credit card debt or other unsecured debts.
  • Paying off family debts a short period of time before declaring bankruptcy.
  • Waiting too long to consult with a Trustee.
  • Taking extra taxes out of your paycheque.
  • Cashing in or making early withdrawals from retirement accounts.
  • Refinancing your mortgage or increasing lines of credit against your real estate to settle unsecured financial obligations.
  • Keeping debt that you cannot afford to.
  • Making the wrong type of filing.

By avoiding the things you should not do, you will be the honest but unfortunate debtor. That is the type of person that the Canadian bankruptcy law is meant to help.

Common mistakes: Trying to hide assets

If you’re thinking about declaring bankruptcy because you’re overwhelmed by your debt, it’s important to know that you cannot hide assets from creditors during the bankruptcy process. There are a number of ways people try to do this.

The most common ones in bankruptcy filings Canada are:

  • Transferring assets to a third party (such as a family member or friend) on the eve of bankruptcy.
  • Disposing of assets, for example, by giving them away or selling them for far below their fair market value.
  • Failing to declare all of your assets or all of your liabilities on your sworn Statement of Affairs.

It’s also important to understand that if you choose to hide assets from the court and your creditors, it’s likely that they’ll find out—and they will not be happy when they do!

Transfers of assets or disposing of them for less than fair value is caught under the category of transfers at undervalue. The Trustee can attack any transfers at undervalue and will be successful in getting a judgement against the party you made the transfer to.

A transfer at undervalue is defined in section 2 of the Bankruptcy and Insolvency Act (Canada) (BIA) as disposing of property or providing services for which either no value is obtained by the debtor/bankrupt or for which the value gotten by the debtor/bankrupt is obviously less than the fair market value of the consideration handed over by the debtor. You certainly won’t be doing your friend or family member any favours by having done this.

Bankruptcy filings Canada: Debtor trying to hide assets usually doesn’t work and could be counterproductive due to exemption categories

Failing to declare assets may or may not work. If you are caught, again, this spells trouble. The Trustee is required to perform an investigation and many times there are tell-tale signs that not all assets have been declared. I have many times found when reviewing a bankrupt’s bank statements, regular automatic withdrawals for life insurance, yet no life insurance policy or CSV in a life insurance policy was declared. The same goes for vehicle insurance premiums.

Contrary to popular belief, many times when a person tries to scam the bankruptcy filings Canada system, it is not a very sophisticated one. In fact, most times they are just plain dumb and the person is exposed.

The irony is that if they listed all of their assets, the ones they tried to hide may very well have fit under one of their bankruptcy exemptions. Perhaps the insurance policy was a term life policy, so it had no CSV. Or, when the policy was first taken out, the person designated a spouse or child as their designated beneficiary.

In that case, the entire CSV or the proceeds from the life insurance policy if the bankrupt died, would be exempt from seizure by the Trustee. The same is true with a vehicle. Perhaps their equity in the vehicle would fit under their bankruptcy exemption; either in its own right or after taking into account any loan secured against the vehicle.

So with the possibility of no loss of the asset due to a bankruptcy exemption, the person has committed a bankruptcy offence. Or, the asset involved in the transfer under value could have been saved in some way if the debtor had only made full disclosure to the Trustee before filing. Many times we can help a person perform a successful restructuring consumer proposal and keep their assets, rather than losing them in bankruptcy. It is possible to avoid bankruptcy and not commit a bankruptcy offence just by being open and honest and getting good advice ahead of time.

bankruptcy filings canada
bankruptcy filings canada

Common mistakes: Do Not Incur Any Additional Debts like maxing out credit cards before filing bankruptcy

You’re probably already knee-deep in debt and have been for quite some time. Maybe you’ve tried to get out from under it by yourself but it just hasn’t worked. It doesn’t mean you’re a bad person, it just means you need a fresh start, and that’s what a Trustee can do for you. If you’re thinking about filing any type of bankruptcy under the BIA, the first thing you need to do is stop incurring new debt.

The last thing you need is more debt and more debt collectors calling you. As well, you may very well be committing a bankruptcy offence, especially if you take on the new debt within 3 months of the date of bankruptcy. You were probably insolvent at that time, and taking on more debt, under those circumstances, is a bankruptcy offence.

What are the ramifications? Your Trustee will have to oppose your discharge and the creditor(s) who realize that their debt was further run up when you knew, or ought to have known, that you were going bankrupt will also oppose.

So especially as a first-time bankrupt, instead of possibly going through the bankruptcy process unscathed and discharged in as early as 9 months, you will be undischarged bankrupt perhaps for years and then face the potential of harsh repayment conditions in order to get a bankruptcy discharge. It really isn’t worth it.

Common Bankruptcy mistakes: Do Not Repay Relatives or Insiders

The BIA is a federal law that governs bankruptcy and insolvency in Canada. This Act is a comprehensive piece of legislation that is meant to protect both creditors and debtors while providing the tools needed for a debtor to start over with a clean slate.

Bankruptcy filings Canada are administered under the Canadian bankruptcy law has rules and regulations regarding how you can file and proceed with a bankruptcy application. One of them is that you are not allowed on the eve of bankruptcy to prefer any of your creditors by repaying some, but not others. No one, and especially, your relatives and insiders, should be repaid right before you are declaring bankruptcy.

The Trustee is required to review your financial history including looking at your bank statements and will no doubt find the preference payments. Making preference payments is a bankruptcy offence and will negatively affect your ability to get a discharge from bankruptcy.

Bankruptcy filings Canada: Waiting too long for consultations with Trustees

The question of whether or not you should file for bankruptcy is a difficult one and should be taken seriously. If you’ve just received a notice of civil action from a creditor, or if you’re worried about your upcoming income tax bill, it is time to speak with an experienced Canadian Trustee to discuss your options.

Before you jump into filing bankruptcy, however, it’s important to take a step back and consider the consequences. It may be that filing for bankruptcy is the wrong move for you. If you meet with a Trustee at the first sign of trouble, rather than waiting until you are up against the time crunch of an impending deadline, the Trustee may be able to recommend other options for you.

One of those options is filing a consumer proposal to successfully perform a government-approved debt settlement plan and avoid bankruptcy. The earlier you consult with a Trustee, the more options and flexibility you have.

bankruptcy filings canada
bankruptcy filings canada

Huge bankruptcy mistake: Taking extra taxes out of your paycheque

When people do bankruptcy filings Canada, they have more financial obligations than your typical income can manage. Among the reductions from your gross pay is the income tax. It’s unpreventable. When you apply for bankruptcy, one of your financial obligations is probably income tax debt owed to Canada Revenue Agency (CRA).

Just how much in added income tax deductions can you stand not to get in your take-home pay when you are currently insolvent? Most likely none. It is more important to have the cash to pay for rent and food.

So should you take extra taxes out of your paycheque before filing bankruptcy? I say no.

A mistake in bankruptcy: Cashing in or making early withdrawals from retirement accounts

The last thing you want to do in advance of bankruptcy is to cash in a retirement account such as your RRSP. In fact, doing so could cost you dearly. Here’s what you need to know. In a word, “no.” That’s the answer to the question of whether debtors should take money out of their retirement account to pay bills. And it’s the best advice for anyone, but particularly for people who are in the throes of bankruptcy filings Canada.

There are three main reasons for this. First, if you have set up your RRSP with your spouse or child as the beneficiary, then in Ontario, your RRSP is exempt from seizure. There is an RRSP issue when it comes to bankruptcy. Any contributions you made within 12 months of filing for bankruptcy must be paid into your bankruptcy estate. You don’t need to withdraw those funds from your RRSP to do so. You just need to make the payments into your bankruptcy estate. The source of those funds do not have to be from the RRSP.

Second, when you cash in all or a portion of your RRSP, income tax must be deducted at source. So you lose a significant amount off the top. What you are left with may not be enough to fully repay all your debts and help you avoid falling back into unmanageable debt in the future.

Third, you probably will never have enough working years left to make enough contributions back into a retirement plan to make up for what you have lost. You will be sacrificing further retirement payment plan payments when you did not need to cash in your plan in the first place.

Fortunately, your retirement funds are generally protected from loss in bankruptcy. So, why ask for this kind of trouble?

Bankruptcy filings Canada: What debts are not wiped out through bankruptcy?

Unsecured debt is a financial term that describes any loan, credit card or other debt that is not secured against collateral. In other words, it is debt that is not backed by an underlying asset that can be seized in the event of a default.

That means that if you don’t repay the debt – or if you decide to use the money for something else – there is no asset for the creditor to come after. Bankruptcy is a remedy available to the debtor to discharge unsecured debt.

A common misconception is that bankruptcy will result in a loss of the home you’ve worked so hard for; this is not necessarily so. The Trustee is entitled to the debtor’s equity in the home. Not the home itself. There is a difference.

It should be noted that the courts do not allow you to intentionally strip yourself of your assets. However, it is possible to strip yourself of these assets by making a bad decision in the midst of your financial crisis. If you refinanced your mortgages or increased lines of credit against your real estate to settle unsecured financial obligations, this is a mistake of bankruptcy.

First, the Trustee and your creditors will want to know what you did with any spare cash that you received coming out of the refinancing. As I described above, trying to hide assets is not a smart strategy.

Second, you have now turned unsecured debt into secured debt. The unsecured debt could have been settled for less than 100 cents on the dollar through a consumer proposal or discharged in bankruptcy. Now it is debt that cannot be compromised; it can only be repaid in full.

Third, what if your income in the future is not enough to make the necessary payments on this secured debt? Now you are at risk of having your home seized, notwithstanding you received your discharge from bankruptcy filings Canada.

Fourth, perhaps the refinancing should have been done in conjunction with advice from the Trustee, so, it could be used in part to fund a consumer proposal. By having done the refinancing and spending the money before filing, you have now lost that opportunity.

So having that secured debt in bankruptcy was not a smart move. It was a big mistake.

bankruptcy filings canada
bankruptcy filings canada

Bankruptcy filings Canada: Not sufficiently exploring self-help options

It’s all too easy to get into debt, but if you catch things early, it’s also easy to get out from under it. All it takes is a realistic plan for paying off your debts, and a commitment to sticking to it. If you can do that, you’ll be surprised how quickly your debt can disappear.

The first step is to figure out what you owe – and to whom. If you owe money to several creditors, you’ll need to prioritize them. The most likely to accept a deal are those that are smaller and charge a reasonable interest rate. You may be surprised at how many deals you can cut.

Speak to your accountant, your lawyer, your financial adviser and even a Trustee. You may find that your situation is not as bad as you thought and through some careful analysis, planning, budgeting and behaviour changes, you can eliminate your debt using a self-help remedy.

There are many unscrupulous debt-settlement or debt-relief companies who try to scare you and then after they do, they make all sorts of great-sounding promises that they will not be able to keep. the reality is that they just want to snag you so you can pay them high fees to do what you can do on your own. Do not fall for their tricks.

If everyone made sure that they fully explored all their self-help options first, many could avoid bankruptcy filings Canada altogether.

Bankruptcy filings Canada: Making the wrong type of filing

If you have reached a point where you feel you can no longer control your finances, one of the first things you should do is consult a Trustee. Making the wrong type of bankruptcy filing is a big mistake and will only make the situation worse, but with the right advice, it is easy to find the right solution.

The most common type of personal insolvency filing is a consumer proposal. A consumer proposal allows you to work out a payment plan with your creditors that you can actually afford. This allows you to eliminate all your debt without filing bankruptcy. In a no-cost initial consultation with a Trustee, you will discuss what is the right type of filing for your situation.

Bankruptcy filings Canada summary

I hope that you found the question posed in this bankruptcy filings Canada Brandon Blog. If you are concerned 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.

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 theIra Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

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

Call us now for a no-cost consultation.

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

We hope that you and your family are safe, healthy and secure during this coronavirus 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 filings canada
bankruptcy filings canada
Categories
Brandon Blog Post

SMALL BUSINESSES IN CANADA ACCUMULATE MASSIVE DEBT DUE TO COVID-19

small businesses in canada
small businesses in canada

We hope that you and your family are safe, healthy and secure during this coronavirus 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 small businesses in Canada Brandon Blog, please scroll to the bottom and click play on the podcast.

Small businesses in Canada introduction

Did you know that since the start of the COVID-19 outbreak 1 year ago that small businesses in Canada racked up $135 billion worth of debt to stay afloat? Seven in 10 small businesses in Canada have actually borrowed money because of COVID-19. The average is almost $170,000 per business, according to a new survey released by the Canadian Federation of Independent Business (CFIB). In total, small businesses in Canada currently owe a cumulative $135 billion.

Out of these businesses that have increased their debt, 76% say it will take them over a year to pay it off. Eleven percent of respondents worry that they might not have the ability to repay their COVID-19 associated financial obligations ever! As far as returning to normal profitability (before the additional COVID-19 debt repayment), 40% are hoping to see it in 1 year’s time, but they really worry that it will take longer.

The purpose of this small businesses in Canada Brandon Blog is to discuss how important small business really is to the Canadian economy and what options exist for businesses and companies facing insurmountable debt challenges. Sometimes I will refer to small businesses in Canada as SMEs.

Contribution of SMEs to Canadian business

The best way to describe the contribution of SMEs to the Canadian economy is by looking at the most recent facts about small businesses in Canada reported by Statistics Canada.

How many businesses in Canada are small businesses?

The widely held definition of a small business corporation is a company that employs no more than 500 people and that has a total asset value of less than $15 million. Most of us have heard that a “small business” is one that employs fewer than 50 people — and that a “big business” has more than 500 employees. But what about businesses that fall in the middle? They are not quite small, but they’re not quite big either; they all fall into the category of SMEs.

In Canada, 91 percent of businesses fall into this in-between category, and there are roughly 3.5 million businesses in total. That’s a lot of businesses to keep up with.

What is the contribution of SMEs to exports in Canada?

Small businesses in Canada are not just small versions of large companies. They are different beasts altogether, and their individual contributions to the Canadian economy are just as important as those of their larger counterparts. In fact, SMEs contribute almost 50% of the country’s exports, and if they were taken out of the picture, exports would fall by almost 40%.

In 2018, exports of items were valued at $522.8 billion, of which 41.1 percent was attributable to SMEs. More than 50,000 Canadian companies exported goods, the huge majority of which were SMEs (97.4 percent).

How many people were employed in Canada in 2019?

In 2019, roughly 16.1 million people were employed in Canada. Private sector businesses employed 76.2% of the total number. The public sector employed the balance of 23.8%.

The definition of small businesses in Canada ranked by firm size using the number of employees are:

  • Small companies (1 – 99 workers)
  • Medium-sized businesses (100 − 499 workers)
  • SMEs (1 − 499 employees)
  • Large companies (500+ workers).

What is the distribution of employment across the private sector?

The variety of people employed defined by the business size of the employer varies significantly between the private and public sectors. In 2019, 88.5% of employed individuals in the economic sector worked for small businesses in Canada, compared with 76.2 percent of those used by public companies of the same dimension.

For the five-year period 2014-2019, Canadian employment ranks had a net gain of 1,076,100. Just over 70% of this increase is attributed to the private sector employment and less than 30% to the public sector.

How many businesses appear and disappear each year?

From these statistics, we see that the contribution of SMEs to economic growth is huge. These small and medium-sized businesses make up the majority of businesses in Canada. These key small business statistics show just how important these Canadian businesses are to the survival of the Canadian economy.

An increase or decrease in the number of businesses is the net result of the appearance or disappearance of businesses over a given period. This is often referred to as “creative destruction.” Between 2001 and 2016, the business birth rate was greater than those that died, except for two: in 2013 and in 2016, when more businesses disappeared (97,151 and 95,889) than were created (95,326 and 95,176),

There are more business births each year than those that disappear, other than for 2 years; 2013 and 2016. According to a Business Development Canada report from the Business Development Bank of Canada, there are more than a quarter of a million businesses in the country at any one time each year. More than 40,000 disappear.

The report was based on data from Statistics Canada’s Business Demography Statistics, which tracks businesses based on the number of active and inactive corporations, and Entrepreneurship in Canada, which tracks self-employed and “indeterminate” businesses. The Statistics Canada information is that business formation is on the rise, and the rate of business deaths has decreased.

This variation between the average birth rate for these two sectors can be explained by the entry cost and different levels of competition. If this is, indeed, the case, higher birth rates would be observed in sectors with a lower entry cost or with a higher level of competition than other sectors.

So more small businesses in Canada appear than disappear every year according to these findings. These statistics of course were from time periods all before the coronavirus pandemic.

small businesses in canada
small businesses in canada

What proportion of new businesses survive the first 15 years?

Every year, an average of 128,000 new businesses are started in Canada. According to the CFIB, about 10% of these new businesses close their doors within the first year. By year 10, that number has risen to 25%. Those are pretty alarming statistics, no matter how you look at them.

What this means is that most new businesses are doomed to fail in their first year, and many of the rest will only survive a few years beyond that. Here are some more alarming statistics on the percent of SMEs enterprise survival rate:

  • there is a 45.8% chance that a business will survive for one year;
  • a 32.3% chance that it will survive for two years;
  • an 18.3% chance that it will survive for three years; and
  • a 9.5% chance that it will survive for five years.

How many small businesses in Canada could close permanently amid a pandemic

The number of small businesses in Canada that survive for ten years (and beyond) is quite low, so it is important to recognize those that are able to make it. So two essential business owner characteristics have to be eternal optimism and being a solid business planner when starting a new business because of the high failure rate.

Now take those long odds for a business survival rate and layer a global pandemic on top of that. The COVID-19 pandemic is nerve-wracking enough to the general public, but for many small business owners, it is downright terrifying. According to the CFIB, close to half of the country’s small businesses could close permanently. The CFIB‘s findings were based on responses from 1,800 small business owners. The CFIB called for the government to provide small business owners with the tools they need to protect themselves and keep their businesses afloat.

The Public Health Agency of Canada reported an even scarier estimate. It felt that up to 70% of small businesses in Canada could close permanently amid a pandemic. The reason? Employees and customers won’t show up. The industry sectors that will be affected the most are the ones whose employees and customers are the most mobile and those whose employees have to work in crowds, like cabs, the hospitality industry, food and beverage, and theatres.

From what we have seen so far, they are correct.

The need for government assistance for Canadian business

Given this result, the Canadian federal government is investing heavily in maintaining and creating jobs to help the struggling Canadian economy. One of its investment vehicles is Canada’s COVID-19 Economic Response Plan which I have previously written about. This program is aimed at supporting business sectors that create jobs here.

This financial help program is designed to assist businesses that are having difficulties because of the pandemic-caused state of the economy. It is intended to support businesses that create jobs. Although many of the support programs have now ended, the Economic Response Plan still has the following programs:

Saving small businesses in Canada

So before COVID-19 arrived here, the odds were always against Canadian start-up businesses having a healthy long-term survival rate. With the pandemic, credible Canadian organizations estimate that we could lose 50% (CFIB) to 70% (Public Health Agency of Canada) of small businesses in Canada.

The life support program federal and provincial governments have instituted help. Multiple lockdowns obviously do not. What is really needed is some sort of return to normal operations so that business revenue can return. Then hopefully over time, profitability will follow. But that is really outside of all of our control.

However, as a licensed insolvency trustee (Trustee), there are things we are currently doing for businesses that cannot see any short-term prospects for being able to overcome their debt problems on their own. The kinds of businesses that we are seeing fall into two categories; viable and non-viable.

The first thing I do as a Trustee is to get a good understanding from the business owner as to the history of the business and the reasons why the business owner believes the company has gotten itself into financial trouble. I also want to get a snapshot of what the assets and liabilities of the business are and I try to form an assessment as to whether the business is viable or not. Even if viable, does the entrepreneur have the energy, mindset and desire to manage a business turnaround. Finally, I need to understand the cash flow requirements of the business and is there a source of funding.

I then analyze all this information and form an opinion as to what the realistic options are for the company and its business. Depending on each situation, the range of options are:

  • The business operations and debt levels are such that they are not serious enough and the company, over time, should be able to work itself out of a short-term cash crunch through some imaginative management of the company. Perhaps even an informal restructuring of sorts.
  • The business is viable but needs to do a formal restructuring in order to keep the good parts of the business so that it can become profitable again and continue to provide jobs to Canadians. The process would be either a Division I Proposal under the Bankruptcy and Insolvency Act (Canada) (BIA) or a Plan of Arrangement under the Companies’ Creditors Arrangement Act (Canada) (CCAA).
  • If a formal restructuring is not possible, perhaps a sale of the business assets is required and the buyer will operate the assets as an operating business. In this case, a secured creditor will enforce its security in a receivership, through either a private appointment or a court appointment.
  • Finally, maybe corporate bankruptcy is required either in concert with the secured creditor enforcement or by itself if there are no secured creditors. This would allow for the necessary protection to give the time to liquidate the assets, either as a going concern sale or a pure liquidation. The funds obtained from the sale would then be paid to the creditors, in priority of their claims.

Entrepreneurs are obviously scared of any formal insolvency proceeding

The idea of a formal insolvency proceeding makes an entrepreneur feel like a failure. I know they can feel discouraged, but the business isn’t in trouble because senior management did something wrong. You didn’t fail. Business conditions changed. Especially under today’s pandemic circumstances.

Now you’re ready to move forward with your business, but you need some help. That’s what the BIA and CCAA are designed to do; to help your business make a new start. Insolvency proceedings are there to provide a safety net for people and companies. It’s a tool that responsible people use to save a good business after a setback.

Don’t worry what your customers might think about you if your business goes through a formal insolvency proceeding. You won’t be the first and you won’t be the last.

Small businesses in Canada summary

I hope that you found the question posed in this small businesses in Canada Brandon Blog. If you are concerned 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.

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 theIra Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

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

Call us now for a no-cost consultation.

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

We hope that you and your family are safe, healthy and secure during this coronavirus 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.

Call a Trustee Now!