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6 DISADVANTAGES OF CONSUMER PROPOSAL ARE NOT ENOUGH TO STOP A HEALTHY RETURN TO ENJOYING LIFE

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.

Disadvantages of consumer proposal:  What is a consumer proposal?

As regular readers of Brandon Blog know, I have written many blogs about consumer proposals.  I normally focus on the advantages of a consumer proposal.  As I have never written about the disadvantages of consumer proposal, I thought I would do so now.  There are many more advantages than there are disadvantages;   however, there are a couple of points you should know.  Some people may see them as drawbacks or disappointments.  It depends on your unique situation.

Consumer proposals can be called an individual’s insolvency debt settlement agreement in Canada. It is a proposal to your unsecured creditors to pay off a portion of your frustrating unsecured debts over a set period of time. If you successfully complete the consumer proposal by making all the needed payments, the total amount of your unsecured financial obligations are forgiven at the end of the settlement period. Consumer proposals are created to get the debt freedom to consumers who cannot afford to pay off their total debt. It is a legally binding contract between the debtor and the unsecured creditors to eliminate debt carried out under the Bankruptcy and also Insolvency Act (Canada).

So consumer proposals are the best alternative to bankruptcy.  To find out about all the advantages of consumer proposals, I recommend my recent blog post, CONSUMER PROPOSAL FAQ: ANSWERS TO 10 TANTALIZING CONSUMER PROPOSAL QUESTIONS.

Disadvantages of consumer proposal:  When is a consumer proposal appropriate?

Consumer proposals are appropriate for individuals that:

  • Have a secure income flow, such as from full-time employment.
  • Are insolvent.
  • Are serious about getting rid of all of their unsecured financial obligations by paying only a portion of the total owed.
  • Wish to stay clear of bankruptcy.

To discover if a consumer proposal is an appropriate selection for you, set up a no-cost conference with a licensed insolvency trustee (formerly called a bankruptcy trustee or a trustee in bankruptcy) (LIT or Trustee) to discuss your personal scenario. The LIT will examine your monetary situation and see if you have the economic capacity to efficiently complete a consumer proposal. The Trustee will certainly describe the pros and cons of the various options that might assist you to resolve your financial troubles.

If you choose to submit a consumer proposal, the LIT will work with you to develop a proposal that benefits both you as well as your unsecured creditors.  If you file a customer proposal, you have to:

  • give the LIT a complete list of your assets and liabilities;
  • attend the first meeting of creditors, if one is requested by your creditors;
  • participate in 2 counselling sessions;
  • keep the LIT updated of any change of address; and
  • help the LIT in administering the proposal.

Disadvantages of consumer proposal:  When is a meeting of creditors held?

The first disadvantage to talk about is when is a meeting of creditors held?  The only time a meeting of creditors is called in consumer proposals is if creditors representing 25% or more of the proven claims filed request it.  This would mean that at that point, you do not have a great relationship with creditors. They do not like the original consumer proposal you have submitted for their consideration.

A request for a meeting must be made by the creditors within 45 days of the filing of the proposal. The Office of the Superintendent of Bankruptcy Canada (OSB) can also direct the LIT to call a meeting of creditors at any time within that same period.

The meeting of creditors must be held within 21 days after being called. At the meeting, the creditors vote to either accept or refuse the proposal, or any amended proposal tabled at the meeting.

If no meeting of creditors is requested within 45 days of the filing of the proposal, the proposal will be deemed to have been accepted by the creditors regardless of any objections received.

disadvantages of consumer proposal
disadvantages of consumer proposal

Disadvantages of consumer proposal:  How will a consumer proposal affect my credit rating?

The disadvantages of consumer proposal include the fact that it will have a negative impact on your credit rating.  Generally, a person who declares bankruptcy is assigned the lowest possible credit score.  Normally, with proposals, you are assigned a rating of R7.  With bankruptcies, it is a worse rating of R9, the lowest possible.  With proposals, The record of your consumer proposal will show up on your credit report. It will certainly be there for possibly 3 years after you have actually fully finished making all the payments. This is less than how long it will stay on your credit report because of bankruptcy.

Your ability to obtain and make use of credit after a consumer proposal relies on encouraging lenders of your personal financial maturity as well as the capability to repay the credit you are requesting. There are no guarantees and nobody is required to extend credit to you.

Once you have fulfilled the terms of your consumer proposal, you will receive a “certificate of full performance.” To make sure your credit record is updated, send a copy of that document to the major credit-reporting agencies, TransUnion Canada and Equifax Canada. Be sure to keep all of your proposal-related documents for reference by future lenders.

Disadvantages of consumer proposal:  Why are consumer proposals rejected?

Adding to the disadvantages of consumer proposal is the possibility that the creditors will decline it. Consumer proposals are commonly the last option for creditors, other than for consumer bankruptcy. In most cases, creditors accept a well thought out debt settlement plan since they wish to recuperate some of the funds that would otherwise be lost forever. Consequently, LITs who prepare well-drafted and properly explained consumer proposals get them approved by creditors.

Nevertheless, creditors can reserve their right to reject them. When consumer proposals are rejected, it’s commonly a result of the belief of the creditor that the proposal is in reality, not a better realization than in a bankruptcy process. Conversely, creditors see that they may need to wait as much as 5 years to receive what they deem a paltry reward. They prefer to finish the pain now and get nothing in the individual’s bankruptcy than have to carry holding and administering the account for 5 years to get next to nothing, notwithstanding it is a better outcome than the borrower’s filing for bankruptcy.

Disadvantages of consumer proposal:  What happens if you miss a consumer proposal payment?

As long as you are following the agreed terms of your proposal, your creditors cannot take any further action against you. If you fail to meet the agreed terms of your proposal and/or miss three months of payments, the proposal will be deemed annulled.  If this happens, you are barred from filing another consumer proposal.

However, there is a temporary COVID-19 special accommodation now allowed for by the OSB.  A Trustee can explain what the special rules are.

So, subject to certain temporary COVID-19 accommodation, one of the disadvantages of consumer proposal is that if you default by missing 3 months of payments, your proposal is deemed annulled.  The only thing left would be a bankruptcy filing.

disadvantages of consumer proposal
disadvantages of consumer proposal

How long does it take to rebuild credit after a consumer proposal?

Another one of the disadvantages of consumer proposal is that you will need to rebuild your credit.  Although it is difficult and takes time, it is not impossible. To begin rebuilding your credit after a consumer proposal, work with your Trustee to make sure that everything you do is reported to the credit bureaus. The more positive reports that you have on file with TransUnion and Equifax, the better your credit score will be.

I always advise clients that the first thing they should do is get a secured credit card.  Not the kind you buy at the drug store.  Rather, it is a credit card from one of the banks.  You put up a sum of money that the bank will keep as a security deposit,  They then issue you a credit card with a limit equal to the deposit you put up.  Each month, when you pay the credit card off in full on time, the bank reports this to the credit bureaus.  Every month they report favourably is another month that you are working on improving your credit score.

The next thing you can do is take out a small loan to invest the funds in an RRSP.  Use your tax refund or the extra tax you did not have to pay, to pay down the loan.  Make sure that you pay off the balance of the loan within 1 year.  Make your monthly payments on time.  Again, your proper use of this credit will be reported to the credit bureaus and will work in your favour.

It will take a few years, and initially you may pay a higher rate of interest than if you didn’t need to file a consumer proposal.  After a few years of using credit properly, you will find that your credit is now rebuilt.

Disadvantages of consumer proposal:  Are consumer proposals bad?

In my view, the disadvantages of a consumer proposal are not enough to ever stop anyone from entering into the only government-approved debt settlement plan.  To summarize, I see the disadvantages as:

  • The possibility that it may take a lot longer and be more expensive than you hoped for to reach a deal with your creditors if 25% or more of the dollar value of the proven claims vote against your initial offer.
  • Negative impact on your credit rating.
  • Rejection by your creditors and no agreement on an amended proposal forcing you into bankruptcy.
  • You miss 3 payments causing you to default on your consumer proposal.  Again, if this happens, your only real option is to file for personal bankruptcy, which is what you tried to avoid.
  • It will take you time to rebuild your credit.
  • It only allows you to wipe away your unsecured debt.  If you have secured debt that you cannot afford to continue paying, your LIT will counsel you on the best way to deal with that secured debt BEFORE you file.

Disadvantages of consumer proposal summary

I hope you enjoyed the disadvantages of consumer proposal 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.

disadvantages of consumer proposal
disadvantages of consumer proposal
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Brandon Blog Post

CANADA INSOLVENCIES EXPECTED TO JUMP SAYS EVERY AUTHORITATIVE PUNDIT AND INSOLVENCY INSIDER

canada insolvencies
canada insolvencies

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 the Canada insolvencies Brandon blog, please scroll to the bottom and click play on the podcast

Canada insolvencies introduction

Ideally, if the debt was free as well as limitless, most of us would certainly be able to spend for whatever we wanted with a couple of swipes on our credit card. Companies would be able to buy supplies and also pay salaries simply by borrowing a lot more from their lender. There would be no Canada insolvencies and I guess I would be out of work!

But when the credit crisis struck at the start of this century, it revealed simply how much complimentary and limitless credit there really was, and also the number of people who had been living beyond their means with massive huge debt loads for years.

In 2020, the coronavirus pandemic struck the globe. Every country’s health system has been exhausted to the max. Governments initiated widespread lockdowns and strove to maintain their respective economies afloat. Canadian workers lost their jobs or otherwise having their income considerably decreased because of stringent lockdown measures.  This required the federal government to bring in several assistance programs for individuals as well as businesses under the banner of Canada’s COVID-19 Economic Response Plan.  Household support measures were imperative.

Every pundit, economist and insolvency insider forecast that Canada insolvencies would jump in 2020. They didn’t. I discuss why and what it means.

What Canada insolvencies mean

As I have written many times in the past, the word insolvency refers to a financial condition in which a person or business is not able to pay its financial obligations. The sensation of being in debt can be an extremely frustrating scenario. The thought of being not able to settle your debts is impending darkness that can seem impossible to get rid of.

As I have promoted many times in my blogs about Canadian households and family budgets, your charge card must continue to be securely in your pocket most of the time. You only should utilize it to acquire things you’ve budgeted for. Nonetheless, if you find yourself not able to pay your credit card bill, you might run the risk of dealing with a scenario known as insolvency. If you have a large amount of debt or restricted earnings, the concern of insolvency needs to be a large motivator for you to do something about it.  It causes strains in households.

Limited, lowered or no revenue, whether you are an individual or a company, has actually been the result for lots of Canadians due to the coronavirus pandemic. The provinces, including Ontario, implementing lockdowns of differing degrees has also been a cause. The federal government had no choice but to generate its economic response plan to make aid payments to individuals and companies. Pundits had actually been anticipating a rise in insolvency volumes since the 2nd quarter of 2020.

Global insolvency insider forecasts said there would be a rise in Canada insolvencies and elsewhere in 2020

Insolvencies in the UK were anticipated to leap to record levels by 27% in 2020. That was exposed in a financial study called the Atradius Insolvency Report. Atradius is a leading trade credit insurance firm. It also forecasted that every major economy in all countries, except for China, was anticipated to enter an economic downturn in 2020 with international GDP forecast to contract by 4.5%.  This would make it a much more intense recession in magnitude than the Great Recession of 2009. Naturally, COVID-19 was the reason.

Euler Hermes, a trade insurance firm, reported that it predicted that governments around the globe are clambering to save companies battered by coronavirus lockdowns.  They said the world is nonetheless encountering a huge rise in insolvencies by one-third in 2020 and also 2021.

In Canada, increased food prices, loss of income and a cost of living have many individuals struggling monetarily. Credit card debt is surging and that is what might push numerous people over the edge. Statistics Canada just released a preliminary estimate that 2020 GDP reduced by 5.1% over year-earlier levels which is the worst year in over 6 decades. The federal government will certainly be presenting a new budget to try to kickstart Canada into an economic recovery.  Predictions for later in  2020 also had Canada insolvencies rising.

What really happened in 2020 Canada insolvencies

Nonetheless, as 2020 finished, Canada insolvencies including personal bankruptcies went to a 24-year low. The 2020 trend in insolvencies was a continuing descending pattern.  There’s been no spike in personal and business bankruptcies notwithstanding lots of financial difficulty in our country.  There was no surge in Canada insolvencies.  The opposite was true.

I have previously written on the decrease in Canada insolvencies.  In my view, the main factors for the record low Canadian personal insolvencies and corporate insolvencies, including bankruptcy filings in 2020 were:

  • federal and provincial government support measures including the Canada Emergency Response Benefit (CERB), Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Business Account (CEBA), which had an increase from $40,000 to $60,000
  • mortgage debt payment deferrals
  • the courts having been closed for many months so nobody could get sued

So the predictions for 2020 regarding the level of insolvencies did not come true as there was a continuing decline in insolvencies.  So now, each economist and all the pundits have just kicked their signs of increases in insolvencies predictions down the road and claim that 2021 will be the year for the big jump in corporate and Canadian consumer insolvencies.  The main reason cited for these 2021 insolvency forecasts is that as far as we know now, the COVID-19 relief programs will wind down.  Canada, like most other nations, is not expected to return to a pre-pandemic level for some time.

canada insolvencies
canada insolvencies

How do you prove insolvency?

Canada’s insolvency laws are fairly straightforward.  The two main options for an individual who cannot pay all their debts are also straightforward under the Bankruptcy and Insolvency Act (Canada) (BIA).  You either file for an individual consumer proposal or personal bankruptcy.

For insolvent corporations, there are options for them under the BIA too.  They can restructure and reduce their debts through a Division I Proposal.  Alternatively, a company can file for bankruptcy.  For companies with debts greater than $5 million, they could choose to restructure by filing under the Companies’ Creditors Arrangement Act (CCAA).

I have also written before about the tests for Canada insolvencies.  They are:

  • the debtor has stopped paying debts as they generally become due
  • your liabilities are greater than your assets
  • if you liquidated all of your assets, there would not be enough money to pay off all your debts in full

Canada insolvencies:  What happens during insolvency?

When a person or company finds themselves not able to pay their costs, they are insolvent. Insolvency is an economic problem. This typically indicates that they cannot pay their present expenses in a prompt way. There are a number of choices for dealing with your debt when you go into insolvency. What you need is the insolvency advice of a licensed insolvency trustee (Trustee). The Trustee will certainly examine your scenario, establish your insolvency level and discuss your sensible alternatives with you.

As an individual, you can try to use the proposal provisions of the BIA to keep your assets, while you negotiate with your creditors with the help of the Trustee. The objective is to come up with a plan to pay a portion of what you owe to eliminate all of your financial obligations. This allows you to attempt to reorganize your business or personal situation to avoid bankruptcy. It is important to understand your choices.

Lots of people are afraid of declaring bankruptcy or perhaps even owing money. Not many individuals understand what happens throughout insolvency. People assume bankruptcy is a quick fix to all of their financial problems.  They think they will never ever need to fret about cash ever again. They are wrong. When you file for bankruptcy, you have simply taken a massive step in the direction of economic liberty. 

Nonetheless, there are duties and responsibilities on the person that declares bankruptcy. The process is developed to work with you using counselling to ensure, as best as feasible, that your financial troubles will no longer rule your life. The ultimate objective is that when you have actually successfully completed your debt settlement proposal or have your bankruptcy discharge, you will not once more be tempted to have additional debt that is going to drag you back into insolvency.

It is very important to remember that just because you owe money does not imply that you ought to give up.  Rather it suggests that you require to find among the realistic options that a Trustee can help you with to work you out of financial trouble.

Canada insolvencies:  What happens when you file insolvency?

At some point in life, you may find yourself in an economic scenario that you do not recognize exactly how to get yourself out of. You’ll be stuck in a situation where you owe more money than you can ever pay back. Remember that insolvency is a financial situation. You can become insolvent, but you cannot file insolvency.

What you can do is search for an option to settle your financial debts, leave them behind as well as move forward with confidence and no tension in your life.  It is not your fault that you cannot do it yourself.  You have only been taught the old ways.  A Trustee can help you using new ways.  That is what we are trained to do. 

The options, in order of seriousness and urgency, within the Canadian insolvency framework are:

  1. Devise a realistic family household budget to see where you can divert the money you are currently spending away from certain items to unpaid debt until it is all paid off.  Household finances must be studied to make sure that there is a balanced budget.
  2. Reaching an informal arrangement with your few creditors to get deferrals from creditors and/or pay them less than the total amount owing on each in order for them to write off the balance.
  3. Reaching a formal debt settlement plan through a Trustee in order to extend the time you have on an interest-free basis and agreements with creditors that you will pay less than the total owing in order to wipe away all of your unsecured debt.  This process is called either a consumer proposal or a Division I Proposal, depending on whether you owe more or less than $250,000.  To read more about consumer proposals, please click to read my consumer proposal faq blog.
  4. Filing for bankruptcy in order to eliminate your debt and start again fresh, Starting Over, Starting Now.

This is what the BIA is designed for.  For corporations owing less than $5 million, they too can take advantage of either debt settlement or bankruptcy using the BIA.  If a corporation owes more than $5 million, they can also consider a debt settlement plan under the Companies’ Creditors Arrangement Act (CCAA). 

You can deal with your own form of insolvency through the BIA if you can’t pay your bills and you can’t find a way to get out of your situation. You can do one of the consumer insolvency filings available to avoid being harassed by debt collectors. Consumer filings are available to individuals to get a fresh start. Your car breaks down and you can’t afford to fix it. Your debt through mortgages payments are too high. You can’t pay your rent.  Why would you not want a no-cost consultation with a Trustee?  You literally have nothing to lose.

Canada insolvencies summary

I hope you enjoyed this Canada insolvencies Brandon Blog post. Will there be an increase in insolvencies around the globe in 2021?  What will the insolvency figures end up being?  I don’t know.  But rather than worrying about the whole world, what about 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 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 Covid-19 pandemic.

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

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CONSUMER PROPOSAL FAQ: ANSWERS TO 10 TANTALIZING CONSUMER PROPOSAL QUESTIONS

consumer proposal faq
consumer proposal faq

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. 

consumer proposal faq
consumer proposal faq

Consumer proposal faq introduction

If you’re struggling with financial obligations, you’ve probably thought about declaring bankruptcy. You may have listened to advertisements or people saying that a consumer proposal or bankruptcy is basically the exact same, however, there are some essential distinctions. That confusion has actually led me to create this consumer proposal faq.

Under a consumer proposal, you bargain a repayment strategy with your creditors (individuals you owe money to), yet you don’t lose your assets. Depending on exactly how rapidly you can pay it off, you can be discharged a whole lot quicker from a consumer proposal than from a bankruptcy. While bankruptcy will certainly remain on your credit record for 7 years after discharge, a consumer proposal can be gotten rid of in about half that time.

In this Brandon Blog, I answer the most usual questions concerning consumer proposals which is why I call this blog the consumer proposal faq blog.

Consumer proposal faq:  What are the common benefits of filing a consumer proposal?

Filing a consumer proposal in Canada is a great way to help manage your overloaded financial situation. A consumer proposal is a legal alternative to bankruptcy that helps you work out a payment plan for your creditors.  It allows you to pay back a portion of your debt, eliminate the rest of your debts while keeping the remainder of your possessions and giving you a fresh start.

consumer proposal faq
consumer proposal faq

Consumer proposal faq:  What does a consumer proposal cost?

A consumer proposal is an official arrangement to pay off your financial debts over a specific time period. While there are different kinds of consumer proposals, the basic idea remains the same. Consult with a licensed insolvency trustee (previously called a bankruptcy trustee) (Trustee) who will certainly analyze your scenario and figure out whether a consumer proposal is a good fit for your situation.

The Trustee will also prepare a consumer proposal that takes into account the settlement plan for the creditors that you can afford to make the monthly payments on. The estimation of the minimum amount to offer your creditors is determined by the Canadian bankruptcy law laid out in the Bankruptcy and Insolvency Act (Canada) (BIA). The BIA states that your creditors must be offered something better than they would get in your bankruptcy.

To do that computation, the Trustee will identify if, in a bankruptcy, you would have to make any kind of surplus income payments. The Trustee would additionally find out the value of any of your assets that would be non-exempt and would have to be turned over in bankruptcy to the Trustee.

Once the Trustee has actually made those determinations, the Trustee can then tell you the minimum dollar value you need to offer your creditors. When you and the Trustee agree on the regular monthly payments and the length of time you require to make them (no greater than 60 months), the Trustee can prepare your consumer proposal and related filing documents.

The Trustee’s fee is regulated by the BIA. That guideline of the statute entitles the Trustee to what is called the tariff. That tariff is paid from the amount you pay to the Trustee as Proposal Administrator. The Trustee is able to deduct the tariff fee from the total payments you made. Because the amount you pay is calculated without any connection to the Trustee fee, that implies the services of the Trustee are free!

Consumer proposal faq:  What debts can be included in a consumer proposal?

If you need to submit a consumer proposal, you can include the majority of your debt, however, there are exceptions. For example, secured debt, such as mortgages and auto loans, cannot be included. Financial debts that are the outcome of fraud and unpaid court fines or traffic fines, can additionally be excluded. The reason for this is since such debts are not discharged by a discharge from bankruptcy.

So it is most likely that the creditors that are owed cash from such types of financial debt would possibly vote against your consumer proposal. My assumption is that a judgement against someone for fraud will be huge enough that their vote will swamp the various other votes. However, that does not suggest you should not try.

Overdue income tax owing to Canada Revenue Agency (CRA) is a debt that can likewise be included in your consumer proposal. For that reason, tax debt forgiveness can be completed via a successful consumer proposal.

consumer proposal faq
consumer proposal faq

Consumer proposal faq:  What happens when you file a consumer proposal?

As already mentioned, the Trustee prepares a consumer proposal that lays out the terms of the repayment plan showing the creditors what will be paid. The calculation of the minimum to offer your creditors is determined by the Canadian bankruptcy law laid out in the BIA. The BIA states that your creditors should be supplied something better than they would if you entered bankruptcy.

To do that calculation, the Trustee will identify if, in a bankruptcy, you would have to make any kind of surplus income payments. The Trustee would likewise figure out the liquidation value of any of your non-exempt assets.  The Trustee will take the total amount of the called for bankruptcy payments and add it to the approximated liquidation value of your non-exempt assets, to come up with that minimum amount you must offer.

As soon as the Trustee has actually made that assessment, the Trustee can then tell you the minimum amount you are required to offer your creditors. Once you and the Trustee settle on the monthly payments and the time you need to make them (no more than 60 months), the Trustee can prepare your consumer proposal and associated filing documents.

Consumer proposal faq:  What happens if creditors reject consumer proposal?

This is where the Trustee truly earns his or her money. If it appears that your creditors are going to vote down your consumer proposal, the Trustee will advise that you amend your consumer proposal. The reason for modifying it is to look for an amount that both satisfies your creditors and that your budget permits you to be able to manage.

So, there are 2 most likely outcomes: either you’ll come up with a brand-new debt settlement plan that pleases them, or the proposal will entirely go down. The latter result suggests you’ll probably be filing bankruptcy.

consumer proposal faq
consumer proposal faq

Consumer proposal faq:  What percentage do you pay in a consumer proposal?

The amount you pay in a consumer proposal depends on your financial obligation level, income as well as expenses, and which province you reside in. The plan can be either one where you make one lump sum payment (if there is someone ready to set up that cash for you) or a regular stream of monthly payments that will be made to the Trustee as the Proposal Administrator.

The overall amount is your proposal fund where all your creditors will be paid their pro-rata share. The most essential point to bear in mind is that once your consumer proposal is approved by your creditors, and you have made all the payments, you will receive your Certificate of Full Performance.

This means you’ll not have to pay anything more to your unsecured creditors.

Bear in mind, you are paying a fraction of your total financial debts in order to remove all of your unsecured debt. I find that in general, an individual who ends up offering around 25% of their total unsecured financial debts can have an approved and effective consumer proposal.

Consumer proposal faq:  Can you keep a credit card with a consumer proposal?

You are allowed to maintain a credit card with a consumer proposal. The actual question is, will it work? Let me discuss.

A consumer proposal is actually a debt settlement plan: the financial institution, lending institution and your other creditors agree to forgive a specific amount of your debt and you consent to pay back a specific percentage of the debt. If you owe money to a credit card issuer that is caught in your consumer proposal, it is very unlikely that they will continue extending credit to you and allow you to continue using their card.

On the other hand, if you have a bank card that you owe nothing on at the time of filing your consumer proposal, AND you have actually not made any type of unusual payments to them in the 90 days immediately before your consumer proposal filing, you can probably maintain using that credit card under the existing credit agreement.

Worst situation, if all your credit cards are cut off as a result of your filing, you can always get a secured charge card to make use of.  In this consumer proposal faq, I don’t explain how to get one.  It is easy to find online.

Consumer proposal faq:  Does a consumer proposal ruin your credit?

Of all the consumer proposal faq, this is probably the one that bothers people the most.  The alternative is bankruptcy. The proposal is a plan with your creditors. The proposal is binding as quickly as it is accepted, but it does not eliminate your financial debt. It reorganizes it. You pay your Trustee as I discussed above. But you pay at a reduced amount than the total you owe.

The record of your consumer proposal will show up on your credit report. It will certainly be there for possibly 3 years after you have actually fully finished making all the payments. It does also adversely affect your credit rating. However, the notation on your credit history and the adverse impact on your credit score is not as damaging as in a bankruptcy.

Having a poor credit score might sound like a negative. But you can’t make your current payments on your debt any longer. If you cannot stay up to date with your debts, a consumer proposal will at first stop repossession or foreclosure and also will completely stop wage garnishment. It will give you a fresh start.

With all those advantages contrasted to a lower credit score, I believe it is well worth it, especially over bankruptcy. When people ask me “What are the pros and cons of a consumer proposal“, this is what I describe to them.   After that, the option is theirs, consumer proposal vs bankruptcy.

Is a consumer proposal worth it? I certainly think so.

consumer proposal faq
consumer proposal faq

Consumer proposal faq: Can consumer proposal affect employment?

If you have stable earnings and can make payments under a consumer proposal, bankruptcy will not be required. You cannot lose your job just because you file a consumer proposal. If you do not carry out a full and complete consumer proposal debt management programme, a creditor can try to garnish your wages. How will you feel when your employer gets the wage garnishment notification?

Consumer proposal faq:  What are the main differences between a consumer proposal and bankruptcy?

A consumer proposal is a legal option for people that owe no more than $250,000 (other than for any debts registered against your primary residence) in consumer debt. If you owe more than $250,000, you can file a debt settlement plan called a Division I Proposal.

Unlike a consumer proposal, bankruptcy is a choice for individuals that owe any amount. It is necessary to note that bankruptcy is much more difficult and can impact your credit score ranking for virtually 10 years. In a consumer proposal, you do not need to turn over your non-exempt assets to the Trustee. You also do not have to report your monthly income and expenses in a consumer proposal like you do in a bankruptcy.

These are the main differences between a consumer proposal and bankruptcy.

Consumer proposal faq summary

I hope you enjoyed this consumer proposal faq 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.  We would be pleased to answer any other questions you may have about this Consumer Proposal FAQ Brandon’s Blog or any other matter of interest to you.

consumer proposal faq
consumer proposal faq
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SMALL BUSINESS IN CANADA: MUST A STAGGERING 200,000 CANADIAN SMALL BUSINESSES DECLARE BANKRUPTCY DUE TO THE PANDEMIC?

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 the small business in Canada Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

small business in canada
small business in canada

Small business in Canada introduction

The Canadian Federation of Independent Business (CFIB) is the country’s champ of small business in Canada. CFIB is Canada’s biggest non-profit organization devoted to producing and sustaining an atmosphere where your small business in Canada can succeed.

CFIB promotes small business in Canada issues with political leaders as well as decision-makers. As a non-partisan company, it influences public policy based upon its members’ views.  It tries to ensure that small business owners have an opportunity to impact the regulations and policies that impact Canadian business.

A member survey was performed by CFIB and the results were announced on Thursday, January 21, 2021.  The results suggest that greater than 200,000 organizations could shut permanently because of and during the pandemic.

The federation states that it could throw greater than 2.4 million people out of work.  The study suggests 1 in 6, or about 181,000 small companies, are currently seriously considering closing down.  That’s up from 1 in seven or around 158,000 last summer.

The CFIB is contacting provincial and federal governments to try to help small businesses by presenting secure pathways to re-open and end lockdowns that may kill off these businesses.

The question I wish to explore with you today is if a small business in Canada needs to shut down, does it have to become one of the statistics of Canadian business bankruptcies?  Must it file for corporate bankruptcy?  For this small business in Canada Brandon Blog, I will assume that the small business is a corporation.

Small business in Canada:  When is a corporation bankrupt, or insolvent?

As I have discussed with you in previous blogs, a company is insolvent under the BIA if:

  • it is not able to satisfy its debts as they generally come to be due; or
  • it has ceased paying current debts in the normal course of business as they end up being due; or
  • the company’s property is not enough, at a fair valuation, to permit settlement of all debts (significance that even if all the property was to be sold, the proceeds would not provide sufficient cash to pay all financial obligations which are owed, or will certainly soon end up being due).

A company is bankrupt under the Bankruptcy and Insolvency Act (Canada) (BIA) if it has made an assignment in bankruptcy, or if a bankruptcy order has actually been made against it.  Bankruptcy is a legal process to eliminate debts if the small business in Canada is unable to pay them.

To be bankrupt, in the case of an assignment, the company, and in the case of a court order, the applicant creditor would have engaged the services of a licensed insolvency trustee (formerly called a bankruptcy trustee or a trustee in bankruptcy).  Licensed insolvency trustees are the only professionals allowed to administer bankruptcies in Canada and are licensed and supervised by the Office of the Superintendent of Bankruptcy (OSB). 

Every corporate bankruptcy is what is called an “ordinary administration“.  Unlike in personal bankruptcy, there is no streamlined method for corporate bankruptcy.  Remember this point as it serves as the basis for answering the question “Must a small business in Canada declare bankruptcy in order to close down due to the pandemic“?

Small business in Canada:  Is small business bankruptcy the right choice?

One of the most difficult decisions that an entrepreneur owner of a small business in Canada ever needs to make is whether or not to put his/her business into bankruptcy. Obviously, every entrepreneur goes into business hoping for success, so thinking about bankruptcy isn’t just an economic decision; it is a psychological emotional one too. It’s very crucial to understand the truths regarding local business bankruptcy and also the various other options that may be available to you before you make that decision. This will aid you to avoid making a rash choice that could be the wrong one.

The reality is that, for many companies, there are choices besides small business in Canada bankruptcy. One possible choice is a proposal to creditors. In a proposal, you make a deal to your unsecured creditors to pay off a percentage of what is owed to them and/or stretch out (commonly lower) monthly payments over a longer amount of time. This ensures that creditors receive either some or all of what is owed to them in a way the company can afford.  This enables small business in Canada to avoid bankruptcy and remain in operation.

The whole concept of a proposal is that you have a corporate entity that is insolvent, but, the underlying business is viable.  If you can cut away the layers of debt, the business could continue to operate and employ people.  You may even need to transition the business assets to a new corporation.  All of this is possible under a Division I Proposal under the BIA.   A proposal under the BIA is the same as the term you hear in the news all the time – bankruptcy protection.  The company ultimately comes up with a plan of reorganization to tell its unsecured creditors what the company can do for them because it does not have the necessary money to pay them 100%.

If the business is not that complex and there are only a few creditors, possibly an informal proposal would work.  The entrepreneur would discuss his company’s problems with each creditor and make an offer to them that is both appropriate and something the company can pay.  If successful, the company can avoid formal restructuring proceedings.  If there are too many creditors to do it on an informal basis, or if the restructuring is too complex, the small business can restructure under the BIA.

A proposal can be an excellent option for a small business that has actually encountered recent economic issues while having had success in the past.  It can also be useful for a small company that was profitable but is now having a hard time due to the fact that past issues are weighing it down.  A proposal is one of the alternatives to bankruptcy that I implement to save a company by allowing it to develop its plan of reorganization to emerge healthy to stay in business and to save jobs.

However, for some organizations, filing for small company bankruptcy is the choice that makes the most sense. A Trustee can help you recognize the alternatives available to ensure that you can decide if a bankruptcy filing is a proper alternative for your small business.

small business in canada
small business in canada

Small business in Canada:  Is just closing the door an alternative?

Over the years we have consulted with many entrepreneurs about their small businesses in Toronto or other small business Ontario locations. Many times we end up advising them that it does not make sense to spend the money on any of the various types of bankruptcy proceedings.  The size of the company and the nature of its assets makes either a proposal in bankruptcy or any bankruptcy process unnecessary.  None of the forms of bankruptcy make sense.  Let me explain.

Most small business opportunities in Canada started by entrepreneurs are funded using a variety of methods including:

  • investment by the owners;
  • small business start up grants Canada; and
  • small business loans.

More recently, the small business loan covid 19 Canada ($40000 Canada Emergency Business Account (CEBA) loan which has now been increased to $60,000) has also been used. The combination of owners taking stock in exchange for cash, loaning money to the small business and having a small business bank loan, perhaps even the official government-guaranteed Canada small business loan is pretty standard.

The bank will take security over all of the assets of the small business in Canada. By the time the business needs to shut down, there are not many assets left. Whatever assets there are, they are all fully secured by the bank. If the business is no longer viable, then although it is insolvent, it cannot be restructured as the business itself does not work anymore. If the assets are all fully encumbered, then there is no restructuring that can take place.

So a Division I Proposal under the BIA is not possible.  Bankruptcy is a remedy for the unsecured creditors.  If there are not many assets left, and what is left is fully secured by the bank, then the bank will suffer a shortfall and there are no assets available for the Trustee to use to make a distribution to the unsecured creditors.  So why have any type of bankruptcy or any bankruptcy proceeding?  It does not make sense to spend that money.

In this situation, it just makes sense to tell the bank that the business is shutting down, turn the key in the lock to the front door and give the key to the bank.

Small business in Canada:  So what happens if I just close the door and lock it?

I call this the self-help remedy.  There are too many problems with the business that it is not viable anymore.  Perhaps the COVID-19 lockdown is just too tough to recover from and the small business cannot survive.  Perhaps the assets are not worth much – think restaurant equipment where the cost of the leasehold improvements may be as much as the cost of the equipment.  Because of this, the only choice is to walk away.

As a director of the company, you have a responsibility to make sure that all final government returns are completed and filed.  If the company’s books and records are stored on-site.  Perhaps the accounting information is stored on a computer hard drive.  The directors should make sure that the books and records, be they electronic or physical, are safeguarded by taking them off the business premises. 

You may need them not only to prepare final returns but also in case Canada Revenue Agency or any other regulatory authority has any questions or wishes to perform an audit.  The directors will also want to make sure that all final employee records are completed and distributed to the former employees.

Next comes the bank.  In Canada, the bank loan would have been either fully or partially guaranteed by the entrepreneur.  The entrepreneur may have also personally guaranteed the premises lease of the business.  The entrepreneur may also have personal liability for director obligations such as unremitted source deductions, unpaid HST and outstanding employee wages and vacation pay.

If the individual does not have sufficient personal assets or other resources to make good on their personal guarantee, then rather than focussing on bankruptcy for the business notwithstanding all the business debts, we need to focus on the person’s situation.  Perhaps they will need to look at the various bankruptcy options, be it a consumer proposal, Division I Proposal or as a last resort, bankruptcy.

It will be much more productive for the entrepreneur to retain me to help them with their personal financial problems arising out of the closure of the small business in Canada rather than on the business itself that has little in the way of assets and no viable business left to salvage.

Must 200,000 Canadian small businesses declare bankruptcy due to the pandemic?

So given the above, the answer to the question is no.  If the small business in Canada is viable, then perhaps it can be restructured to avoid bankruptcy, maintain operations and save jobs.  If it is not viable, then, bankruptcy may be necessary depending on the complexity of the business and the issues facing it. 

If it is not complex and there are no free assets, then just closing the doors of that small business in Canada is all that needs to happen.  The individual will then have to deal with their personal liabilities arising from that.

Small business in Canada summary

I hope you enjoyed this small business in Canada 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 this 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.

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NATIONAL RIFLE ASSOCIATION FILES FOR BANKRUPTCY ANNOUNCES PLAN TO MOVE TO TEXAS FOR FREEDOM

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.

National Rifle Association introduction

The National Rifle Association is America’s champion gun right protector of Second Amendment legal rights. They are protectors of US patriots – advocating the right to keep as well as bear arms, advancing shooting sports and also championing weapon safety, education and training.

On January 15, 2021, at 2:48 PM, the National Rifle Association of America made its voluntary petition bankruptcy filing under Chapter 11 of the United States Federal Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas in Dallas.

In this Brandon’s Blog, I look at the reason why the National Rifle Association filed for bankruptcy protection and what it means.

Attorney General James Files Lawsuit to Dissolve National Rifle Association

On August 6, 2020, New York Attorney General Letitia James filed a lawsuit looking to dissolve the National Rifle Association, the largest most significant pro-gun organization in the USA. Attorney General James claims the organization with unlawful conduct as a result of their:

  • diversion of millions away from the charitable mission of the organization for personal use by senior management;
  • granting contracts to the economic gain of close associates and their families; and
  • appearing to hand out lucrative contracts to previous employees apparently requiring them to do nothing, in order to purchase their silence and loyalty.

The lawsuit specifically makes the claim that the National Rifle Association or NRA, as well as senior leader Executive Vice-President Wayne LaPierre and 3 other senior officials with financial mismanagement, improperly managing the organization’s funds and failing to follow various state and federal regulations, contributing to the loss of more than $64 million in simply three years for the National Rifle Association.

Allegations against the National Rifle Association

In the complaint, Attorney General James sets out numerous instances where the four specific accused stopped fulfilling their fiduciary duty to the National Rifle Association and made use of millions upon millions from its reserves for personal use and illegal self-dealing, including:

  • trips for them and their families to the Bahamas;
  • private jets;
  • costly meals; and
  • other personal travel.

In addition to shuttering its doors, Attorney General James was looking to get back millions of dollars in restitution and to prevent the four individual offenders from ever again acting as board members of any not-for-profit philanthropic organization in the state of New York.

The coronavirus pandemic has likewise negatively affected the National Rifle Association.  It had to terminate its national convention.  Cancelling the annual convention ended up harming fundraising. Still, the NRA declared in revealing the move that the company was  “in its strongest financial condition in years.”

national rifle association
national rifle association

What led to the New York State National Rifle Association lawsuit?

The National Rifle Association chaos began with a power battle in 2019 between North and LaPierre, which included claims of self-dealing.  After former NRA President Oliver North (for those of you who may be too young to know who Oliver North is, check out the Iran-Contra affair) accused the National Rifle Association‘s senior management of financial misconduct. 

As a result, Wayne LaPierre pushed him out of his unpaid position. The National Rifle Association filed a claim against North to try to silence him.  North counterclaimed.  That is what led Attorney General James to first conduct an investigation resulting in her filing the State’s suit in August.

Another previous National Rifle Association insider exposes information about one of the most powerful lobbyists in the US. Joshua Powell was discharged from the NRA and has made strong accusations in his book titled “Inside the NRA: A Tell-All Account of Corruption, Greed, and Paranoia within the Most Powerful Political Group in America“. The book was released on September 8, 2020.

In his book, he charges Wayne LaPierre of a number of the very same allegations of mismanagement included in the New York State lawsuit. He states that the NRA has blood on its hands due to the many mass shooting cases in the United States. He charges LaPierre as well as other executives of misleading dues-paying members. He takes great care to say that some transactions fall into the classification of fraud. Powell is also named in the legal action filed by Attorney General James.

This situation immediately posed one of the biggest dangers the NRA faced since it started in New York in 1871. The National Rifle Association counterclaimed. In its counterclaim, the NRA denies the self-dealing claim and accused her of tampering with its First Amendment rights.  He also claimed it is merely a “political witch hunt” (does that sound familiar?).

In response to the Chapter 11 filing, Attorney General James said she will continue to pursue the NRA in spite of the situation in Texas. “We will continue our effort because this organization has gone unchecked for years and it’s critically important that we continue to hold them accountable, even in bankruptcy court”, she said. 

The National Rifle Association Chapter 11 bankruptcy filing

According to Wayne LaPierre, in filing for bankruptcy protection, the National Rifle Association states that:

“The plan can be summed up quite simply: We are DUMPING New York  and we are pursuing plans to reincorporate the NRA in Texas “

In their filing, a standard question asked is:  Are any bankruptcy cases pending or being filed by a business partner or an affiliate of the debtor?  They answered that question by saying yes, there is a separate bankruptcy filing for Sea Girt LLC.  The NRA is the single member, owner and manager of Sea Girt.  Sea Girt, a limited liability corporation, was incorporated in November 2020.  Wayne LaPierre signed the voluntary petition on the same day that it was filed, January 15, 2020.

This Chapter 11 filing is the opening document to get bankruptcy protection.  In this first filing, the National Rifle Association estimates that it has assets of $100 million to $500 million.  It estimates its liabilities as in the same range.  The reason for the range is not because they don’t know, it is the standard format of an initial filing on a pre-printed form. 

This initial filing is merely a summary document to gain the protection of Chapter 11 of the United States Bankruptcy Code until the debtor files the actual restructuring proposal.  It is very much analogous to the filing of a Notice of Intention To Make A Proposal before filing a Division I Proposal under the Canadian insolvency regime.

As part of the Chapter 11 filing, the National Rifle Association set up a special litigation committee “to oversee the prosecution and defense of certain litigation”. 

As Wayne LaPierre has stated, the real reason for the filing is to dissolve the organization and leave all of its debts behind.  They plan to incorporate a new entity in Texas and then continue.  Time will tell as to what transactions come under scrutiny, what will happen with the New York State litigation and the attempt to recoup millions of dollars.

National Rifle Association bankruptcy summary

Time will tell how the National Rifle Association Chapter 11 filing will proceed.  It is only at its initial stage.  I hope you enjoyed this 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.

national rifle association

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Brandon Blog Post

BANKRUPTCY FRAUD: QUICK GUIDE TO BANKRUPTCY FRAUD AND BANKRUPTCY EXAMINATIONS

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 bankruptcy fraud Brandon Blog, please scroll to the very bottom and click play on the podcast.

bankruptcy fraud
bankruptcy fraud

Bankruptcy fraud introduction

Bankruptcy fraud is not something that the vast majority of individual Canadians engage in.  Personal insolvency case filers can be for either a consumer proposal, Division I proposal or consumer bankruptcy filings under the Bankruptcy and Insolvency Act (Canada) (BIA) so that individuals can get the debt relief they need.  Entrepreneurs can file a Division I proposal, or for corporate bankruptcy for when their company needs to either restructure or liquidate under the BIA.  They can also file a Plan of Arrangement under the Companies’ Creditors Arrangement Act if their company qualifies under Canada’s insolvency laws. 

Most of these individuals are honest and would never even think about bankruptcy fraud. They or their company have actually experienced such substantial financial difficulties leading to their insolvent financial condition, that the only thing they can do to solve the financial problems is to get relief within the Canadian insolvency system. Their problems may result from a job loss, a change in their household situation like divorce, a major disease resulting in loss of income and/or medical bills they cannot pay, bad financial advice, or most recently, the bottom falling out of their lives because of the COVID-19 pandemic.

There are instances, however, where an individual is not a victim and perhaps they are trying to pull off a bankrupt fraud crime.  They will use misconduct to create abuse of the system and continue to trade and get credit understanding that they will never be able to pay back the money they are borrowing. There are people who try to use the insolvency system in Canada to get out of problems that they have created themselves through bad faith or fraud.  They may even unknowingly cross the line into a white-collar financial crime and bankruptcy fraud.

In this Brandon Blog, I first discuss what bankruptcy fraud is and then comment on a very recent decision of the Supreme Court of British Columbia in Bankruptcy and Insolvency on what level of suspicion is necessary in order for the court to order an examination of the bankrupt or by extension, the designated officer of the bankrupt company.

What is bankruptcy fraud?

When I talk about bankruptcy fraud, it could include criminal fraud under the Criminal Code of Canada, but not necessarily.  Bankruptcy fraud is a white-collar criminal activity that can be in several different forms.

The more common fraudulent activity that either is or are indicators of bankruptcy fraud committed under Canadian bankruptcy law (which may be just a bankruptcy offence or can also be a criminal code crime, depending on the circumstances) are:

  • Disposing of or concealing assets prior to or right after the bankruptcy to avoid having to hand them over to the licensed insolvency trustee (formerly called a bankruptcy trustee or a trustee in bankruptcy).
  • Records false transactions in a statement of account or hides, destroy or purposely misstates a schedule or other document pertaining to his/her/its assets or affairs.
  • Obtains credit or any other goods or services arising from false depictions;
  • Conceals claims or debt obligations against the debtor;
  • Obtains credit without advising the people he is dealing with that he/she is bankrupt;
  • Refuses to answer fully and honestly to questions posed in an examination taking place under the Bankruptcy and Insolvency Act (Canada) (BIA).

Anyone who is found guilty of an offence, whether from criminal fraud charges or not and is responsible, on a summary conviction basis, to a dollar fine not exceeding $5,000 or to jail time for a term not going beyond one year or to both, or on conviction on indictment, to a penalty not surpassing $10,000 or to jail time for a term not going beyond three years, or to both.  So there are penalties from a bankruptcy offence finding and a bankruptcy fraud conviction.

What are bankruptcy offences and how are they and bankruptcy fraud discovered?

The bankruptcy offences are set out in sections 198-201 of the BIA, Canada’s bankruptcy law.  They represent the kinds of activities that form the types of bankruptcy fraud outlined above.  There are 3 normal ways that a Trustee can start identifying bankruptcy offences and bankruptcy fraud.

When a consumer proposal, larger corporate or personal restructuring proposal or a bankruptcy is filed, the licensed insolvency trustee is required to review the available books and records.  Insolvency trustees must look for transactions that appear questionable.   

Insolvency trustees prepare a report for the creditors in which the conduct of the insolvent debtor, including any issues like suspicious transactions, entered into, or suspected bankruptcy fraud, are reported.  In a restructuring, the bankruptcy trustee must also advise what effect the transaction has on the creditors and what actions, if any, the licensed insolvency trustee is going to take.  That is the first way that bankruptcy fraud and bankruptcy offences can be discovered.

The second way that bankruptcy offences and bankruptcy fraud can be discovered is from information available from creditors.  The creditors have been dealing for some time with the individual or company filing for bankruptcy or the restructuring proposal.  Creditors may very well have information about the debtor’s affairs that would be very useful.  That information might just lead the licensed trustee to discover the offences.

The third way of getting more information about suspected bankruptcy fraud and offences is through conducting examinations. 

Examination of the bankrupt or the designated officer of the bankrupt company

In this section, I will use the examination of the bankrupt regarding his or her property and examination of the designated officer concerning the company’s property and affairs, interchangeably.

Section 161(1) of the BIA allows for the examination of the bankrupt by the official receiver.  An official receiver is a qualified person in the local office of the Superintendent of Bankruptcy Canada.  In personal bankruptcy, this examination could be held any time prior to the discharge of the bankrupt. 

The official receiver can examine the bankrupt under oath relative to the insolvent’s conduct, the reasons for the bankruptcy and the disposition of the bankrupt’s property.  The official receiver can generally ask any questions they wish about the bankrupt’s conduct and affairs.

Section 163(1) of the BIA allows the Trustee, by ordinary resolution passed by the creditors or inspectors, may, without a court order, examine under oath before the registrar of the court or other authorized person:

  • the bankrupt;
  • any person fairly believed to have knowledge of the bankrupt’s affairs; or
  • anyone who is or has been an agent, or a clerk, an officer, management or an employee of the bankrupt.

Essentially, anyone who has knowledge of the bankrupt’s affairs.  This also includes anyone in possession of any books, records or documents regarding the affairs of the bankrupt.  Such persons would also have to hand over those documents.

Section 163(2) allows any creditor or another interested person on sufficient cause being revealed (such as the suspicion of bankruptcy fraud) can apply for an order to be made for the examination of the bankrupt, under oath, before the registrar or other accredited person.

So as you can see from this description, the existence of this section of the BIA allowing for the ability to examine a person in connection with a bankruptcy filing is quite generous.  The suspicion of the bankrupt trying to commit bankruptcy fraud can lead to a request for an examination of the bankrupt. 

So the question becomes, can the examination process be used for a fishing expedition or does the Trustee or creditor need to have some evidence of wrongdoing?  Do they need to have more than just a hunch?  The BC court decision I am going to now describe seems to answer that question.

Bankruptcy fraud:  Examination of the bankrupt court case background

The matter is Hanlon (Re), 2021 BCSC 40.  Mr. Hanlon wants his bankruptcy discharge.  However, a major creditor of his has reason to suspect that there is more information to be learned about Mr. Hanlon’s conduct, affairs and property.  The creditor made an application under section 163(2) of the BIA.

A lady called Ms. Johnson acquired a judgment against Mr. Hanlon after a five-day defamation trial that occurred in August 2018. Ms. Johnson was granted an award of $27,500 against Mr. Hanlon.  

On June 14, 2019, Mr. Hanlon filed a proposal under BIA.  The proposal was unsuccessful and Mr. Hanlon was deemed to have filed an assignment in bankruptcy.  The effect was as if Mr. Hanlon chose himself filing for bankruptcy.  At the meeting of creditors, Mr. Hanlon said, which is recorded in the Minutes, that “there was an expectation that any amounts owing to his mother would be deducted from his inheritance.”  The lawyer from the law firm representing Ms. Johnson was appointed an Inspector in the bankruptcy administration.

Ms. Johnson opposed the bankrupt’s discharge as she suspects bankruptcy fraud.  On February 3, 2020, she filed an amended proof of claim. In it, she made an unsecured claim for $94,443.01, consisting of the original judgment, post-judgment interest, and a claim of $66,788.26 for special costs.

bankruptcy fraud
bankruptcy fraud

Bankruptcy fraud:  The position of the bankrupt, creditor and Trustee

The creditor 

Ms. Johnson is concerned that the bankrupt is trying to commit bankruptcy fraud.  She argues that Mr. Hanlon and his mother should each be subjected to an examination for the purposes of finding more information to ensure that she can canvass concerns connected to:

  • If he is a beneficiary under his mother’s will and the potential of an inheritance being received.
  • Info about the status of his chequing account and credit cards, including his use of his mom’s bank card.
  • Cash and loans Mr. Hanlon might have received from his mom and step-father.
  • Exactly How Mr. Hanlon is paying for expenditures.
  • Particulars any businesses the bankrupt runs, the revenue he gains, and whether he has been purposefully underemployed.

She says that examinations are necessary considering that the evidence produced to date sustains that “something is amiss” and also there is “a disconnect” with his current financial situation.

Ms. Johnson also wants approval to examine his mother about any financial arrangements between them.  She also wants to examine the mother about any inheritance that her son is entitled to.  Finally, she also wants to see a copy of the will. She suggests that his mother is directly attached to the bankruptcy estate.

The Trustee

The Trustee did not take any position on Ms. Johnson’s application.  The Trustee advised the court that:

  • An examination of Mr. Hanlon under oath happened already.
  • Mr. Hanlon has been extremely honest with everything that he has been asked
  • To her knowledge, there are no outstanding requests.
  • It would be an uncommon request to demand the supply of a will from a person who is still living. If Mr. Hanlon’s mom passes away then the Trustee will take all needed actions to investigate the situation and the bankruptcy estate.

Ultimately, the Trustee is of the view that the bankrupt’s discharge hearing should happen as soon as possible.  It has already been postponed.  The Trustee had no indication that the bankrupt was trying to commit bankruptcy fraud.

The bankrupt

The bankrupt stated that his mom and stepfather are alive and generally in good health. If his mother passes away everything will certainly go to his stepfather. They have been wed for 40 years and their house remains in joint-tenancy. He advised that his mother is currently 85 years of age, she does need the use of a wheelchair and is deaf in both ears. His stepfather is either 72 or 73 years old. He opposes the examination of his mom as being in the nature of a fishing exploration.

He disputed that there is anything amiss about the documents provided and that he has not committed any bankruptcy offence or crime and that he has not entered into any suspicious transaction. He explains that there is a senior’s discount referral on his bank account due to the fact that it is a joint account with his stepfather who is elderly. He described that the only time he has used his mom’s charge card was to pay a process server (in one of his prior paralegal businesses) who called for a credit card over the phone. He rejects ever accessing his mother’s bank account.

He submits that he has supplied a description of his work history, consisting of what companies he was paid by. He also stated that he has provided all items the Trustee has ever asked for.  He further submitted that the application should be dismissed as it is without benefit, a fishing expedition, and is being made solely for the purpose of delaying his discharge hearing.

Mr. Hanlon presented himself as an honest but unfortunate person that is not trying to commit bankruptcy fraud.

Bankruptcy fraud:  The court decision for the request to examine the bankrupt

The court accepted there were issues raised that need more information. An example of one is that the bankrupt did not list any debts owing to either his mother or stepfather in his sworn Statement of Affairs. He stated at this hearing that he was not conscious that such household debts were to be included in his bankruptcy. The situation of loans from his mother or stepfather and the arrangements need more clarification.

It is not totally clear to what degree there has actually been some intermingling of the bankrupt’s affairs with his mother’s yet the evidence does support that he has utilized her credit card. He claims it was only once however the creditor is entitled to explore this issue. The bankrupt admitted that his mom supplies him with money to pay a specific expense or expenses. He is living with his mother and stepfather in a self-contained bachelor suite and is not paying rent.

The particulars of his revenue and work are also uncertain and there was a discrepancy between the bankrupt’s evidence and one record of employment he received.  An examination would shed additional light on this incongruity in addition to the allegation made that he is purposefully underemployed.

The judge was persuaded that sufficient cause has been revealed by Ms. Johnson to support an examination of Mr. Hanlon under s. 163( 2) of the BIA. The judge was also satisfied that such an examination has the possibility of benefitting the general body of creditors and it is not just a fishing expedition. Accordingly, the court ordered that the bankrupt attend an exam at a time and location to be fixed. The assessment will be limited to two hours. The expenses of the exam and getting a transcript will certainly be for Ms. Johnson’s account.

The court decision about the request for documents and to examine the bankrupt’s mother

The court felt that the applicant was looking for too wide an order for the production of documents. The court directed that Ms. Johnson set the particulars of the documents she is looking for using a letter to Mr. Hanlon, with a copy to the Trustee.  This letter laying out the particulars of the documents should be supplied at the very least three weeks before the exam takes place. The judge ordered that the bankrupt will deliver the files he has in his possession or control no later than 7 days prior to the day scheduled for his exam.

Concerning his mother’s will, the court was not encouraged that the production of the will to prove that the bankrupt will be getting any type of inheritance was necessary. Even if he is a beneficiary under his mom’s will, she is alive and there was no evidence that he will certainly acquire anything as a beneficiary either now or in the future.

The evidence established that his mother is married with the majority of the value of her assets registered in joint-tenancy with her husband. The evidence also showed that his stepfather is more than 10 years younger than his mother. The court decided that the will should not be produced, but that did not restrict Ms. Johnson from checking out issues associated with any kind of prospective inheritance at the examination.

The judge was not satisfied that his mother ought to be required to participate in interviews. Such an examination would be oppressive because of his mother’s age, being 85 years old, her current health standing, although she did not have any specific illness, as well as the existing COVID-19 pandemic.

The court also took judicial notice of the fact that in the sworn statement of service, the server deposes that when he served the application on the bankrupt’s mother, she did not appear to comprehend that she was being served with legal papers. So any inquiries regarding the use of her credit cards by the bankrupt or how he is paying for his living expenditures can be canvassed at the exam of the bankrupt. Ms. Johnson’s application to examine the mother was denied.

Bankruptcy fraud and examination of the bankrupt:  Other matters

The judge was also completely satisfied that an order should be made that any discharge hearing happens after the examination has been completed. In order that there is no delay, the court directed that the examination is to be finished before February 28, 2021. The bankrupt is to cooperate by establishing a day for the exam within this period. The discharge hearing can be set up for a day beginning in March 2021.

It will be up to the presider of the discharge hearing to ultimately decide what consideration ought to be given on any kind of possible inheritance when determining the disposition of the bankrupt’s application for discharge.

Finally, Ms. Johnson was awarded costs against the bankrupt.  This cost award is a post-filing debt that will not be released by the bankrupt’s discharge from bankruptcy.

Bankruptcy fraud summary

I hope you enjoyed this bankruptcy fraud 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 this 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.

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EVANDER KANE: HOW TO EXPLAIN HIS GAMBLING DEBT AND OTHER PROBLEMS BANKRUPTCY TO HIS BOSS

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.

I wish to thank our friend, US Bankruptcy Attorney Neil Ackerman of Pryor & Mandelup, L.L.P of Westbury NY, for pulling the bankruptcy filing for me so quickly so that this Brandon Blog could be published on a timely basis.

Evander Kane filing for bankruptcy introduction

On January 9, 2021, Evander Kane, an NHL hockey player forward with the San Jose Sharks, filed his voluntary bankruptcy petition for a Chapter 7 bankruptcy case in the United States Federal Bankruptcy Court for the Northern District of California. I understand that earning megabucks as a professional athlete and declaring bankruptcy seems astonishing to a lot of you, yet it’s real. There are many retired pro athletes who are broke. They have actually made a lot of money and then lost it.  They have absolutely nothing to show for it. No protected investments, no retirement fund, nothing socked away with for a rainy day.

I discuss the Evander Kane bankruptcy filing and talk about other former pro athletes who also had financial problems.

San Jose Shark Evander Kane bankruptcy filing

Evander Kane‘s bankruptcy documents paint an interesting picture.   The documents state that he has US$10,224,743.65 in assets and the 29-year-old’s Chapter 7 filing list liabilities of US$26,837,340.00.

The assets are:

AssetUS$
Real estate – 2301 Richland Ave., San Jose, CA3,000,000.00
Real estate – 3457 W. 35th Ave., Vancouver, BC2,860,000.00
Real estate – 8447 Isabel Place, Vancouver, BC2,400,000.00
Personal and household items80,000.00
Financial assets1,884,743.65
Total10,224,743.65

Amongst the almost US$27.0 million of liabilities, the more interesting ones are:

  1. Loan Shark Holdings, LLC-Secured loan to fund tax shelters-US$2.5M
  2. Centennial Bank-Loan-creditor may assert a claim over wages-US8.36M
  3. Newport Sports Management, Inc.-Agent fees-US$528,730
  4. Rachel Kuechle- Litigation claim-Unknown
  5. Sure Sports LLC- Claim for fees-US$1.28M
  6. Zions Bancorporation-Loan-$4.25M
  7. IRS- Income tax (subject to accepting tax shelter deductions)-US$256,320
  8. Various individuals-Personal loans-US$2.15Mevander kane

Shark Star player seven-year, $49-million contract, banks, gambling and other interesting information

Here is some interesting information coming from his bankruptcy filing:

  • In the year prior to his filing Chapter 7 bankruptcy, he lost and paid off gambling debts, including losses on sports gambling of US$1.5 million.
  • Evander Kane listed that he has a monthly cash shortfall of US$91,131.13 supporting himself, his parents, his 27-year-old sister, 1 daughter, 2 uncles and his grandmother.  In making that calculation, he did not include any monthly income amounts from his annual salary that is set at US$3,000,000 for the year 2020/2021 under his personal services contract with San Jose.  He did this because his salary will be prorated due to the shortened NHL’s 2020-21 season of 56 games.  Also, there is uncertainty over the season due to COVID-19 concerns.  It will certainly not be your typical season.  His deal was originally a seven-year contract.
  • The filing also stated that he might opt-out of the league regular season games “because of health concerns given the recent birth of his first child.” If he does so, he would certainly not be paid anything.  The filing also stated there is a possibility that Evander Kane may not even play in the upcoming regular season, though he has actually gone to spend a period of time on ice in the Sharks training camp. Neither Evander Kane nor his representatives have actually said anything about his intentions for the current season.
  • Arkansas-based Centennial Bank is suing both Evander Kane and the Sharks.  They claim that they owe over US$8M, consisting of principal, interest and bank fees after both Kane and the team quit making payments in 2019.

    According to Centennial Bank’s claim, the Sharks were expected to make continual regular monthly payments to the financial institution by deducting funds from Kane’s salary until the full amount owing was totally paid back. In its claim, Centennial asserts that it was Evander Kane who had actually got the Sharks to stop payments on the loan.  Centennial Bank certainly does not feel there has been sufficient financial redress.
  • No doubt some of the US$1.5 million of gambling losses paid in the year prior to his bankruptcy went to the Cosmopolitan of Las Vegas. The Cosmopolitan, the two-tower resort and casino on the Strip, revealed in late 2019 it withdrew its $500,000 gambling loss litigation case for unpaid gambling debts against Sharks Star Evander Kane.

    A casino marker is a line of credit issued to a VIP customer to enable high-level gaming customers simple access to large amounts of cash. Markers are available after the casino’s credit department has checked out the financial worthiness of the customer beforehand and then if approved, sets the line of credit. Fundamentally, gambling markers are interest-free temporary financings that have to be quickly paid off, or else the borrower faces high rates of interest and possible criminal charges.

    The Cosmopolitan’s claim stated that Evander Kane, a Canadian, allegedly took out 8 markers of differing amounts ranging from $20,000 to $100,000. This was on or about April 15, 2019, a day between Games 3 and 4 of the Stanley Cup first-round playoff between the Vegas Golden Knights and the San Jose Sharks. In addition to the overdue credits, Cosmopolitan looked for repayment of legal costs connected with the claim.

    Cosmopolitan’s attorney, Lawrence Semenza, confirmed that the case against San Jose Shark’s left-winger has been withdrawn and that Kane cannot be sued for this debt again.  No doubt money changed hands but Mr. Semenza would not confirm that.
  • Kuechle v. Kane:  On a much more serious note, Evander Kane listed this civil litigation in the Erie County Supreme Court in Buffalo, NY as pending.  In her claim, filed on July 1, 2016, this then 21-year-old woman named Rachel Kuechle, declares that on December 26, 2015, she met Kane at the Encore Restaurant in Buffalo.  She claims that he provided her with alcoholic beverages and invited her to his hotel room at the Buffalo Marriott Harborcenter on the early morning of December 27, 2015.

Kuechle further claims that upon arriving at the hotel that morning, Kane allegedly battered this woman creating her to experience physical injury consisting of lacerations, considerable hemorrhaging needing several surgical treatments as well as blood transfusions, along with severe emotional trauma.  As the case is still pending, these claims have not yet been adjudicated.  At the time, Evander Kane was playing for the Buffalo Sabres.

Is Chapter 7 bankruptcy in Canada?

Chapter 7 bankruptcy is not in Canada.  It is part of the United States Bankruptcy Code, the bankruptcy law in the USA.  However, there are many similarities between Chapter 7 bankruptcy and Canadian bankruptcy.

Chapter 7 is for individuals that have financial problems stopping them from paying their debts.  It is also for people who are willing to enable their non-exempt assets to be used to pay their creditors.

The main purpose of declaring under Chapter 7 is to have your financial debts discharged. The bankruptcy discharge clears you after bankruptcy from needing to pay most, if not all of, your pre-bankruptcy financial debts.

Like in Canadian bankruptcy, there are certain debts that cannot be discharged as a result of a person’s discharge from bankruptcy.  Also, properly secured debts, like a mortgage on property or a vehicle financing loan, can still be enforced after discharge.

Gambling debt forgiveness is possible both in Chapter 7 and Canadian bankruptcy cases.  However, it is not straightforward like many other unsecured debts are.

Also, if the court finds that you have committed particular kinds of improper conduct described in the Bankruptcy Code, the court might reject your discharge. The same is true in Canada.

I have written many blogs about Canadian bankruptcy.  My most recent one is from a few days ago:  DECLARING BANKRUPTCY IN CANADA: NEVER WORRY WHAT TO DO AGAIN WITH THESE AWESOME TIPS.

evander kane
evander kane

Former pro athletes who are broke: Evander Kane has some company

They awaken one morning and the cash is all gone, the charge cards have been cancelled, the bank has confiscated the estates and the fleet of luxury automobiles. The most awful part is that a lot of them don’t even understand where the cash went.

It has been reported that so far, Evander Kane has earned $52.9 million over his 11-year career.  In his bankruptcy filing, Kane stated that in each of the last 3 years he earned:

Year

US$ salary

January 1 to December 31, 20186,000,000
January 1 to December 31, 20197,000,000
January 1 to December 31, 20207,000,000

Another Evander. It’s easy to blow a lot of money. Evander Holyfield invested/spent $230 million in no time. He bought a 235-acre Utah estate with 109 rooms.  The monthly electricity bill was $17,000. There was likewise a $550,000 loan he got to pay for landscape design; $200,000 in IRS tax obligations, plus alimony and also child support for three ex-wives as well as 11 children.

It likewise adds up quickly when you’re spending like a drunken seafarer. Boris Becker is a recent bankruptcy filer of the many sports celebrities to declare bankruptcy in spite of huge earnings. The marriages, sweethearts, children and an unsupportable way of life ultimately overtook Boom Boom.

Canadian olympian Donovan Bailey was another athlete that had income tax troubles. To lessen the amount of personal income tax to be paid, he made a “philanthropic” contribution. The money made its way back to Mr. Bailey, through an overseas account. It was intended to come back tax-free.

The trouble was that Canada Revenue Agency (CRA) reassessed Donovan Bailey. They claimed the charitable donation was no more than a sham to prevent paying taxes. Instead of tax-free cash Donovan Bailey found himself in debt to the CRA to the tune of $2.3 million in overdue tax obligations and ended up in bankruptcy court.

Former pro athletes who are broke: According to Charles Barkley

​Charles Barkley believes that 60% to 70% of former pro athletes go broke and have no retirement savings.  There are many reasons:

  • Buying expensive presents and giving money to family and friends.
  • Unsupportable lifestyles
  • Mansions around the world
  • Yachts
  • Exotic and luxury vehicles
  • Unprofitable business ventures
  • Bad money management
  • Not understanding financial matters

The result is lots of debt, zero savings.

Evander Kane summary

Not many of us will ever make the kind of money Evander Kane has, and still can.  It is important to know the basics of money management and have some elementary level of financial literacy.

I hope you enjoyed this Evander Kane 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 this 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
evander kane
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DECLARING BANKRUPTCY IN CANADA: NEVER WORRY WHAT TO DO AGAIN WITH THESE AWESOME TIPS

declaring bankruptcy in canada
declaring bankruptcy in canada

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 declaring bankruptcy in Canada Brandon Blog, please scroll to the bottom and click play on the podcast.

Declaring bankruptcy in Canada:  Introduction

Declaring bankruptcy in Canada is a legal process through which you may be discharged from your financial obligations (with certain minor exceptions). Its purpose is to permit an honest but unfortunate debtor to obtain a discharge from many financial debts, based on affordable conditions.

The Office of the Superintendent of Bankruptcy (OSB) is charged with the administration of the Bankruptcy and Insolvency Act (Canada) (BIA), the Companies’ Creditors Arrangement Act (CCAA) and their respective rules. All documents associated with filings under either of those Acts can be found at the OSB’s internet site. The OSB likewise licenses and supervises the actions of licensed insolvency trustees (LITs ).  LITs are accredited to:

  • administer the estates of bankrupts;
  • manage alternatives to bankruptcy such as consumer proposals and commercial proposals in order for debtors to get creditor protection and restructure in order to avoid bankruptcy; and
  • serve as a monitor under the CCAA.

When can you declare bankruptcy in Canada?

Any insolvent person in financial difficulty can declare bankruptcy in Canada any time through a bankruptcy assignment after they have seen a licensed insolvency trustee and made suitable arrangements for the Trustee to administer handle the bankruptcy administration.  The bankruptcy trustee prepares the necessary documents for the debtor to sign for filing for bankruptcy. 

The licensed trustee then files certain legal documents with the OSB.  The OSB then issues its Certificate to evidence the bankruptcy of the person or company.  The date and time indicated on the Certificate are when a voluntary bankruptcy starts.

If you are not able to get a LIT to accept your data, or if you cannot afford to work with a LIT in order to declare bankruptcy in Canada, the OSB’s Bankruptcy Assistance Program might have the ability to help.  This is provided that you are not and have actually not just recently been, involved in commercial activities or you are not in jail.

What happens when you declare bankruptcy in Canada?

There are three different avenues that can have someone declare bankruptcy in Canada:

  1. Voluntary assignment – A financially troubled insolvent person or company can make a voluntary assignment in bankruptcy.  This is where they voluntarily make a general assignment in bankruptcy for the general benefit of all of their creditors.
  2. Bankruptcy application – A creditor who is owed at least $1,000 on an unsecured basis submits an application to the court for obtaining a bankruptcy order against the debtor and the debtor’s property.
  3. Deemed bankruptcy – When a debtor who has made the choice to start an insolvency process under the BIA to gain debt relief through trying to restructure their unsecured debt, has fallen short to satisfy the requirements for:
    1. submitting a Division I proposal;
    2. gaining the necessary votes in favour of the proposal from the unsecured creditors; or
    3. obtaining court approval for the proposal.

Under a deemed bankruptcy, the moment the debtor fails in one of these ways, the BIA says that the debtor is deemed to have made an assignment in bankruptcy.

The bankrupt is able to earn a living after filing for bankruptcy. For this objective, the bankrupt can work or run a company, after the bankruptcy event.  However, an undischarged bankrupt cannot be a director of a company.  Also, upon the onset of the bankruptcy, the debtor must turn over to the licensed insolvency trustee, any shares of companies owned by the bankrupt.

The Trustee will send a notice to your creditors informing them of the bankruptcy.  If there needs to be a meeting of creditors, the Trustee will hold it.  The Trustee will also provide the bankrupt person with two credit counselling/financial counselling sessions with an individual who is an OSB qualified credit counsellor from the Trustee’s office, as part of the overall bankruptcy administration.

As you can see, not every way of declaring bankruptcy in Canada is totally voluntary.

declaring bankruptcy in canada
declaring bankruptcy in canada

Declaring bankruptcy in Canada:  What assets do you lose in bankruptcy?

One of the most important tasks a Trustee has in the entire personal bankruptcy process or corporate bankruptcy process after the debtor chose  declaring bankruptcy in Canada is to:

  • take an inventory of the debtor’s assets;
  • make sure they are physically secure and insured;
  • formulate a plan to sell the assets for the most amount possible under the circumstances;
  • review the financial affairs of the bankrupt, including the household income and financial situation of the bankrupt in a personal bankruptcy filing, and prepare a report to the creditors; and
  • then pay a dividend to the creditors.

There are however certain exemptions allowed for people.  Few are based on federal law.  Most are based on provincial law.  So exempt assets may differ from province to province.  In Ontario, assets that are exempt, and therefore not subject to seizure by a Trustee, are:

  • The equity in your home of no greater than $10,000.
  • A vehicle with an equity value of no more than $6,000.
  • Garments and medical/dental aids.
  • Household furnishings up to a worth of $13,100.
  • Tools of the trade with a value of no greater than $11,300.
  • Pension plans, RRIF, RRSP (other than any kind of RRSP payments made within 12 months of the date of bankruptcy).
  • Farmers– no greater than $29,100 for animals and also tools & equipment.

Even though someone has decided that filing bankruptcy is the route they must go, there are certain assets they will not have to give up.

Declaring bankruptcy in Canada:  Does Bankruptcy clear tax debt in Canada?

The short answer is yes.  Income taxes payable calculated on your tax return but not paid is a type of debt that is released when a person gets their bankruptcy discharge. However, you should know that there is a wrinkle for anyone who owes $200,000 or more in income tax debt and if that debt to Canada Revenue Agency (CRA) equals 75% or more of the total unsecured proven claims in the bankruptcy.  If that is the case, then that affects the bankrupt’s ability to get a discharge after declaring bankruptcy in Canada.

If it is the person’s first time filing bankruptcy and they do not have to make surplus income payments, then they are still entitled to a discharge after 9 months from the date of bankruptcy.  If it is their first time but they do have surplus income payments, then they cannot apply for a discharge until after 21 months.

If this is the person’s second time filing bankruptcy, if they do not have any surplus income payments, then rather than being able to apply for a discharge after 9 months, they must wait 24 months.  If they do have surplus income payments, then it is extended to 36 months.

If someone has been bankrupt more than one time before and has at least $200,000 of income tax debt representing 75% or more of the total proven unsecured claims, then regardless of their surplus income payment situation, they must wait 36 months.

Such a bankrupt is called a high tax debtor.  A high tax debtor is not entitled to have the Trustee issue an automatic bankruptcy discharge when the time has expired.  Rather, there must be a court hearing for the bankrupt’s application for discharge. 

CRA will oppose an absolute discharge at least on the basis of the fact that they are a high tax debtor.  The Trustee does not have to oppose the discharge on this basis.  However, if the bankrupt has failed to live up to any of their duties, including making the required surplus income payment, the Trustee will oppose.

The court will make a conditional order of discharge.  At least one of the conditions will be to pay a certain amount to the Trustee for the benefit of the unsecured creditors.  The amount depends on the unique circumstances of that bankrupt, but you can assume that the amount will be about 25% of the income tax owing.

So anyone how has income tax debt and is contemplating declaring bankruptcy in Canada, needs to look at their total liabilities carefully.  If at all possible, you do not want to be a high tax debtor when declaring bankruptcy in Canada.

Declaring bankruptcy in Canada:  What debt does bankruptcy not cover?

Some people think that in a personal bankruptcy filing, the bankruptcy filing itself is what eliminates the person’s debts.  That is wrong.  At the moment of declaring bankruptcy in Canada, nothing actually happens to your debts.  It is the person’s discharge from bankruptcy that “discharges” the person from their debts.

Yet, there is still a category of debts that are not covered and not discharged when a personal bankruptcy discharge occurs.  The debts that are not covered or discharged, are outlined in section 178(1) of the BIA.  These such debts are:

  • any type of penalty, fine, restitution order or other order comparable in nature to a penalty, fine or restitution order, enforced by a court in regard of an offence, or any kind of debt developing out of a recognizance or bond;
  • any damages award by a court in civil process for:

    ( i) physical injury intentionally caused, or sexual assault, or

    ( ii) wrongful death resulting therefrom;
  • any type of financial debt or responsibility for spousal support or alimentary pension;
  • any kind of financial obligation or liability developing under a judgment establishing an association or about support or maintenance, or under an agreement for maintenance and support of a spouse, former spouse, previous common-law companion or child not living with the bankrupt;
  • any type of financial obligation or liability occurring out of fraudulence, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others;
  • any financial debt or liability resulting from getting property or services by false pretenses or fraudulent misrepresentation, apart from a debt or responsibility that arises from an equity claim;
  • liability for the dividend that a creditor would have been qualified to receive on any kind of provable claim not disclosed to the trustee unless the creditor had notification or understanding of the bankruptcy and fell short to take reasonable activity to confirm the claim; or
  • student loans if the bankruptcy filing happened before the person stopped being a full or part-time student or within seven years after the day on which the bankrupt stopped to be a complete- or part-time student

Declaring bankruptcy in Canada summary

I hope you enjoyed this declaring bankruptcy in Canada 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 this 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.

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

PAYING DOWN DEBT: MY 7 ESSENTIAL YET EASY HACKS TO BE DEBT FREE

The Ira Smith Trustee Team hopes that you and your family had a restful holiday season and that you are all safe, healthy and secure.

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 paying down debt Brandon’s Blog, please scroll to the bottom of the page and click play on the podcast

Paying down debt No. 1 financial goal of Canadians for 2021: Poll

A new survey states paying down debt is the #1 economic objective of Canadians to focus on heading right into the brand-new year.  Many claimed that they handled more financial and high-interest debt this year to cover day-to-day expenditures and also offset a loss of revenue.

The annual CIBC poll says having a debt repayment plan has actually continued to be the top financial priority for the past 11 years. Unfortunately, what this says is that even without a COVID-19 pandemic, Canadians have been largely unable to do so.  Everyone can be excused for 2020.  Canadians have been grappling this past year with the financial and health challenges because of the coronavirus.

The purpose of this paying down debt Brandon Blog is to discuss the survey results and provide some tips on how to tackle debt that needs to be paid down.  I truly believe that it is not your fault that you have not been able to be successfully paying down debt.  You have only been shown the old ways that do not work anymore.  Below I describe my 7 easy hacks for paying down debt.  It is a new way of getting into the habit.  It is a process that you can set up, track and see how you progress.

The survey found the 2nd monetary top priority of Canadians for 2021 after paying down debt is merely keeping up with bills as well as getting by. The survey showed that on average, Canadians expect a positive economic outlook for 2021.  The poll results indicate that 24% of Canadians believe their financial position will certainly get better in 2021.  This is down from 32% in 2019.

The poll also found the top economic issues facing Canadians in 2021 consist of the rising cost of living, the increased prices of goods and a sluggish economy.

Carissa Lucreziano, vice-president of CIBC Financial and Investment Advice, claims it is reasonable that Canadians are worried given the economic climate of 2020.  She states the best buffer is to be prepared with a plan to satisfy your financial objectives, which includes a realistic estimate for paying down debt, that can be readjusted when situations alter.

How Debt Affects Your Credit Scores

The first thing you should know is that debts have a ripple effect across your whole financial life, including your credit history.

Revolving financial obligations includes a line of credit or credit card debt where you can churn, or rotate, a balance from month to month. You can obtain as much credit as you like up to an established credit limit.  Interest is charged on any outstanding balance that is not fully repaid by the due date. Your regular monthly payment can differ on revolving debt based on your outstanding fluctuating balance.

Fixed financial debt includes mortgages, auto loans, personal loans and student loans. Most of the time, the amount of money you borrow, rates of interest, the monthly due date and the size of your monthly payment are fixed and known at the start.

With both revolving and fixed financial debts, you must pay promptly. When you miss a payment, your loan provider will report it to one of the two Canadian credit bureaus:  Equifax and TransUnion.  The credit bureau reporting of late payments can remain on your credit records for 7 years. When you miss a scheduled payment, you not only still owe that amount, but you will also have to pay late or default fees.  Now the debt costs you even more!

Besides your payment history, there are other ways each type of financial obligation influences your credit score. With fixed installment debt, having a high outstanding amount does not have a huge effect on your credit score.

Rotating debt is a different story.  If you are using a high percentage of your available credit from month to month, it will likely have an adverse result on your credit report and credit score.  This is particularly true if you are doing it with numerous credit cards. 

Your credit score will be negatively influenced because by using a large percentage of your available revolving credit, your credit utilization score is high.  Credit utilization has considerable influence in calculating your credit score. So to keep your revolving debt outstanding as low as possible compared to your authorized credit, ideally, you ought to be paying down debt fully every month.

Why Credit Card Debt Is So Dangerous:  My paying down debt calculator

When it comes to financial obligations, credit card debt is usually the most wicked.

Credit card companies can tempt you in with a low initial annual percentage rate (APR) and flashy credit limit. However, that introductory APR deal will ultimately end. When it does, you can find yourself looking at a frustrating heap of financial debt if you really did not handle your new charge card account properly. The reason revolving financial debt can be so frustrating is due to the fact that credit card interest rates are usually very high.

So, if you’re just making the minimum payment each month, it will certainly take you a long time to paying down debt.  It could potentially take decades due to the interest accumulation.

Let’s say you put $15,000 on a credit card with a 19.9% APR, and then cut it up.  You never get a replacement card and never spend another penny on that account.  It is normal for a Canadian credit card to have a minimum monthly payment of 3% of the outstanding balance.

If all you do is make the minimum monthly payment, assuming you maintain the original minimum monthly payment as your balance declines, it will take you 25 years to pay off the full amount.  You will also be paying more than double the amount you charged on the card.  Here is the math:

Credit card balance$15,000.00
Credit card APR19.9%
Minimum payment3%
Monthly payment$450.00
Balance payoff300 months
Total payments$33,156.26

As you can see, paying down credit card debt this way is very expensive and I have not yet met a person who is comfortable paying down debt over 25 years, other than for perhaps the mortgage on their home.

How Personal Loans Impact Credit Scores

Personal loans also influence your credit score. Whether the loan account one-day damages or improves your score depends on 2 primary aspects:  (i) exactly how you take care of the account and what else your credit history shows.

Too many applications could injure your score. That is because when you make an application for credit, an inquiry is logged onto your credit report. Too many such inquiries can damage your rating.  The reason is that with more than one application close together in time, the formula assumes that you need the money and at least the inquiries before the last one turned you down.

Your credit might increase as your personal loan ages and there are no negative notations about missed payments. Initially, a new account could lessen your credit score. As your personal loan gets older and remains current, it shows you are using that debt responsibly.  That can help your numbers.

A fixed personal loan might reduce your credit usage. Individual loans are fixed installment financings, which do not affect your revolving application ratio in any way. You can have a high balance on a fixed personal loan. If you pay off credit cards with a fixed installment personal loan, then your revolving utilization ratio must reduce.  Over time, as long as you don’t get the credit card balances back up there and have the new personal loan outstanding, this can improve your credit score.

Your credit blend could also be enhanced with a personal loan. The credit scoring formula rewards you for having a diverse combination of accounts on your credit report. If you do not have any installment borrowing on your report, getting a fixed installment personal loan may improve your credit score.  You just have to make sure that you are making your monthly payments on time for paying down debt.  If not, it will damage and not help your score.

paying down debt
paying down debt

7 hacks for paying down debt quickly

Hack 1 – This is my first step to ending up being totally debt-free. This is important prior to anything else. You need to get some quiet time and start to make you’re coming to be debt-free goals real. It is a process that anyone can learn.  Making those goals real does not suggest merely thinking them out for 5 seconds. What will you do daily when you are debt-free? What will it feel like? How will your life be changed? How will you feel?  Write out this story on a notepad or better still a vision board. After that follow the rest of the steps below to begin to focus on your paying down debt strategy.

Hack 2 – Just how much do you intend to pay off in three months? In six months? You will make use of the steps discussed below to produce these objectives. The recommendation is that you have some shorter-term goals of just how much to save and therefore just how much debt to pay back.

These shorter-term goals need to feed into your longer-term objective. They’re easier to get to than the full objective. They also will certainly inspire you to keep going when you reach them. With your short-term objectives clear, it is time to prepare your month-to-month spending plan. It is a strategy of writing down where your money comes from and where your money is going.

You need to take the time to jot down every source of revenue you have and just how much comes from each one. You likewise need to identify and also write down where the money is going – line by line. As soon as you have done that, you can figure out where you can really decide if you can do any other activities to bring in more and what spending you can cut out.  This will get you onto a savings plan, which will then give you the extra money to let you begin paying down debt.

I know I may have just lost fifty percent of you. This isn’t a budgeting blog site in itself. You have to create your budget plan on your own. I have written other blogs on the subject of budgeting which you can read here.

Hack 3 – I like fast small flares for saving cash. It will also reveal a great deal concerning the way you spend money. Start cutting back on things from your budget plan you have control over.  Things like clothing purchases, eating out at restaurants (pre-pandemic) and other entertainment.  I would hazard a guess that since the lockdowns and self-quarantining began last March, you have spent less on these types of spending than the year before.  Go track it from your credit card statements, I bet you will see that is the case.

You can test on your own how to lower that spending in half or eliminate it out completely over the next 2 months. I am not discussing going cold turkey and not spending anything. I am speaking about a short-term challenge of a couple of months and on 1 or 2 spending things at a time.

These spending challenges work on so many levels. I am sure you will love them just like me. By only taking one or two items off of your spending, you are not attempting to save every dime.

You can still spend. You are simply trying out cutting down on a couple of things each time. Besides saving a lot of cash, this is going to reveal to you what you do not really care about in the spending side of your budget. You will now easily have gotten into the habit of not spending money on those things.  You will now have savings in the form of extra money that you can use for meeting your paying down debt goals.

What is also great is that 8 weeks is right around the time it takes to construct brand-new behaviour patterns and breaks old habits. Those brand-new practices are most likely to drive you and help you feel that saving is not as difficult as you originally thought it would be. Maintaining these brand-new spending and saving behaviours is just one of the tricks for paying down debt.

How to get out of debt on a low income

Hack 4 – Next is doing a complete decluttering. Don’t worry, I assure you it’s a lot easier than it seems. You just have to get started.  Go room-to-room in your residence and itemize every little thing you do not need. Specifically, those things you have not used in a long time.  Set a rule such as have I used this, worn it or looked at it in the last 5 years?  If the answer is no, out it goes.  Do not second guess yourself.  Stick to the rule.

This could include the treadmill you might have used only in the first 3 months after you got it, the out-of-date clothes that you never wear or the furniture you never ever rest on. Anything that isn’t being made use of or making your life better, offer it for sale online.

Not only are you making a little cash to help with your paying down debt.  You are ridding yourself of something you do not need and someone who will enjoy it as much as you used to.

You may find that with some of the items, you could have squandered your money getting some of these things. But that was in the past.  We are now only looking forward.  It will also be a good memory to have the next time you think you need to buy something.  I am sure you will analyze all future buying decisions differently.

Hack 5 – This is going to be another hard decision. However, it is one that a lot of people just have to do if they are serious about paying down debt. That is taking a sober look at how you travel every day.

I like seeing or paying attention to people talking about how much financial debt they have. What always astonishes me is the number of people who have a reasonable brand-new vehicle with monthly payments they do not have the money or budget to support. Seriously, people simply do not seem to see exactly how a high regular monthly auto payment is trashing their spending plan!

Besides the payment itself, insurance, licensing and maintenance costs come with the vehicle. I am not saying you cannot have nice things or that you need to never ever get a brand-new car or truck. Perhaps a clean vehicle in good condition that just came off a 3-year lease would be extra affordable and save you cash.

Appreciate your money! We do not have a great deal of time on this earth and you have to enjoy it. However, you can’t appreciate life if you’re constantly stressed out from your debt. So have a close look at what is parked in the driveway and be honest with yourself.  Can really afford it?

By following this logic you will have extra cash each month that you can allocate to paying down debt.

Hack 6 – This tip most likely will eliminate lifestyle creep. Lifestyle creep is how your spending appears to increase every time your revenue does.  The result is you are always stuck in paycheque-to-paycheque mode and are never paying down debt.

Just how is it that we get tax refunds or a raise, we never have enough that amount saved? You work overtime but the cash just appears to vaporize into thin air. It is the problem of lifestyle creep. Our spending plan always seems to grow to eat up whatever income there is.

Fighting lifestyle creep suggests referring back and monitoring your budget on a regular basis.  Plug in that refund or additional income on an after-tax basis.  Remind yourself how much you are spending.  This will let you take that initiative to not spend even more if you now have a little extra. The very best thing to do is to designate that additional money for paying down debt and then to do it right away.

By having a place for that money, it stops being a temptation to spend it. It may not seem like it will conserve much however you would be surprised just how quickly normal smaller amounts will build up over time.

Hack 7 – My last money-saving method is going to put a freeze on your credit cards. Make the essential payments you have budgeted for by using cash.  You simply do not obtain that very same psychological and emotional sensation when you use a credit card that you obtain when you pay with cash.  When you pay with cash, you feel the purchase.  Not so much with a credit card.

I’m not saying to cut up your cards. I have a credit card I use for company spending purposes and another for personal use. It is also handy to have one for emergencies if you do not have an extra money reserve yet from your savings. Stopping the use of your bank card will still keep that alternative open yet it makes you reassess your spending on practically every product.

Simply put, these 7 money-saving hacks will give you thousands of dollars over time.  You can use that money first for paying down debt.  Once your debts are paid off, keep up those same habits to build up savings for investment and ultimately your retirement.  Each hack is simple yet effective.  You will love to see how quickly you can make progress in paying down debt.  Each one is not a major step, but combined together, they will have a profound effect on your debt payment plan.

Paying down debt:  Do you want an avalanche of snowballs?

The 7 simple hacks I describe above gets you the cash to use to pay down your debt.  Now you actually have to do it.  I am sure that you have heard of the two highly touted methods of actually paying down debt being the:  (i) debt avalanche method; and (ii) debt snowball method.  Dave Ramsey, a US financial commentator, is a strong proponent of these methods.

Here is a summary of the two methods for paying down debt.  In the debt avalanche method, you pay off your debt with the greatest rate of interest initially, 2nd greatest next and so forth.  In the debt snowball method, you pay off the single debt in total with the smallest outstanding balance first, second smallest 2nd and so forth. 

The debt avalanche approach of paying down debt approaches the matter from a financial perspective.  The snowball method is more psychological.  Both get you to reduce your debt.  Both help you reach your financial goal.

If you would like more details on both the debt avalanche and snowball payment plan methods of paying down debt, read my March 2019 blog – Debt Help Near Me:  Our Toronto Debt Repayment Calculator Strategy.

Can I book a meeting with someone who can help?

Of course, you can.  Contact the Ira Smith Team for your no-cost consultation.  We can start helping you immediately getting into a pattern of paying down debt.

I hope you enjoyed this paying down debt 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 this 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.

The Ira Smith Trustee Team hopes that you and your family had a restful holiday season and that you are all safe, healthy and secure.

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.

paying down debt
paying down debt
Categories
Brandon Blog Post

CPP PREMIUMS: A SIMPLE (BUT COMPLETE) GUIDE TO 2021 HOW INCREASED CPP PREMIUMS ARE HITTING WORKERS

cpp premiums
cpp premiums

The Ira Smith Trustee Team hopes that you and your family had a restful holiday season and that you are all safe, healthy and secure.

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 an audio version of this CPP premiums Brandon Blog, please scroll to the bottom and click on the podcast.

CPP premiums introduction

Everyone who is an employee or is self-employed must make Canada Pension Plan (CPP) payments.  The payments you make are your CPP premiums.  Employers also must contribute to the CPP.  If you are self-employed, then the CPP premiums you must pay each year are calculated as part of your annual income tax return filing.

In this blog, I discuss how the Canadian Government has already given a nasty surprise to Canadians for 2021.  The planned increase in CPP premiums on January 1 hit some workers for their 2021 CPP contributions more than others because of the coronavirus pandemic.  

The Canada Pension Plan and CPP premiums

The Canada Pension Plan (CPP) is a government-run pension plan for retired Canadians.  It provides a monthly taxed retirement pension benefit that replaces part of your income when you retire. Under the CPP, you obtain the CPP retirement pension plan payments for the rest of your life. To qualify you must:

  • be least 60 years old;
  • have actually made a contribution to the CPP;

Valid contributions can be either from work you carried out in Canada or as the outcome of getting credits from a former spouse or former common-law spouse at the end of the relationship. 

CPP premiums and annual maximum pensionable earnings bump-up

For this 2021 year, the earnings ceiling, called the yearly maximum pensionable earnings (YMPE), was supposed to be $60,200, an increase of $1,500 from the 2020 limit. However, the actual amount is higher at $61,600. The maximum annual employee and employer contribution amount is $3,166.45 (up from $2,898.00 in 2020).  The maximum annual self-employed contribution level is now $6,332.90 (up from $5,796.00 in 2020).

Provincial finance ministers quietly prodded Finance Minister Chrystia Freeland to put a pause on planned increases in premiums workers and businesses pay into the CPP.  So did various business groups.  They did not feel it was appropriate this year to have the contribution rate go up.  Notwithstanding the support of business groups and each province, it was to no avail.

The originally planned increase on January 1 belongs to a multi-year plan accepted by each province and the Canadian government four years ago.  They agreed to improve retired life benefits through the CPP by boosting contributions over time slowly.

The very first bump was in 2019.  The province finance ministers asked Finance Minister Freeland to put a pause on this year’s automatic increase.  They cited the damage done to workers and businesses as a result of the COVID-19 pandemic.  They said it isn’t a smart financial decision to take more off workers’ paycheques and also to charge businesses a lot more when so many continue to have a hard time.

cpp premiums
cpp premiums

Moratorium on CPP premiums increase requested by provinces and business groups

So many provincial finance ministers on a call with Finance Minister Freeland, and various business groups independently, asked her to put a pause on this year’s planned increase in CPP premiums and the contribution rate because of the COVID-19 pandemic. 

The pandemic’s effect on the labour market, which has some groups noting the impact will be felt by some workers more than others.  The plan requires contributions to go up alongside the upper limit on earnings that are subject to those premiums.  As I have already stated, the YMPE was supposed to be $60,200.  This would have meant tax increases of $1,500 from the 2020 limit. But the actual amount is going to be higher at $61,600.

The reason is due to the pandemic’s impact on the labour market and how the YMPE is calculated. Here are the details. The formula to calculate the earnings limit relies on rises in the average weekly earnings for the 12 months finishing June 30, contrasted to the same amount during the preceding 12-month time period. Over the time of the pandemic, average weekly earnings have increased, but not because workers are making more.

Dan Kelly, president of the Canadian Federation of Independent Business said:

“That’s going to be hundreds of dollars of new CPP premiums out of paycheques of middle-income Canadians not because they got a raise, but because the formula has not had a COVID adjustment,” Kelly says.  Nevertheless, the government will collect more money than it originally planned through CPP premiums.

Any type of modifications to contribution rates or the YMPE would require the authorization of Parliament as well as seven provinces representing a minimum of two-thirds of the nationwide population.  This is a greater bar than what is required to modify the Constitution!

The federal government response for a moratorium on the CPP premiums increase

Ottawa’s answer was not only to have them go up again but do so more than the scheduled increase. Why?  The reason is specifically the calculation in the formula that the Feds and provinces signed up for, well before anyone bothered to know how to spell Wuhan!  

Here at the details. The labour market got skewed (no, I did not make a spelling mistake) as job losses have hit the lower-income employees more since March 2020. Therefore, if you reduce the earnings at the lower end of the calculation range, you are left with higher wages, on average, when you do the calculation.

The Canadian government claims that is why the general increase is larger than originally scheduled. Dan Kelly calculates that anybody around the maximum limit will see a 9.3 percent rise in CPP premiums, beyond the approximately five-per-cent premium bump baked into the legislation.

A spokeswoman for Ms. Freeland stated stopping the increases agreed to in 2016 would imply reducing future retirement benefits for Canada’s current workers. The spokeswoman went on to say that the government’s leading concern is supporting Canadians, businesses and business owners who are experiencing economic difficulties as the nation weathers the COVID-19 pandemic. With a 2nd wave underway, lots of people across Canada continue to deal with tremendous unpredictability. 

I am not sure what current unpredictability from COVID-19 has to do with freezing CPP premiums for each person and business from an increase for 1 or 2 years has to do with the issue, especially since the effect of freezing the increases will not be affected for decades to come, if at all.  Nevertheless, that is what was said.

CPP premiums summary

I hope you enjoyed this CPP premiums 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 just for you.  It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of this 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.

The Ira Smith Trustee Team hopes that you and your family had a restful holiday season and that you are all safe, healthy and secure.

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!