Tag: alternative to bankruptcy

BANKRUPTCY AND CRA DEBT STRATEGIES: A COMPREHENSIVE GUIDE ON NAVIGATING DEBT MANAGEMENT AND TAX RELIEF

Post author By Brandon Smith
Post date May 6, 2024

bankruptcy and cra debt

Bankruptcy and CRA Debt Introduction

Finance Minister and Deputy Prime Minister Chrystia Freeland introduced the 2024 Federal Budget on April 16. During her presentation in Parliament, she advised that Budget 2024 will include that any capital gain will be taxed from the current 50% to two-thirds. April 30 was the last day for most Canadians to file their 2022 personal income tax return.

At the end of April, Ms. Freeland announced that Budget 2024 would not include the capital gains tax change. Rather, she will ask Parliament to approve a stand-alone Bill which will include the capital gains tax change, no doubt combined with other initiatives such as more Federal money for access to housing, in a crass move to try to score voter points when the Conservatives vote against the Bill because of the tax increase. So income tax owed to the Canada Revenue Agency (“CRA”) is on everyone’s mind.

Canadian entrepreneurs are up in arms over the Budget 2024 capital gains taxation change. People are concerned over the level of taxation disclosed in their personal income tax returns. Some Canadians do not have the money to pay their calculated income tax payable.

This Brandon’s Blog discusses the complex world of Canadian bankruptcy and CRA debt, along with other potential options, to achieve financial stability. I aim to equip people with the necessary knowledge and strategies to make informed choices.

Definition of Bankruptcy and CRA Debt

Bankruptcy is a legal condition where consumers or companies admit they are unable to pay their outstanding debts. The bankruptcy process is a supervision and administration process overseen by a licensed insolvency trustee and the court. Under the bankruptcy legislation, people and businesses can either: (i) restructure to eliminate their debt by only paying a percentage of the amount owing; or (ii) liquidate most of their assets for the proceeds to be paid to the creditors in priority as outlined in the legislation.

CRA debt is one kind of debt that individuals or companies may owe for unpaid taxes, penalties and interest. Understanding the workings of bankruptcy and CRA debt will help people owing taxes they cannot repay make informed decisions on how to deal with their debts to get back to a financially healthy and stress-free life.

bankruptcy and cra debt

Bankruptcy and CRA Debt: Importance of Debt Management and Tax Relief

Effective debt management and tax relief are crucial aspects of financial stability for individuals facing Canadian bankruptcy and CRA debt. By implementing sound strategies for managing debt and seeking relief from tax obligations, individuals can regain control of their finances and work towards a brighter financial future.

Debt management techniques such as budgeting, debt consolidation, and credit counselling can help individuals navigate the complexities of bankruptcy and CRA debt. Additionally, exploring tax relief solutions such as deductions, payment plans, and professional assistance can alleviate the burden of tax liabilities. Prioritizing debt management and tax relief is key to overcoming financial challenges and achieving long-term financial well-being.

Bankruptcy and *CRA Debt**: Understanding Bankruptcy in Canada*

What is bankruptcy?

Having a solid grasp of how bankruptcy can affect a person is vital for those experiencing financial difficulties. Things such as the different types of bankruptcy, the procedure for initiating bankruptcy proceedings, and the real-life impact it has on a person’s daily life are crucial for anyone considering personal bankruptcy to understand. By examining the intricacies of bankruptcy, I hope you will gain valuable insights into how to effectively navigate this intricate legal process.

Whether contemplating personal or corporate bankruptcy, understanding critical aspects such as which assets can be liquidated by a Trustee, how your debt gets discharged, and creditor negotiations is essential. With the appropriate knowledge and assistance, people can make well-informed choices to manage their debts to head towards a new financial beginning.

*Bankruptcy law**s in Canada*

Bankruptcy laws in Canada are a set of legislation and regulations that govern obtaining bankruptcy protection and the subsequent handling of a person or business’ financial affairs. These laws are designed to provide individuals and companies with a second chance to manage their debts and start afresh.

In Canada, the main governing legislation for bankruptcy is the Bankruptcy and Insolvency Act (BIA), which outlines the procedures and requirements for obtaining relief to restructure debts under either a consumer proposal or a Division I proposal.

If restructuring is not a possibility, the BIA also covers the procedures for what is always the last choice, a liquidating bankruptcy. The BIA also covers the rights and responsibilities of debtors, creditors and insolvency trustees. Additionally, each province has its legislation that may impact the result of bankruptcy under federal laws.

In the case of larger and more intricate corporations, the Companies’ Creditors Arrangement Act (CCAA) presents an additional federal statute to be considered. This legislative provision enables such substantial entities to effectively reorganize their operations and financial matters, thereby ensuring their sustained business activities and provision of employment opportunities for Canadians.

Individuals and businesses alike must gain comprehensive knowledge of these legal frameworks and diligently seek expert counsel before undertaking any bankruptcy-related determinations.

bankruptcy and cra debt

Bankruptcy and CRA Debt

Overview of the CRA

The CRA is entrusted with the pivotal responsibility of overseeing the execution of tax laws and programs on behalf of the Canadian government at the federal level. From 1867 until 1999, the Department of National Revenue, commonly referred to as Revenue Canada bore the responsibility of overseeing tax services and programs. However, in 1999, a comprehensive reorganization took place, resulting in the establishment of the Canada Customs and Revenue Agency (CCRA).

Subsequently, in 2003, the CCRA underwent further transformation, giving rise to the inception of the Canada Border Services Agency (CBSA), thereby altering the agency’s core focus and subsequently prompting its name change to CRA.

The CRA’s mandate revolves around the proficient and equitable collection of taxes, diligent administration of benefits, and rigorous enforcement of tax laws. Additionally, they extend their services to taxpayers by disseminating pertinent information and offering assistance to ensure that Canadians have accurate comprehension and adherence to tax obligations.

Upholding the utmost integrity of Canada’s tax system while fostering voluntary compliance through educational outreach and enforcement measures remains at the forefront of the agency’s priorities. Backed by a devoted team of professionals and leveraging cutting-edge technology, the CRA is steadfastly committed to delivering superlative and exemplary services to the Canadian populace.

Types of debt owed to the CRA

Unpaid taxes result in individuals or businesses facing substantial CRA debt financial obligations. It is important to understand the ramifications associated with such indebtedness, given that it can give rise to severe repercussions including wage garnishment, bank account freezing, or legal repercussions. To mitigate the weight of this debt and avert penalties, it is always highly recommended to stay current in your obligations to CRA.

The Canada Revenue Agency (CRA) collects a range of debts from both individuals and businesses. Among these debts, the most prevalent is income tax owed, which represents the unpaid tax on an individual’s or business’s income. Another significant debt includes the Harmonized Sales Tax (HST) or, in provinces without sales tax, the Goods and Services Tax (GST) owed. These taxes apply to most goods and services supplied within Canada. CRA may also assess the individual Directors for GST/HST and employee source deductions not remitted by the corporation.

Furthermore, individuals and businesses may also encounter debts such as payroll remittance, excise tax, and penalties or interest charges resulting from late or erroneous filings. To ensure compliance and avoid further penalties or potential legal consequences, individuals and businesses must promptly and accurately address these debts on time.

Consequences of CRA debt

Noncompliance with the CRA and the resulting indebtedness can lead to serious problems for both individuals and businesses. Failing to pay your tax obligations to the CRA results in penalties, interest charges, and legal repercussions. These ramifications extend beyond mere financial burdens, encompassing wage garnishments, bank account seizures, seizure of amounts owing to the taxpayer from third parties, and property liens.

The CRA can freeze your assets and conduct audits to recover outstanding debts. The detrimental consequences of indebtedness to the CRA can have far-reaching implications, impairing credit ratings and impeding access to loans or mortgages. It is of utmost importance for individuals and businesses to expeditiously address and resolve any outstanding debt owed to the CRA to avert these severe consequences. Retaining a tax professional to assist in dealing with CRA is always advisable.

Bankruptcy and CRA Debt: Exploring CRA Debt Solutions in Canada

Informal Debt Settlements

When you seek an informal debt settlement option with CRA, absent formal insolvency proceedings, you will be disappointed. Without an insolvency proceeding, the CRA representative has no authority to accept anything other than 100 cents on the dollar – payment in full of the assessed tax, penalty and interest.

You can apply for a fairness hearing to see if you can get all or a portion of the penalty and interest eliminated, but the CRA person you speak to can only talk about the full amount that shows up on their computer screen.

*Debt Re**payment Plan*s

CRA will enter into a debt repayment plan, but depending on your situation, again, you may be disappointed. Normally, CRA will only agree to have you pay the full tax debt balance, plus penalty and interest, in 12 monthly instalments over the 1 year. That means that you need to repay the full amount in one year.

If you default on even one payment, then the whole deal is off and CRA will pursue you for the full amount to be immediately repaid. For some, this may be just the breathing room they need and they will be able to repay the full amount of the CRA debt over 12 equal monthly payments. But what if you cannot afford to do that?

Bankruptcy as a Debt Relief Option

Bankruptcy presents a potential solution for individuals or businesses grappling with substantial financial difficulties, especially those brought on by owing a substantial amount to CRA. By discharging most unsecured debts and providing a shield against creditors, it offers a pathway to financial renewal.

Nonetheless, it is crucial to approach bankruptcy as a final option due to its enduring impacts on credit rating, employment in areas that require bonding, and today to a much lesser extent, personal standing. Before making a decision, it is advisable to seek guidance from a qualified licensed insolvency trustee to gain a comprehensive understanding of the ramifications and to evaluate alternative strategies such as debt consolidation, a consumer proposal or corporate financial restructuring.

bankruptcy and cra debt

Bankruptcy and CRA Debt: The Bankruptcy Process in Canada

The bankruptcy process involves a diverse array of stakeholders, each playing a crucial role. Among the key participants are:

The insolvent individual or company, referred to as the debtor, has undergone financial failure and is now also known as the bankrupt.
The licensed insolvency trustee, formerly known as a trustee in bankruptcy, is responsible for managing the bankruptcy proceedings.
The creditors are owed financial obligations by the debtor.
The Office of the Superintendent of Bankruptcy (OSB), holds the mandate to regulate and oversee all administrations governed by the BIA within Canada.

Preparing for Bankruptcy

To prepare for bankruptcy, the debtor, being either the individual or the Director of the company, must make full disclosure to the licensed insolvency trustee about all assets and liabilities and all other information requested by the Trustee. This allows the Trustee to provide the debtor with advice on the realistic available options for the debtor to overcome their debt challenges and hopefully find a solution other than bankruptcy.

The Trustee will want to ensure that the debtor has filed all overdue income tax returns. That way, the debtor, the Trustee and CRA will have a good estimate of all the tax the person owes, subject to review and assessment by CRA of course. At least there will not be any outstanding filings as this can slow down an insolvency process. CRA will want a pause in the insolvency proceedings until they are certain they understand the full amount owed.

If it is decided that an insolvency process is required, such as bankruptcy, then the information also allows the Trustee to prepare all the necessary filing documents.

Filing for Bankruptcy

Filing for bankruptcy is a legal process that allows individuals or businesses to seek relief from overwhelming financial obligations, including CRA debt. It involves filing an assignment in bankruptcy document which is prepared by the Trustee, and reviewed and signed by the debtor. The bankruptcy filing discloses all assets, liabilities, and income and expenses.

Personal bankruptcy can be a complex and emotional decision, but it can provide both a shield against CRA debt collection activities and seizures and simultaneously a fresh start for those individuals struggling with overwhelming debt.

It is crucial to seek the guidance of a licensed insolvency trustee to get the advice necessary to ensure a smooth and successful filing. Bankruptcy is not a decision to be taken lightly, but it can offer a solution to individuals and companies facing insurmountable financial challenges.

Duties and Responsibilities during Bankruptcy

The focus of the BIA in personal bankruptcy is for the honest but unfortunate debtor to a society free of his or her debts. The premise is that the bankrupt, or the officer of the bankrupt corporation, will fulfill their duties with integrity and honesty. The duties are outlined in the OSB’s Directive No. 26. If you are interested, you can read them HERE.

But what if they don’t? What if the individual bankrupt does not fulfill all of their duties and essentially absences themself from the process once they have filed their assignment in bankruptcy? In that case, the Trustee must oppose the bankrupt’s application for discharge and bring the matter to court. With CRA debt, there are times when CRA will automatically oppose a person’s discharge from bankruptcy.

Bankruptcy and CRA Debt Discharge Considerations

Corporations do not receive a bankruptcy discharge; individuals do. When it comes to CRA debt, there are times when CRA automatically opposes a person’s discharge or when a Trustee must.

If an individual filing for bankruptcy has personal income tax debt exceeding $200,000 and if the personal income tax debt accounts for 75% or more of the total unsecured proven claims, they are not eligible for automatic discharge under section 172.1 of the BIA. GST/HST payable is not factored into the determination for high-tax debtors, but taxes on additional income resulting from shareholder loans, draws, or dividends are included in their assessment.

For high-tax debtors seeking discharge, the licensed insolvency trustee will present the bankrupt’s discharge application to the court for a hearing, which the individual must attend. The court’s considerations and the type of discharge order granted for high-tax debtors differ from those in cases of bankruptcy filed by non-high-tax debtors. To avoid this scenario, a high-tax debtor should consider filing an alternative to bankruptcy, such as a restructuring proposal.

Dealing with Bankruptcy and CRA Debt

Outstanding Tax Returns

Unremitted Canadian tax filings mean tax returns that are either outstanding or incomplete within the specified filing deadlines for Canadian taxpayers. Such delinquent filings will incur penalties and interest charges, requiring individuals and companies to prioritize their tax responsibilities with utmost care. It becomes the duty of each taxpayer to ensure the prompt and accurate submission of their tax returns, to avoid negative repercussions.

Tax accountants and lawyers help their clients in fulfilling their tax obligations. Timely resolution of outstanding Canadian tax returns is essential to sustain compliance and avert any future complexities.

As stated above, any person or company contemplating either trying to reach an accommodation from CRA or invoking an insolvency process to deal with their CRA debt must bring all their filings up to date.

Bankruptcy and *CRA Debt**: Discharge in Bankruptcy*

I discussed the issues for an individual high-tax debtor trying to get their discharge from bankruptcy. The Trustee must bring the application to court. At the discharge hearing, subject to any other problematic issues with the debtor’s conduct before or during the bankruptcy administration, CRA will send a lawyer from the Department of Justice to the discharge hearing to request a condition be placed on the bankrupt before they can obtain their discharge.

The condition that the CRA will request is that the debtor pay 25% of the total proven CRA debt to obtain their bankruptcy discharge. Even if the person is not a high-tax debtor, there may be other reasons why CRA will oppose the person’s discharge from bankruptcy. If the CRA file is replete with instances of failed promises, ignoring the CRA representative requests over some time and general “trouble-making” by the taxpayer, the CRA will oppose the discharge.

These are all considerations that a person must discuss with the licensed insolvency trustee up front to end up using a process that is most advantageous to the taxpayer in eliminating their CRA debt.

Rebuilding Your Finances After a Canadian Bankruptcy Discharge

Reestablishing your financial standing following a Canadian bankruptcy discharge may seem like a challenging endeavour. However, with strategic planning and commitment, it is feasible to recover from financial setbacks. The initial step involves developing a budget and adhering to it meticulously, guaranteeing that essential expenses are met while unnecessary spending is curtailed.

Next, it is important to start rebuilding credit in a few different ways:

Obtain a secured credit card. Not the drug store variety, but the kind where you put down a cash security deposit and then you are given a credit card limit equal to your cash deposit. When you make your credit card payments, it gets reported to the credit bureaus. If you make your payments when due, over time, this will increase your credit score.
Take out a small 1 year RRSP loan and pay it off on time. This will also improve your credit score on your credit report.
The two Canadian credit bureaus, Equifax and TransUnion, are now beginning to track residential rent payments. If you are a renter and you make your rent payments on time, this too will increase your credit score.

It is also recommended to seek guidance from a financial advisor or credit counsellor to develop a solid financial plan. With patience and discipline, it is possible to rebuild your finances and secure a brighter financial future.

bankruptcy and cra debt

Bankruptcy and CRA Debt FAQs

Here are the most frequently asked questions and the answers regarding bankruptcy and CRA debt:

Is it possible to file for bankruptcy solely for CRA debt?

When initiating bankruptcy proceedings, it is imperative to include all debts owed. Notably, CRA debt related to income taxes and Director liabilities is treated comparably to other unsecured debts within the scope of bankruptcy proceedings.

What happens to my CRA debt in bankruptcy?

In bankruptcy, CRA debt is included as part of your unsecured debts (the exception being a proprietorship or partnership debt for unremitted HST or employee source deductions). Keep in mind that the CRA may oppose your discharge and the court may make a condition of you paying a portion of the CRA debt to obtain your discharge from bankruptcy.

How does bankruptcy affect my tax refunds?

Tax refunds may be affected in bankruptcy. It’s important to consult with a professional to understand the specific impact on your tax refunds.

Can I include tax debt in a consumer proposal?

Yes, tax debt can be included in a consumer proposal. A consumer proposal offers a structured repayment plan to creditors, including the CRA. It can be a more favourable option than bankruptcy for negotiating repayment terms with the CRA.

What if my tax debt exceeds $200,000 and makes up over 75% of my unsecured debt?

Individuals with personal tax debt exceeding $200,000, constituting over 75% of their total unsecured debts, may not qualify for automatic discharge in bankruptcy proceedings. In such instances, a bankruptcy court hearing will be convened, and potential conditions for discharge may be mandated, such as contributing a specified amount to the bankruptcy estate.

Bankruptcy and CRA Debt Conclusion

I hope you have enjoyed this bankruptcy and CRA debt Brandon’s Blog. Hopefully, you have better insight now into the ways of dealing with CRA debt and what some viable options are.

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

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

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

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

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

An image of a woman holding her head in her hands with an image of a building with a Canadian flag behind her to represent a woman worrying about her bankruptcy and CRA debt. — *bankruptcy and cra debt*

Brandon Blog Post

BANKRUPTCY OR CONSUMER PROPOSAL?: A LAWYER AND ACCOUNTANT’S COMPREHENSIVE GUIDE TO MASTERING INSOLVENCY LAW

Post author By Brandon Smith
Post date April 15, 2024

bankruptcy or consumer proposal

Bankruptcy or Consumer Proposal: Introduction

When your client has an amount of debt they cannot repay, they often consider measures such as bankruptcy or consumer proposal. To choose the most appropriate option for their unique situation, it’s important to have a good understanding of the details of each option. Let’s compare and contrast these options to help you help your client make the right choice that best fits their situation.

Bankruptcy or Consumer Proposal: Importance of understanding the differences between the two options

When faced with financial challenges, understanding the difference between a consumer proposal and bankruptcy can be crucial in determining the best path forward for your financial well-being. Let’s delve into the key disparities. Learn about the differences between a consumer proposal and bankruptcy so that you can further help your clients start to make an informed decision on the best debt relief solution for them before they see a licensed insolvency trustee.

bankruptcy or consumer proposal

Overview Explanation of Bankruptcy or Consumer Proposal

Bankruptcy: A Solution for Unmanageable Debt

If your client is experiencing economic challenges, bankruptcy might be a sensible option to deal with their debt problems. It is a legal treatment focused on offering help to people, corporations, or entities facing economic hardship.

Bankruptcy allows debtors to get rid of certain unsecured financial obligations, such as credit card balances and unsecured lines of credit or loans. It offers debt relief and a fresh start, but undischarged bankrupts must comply with particular rules and procedures. These include potentially a meeting with creditors and for certain taking part in two credit counselling sessions.

Consulting a licensed insolvency trustee can aid in exploring options and making an informed decision when dealing with money problems, leading to a better financial future. Bankruptcy may be a sensible option, however, it’s vital to carefully consider all other restructuring options before filing bankruptcy. A licensed insolvency trustee can offer advice on the most appropriate strategy for your client’s particular scenario.

Consumer Proposal: A Negotiated Settlement

A consumer proposal is a much more flexible approach to debt repayment than bankruptcy is. In a consumer proposal, the licensed insolvency trustee acting as the Administrator, assists the debtor in their financial restructuring by negotiating with creditors to repay a portion of their debts over an extended period.

Although only a portion of the total debt is being repaid (as a rule of thumb, say 25%), once all payments are successfully made and the debtor attends the two mandatory financial counselling sessions, they receive their Certificate of Full Completion. Once that certificate is issued, their entire debt is discharged.

In a consumer proposal, unlike bankruptcy, the debtor does not hand over their non-exempt assets. Like in bankruptcy, the debts eligible for inclusion in a consumer proposal include credit card debt, unsecured personal loans, and tax debt. Proposals must be filed through a licensed insolvency trustee and are legally binding once accepted by the creditors.

Consumer Proposal Allows You to Keep More Assets

The important difference between a consumer proposal and bankruptcy is that although you need to account for the value of the equity in your assets, in a consumer proposal, you don’t lose them. This is a form of asset protection. A consumer proposal is a debt settlement financial restructuring where you negotiate with your creditors to repay a portion of your debt over some time not greater than 60 months. Upon successfully paying that portion in the promised time frame, all of your debts are erased. If you can do so without having to sell any of your assets, you get to keep them.

Bankruptcy or Consumer Proposal: How Does a Consumer Proposal Work?

Finding a way out of debt feels overwhelming. A licensed insolvency trustee can help your client understand the options available. This education empowers your client to make the right choice. A consumer proposal is a legally binding structured legal agreement between your client and their creditors. The benefit to your client is to ultimately remove the burden of their debt and let them get back to a stress-free life and a bright financial future. The main points of a consumer proposal are:

Binding Agreement with Creditors

A consumer proposal is a formal agreement that lays out how you’ll pay back a portion of your unsecured debt through a formal agreement under the Bankruptcy and Insolvency Act (Canada). Once you complete the proposal, your client will be free from all of their unsecured debts.

This agreement is a solution that works for both your client and their unsecured creditors. A licensed insolvency trustee, guides your client through the negotiation process, helping them come up with a plan to gradually pay off their unsecured debts over time. You qualify for a consumer proposal as long as your unsecured debt is $250,000 or less (not including any mortgage against your principal residence).

Administered by Licensed Insolvency Trustee

Only a licensed insolvency trustee can oversee the entire process. These professionals are the only ones with the professional accreditation to perform insolvency assignments in Canada. They are licenced, authorized and supervised by the federal government Office of the Superintendent of Bankruptcy (OSB) to handle insolvency matters. I guide your client through the process, ensuring compliance with all legal requirements. I also provide expert advice to you and your client.

Protection from Debt Collectors and Wage Garnishments

Like bankruptcy, a consumer proposal gives your client a stay of proceedings against constant harassment by debt collectors including wage garnishments. This is real legal protection against creditors. Once the proposal is filed, debt collectors must by law stop their collection calls and legal actions. This provides your client with a break from the unending pressure associated with collection efforts. This gives your client the breathing room to regain control of their income and expenses.

A consumer proposal allows for a path toward financial recovery giving your client a sense of security and relief from the stress of their debt. This empowers your clients to confront their financial challenges using a real plan of action to eliminate their unsecured debt over time.

bankruptcy or consumer proposal

Bankruptcy or Consumer Proposal: How Does Bankruptcy Work?

Bankruptcy is perceived by people to be the darkest of all dark clouds. People associate bankruptcy not only with financial difficulties and loss but also as a symbol of being a total failure in life. The reality is that bankruptcy is a legal process designed to help honest but unfortunate people relieve themselves of the crushing debt load that is suffocating them. It offers them the chance to get a fresh start.

Structured legal process to relieve debts: When drowning in debt, bankruptcy acts as a lifeline. It allows people to go through a process approved by the Canadian government to eliminate their debt and provide a path for a fresh start.
Licensed insolvency trustee controls the assets: During bankruptcy, the licensed insolvency trustee is appointed to administer the bankruptcy process. The Trustee manages and sells the non-exempt assets, investigates the financial affairs of the bankrupt, conducts the two mandatory financial counselling sessions with the undischarged bankrupt and makes sure that all necessary administrative steps are taken. This includes the undischarged bankrupt fulfilling all of their bankruptcy duties.
Discharged from debt in 9-21 months: The main outcome of bankruptcy is the bankrupt’s discharge from his or her debts. Depending on the specific circumstances as to whether or not the undischarged bankrupt is liable to make regular payments for surplus income to the Trustee, bankrupts typically expect to obtain their discharge within a period between 9 and 21 months.

Embracing bankruptcy as a tool for financial freedom, rather than a symbol of failure, helps the person get on with their life. It is a chance to redefine one’s life and learn valuable financial lessons.

By referring your client to a licensed insolvency trustee people can decide on a proposal vs bankruptcy much easier navigate the bankruptcy process and emerge better and stronger on the other side.

Bankruptcy: Different Payments, Bigger Credit Impact

On the flip side, bankruptcy payments are often based on your income and can vary accordingly. This means that your monthly bankruptcy payments may fluctuate depending on your financial situation, making it more unpredictable compared to the fixed payments of a consumer proposal.

While bankruptcy can offer you a fresh start by clearing your debts, it typically has a more significant impact on your credit score and can remain on your record for a longer period, affecting your financial status for an extended time.

Choosing the Right Path

Deciding between a consumer proposal and bankruptcy is a personal decision that should be made based on your circumstances. Seeking professional advice from a licensed insolvency trustee can assist you in navigating the complexities of each option and making an informed choice that aligns with your financial goals.

Remember, the aim is to select a debt relief solution from the various options available that best fits your needs and helps you on your journey to financial stability.

bankruptcy or consumer proposal

Bankruptcy: Different Payments, Impact on Credit

In bankruptcy, any monthly surplus income payments the undischarged bankrupt must make are calculated by a formula prescribed by the OSB based on the person’s income. The undischarged bankrupt must provide a monthly report of monthly income and expenses to the Trustee. As the monthly income varies, the surplus income monthly payments can change, either up or down.

While bankruptcy gives the person a fresh start, it has a worse impact on the person’s credit score and credit report since it remains on your record for a longer period.

Choosing the Best Path for You

Choosing between a bankruptcy or consumer proposal is a personal decision that should consider your circumstances and needs. Seeking advice from a licensed insolvency trustee helps the person choose between and navigate either option.

Remember, the aim is to select a debt relief solution that best fits your client’s needs among the various options available.

Bankruptcy or Consumer Proposal: Debts Discharged and Not Discharged

When it comes to managing debts, it is important to know which debts can be cleared through an insolvency process and which ones cannot be discharged. Here is a listing of the different types of debts and whether they can be discharged:

Debts that cannot be discharged:

Fraud or Malfeasance: It is important to know that debts from fraudulent activities or court fines from being found guilty of wrongdoing cannot be cleared through either a bankruptcy or consumer proposal. This ensures accountability for any unlawful financial actions.
Child Support and Spousal Support: Another category of debts that can’t be discharged includes obligations for child support and spousal support. The Canadian insolvency system believes from a societal perspective, these kinds of responsibilities are legally binding and must be met, no matter what other debts the person may have.

Debts that may be discharged after a certain time:

Student loan debt has specific regulations for discharge: After completing your education, there may be possibilities for discharging this debt. Student loan debt can only be discharged if you go bankrupt 7 years after the last time you were either a full-time or part-time student.
Debts that are discharged upon the discharge of the bankrupt person: Most unsecured debts.
bankruptcy or consumer proposal

Impact on Your Credit Score: Bankruptcy or Consumer Proposal

When it comes to your credit score, it’s important to understand how a bankruptcy or consumer proposal can affect it. Bankruptcy has a more negative impact on your credit score compared to a consumer proposal. A consumer proposal is generally less harmful to your credit rating.

Duration of Impact

Another key difference between the two options is how long they stay on your financial record. A consumer proposal is typically noted on your credit report for three years after completing it. A first-time bankruptcy remains on your credit history for six years after receiving your bankruptcy discharge. This difference is important to know. It does affect many choices people make among the various debt relief options.

Ultimately, the choice between a bankruptcy or consumer proposal depends on your client’s unique financial circumstances. It’s always a good idea to seek professional guidance from a licensed insolvency trustee when making this decision.

When it comes to making financial decisions, especially ones as impactful as considering bankruptcy, there are various factors to take into account. One significant aspect that often plays a role in decision-making is the social stigma associated with personal bankruptcy.

Bankruptcy is commonly viewed in a negative light in our society. People may perceive it as a sign of personal failure or irresponsibility. This stigma can make individuals hesitant to consider bankruptcy as a viable option, even when they are struggling with overwhelming debt.

However, it is essential to look beyond the social perceptions and focus on the practical aspects of the situation. Before choosing the path of bankruptcy, it is crucial to assess one’s ability to repay the debt. Understanding your financial capabilities and limitations is key to making an informed decision.

Mathematical analysis can be a helpful tool in this decision-making process. By conducting a thorough financial evaluation, including income, expenses, and debt obligations, individuals can gain a clear understanding of their financial standing. This analysis provides valuable insights into whether filing for bankruptcy is the most viable solution or if there are alternative options available.

Ultimately, the decision to pursue bankruptcy should not be solely influenced by social stigma. Instead, it should be based on a realistic assessment of one’s financial circumstances and the potential benefits and consequences of bankruptcy. By approaching the decision-making process with a rational and informed mindset, individuals can make choices that align with their financial well-being.

bankruptcy or consumer proposal

Bankruptcy or Consumer Proposal: Getting Professional Help for Making the Right Decision

Exploring debt settlement or insolvency options creates tough choices that a person would rather not make. However, hiding their head in the sand and avoiding the reality of their financial situation ultimately is not a realistic option. One thing that bothers every person we speak to is who will find out about personal bankruptcy and how it will affect how others view the person.

As stated above, bankruptcy often carries a negative reputation in our society. May see it as a sign of personal failure. This stigma makes it tough for people to choose bankruptcy as a solution for dealing with overwhelming debt.

It is important to remember that your financial well-being, that of your family and your ability to get a fresh start is what matters most. Before you make any debt settlement decision, take a step backward and honestly consider your true financial situation. Understanding what you can realistically manage on your own without legal intervention is crucial in making the right choice.

Doing the math and looking at the realistic and true side of things will guide you in making an informed decision and doing the right thing that will be best for your financial future. A consumer proposal is the best bankruptcy alternative when a formal insolvency process is required.

Bankruptcy or Consumer Proposal: Conclusion

In summary, a licensed insolvency trustee plays a crucial role in assisting individuals and businesses facing insolvency. From conducting financial assessments to facilitating legal proceedings and providing ongoing support, LITs serve as trusted advisors and advocates, in conjunction with a person’s or corporation’s lawyer and accountant, for those navigating challenging financial terrain. By understanding the role and significance of an LIT, debtors can make informed decisions and embark on the path toward financial stability and recovery.

By assisting clients in navigating insolvency matters proficiently, lawyers and accountants can empower them to take proactive steps towards a brighter financial future. This includes providing insights on debt restructuring, bankruptcy options, and other relevant strategies that can improve financial sustainability and stability. Ultimately, the goal of leveraging a foundational understanding of Canadian insolvency laws is to facilitate positive outcomes for clients, equipping them with the knowledge and resources needed to overcome financial obstacles and achieve long-term success. This also allows them to remain your client!

I hope you enjoyed this bankruptcy or consumer proposal Brandon’s Blog. Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.

The Ira Smith Team understands these overwhelming debt financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious. It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore.

The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now! We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt.

On the contrary. We helped turn their companies around through financial restructuring. We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel. Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, to begin your debt-free life, Starting Over, Starting Now.

an image of a man and woman with a maze behind them and a question mark between them to signify their difficult decision of whether to file for a liquidation bankruptcy or to try to restructure their debts with a consumer proposal. — *bankruptcy or consumer proposal*

Brandon Blog Post

UNLOCKING THE MYSTERIES OF A REVIVED CANADIAN CONSUMER PROPOSAL: A LOOK BEYOND THE ESSENTIAL 5-YEAR BARRIER

Post author By Brandon Smith
Post date October 2, 2023

Reviving a Canadian consumer proposal: Introduction

If you’re fighting with financial debts and want to stay clear of filing for bankruptcy, a consumer proposal might be a great alternative to take into consideration. A current Court decision in Ontario highlights the significance of making your Canadian consumer proposal payments on time to guarantee its success.

In this Brandon’s Blog, the situation is analyzed, as well as the factors that determine whether a Court can revive a consumer proposal more than five years after it was filed are discovered. This Brandon’s Blog provides useful information for people seeking a fresh financial start.

What a Canadian consumer proposal is all about

A Canadian consumer proposal occurs as an intricately structured contract, between an individual and their unsecured creditors, with the single function of agreeably resolving their burdensome financial debts. Once agreed to, it stands as an irrevocable pact, wielding the power to instantly save the beleaguered debtor from the unrelenting pursuit by his or her creditors, while simultaneously affording the debtor the ability to systematically repay a portion of their debts over an extended period of no more than 5 years. After making the required payments laid out within the Canadian consumer proposal, the outstanding unpaid amount is erased.

To launch a Canadian consumer proposal, one must employ the services of a duly licensed insolvency trustee, also referred to as a LIT or Trustee. The LIT meticulously scrutinizes the person’s financial world and then crafts a detailed debt settlement repayment plan for them.

The benefits of a Canadian consumer proposal

Going with a Canadian consumer proposal presents a person with the bankruptcy alternative that provides a myriad of advantages that can be likened to a world of financial peacefulness:

Immediate Shelter: Upon the submission of a Canadian consumer proposal, a debtor finds themselves wrapped up in a bulletproof shield of creditor protection. It legally protects them against the claims of their creditors. This bars creditors from starting or continuing any legal actions to recover what is owed to them. This includes collection calls and other collection actions on things like credit card debt or income tax debt.

Financial Debt Settlement: The borrower’s obligations go through a metamorphic reduction, changing them right into a workable sum that the borrower can repay over some time. As a result, just a portion of the debts are paid back. After making all the required payments, the unpaid balance is written off.

Structured Settlement Blueprint: The Canadian consumer proposal allows the debtor the opportunity to get into a binding agreement with their creditors to fix their debt problems across an extended period, not surpassing the five-year mark. This gracious break grants the borrower the latitude to pay an amount they can afford, all while finding support in the eyes of their creditors. The debtor also benefits through the two mandatory financial counselling sessions.

Unified Monthly Commitment: Instead of juggling a myriad of creditors paying them inconsistent amounts, a consumer proposal streamlines the borrower’s financial trip. Right here, the debtor need only make the agreed-upon regular payments to their appointed Trustee. The LIT manages to pay the funds out according to the ratified debt settlement plan.

Eligibility requirements for a Canadian consumer proposal

The Office of the Superintendent of Bankruptcy and the Bankruptcy and Insolvency Act (Canada) (BIA) clearly lay out the eligibility requirements for this Canadian consumer proposal legal process. People coming to grips with frustrating debt and satisfying particular financial standards could find themselves suitable prospects for starting a consumer proposal.

These prerequisites include an overall debt level ranging from $1,000 to $250,000 (not including any mortgages or lines of credit secured against the person’s principal residence), while at the same time not being able to pay their debts as they come due. An essential element for restructuring one’s financial debts within the realm of a Canadian consumer proposal is having a consistent source of income.

Additionally, individuals cannot file a second consumer proposal if they are already in one. Also, if a debtor defaults on making all the payments under a consumer proposal, they cannot file another one (more on this soon). It is necessary to understand that each person’s circumstances are unique. So consulting with a Trustee is of the utmost significance in determining one’s eligibility as well as figuring out the personalized plan for debt reduction, including the amount that needs to be paid.

Types of debt covered by a Canadian consumer proposal

A Canadian consumer proposal addresses unsecured debt responsibilities. This includes credit card indebtedness, unsecured personal loans and lines of credit, payday loans, and the worry of income tax obligations. It is incumbent to recognize that secured financial encumbrances owing to secured creditors, such as home mortgages and vehicle loans, do not drop within the ambit of consumer proposals.

Nevertheless, if a debtor’s unsecured debts are significantly affecting their ability to pay off their secured debts, the consumer proposal might yet manifest as a probable option. Student loans do not typically get discharged with consumer proposals, except in cases where the borrower has stopped being a full or part-time student for no less than 7 years.

In summation, the Canadian consumer proposal emerges as a pragmatic solution for people facing monetary problems, earnestly in search of a break from the weight of their insolvency.

Annulment of a Canadian consumer proposal

The annulment of a Canadian consumer proposal is the cancellation of the commitment binding a debtor to their creditors, as laid out in section 66.3 of the BIA. This termination transpires when the borrower either falters in the discharge of their duties or due to a change in their circumstances, making them incapable of sticking to the agreed-upon payments.

The beginning of the annulment procedure can be initiated by the LIT, functioning as the consumer proposal Administrator of a Canadian consumer proposal, or, by any of the creditors. When annulled, the borrower gives up the sanctuary provided by a Canadian consumer proposal, protecting them from legal proceedings.

Debtors need to comprehensively grasp the implications of annulment and get expert advice if they encounter difficulties in meeting their commitments. The annulment of a consumer proposal has significant financial consequences and should be avoided whenever feasible.

The Canadian consumer proposal before the Ontario Court

Background

This case, Re Cumberbatch, 2023 ONSC 5287 is very instructive. It involved a hardworking individual battling financial difficulties, who made a consumer proposal to manage her debts effectively. As she struggled to meet her monthly debt obligations, she realized that a consumer proposal could provide her with much-needed relief and a structured repayment plan.

In the case heard by the Associate Justice, his pronouncement in this circumstance conveys very useful insights. This case featured a person trying to come to grips with the unrelenting stress of financial misfortune, who, in a positive step, filed a Canadian consumer proposal as a strategic method of efficiently navigating her financial obligation problems. As she faced the tough task of meeting her financial responsibilities, the realization dawned upon her that a consumer proposal might function as the cure-all, delivering the much-coveted respite that a skillfully created structure for financial debt negotiation provides.

She approached a LIT who assessed her financial situation, including her income, expenses, and outstanding debts. After careful evaluation, the Trustee determined that she was eligible for a consumer proposal and worked with her to develop a reasonable and manageable debt repayment plan.

Before diving into the Court’s reasoning, let’s first provide some background information about the case. The consumer proposal was initially filed by the debtor to deal with her outstanding debts.

However, due to a collection of unanticipated events, the debtor defaulted under her Canadian consumer proposal by not keeping up with her payments. The debtor defaulted in making payments to the Administrator under the consumer proposal.

As a result of missing 3 months of payments due the consumer proposal was deemed annulled by subsection 66.31(1) of the BIA.

Jurisdiction to revive a Canadian consumer proposal

In the realm of bankruptcy and insolvency law, consumer proposals provide individuals with an alternative to personal bankruptcy. A consumer proposal, as defined under the Bankruptcy and Insolvency Act (BIA), allows debtors to negotiate with their creditors, proposing a plan to repay a portion of their outstanding debts. However, there are instances where a consumer proposal becomes dormant or inactive, leading to questions regarding the Court’s jurisdiction to revive such proposals after the initial five-year period.

The issue of jurisdiction was significantly addressed by the Supreme Court of Canada in the landmark case of A. Marquette & Fils Inc. v. Mercure. In that case, the Supreme Court of Canada stated about the BIA (then called the Bankruptcy Act):

“has its origins in the business world. Interpretation of it must take these origins into account. It concerns relations among businessmen, and to interpret it using an overly narrow, legalistic approach is to misinterpret it.”

In making this commentary, the highest Canadian Court said the purpose of the BIA, is to provide a framework for the effective administration of insolvency matters and to facilitate the rehabilitation of debtors. The Court acknowledged that the successful completion of a consumer proposal is aligned with this purpose, as it allows debtors to repay a portion of their debts in an organized manner.

Bankruptcy courts, applying this philosophy to consumer proposals, have determined that they have the jurisdiction to revive a Canadian consumer proposal that was annulled. The thorny issue before the Court in this case was that more than 5 years had passed since this Canadian consumer proposal was filed. The Court needed to consider if it had the jurisdiction to revive a consumer proposal that on the calendar, would take more than 5 years to complete.

Factors considered by the Court in deciding whether to revive a Canadian consumer proposal

In establishing whether to exercise its jurisdiction to revive a consumer proposal, the Court developed several factors to consider:

The debtor’s persistence in attempting to finish the proposal within the five-year duration.
The reasons for the consumer proposal becoming inactive.
The prejudice or lack thereof to creditors in reviving the proposal.
Any other pertinent factors, such as the debtor’s existing financial circumstance.

The Court emphasized that the decision to revive a dormant Canadian consumer proposal needs to be led by factors to consider fairness to both debtors and creditors. The Court needed to take on a balanced and discretionary approach when exercising its jurisdiction.

Recognizing the Court’s jurisdiction to revive a Canadian consumer proposal supplies higher clarity to debtors and creditors alike, eventually contributing to a much more reliable and equitable insolvency system.

Factors considered for reviving a Canadian consumer proposal

The LIT who acted as the consumer proposal Administrator in this Canadian consumer proposal process, made the application to the Court to revive the proposal. The Court had to take into consideration whether to provide this restoration and also evaluate the effect of reviving the proposal.

In figuring out whether a revival of that consumer proposal was appropriate, the Associate Justice meticulously analyzed different variables. These aspects played a significant role in deciding upon the expediency and justness of revitalizing this consumer proposal. Some of the crucial elements the Court took into consideration included the reason for annulment, the amount already paid under the proposal, and any creditor opposition.

Reason for annulment of the Canadian consumer proposal

The Court paid attention to the reason why the consumer proposal was initially annulled. Reasons that can lead to annulment are usually non-payment by the debtor of at least 3 months’ worth of payments or non-compliance with other provisions of the proposal. If the reason for annulment results from situations beyond the debtor’s control, such as an unexpected further financial setback such as job loss or a substantial life event, the Court may be inclined to revive a Canadian consumer proposal once the debtor shows the ability to continue and complete the outstanding payments.

However, if the reason for annulment is an outcome of the debtor’s deliberate non-payment or unyielding disregard for the proposal, the Court will probably decline a revival application. In such instances, the debtor will need to offer a convincing argument backed by evidence to show why the revival is appropriate.

Amount paid under the Canadian consumer proposal

Another vital aspect is the amount paid by the debtor under the consumer proposal before it was annulled. The Court examines whether the debtor has made a considerable contribution towards their financial obligations as agreed upon in the Canadian consumer proposal. If the debtor has fulfilled their payment responsibilities before the annulment and has shown an authentic initiative to meet their remaining financial commitment under the consumer proposal, the Court is more likely to consider the revival as a practical option.

On the other hand, if the debtor has fallen short of making significant payments or has constantly defaulted on their obligations, a revival probably will not be viewed favourably by the Court. The debtor needs to offer a legitimate reason for their previous repayment shortcomings and show the ability to fulfill the balance of the payments they originally agreed to.

Creditor opposition

The Court thinks about the level of resistance from creditors about the resurgence of the consumer proposal. Creditors play an essential function in the overall decision-making process. If a considerable variety of creditors reveal solid opposition to the revival, it can heavily affect the Court’s decision.

Nonetheless, the Court likewise considers the reasons behind creditor resistance. If creditors are opposed entirely as a result of their positions or an unwillingness to engage, the Court may offer much less weight to their arguments. On the other hand, if the creditors raise valid issues concerning the debtor’s conduct, ability to fulfill their obligations or the fairness of the recommended revival strategy, the Court will thoroughly evaluate these issues.

This Canadian consumer proposal disposition: The Court’s decision in the case of Re Cumberbatch

When it comes to Re Cumberbatch, the Associate Justice made an important choice about the revival of a Canadian consumer proposal.

The Court very carefully assessed the situation surrounding the annulment of the consumer proposal and the reasons presented in support of a revival by the Administrator. It recognized that the unintentional expiry of the proposal was not an intentional act, but instead an oversight. The Court took into consideration the best interests of all stakeholders, consisting of the debtor, the creditors, and the Administrator.

Among the key variables that influenced the Court’s decision was the reality that given that the debtor validated that she would be able to pay the balance of her Canadian consumer proposal, its revival supplied the very best possibility for the debtor to pay off a portion of her debts in an organized and structured fashion. The Court recognized that the debtor had made significant initiatives to satisfy her commitment via the original proposal, and reviving it would allow her to continue on the path toward debt resolution.

Furthermore, the Court additionally took into consideration the interest of the creditors. Reviving the consumer proposal provided a structure where they would certainly receive more of a repayment than if the consumer proposal was not revived and the debtor filed for bankruptcy.

This approach by the Court prioritized fairness as well as guaranteed that the debtor’s financial situation was managed responsibly. The Court likewise followed the Supreme Court of Canada decision as well as others, to use its jurisdiction in a reasonable as well as business-like fashion in deciding that it could revive this Canadian customer proposal, even though doing so means it would take more than 5 years for the consumer proposal to be completed.

So with this set of facts, it is feasible for a Canadian consumer proposal to be revived and finished, in more than 5 years.

Canadian consumer proposal: Conclusion

In the matter of Re Cumberbatch, the Court’s deliberation regarding the approval of the Administrator’s request to reinstate the consumer proposal exemplifies the unwavering dedication of the judicial system to equity and the facilitation of avenues for debtors to remedy their fiscal obligations through the Canadian insolvency legislation. This particular case vividly underscores the paramount importance of procedural precision. Furthermore, it underscores the imperative need to ensure that unforeseeable external factors, which lie beyond the debtor’s sphere of control and yet obstruct the successful completion of a Canadian consumer proposal within the stipulated 5-year timeframe, do not constitute an impediment to the equitable resolution of debt-related affairs.

I hope you enjoyed this Canadian consumer proposal Brandon’s Blog. If you’re struggling with managing your overwhelming debt in a high-interest environment, don’t worry – there are some things you can do to take control of the situation. First, it’s important to create a realistic budget and track your expenses. From there, you can prioritize your debt repayment and make consistent payments to chip away at what you owe. It’s also a good idea to seek professional financial advice to help guide you through the process. Just remember, managing debt is a gradual process that requires commitment and determination, but you can do it! So don’t hesitate to reach out for help from financial professionals.

Individuals and business owners must take proactive measures to address financial difficulties and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

Brandon Blog Post

DEBT RELIEF OPTIONS: OUR COMPREHENSIVE GUIDE FOR IDENTIFYING RELIABLE DEBT ADVICE

Post author By Brandon Smith
Post date July 3, 2023

debt relief options

Debt relief options: Introduction

Suppose you ever find yourself overwhelmed by the weight of excessive financial responsibilities. In that case, it becomes crucial to seek trustworthy recommendations for selecting a reliable service provider who can assist you with various options to alleviate your financial debts and provide you with the most beneficial financial guidance. Amidst the vast array of available assistance choices, it might seem daunting to pinpoint genuine resources that can genuinely assist you without any hidden agendas. It holds great significance for your future well-being to be able to distinguish between deceitful scammers and genuine helpers.

Fear not, for there exists an infinite realm of dependable suppliers specializing in financial debt relief options eagerly awaiting your discovery. From the information in this Brandon’s Blog, you can boldly conquer your present economic challenges, obtain the appropriate assistance from the right individuals, and make well-informed decisions that will emancipate you from the shackles of debt -Starting Over, Starting Now!

Debt relief options: What is debt relief?

Debt relief encompasses a myriad of technical strategies and detailed processes designed to lessen or eradicate the weighty load of unresolved financial obligations for individuals and businesses. It entails the implementation of deliberate and targeted measures to alleviate the pressing strain on one’s economic well-being, engage in negotiations for the revision of loan terms, or reach mutually agreeable resolutions with creditors.

Debt relief options take on many diverse forms, including but not limited to debt consolidation, the pursuit of debt settlements, the formulation and execution of comprehensive debt management plans, and, in the most dire circumstances, the contemplation of bankruptcy as an ultimate solution.

The overarching objective that underpins the concept of all debt relief options is to furnish individuals or entities with a revitalized opportunity, empowering them to reclaim a solid footing in their fiscal affairs, reinstating stability, and propelling them toward a more tenable and enduring financial equilibrium.

debt relief options

Debt relief options: Why managing debt is crucial

In today’s modern society, more and more Canadian households are struggling with debt. The prevalence of indebtedness has emerged as an unsurprising reality in the lives of numerous individuals. From the weighty load of educational loans to the looming presence of bills linked to credit cards, the accumulation of debts can swiftly escalate and become overwhelming if not effectively handled.

The management of indebtedness is not solely a matter of personal responsibility but a skill that can yield a profound impact on one’s financial well-being and prospects for the future. By grasping the significance of debt management, individuals can make well-informed decisions concerning their finances, elude the treacherous clasp of debt cycles, and ultimately achieve lasting financial stability.

Efficiently handling indebtedness is vital in safeguarding your financial freedom. Uncontrolled debts can result in missed payments, penalties, exorbitant interest rates, and even bankruptcy. Debt management ensures that you retain control over your finances and empowers you to take charge of your own life. Seeking guidance from reliable professionals specializing in debt relief will furnish you with practical options tailored to your unique financial situation, enabling you to resolve your debt issues. Hence, skillfully managing your debts is paramount in establishing a solid financial foundation.

Given its implications on credit ratings, financial independence, and overall peace of mind, the management of indebtedness assumes critical importance. Whether you are a recent graduate burdened with educational loans, a homeowner grappling with a mortgage, or simply an individual juggling multiple credit card bills, this article on Brandon’s Blog is specifically crafted to cater to your needs.

Debt relief options: Office of the Superintendent of Bankruptcy (Canada)

On the 27th of June of this year, a notice was issued by The Office of the Superintendent of Bankruptcy (OSB), stressing the significance of understanding the perils associated with the unregulated Debt Advisory Marketplace, while simultaneously aiding consumers in identifying trustworthy sources of debt assistance.

One must bear in mind that unregulated advisors have the potential to impose exorbitant charges, varying from a few hundred dollars to several thousand dollars, for services that they are not legally permitted to offer. Furthermore, they may demand payment for redundant or repetitive services both prior to, during, and subsequent consultations.

In order to safeguard oneself from deceptive schemes, it is highly recommended to exercise prudence and seek guidance from duly authorized and regulated professionals.

debt relief options

Debt relief options: The difference between good and bad debt relief service providers

If you find yourself inundated with mounting financial obligations and in search of a way out, rest assured that you are not alone in this predicament. It is not uncommon for individuals to confront economic difficulties that can result in substantial levels of indebtedness. Nevertheless, it is crucial to bear in mind that there are avenues accessible to assist you in regaining command over your fiscal circumstances.

Debt relief service providers can play a pivotal role in facilitating your journey toward financial stability. However, it is of utmost importance to distinguish between reputable and unscrupulous providers. The ensuing discussion will delineate the characteristics that set reputable debt relief service providers apart from those who may not have your best interests at heart. By comprehending these distinctions, you will be empowered to make an astute decision and select a provider that genuinely aids you in your choice of debt relief options for accomplishing your financial objectives.

When embarking on your quest for debt relief options, it is imperative to identify trustworthy sources. Trustworthy debt relief service providers exhibit transparent fee structures and refrain from making grandiose promises to their clients. Additionally, they boast a dependable accreditation program, thereby ensuring the credibility of their services. Conversely, unscrupulous debt relief service providers make untenable pledges and levy concealed fees, exacerbating the accumulation of debt. Armed with this understanding, individuals can safeguard themselves against dubious service providers and reclaim control over their financial affairs.

I shall delve into the significance of credibility, transparency, experience, and success rates when it comes to selecting a debt relief service provider.

Debt relief options: Factors to consider when choosing a debt relief service

Certification and accreditation of the debt relief service provider

When it involves seeking support with handling as well as decreasing your financial debts, it is crucial to work with professionals that are accredited, licensed and supervised by a government body. This is where accreditation and certification play a significant function.

By choosing a financial debt relief service provider that is licensed as well as well-recognized, you can have satisfaction knowing that you are working with a respectable company that complies with licensing requirements, market criteria and best practices. Qualification and certification ensure that the service provider fulfills detailed standards as well as possesses the needed knowledge to provide you with the full range of debt relief options and financial advice and successfully help you manage your financial debt. Furthermore, they guarantee that the solution abides by relevant regulations, legislation and standards.

In today’s financial landscape, rip-offs, as well as unethical practices, exist, making it vital to shield on your own and also make informed choices. By going with a certified and accredited financial debt relief professional, you can rely on that the professionals you are collaborating with have undergone rigorous training as well as satisfy the highest possible requirements in the market.

Throughout this blog post, we will delve into the importance of certification and accreditation, the benefits they offer, and how they can assist you in making informed decisions when selecting a debt relief service provider. Whether you are considering credit counselling, debt consolidation, or debt settlement, understanding the significance of certification and accreditation will empower you to navigate the complex world of debt relief with confidence.

Join us as we explore this topic in detail and equip you with the knowledge you need to make the best choices for your financial well-being. It’s time to take control of your financial future and choose a debt relief service provider that has your best interests at heart.

Transparent fee structure

Dealing with the issue of debt can elicit an overwhelming and stressful encounter; nevertheless, collaborating with a distinguished debt alleviation firm can offer respite from the burden. However, it is crucial to exercise caution when opting for a debt alleviation firm, as not all firms are forged equally. One pivotal aspect to contemplate is the firm’s fee framework, as any esteemed debt alleviation firm must possess a transparent fee framework that is effortlessly understandable and does not obscure any covert expenses.

Transparency constitutes an essential constituent of debt alleviation services, as consumers merit a lucid comprehension of the expenses and potential outcomes linked to the rendered services. An esteemed debt alleviation firm will provide an all-encompassing breakdown of all fees associated with their services, encompassing upfront fees, monthly fees, and success fees. Moreover, they ought to provide upfront disclosure about any prospective risks or limitations associated with their services, rather than proffering unrealistic promises or guarantees.

Customer reviews and rating

One crucial factor to consider when selecting a debt relief service is customer reviews and ratings. A professional debt relief company will provide genuine reviews and ratings of their services from their satisfied clients. By looking at these reviews and ratings, you can discern whether the debt relief service has a history of delivering results and exceptional customer service. High ratings and positive reviews are typically an indication that the company has a reputable track record of helping individuals get out of debt. Therefore, it is vital to do your research and make sure you choose a company that has a proven history of delivering excellent results.

debt relief options

Debt relief options: Tips for managing your debt

Below are my best tips for finding debt solutions:

Credit counselling

Using a community-based non-profit credit counselling agency to address consumer debt difficulties can generate numerous benefits. Below are some vital advantages to take into consideration:

Professional Support: These agencies used trained and licensed credit counsellors that possess considerable expertise in personal money and debt restructuring. They can supply valuable suggestions customized to your specific situation, providing a tailored plan to conquer your financial debt challenges.

Financial Guidance and Education: These community-based credit counselling agencies regularly offer support for budgeting and deliver programs that concentrate on financial literacy. By collaborating with such an agency, you can learn how to create a budget plan, focus on expenditures, and also develop sustainable financial methods. Improving your financial literacy will enable you to make informed decisions as well as stop possible future debt problems.

Debt Management Plans: These agencies may offer Debt Management Programs (DMPs) as a feasible service for settling your financial obligations. Via a DMP, the agency bargains with your creditors to lower rates of interest, waive charges and develop a consolidated payment plan. This strategy can make the process of financial debt settlement more convenient as well as accelerate your progress toward ending up being debt-free.

Financial Institution Relationships: These non-profit credit counseling agencies have actually developed links with a range of financial institutions being the banks and credit unions. Because of this, they might be able to properly work out useful terms and payment options for you, thereby decreasing interest rates to an affordable annual percentage rate and also month-to-month payments.

Emotional Support: All debt relief options can be challenging and mentally draining as you work your way through them. Community-based credit counselling agencies understand the psychological toll that money difficulties can have on people and their households. They cultivate a helpful environment where you can honestly reveal your worries as well as get experienced advice. This enables you to really feel much more empowered and inspired to conquer your financial obstacles.

Non-profit Status: These agencies run as nonprofit organizations and place a top priority on assisting people in need rather than producing profits. They typically provide their solutions for small fees, or in many cases, free of charge. This makes their solutions much more available and also budget-friendly for those experiencing financial difficulties. We always recommend using non-profit community-based debt counselling firms as one of the debt relief options that can be utilized. We never suggest utilizing financial debt settlement for profit companies.

Confidentiality and Privacy: These community-based agencies focus on client confidentiality and privacy. They take great care with your personal financial information and also make sure that individual details are kept safe and secure.

Debt consolidation

Debt consolidation is a preferred choice for individuals looking to combine numerous debts into one manageable debt with a single monthly payment. This debt relief option entails getting a single loan that can repay all of your existing financial obligations. This one personal loan is at a lower interest rate than the average interest rate charged on all your current outstanding debts and streamlines the settlement process.

Nevertheless, it is essential to carefully weigh the benefits and drawbacks of debt consolidation and the terms of all debt consolidation loans being offered to you. Look for a trusted financial partner, evaluate the terms and costs related to the consolidation loan, and consider your ability to stay current with the brand-new repayment timetable. With the appropriate approach, financial debt consolidation can be a wise technique for taking control of your funds.

Individuals have several choices when it pertains to combining debt. The concept is that either:

your credit history is good enough so that you can obtain an unsecured loan; or
you are choosing to use security for the loan.

For example, you may have 5 charge cards all with unpaid debts. You are pressing the upper limits of your authorized credit and the interest rates are very high. If you can get a home equity line of credit at a much lower annual interest rate, the benefit is evident. So it would be a clever option to use security to get a consolidation loan.

If you didn’t intend to or really did not have security to provide, you may have a good enough credit score to obtain an unsecured loan. If you can get this sort of funding, the annual interest rate charged will be more than for a secured loan, but still much less than you are paying on your credit cards. So this too would be a smart method to go with.

Debt settlement

Debt settlement is a debt relief choice that includes working out with your creditors an arrangement to pay them less than the total you owe them in order to settle all your financial debts for less than what is owed. This option can help to reduce your total financial debts into amounts that you can repay and prevent you from needing to file for bankruptcy.

Nevertheless, it ought to be noted that this debt relief option can have a negative impact on your credit rating and may cause taxable income obligation effects if any of the debts you are comprising were taken on to earn income. This option is best for those who have just a few creditors and have the financial literacy ability and are not afraid to contact and negotiate with their creditors on their own.

If you don’t believe you can do it on your own, stay away from the for-profit debt settlement companies as they are not looking out for your best interests. The best way to do a debt settlement plan if you are not confident that you can do it on your own is either the DMP described above, or a consumer proposal, described below.

Consumer proposal

If you’re battling with financial debt, a consumer proposal may be a great debt settlement plan for you. This debt relief solution is a legal process carried out under the Bankruptcy and Insolvency Act (Canada) (BIA). It enables you to pay back part of your debt over time. The benefit to you of a consumer proposal is that as soon as you end up repaying the part that you agreed to, you will be totally debt-free. The unpaid balance is eliminated too.

To get this government-sanctioned financial debt settlement strategy, you need to be insolvent and also have unsecured debts of $250,000 or less owing to all your unsecured creditors (omitting any type of secured debts registered against your personal residence such as mortgages or lines of credit).

This type of repayment plan is a good choice for people who are:

Employed;
can budget plan their money to make the required month-to-month regular payments;
want to avoid and choose the best alternative to bankruptcy; and
can’t stand all the collection calls from the debt collectors any longer.

Under the BIA, a licensed insolvency trustee (previously called a bankruptcy trustee) is the only party allowed under Canadian law to administer a consumer proposal. The licensed insolvency trustee is named the consumer proposal administrator.

The licensed insolvency trustee will submit the needed documents to the OSB. All interest charges and all collections calls stop on the day you file your consumer proposal. You can take up to 5 years to pay the amount promised under your consumer proposal.

When you submit a consumer proposal, any legal action your unsecured creditors have actually started against you is frozen and stopped. That goes for any legal action any of your creditors were threatening to start also. If a creditor currently has a judgment against you and is having your wages garnisheed, that stops too. You get that legal protection by making an insolvency filing under the BIA.

The licensed insolvency trustee who oversees your consumer proposal is responsible for negotiating with your unsecured creditors to reduce your unsecured original debts on your behalf. Upon successful acceptance of your proposal by the required majority of your creditors, you will be obligated to make monthly payments as per the agreed-upon terms of the proposal. You make your one monthly payment to the licensed insolvency trustee who takes care of making the promised payments to creditors.

Bankruptcy

Bankruptcy is a legal recourse that enables individuals or companies to discharge or restructure their financial liabilities. While it is the last option anyone should consider in the hierarchy of debt relief options, bankruptcy may be the most appropriate solution in certain circumstances.

It is crucial to weigh the consequences and benefits before opting for bankruptcy. A seasoned licensed insolvency trustee can guide you through the process and provide insights on the other debt relief options mentioned earlier.

Bankruptcy should not be taken lightly. Nevertheless, if carefully considered and implemented, it can offer a fresh start and an opportunity to rebuild credit scores for a stronger financial future.

I will not delve into the intricacies of the bankruptcy process and its workings in this Brandon’s Blog post. If you need to learn more about the bankruptcy process and if it is right for you, call me.

debt relief options

Debt relief options: Conclusion

Managing financial debt can indeed be a difficult as well as emotionally draining experience. However, there are reliable sources offered to give guidance and support. When looking for assistance with debt problems, I recommend 2 trusted resources: non-profit community-based credit counselling agencies and licensed insolvency trustees. Stay away from a for-profit debt settlement company.

I hope you enjoyed this debt relief options Brandon’s Blog. Financial stress is a growing concern in Canada, affecting individuals of all ages and income levels.

Creating a solid financial plan can be the key to unlocking a brighter and more prosperous future. By taking control of your finances, you can prioritize your expenses, set clear financial goals, and build a strong foundation for your dreams to come true. With the right mindset and approach, financial planning can empower you to regain control, eliminate this issue as a source of stress in your life and find peace of mind.

Individuals must take proactive measures to address financial difficulties and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

Brandon Blog Post

THE COMPLETE CORPORATE BANKRUPTCY IN CANADA GUIDE: WHAT EVERY BUSINESS OWNER NEEDS TO KNOW

Post author By Brandon Smith
Post date January 30, 2023

business bankruptcy in canada

Corporate bankruptcy in Canada: Introduction

Are you a business owner with company financial difficulties and apprehensive about the possibility of corporate bankruptcy and is it something that you will have to seriously consider? Corporate bankruptcy in Canada process can be complex and overwhelming, but understanding it is necessary for making authoritative decisions about your business.

In this Brandon’s Blog, I will analyze the ins and outs of corporate bankruptcy in Canada, including the different types, the steps in filing for corporate bankruptcy, the impact on creditors and shareholders, and alternatives to consider. By the end of this Brandon’s Blog, you will have a better understanding of corporate bankruptcy in Canada and be able to understand how to make the best decision for your business.

Explanation of what corporate bankruptcy in Canada is

The corporate bankruptcy process in Canada – otherwise known as commercial bankruptcy or incorporate business bankruptcy – is a legal means by which an incorporated business that is unable to pay its debts can be liquidated, and its liabilities discharged. This process allows the business to liquidate its assets and redistribute the value among its creditors. The process is intended to give an honest, but unfortunate corporate debtor a discharge from most debts while ending the business of that corporation.

It is important to note that corporate bankruptcy is different from personal bankruptcy which is a legal process through which an insolvent individual can substantially reduce debt and hopefully restructure. Unlike an individual who files for personal bankruptcy, it is not intended that the bankrupt corporation will come out of bankruptcy through a discharge process.

If single individuals are operating businesses and are considering business bankruptcy, then we are talking about the bankruptcies of sole proprietorships. If more than one person is operating a business partnership, then we need to think of the issues in a partnership bankruptcy. Either way, we have insolvent persons, which means personal bankruptcy, which is not the subject of this Brandon’s Blog.

It’s important to note that the process of corporate bankruptcy in Canada is complex and can only be handled by a licensed insolvency trustee. The Trustee will help you understand the process and the options available to your corporation and then prepare the documents required to submit the bankruptcy filing.

In Canada, if a corporation is bankrupt, it is subject to both the federal Bankruptcy and Insolvency Act (Canada) (“BIA”) and relevant provincial regulations. The BIA outlines the procedure for managing a corporate bankruptcy, while provincial law governs other aspects of the business such as labour laws.

corporate bankruptcy in canada

A brief overview of how the process of corporate bankruptcy in Canada begins

Navigating corporate bankruptcy in Canada can be complicated, as there are numerous steps that need to be taken. To begin, it is important to consult with a licensed insolvency trustee to review the financial details of the company, including income, profits, liabilities, and any personal guarantees. From there, the next step is to determine the misogynist options.

The board of directors needs to hold a meeting, in order to pass a resolution permitting the corporation to file for bankruptcy. This process is initiated by a director, or the single director, who will then execute the necessary bankruptcy paperwork.

Types of corporate bankruptcy in Canada

There are two types of corporate bankruptcy in Canada: liquidations and reorganizations. Although a reorganization is not an actual bankruptcy, the phrase “bankruptcy protection” is used to describe a formal reorganization. So for the purposes of this Brandon’s Blog, we will consider both as types of bamkruptcy.

The type of corporate bankruptcy in Canada proceedings can often provide a good indication as to whether the unsecured creditors will get all, a portion, or none of what they are owed.

corporate bankruptcy in canada

An overview of the 2 types of bankruptcy proceedings available to Canadian businesses

Liquidation

The process of corporate bankruptcy involves a business ceasing operations as it is unable to fulfill its financial obligations and the demand for its goods and services has become obsolete. This form of corporate bankruptcy is commonly referred to as liquidation.

Canadian bankruptcy proceedings must adhere to Canadian bankruptcy law under the BIA. This law contains similar liquidations to Chapter 7 of the U.S. Bankruptcy Code. Commencing the process of bankruptcy liquidation in Canada is the initial step.

It all starts with the board of directors of the corporation getting together and deciding to file for bankruptcy. One of the directors, or a single director, will then have to sign the official documents for the bankruptcy process.

Once the liquidation process has been initiated, the corporation’s assets, subject to the rights of any creditor having security over all or some of the assets, are taken over by the Trustee. The Trustee will sell the corporate assets and the proceeds will be distributed among the creditors according to the priority established by law. The corporation will then be laid to rest, as it will no longer operate as a legal entity.

Reorganization

Corporate reorganization is one of the alternatives to bankruptcy. It is a process in which a process for a company that is facing financial difficulties is able to restructure its outstanding debt and its operations in order to improve its financial situation. In Canada, the primary statutes for corporate reorganization are the Companies’ Creditors Arrangement Act (CCAA) and the BIA. These laws are similar reorganizations under Chapter 11 of the U.S. Bankruptcy Code.

The CCAA provides a thoroughfare of debt reorganization for corporations on a larger scale, as the amount owed by the company must exceed $5 million. Through this federal legislation, the debtor corporation can still operate while reaching an approved plan of arrangement with its creditors.

For corporations that do not reach this $5 million threshold, the Division I Proposal under the BIA can be utilized. The BIA provides for the restructuring of insolvent corporations and individuals.

The CCAA is a federal statute that allows for the sale of an insolvent business, with a reach that transcends the wideness of the whole Canadian nation and even extends beyond its borders.

The process of corporate reorganization under either the CCAA or BIA begins with the corporation filing for protection under the appropriate Act. In the case of the CCAA, the filing is with the court. Under the BIA, the filing is with the Office of the Superintendent of Bankruptcy Canada.

The debtor will then be safeguarded with all its possessions. Then, the corporation will be allotted a specified value of time – typically 30 to 45 days – to present a plan of arrangement. This plan must be approved by the creditors and the court in order to move forward. When the plan of arrangement is given the thumbs up, it can be set into motion.

So corporate reorganization in Canada is a process in which a company that is viable but is facing financial difficulties is allowed to restructure its business debts and operations in order to modernize its financial situation. The CCAA is mainly used for larger corporations and the BIA for smaller ones. Both legislations provide a process to restructure a company while under the protection of the court and it’s intended to be a way to save a company while protecting the rights of the creditors.

Advantages and disadvantages of corporate bankruptcy in Canada

Liquidation

Advantages of corporate liquidation using corporate bankruptcy in Canada:

Allows an incorporated entity that is unable to pay its debts to file for bankruptcy, as per the BIA.
Allows for the liquidation of resources and redistribution of that value among creditors, which can provide relief for the corporation and its creditors.

Disadvantages to bankruptcy and corporate liquidation using corporate bankruptcy in Canada:

The Canada Business Corporations Act (CBCA) prevents a company in bankruptcy from seeking dissolution under the CBCA.
Unfortunately, specific liabilities or obligations of the corporation are passed to its directors. This would put personal assets at risk.
The process is time-consuming and may also be expensive.
Unfortunately, the director’s reputation may moreover be tarnished in the process.

Reorganization

Advantages of reorganization under corporate bankruptcy in Canada:

Can uplift profits and increase efficiency.
Can extend the life of the business.
Can modernize strategy and financial arrangements.
Could be done informally without a court process by agreement between the debtor and its creditors or formally under either a proposal as outlined in part III of the BIA or a plan of arrangement under the CCAA.

Disadvantages of reorganization under corporate bankruptcy in Canada:

It may not work.
Decreased employee morale and concern among customers.
Can be a significant time investment with potential setbacks in cash flow
If the financial matters are so dire that a reorganization is not viable, the remaining option is full bankruptcy, which results in the liquidation of resources to pay creditors.
corporate bankruptcy in canada

Filing a voluntary assignment into bankruptcy for corporate bankruptcy in Canada

Overview of steps involved in filing for Corporate Bankruptcy in Canada

Finding a Licensed Insolvency Trustee (formerly called a trustee in bankruptcy) (LIT) and retaining the LIT to make an informed decision about proceeding with bankruptcy.
One of the directors (or sole director) will be required to execute corporate bankruptcy papers
Upon bankruptcy assignment, the LIT will notify business creditors of the bankruptcy proceeding.
Hold a meeting of creditors.
Conduct a sale of assets.
Carry out its other duties in accordance with the BIA.

Note: The above steps are a general outline and the specific process may vary depending on the case. It’s advisable to seek guidance from a licensed insolvency trustee and a legal professional to ensure compliance with the laws and regulations.

Essential paperwork and information

In order to file a voluntary assignment for corporate bankruptcy in Canada, and get to the point of holding the First Meeting of Creditors, the following documentation and information are typically required:

Provide the LIT with the corporate minute book, seal and accounting records.
Fully signed minutes of a validly held meeting of directors resolving that the corporation file an assignment in bankruptcy and appointing either a director or senior management person to be the Designated Officer to sign all bankruptcy documents and attend the First Meeting of Creditors.
A completed Voluntary Assignment of the corporate debtor, prepared by the LIT and signed by the Designated Officer.
The LIT prepared statement of affairs, reviewed, approved and sworn/confirmed by the Designated Officer, which includes information about the debtor’s assets and the names and addresses of all known creditors and the amounts owing to each of them.
The LIT will take the necessary steps to lodge the paperwork with the Office of the Superintendent of Bankruptcy, who in turn will give the Certificate of Bankruptcy – marking the very beginning of bankruptcy proceedings in Canada. The moment the Certificate is issued will be the exact time the corporate bankruptcy in Canada is activated.
The LIT then prepares the statutory notice to creditors which is mailed to all known creditors with a notice of the time and place of the First Meeting of Creditors will be held and also includes a proof of claim form for the creditors to complete fully and file with the LIT.
The LIT will also prepare the bankruptcy notice to be placed in a local newspaper to advertise for creditors to contact the Trustee.
The LIT prepares its Report on Preliminary Administration to provide necessary information to the creditors about the causes of the corporate bankruptcy in Canada, the available assets to be sold, if any and other important information. The LIT’s report is distributed at the First Meeting of Creditors.

In a voluntary assignment, the LIT is picked by the debtor. In an involuntary assignment, the LIt is suggested to and chosen by the court. In issuing the Certificate, the LIT choice is confirmed by the Office of the Superintendent of Bankruptcy. However, it is ultimately up to the creditors attending and voting at the First Meeting of Creditors to either confirm the appointment of the LIT or substitute the LIT with another one (don’t worry about the mechanics for now!). The LIT will be responsible for overseeing the administration of the debtor’s estate and distributing the proceeds to creditors.

It’s important to note that the above list is not exhaustive and additional documentation and information may be required by the Office of the Superintendent of Bankruptcy(OSB) or the appointed Trustee. It’s recommended to seek professional advice from a LIT, a lawyer or both, before filing for a voluntary assignment in bankruptcy.

The OSB plays an important part in the area of insolvency

The OSB is tasked with keeping orderly standards for the supervisory oversight of stakeholders within the insolvency process, creating an accessible archive of public records, compiling and analyzing data, and enforcing the BIA and CCAA regulations. Furthermore, the OSB is devoted to facilitating an effective and efficient insolvency framework in Canada.

The OSB in Canada is responsible for the supervision and regulation of the Canadian insolvency system, and overseeing the administration of all insolvency proceedings described as bankruptcies, commercial reorganizations, Division I commercial proposals, consumer proposals and receiverships.

The effects of corporate bankruptcy in Canada on creditors and stockholders

How corporate bankruptcy affects the distribution of assets among creditors

Divvying up resources among those owed money in a corporate bankruptcy in Canada can be quite intricate and can be affected by various elements, such as the kind of bankruptcy declared and the company’s ownership and organizational setup.

When a company files for bankruptcy, its day-to-day operations will typically come to a halt. All of the corporation’s assets will be sold off and the proceeds will be divided among its creditors. In Canada, this process can have a major impact on how the assets are divided up among those who are owed money.

The BIA requires the LIT to take control of all the unencumbered assets, sell them and assigns orders of importance to the many claims against the debtor. The net sale proceeds are then doled out to creditors depending on the priority of the claims.

In a nutshell, the types of creditors and the order of priority is:

Trust claims, including unremitted employee payroll withholdings.
Secured lenders.
Preference is given to certain kinds of unsecured debt.
Ordinary unsecured creditors are last.

In Canada, though the assets of a company are distinct from the owners’ individual wealth, banks will always take security on the company’s assets when loaning funds and anticipate the entrepreneur to provide some kind of collateral. It bears mentioning that this is a standard requirement.

Should the proceeds of the company assets fail to cover the bank debt in the event of a Canadian bankruptcy, the owners will be called upon to make good on their personal liability and may be faced with the liquidation of some or all of their personal belongings to make up the difference.

What sort of ramifications does corporate bankruptcy in Canada have on the equity holders and their privileges?

Generally, when it comes to bankruptcy proceedings, it’s usually shareholders who are left holding the shorter end of the stick. Most often, they don’t get anything back after all other creditors have been taken care of– leaving them with nothing but the realization that their investments have gone down the drain. Furthermore, they forfeit any rights they once held with the company.

If any of the shareholders are also in a director position, then they will have the added worry about whether there are any debts that are also a director liability. Legal advice is always required by directors of an insolvent company. In next week’s Bradon’s Blog, I will talk about recent developents arising from an Ontario court decision about the directing mind of a bankrupt corporation.

The one small solace they may have is that Canada Revenue Agency will acknowledge the corporate bankruptcy in Canada as a legitimate means of allowing shareholders to deduct the value of their shares as a loss on their tax return.

corporate bankruptcy in canada

Alternatives to Corporate Bankruptcy in Canada

For a business that is viable yet unable to pay off its debts, there are 5 alternatives to corporate bankruptcy in Canada that must be explored:

Implement tighter controls over spending and create a cash-flow budget to see if costs can be cut or eliminated, freeing up funds to pay off debts.
Refinance existing debt in order to consolidate it into more manageable payments.
The shareholders provide a fresh injection of funds.
Informal out-of-court debt settlement through direct negotiation with creditors.
Selling redundant or no longer-needed assets to raise cash for debt repayment.

Rather than going through the effort of reorganizing debt under the CCAA or BIA, a corporate workout is an amicable arrangement between the company and its creditors that allows them to come to a mutually-satisfactory resolution without resorting to legal proceedings and a reorganization court case. This is seen as an advantageous alternative to a formal filing.

If all other solutions fail to prevent a company in Canada from going bankrupt, then the CCAA or BIA’s restructuring provisions should be carefully considered to potentially save the company, its jobs and business assets.

If the company is not viable or profitable and is in a state of financial distress, then a secured lender can exercise their rights through a receivership process. This could be used in conjunction with a corporate bankruptcy in Canada if the situation calls for that.
The reasons why bankruptcy and receivership may be needed to work in tandem are complex and are best left as a topic for another day.

Corporate bankruptcy in Canada: Conclusion

I hope you enjoyed this corporate bankruptcy in Canada Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

corporate bankruptcy in canada — *business bankruptcy in canada*

Brandon Blog Post

CONSUMER DEBT PROPOSALS: UNLEASH THE MANY PROFOUND BENEFITS OF ELIMINATING DEBT

Post author By Brandon Smith
Post date January 23, 2023

consumer debt proposals

consumer debt proposals

Consumer debt proposals eliminate your debt stress

Are you stressed out and overwhelmed by debt and don’t know how to begin to eliminate it? We know your pain and can help you because this Brandon’s Blog “Consumer Debt Proposals: The Ultimate Solution for Managing Debt” has got you covered! I provide realistic advice on how to manage and even get rid of debt through a binding debt settlement agreement.

I describe what consumer debt proposals are all about and also look at other debt-relief options like debt consolidation and credit counselling. I will also talk about the recent Canadian government’s warning about taking on high-interest debt from certain companies.

Consumer debt proposals: How Does a Consumer Proposal Work?

If you’re in a tough spot financially, in Canada you can submit a consumer proposal if you owe $250,000 or less (not including any debt registered against your home is one of the types of secured debts that must be paid according to your secured loan repayment terms). It’s an official way to get some debt relief, and it’s all legit according to the Bankruptcy and Insolvency Act. Basically, you work with a Licensed Insolvency Trustee who helps you come up with a plan for paying off what you owe. Then you negotiate with your creditors and hopefully, they accept the proposal.

Making a consumer proposal that unsecured creditors will accept is one of the debt solution alternatives to bankruptcy that requires a few steps to get it done:

Reach out to a qualified Licensed Insolvency Trustee and book a no-cost debt assessment consultation.
During the appointment, answer any questions the Trustee may have truthfully and to the best of your ability.
The Trustee will work with you to come up with a payment plan that fits into your budget and allows you to pay off your debt.

Once you’ve submitted your consumer proposal, your creditors will look it over and then decide if they want to accept it as is or negotiate an adjustment (higher) to your periodic payments to eliminate the amount you owe. They have the option to do either one.

Your creditors can decide to:

Agree to the terms you have proposed (cast their vote in favour).
Decline the terms (vote no).
Decline the terms and suggest a meeting with creditors.
Take no action (which is the same as voting yes).

Your consumer proposal is automatically approved unless more than 25% of the dollar value of the claims of your creditors indicates that they would like to have a meeting of creditors. In that case, that is what will happen.

Once you’ve taken the step of filing for a consumer proposal, you’ll be able to rest easy knowing that you have immediate legal protection from creditors and debt collectors through this financial and legal process. This is called a stay of proceedings where your creditors cannot chase you for the money you owe.

Filing under the bankruptcy process in Canada isn’t your only option! You can work out a legally binding agreement with your creditors through the popular alternative and powerful alternative of consumer debt proposals. With a consumer proposal, you and your creditors can come to an agreement on what portion of the debt you can pay off- and the rest will be written off!

consumer debt proposals

Consumer debt proposals: The voting process

When it comes to a consumer proposal, it’s important to understand the process of how creditors come to a decision to accept or reject the plan. This section will provide insight into how the voting process works.

Once a consumer proposal is submitted, creditors are allowed 45 days to express their decision. They can either accept the proposal or reject it in one of the following ways: replying to the Licensed Insolvency Trustee with their acceptance, not responding at all (which is seen as approval), communicating their rejection or requesting a meeting of creditors.

At the creditors’ meeting, creditors will have the opportunity to decide whether to accept the consumer proposal as is or to make adjustments to it.

Consumer debt proposals: What happens if your offer is approved?

If your proposal gets the green light, you’ll need to abide by what you promised – whether that’s a single payment or regular installments to the Licensed Insolvency Trustee. Plus, you must meet any other conditions that were laid out in the proposal.

In a successful proposal, you can keep your assets (as long as you keep paying what you owe to creditors who have a lien on your assets), and go to the two financial counselling sessions held by the Licensed Bankruptcy Trustee. Of course, you’ve got to pay the Licensed Bankruptcy Trustee on time over the entire period of time your proposal is for.

Failure to do so could result in the revocation of the proposal, the accrual of interest and fees, and even legal action. It’s important to remember that while a consumer proposal can provide much-needed relief, it’s ultimately up to you to stay current with the payments you promised to make.

consumer debt proposals

Consumer debt proposals: What happens should your consumer proposal be declined?

If 50% or more of the creditors vote to reject the consumer proposal, then the Licensed Insolvency Trustee must issue a notice and the consumer proposal dies. In this situation, creditors are free again to pursue collection actions against the debtor.

If 25% or more of the creditors request a meeting, that meeting is referred to as the Meeting of Creditors. At this meeting, an agreement will try to be reached by a majority of the creditors. If the agreement can not be reached, the debtor may need to amend the proposal and resubmit it or look for other ways to solve their financial issues.

If a consumer proposal is declined, it means that the creditors do not agree with the terms of the proposal put forth by the debtor. The main reasons for rejection may be that the debtor is not offering enough money or has proposed an unsuitable repayment schedule.

It is important to note that if you fail to fulfill the requirements of your consumer proposal, it will be deemed null and void. However, it does not free you from your existing debt, and the failure to adequately repay your loans or pay off debts within the terms of the agreement could affect your credit score. Collectors for debts are within their right to renew collection calls and seek legal action for retrieving the debts that they owe. They can sue you and if they get a judgment, they can then get a wage garnishment against you. It is never recommended to default on a consumer proposal.

Consumer debt proposals: If you fulfill the requirements of your consumer proposal

If you fulfill the requirements of your consumer proposal, you will have successfully completed the agreement between yourself and your creditors. This means that you will have made the agreed-upon payments and met all other terms of the proposal. The balance of your unsecured debts that you did not pay off is also eliminated if you fulfill the requirements of your consumer proposal.

One of the benefits of fulfilling a consumer proposal is that you will have lower regular payments monthly, which are based on what you can afford, rather than high monthly payments regardless of your income. Additionally, you will have protection from creditors, as they will not be able to contact you or take money directly from your wages.

After fulfilling a consumer proposal, it will come off your credit report maintained by the Canadian credit bureaus three years after the completion. This report will show that the consumer proposal has been successfully completed and you can rebuild your credit rating and credit score simultaneously.

You will also receive from the Licensed Insolvency Trustee (LIT) acting as the Administrator in your consumer proposal a “Notice of Successful Completion of Consumer Proposal”. This is a very important document, as you will be able to provide it to current or future credit grantors to prove that you successfully completed your consumer proposal and avoided personal bankruptcy.

It is important to note that if you fail to fulfill the requirements of your consumer proposal, it will be deemed null and void. However, it does not free you from your existing debt, and the failure to adequately repay your personal loans, lines of credit or pay off debts within the terms of the agreement could negatively affect your credit score. Creditors are within their right to use collection activity and use legal action for retrieving the debts that you owe. It is never recommended to default on a consumer proposal.

consumer debt proposals

Advice for Consumers: Considerations for Debt Relief and Credit Repair Services

Improving your credit score or credit rating will take time, and requires showing creditors that your habits have improved and that you are paying back your debt on time. Be cautious when seeking help to pay off debt or repair your credit, as some companies may offer misleading solutions. I have been warning about the dangers of such “for-profit” debt settlement companies for years now.

One option for getting help with debt is a debt management plan, which is an informal proposal made by a non-profit community credit counselling agency credit counsellor to your creditors on your behalf. This plan consolidates your debts into one affordable monthly payment and in some cases, you may not have to continue to pay interest on your debt.

However, consumers should be aware that the “for-profit” debt settlement companies may charge high fees, including upfront or advance fees, and may not be able to get creditors to reduce your debt. Additionally, it is important to note that even while using a debt management plan, you are still required to keep making payments on any other debts you owe, which may result in no change to your credit score.

Overall, it is important to be cautious when seeking help to pay off debt or repair your credit and to thoroughly research any company or solution before proceeding. It is also important to consider the potential consequences, fees and overall effectiveness of the solution. A LIT during an initial no-cost consultation will provide many of the services that a “for-profit” debt management company charges for.

Consumer debt proposals: Organizations or firms cannot guarantee the resolution of your financial obligations

Be aware of companies or agencies that claim they can quickly resolve your debt problems by negotiating a deal with the companies you owe money to and letting you only pay back a fraction of your debt. These promises may not be reliable, so it’s best to be wary.

It’s important to remember that if certain creditors don’t agree to your payment plan, you may need to work out a different agreement with them directly. Alternatively, you can consult a LIT about doing a consumer proposal.

It’s also worth keeping in mind that anyone can call themselves a debt consultant, but that doesn’t mean they have the proper training or they’ll be able to help you with your finances.

consumer debt proposals

Consumer debt proposals: No company or agency can give you a fast and easy boost to your credit rating

No Canadian debt consultant, company, or agency can promise a fast solution to your credit score. Improving your credit rating takes time and commitment; you have to show a history of paying your debts punctually.

If you’re looking to boost your credit score, one option to consider is a non-profit credit counselling agency. A credit counsellor can offer a variety of services like one-on-one advice, group sessions, and tips on how to better manage your debt. Just keep in mind that simply talking to a credit counsellor won’t do the trick.

If you’re looking to give your credit score a boost, try paying off some of what you owe. Bringing down your debt-to-credit ratio to under 75% of your credit limit will help. You could also ask your credit card companies or financial institution lenders to raise your credit limit and perhaps even amend your terms of repayment (though the latter will be very difficult) – that’ll help increase your credit score. Ideally, try to use less than a third of your available credit and keep it low, ideally below 30%.

Remember, there’s no shortcut when it comes to improving your credit score. Anyone promising you the fast and easy way is not looking out for your best interests. It takes determination and effort to get your credit back on track. Do your research and make sure you understand any associated fees or consequences before you commit.

Consumer debt proposals: Paying off a consumer proposal early

Sure, you can settle your consumer proposal early, but that might not be the best choice for everyone.

If you’ve got the funds, paying off your consumer proposal earlier could help kickstart your credit repair – but don’t expect it to save you money or guarantee a good credit rating. So think carefully before you commit to paying it off early. In the following section, I describe a very troublesome issue which has now attracted the attention of the Office of the Superintendent of Bankruptcy Canada (OSB).

Paying off your consumer proposal early will do wonders for your mental health – and it’s perfectly acceptable! It’s no secret that financial hardship is incredibly stressful, and five years seems like a lifetime. So treating yourself to an early payoff will help you feel a huge weight being lifted off your shoulders.

If you want to shorten how long your consumer proposal lasts, you can change how often you make your proposal payments. Usually, they’re monthly, but if you switch to making extra payments by paying bi-weekly, you can pay off your proposal faster. Once you’re done paying off your consumer proposal, the unsecured debts you’ve been worrying about will be marked as taken care of on your credit report.

consumer debt proposals

Consumer debt proposals: LITs cannot talk you into getting a loan with a high-interest rate to pay off your consumer proposal early

On January 11, 2023, the OSB issued its position paper titled “LITs Promoting and Facilitating Loans to Debtors“. The problem is that some lenders are offering high-interest loans to people who are about to or are going through a consumer proposal. It looks like they’re giving loans to help people pay off their consumer proposals early, but it’s really just taking advantage of people’s tough financial situations.

The OSB has noticed that some LITs are promoting and encouraging people to take out loans without mentioning the potential drawbacks. They do this by talking up the positives and downplaying the negatives, and they may even pressure people into taking out a loan.

The OSB has come to the conclusion that it’s not in line with the Code of Ethics for Trustees or a LIT’s duties under the Bankruptcy and Insolvency Act and General Rules for LITs to promote or facilitate such loans. Furthermore, such actions are not allowed.

There is also evidence that LITs who receive engagements directly from “for-profit” debt consultants, may be entering into inappropriate arrangements with them. No trustees should ever accept a commission, payment, or any other type of reward from a third party for recommending work concerning a professional engagement, nor should they give out any commission, compensation, or another type of benefit to a third party for obtaining a professional engagement.

For the record, my Firm does not have any arrangements with any party regarding the referral of files and we neither accept nor pay a referral fee

Paying off your consumer proposal early isn’t really an issue. In fact, it can be great if you can afford it thanks to a financial windfall or change in circumstances. Everybody benefits in that scenario. But if you don’t have the means to pay off your consumer proposal quickly, don’t worry. Don’t take out an interest-bearing loan to pay off a consumer proposal. The consumer proposal itself should be considered an interest-free loan.

Look, if a debtor is trying to rebuild their credit with a loan after insolvency, there’s nothing wrong with that. They’re making the choice themselves, so it’s all good. In this case, LITs should explain the pros and cons of these loan products to the debtor. And, it’s important that they don’t push any company or product in particular.

The OSB believes that LITs should not be promoting or facilitating loans since it contravenes the Bankruptcy and Insolvency Act and its Rules. This practice has a negative impact on the LIT profession and the insolvency system. The OSB will be keeping an eye on this issue and taking appropriate action.

You Have Outstanding Financial Obligations — Consumer Debt Proposals

I hope you enjoyed our consumer debt proposals Brandon’s Blog.

There are many financial blogs. Ours focuses mainly on issues of importance to those individuals and businesses with financial challenges or worse, financial hardship, caused by debt problems. Income and cash flow shortages are critical issues facing Canadians, be they employees, entrepreneurs or companies and businesses with debt problems. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Brandon Blog Post

CONSUMER PROPOSAL CALCULATOR: CONSUMER PROPOSAL GREAT SECRETS REVEALED!

Post author By Brandon Smith
Post date November 28, 2022

consumer proposal calculator

Consumer proposal calculator: When should you think about a consumer proposal?

Debt can be a heavy burden, and it seems like there’s no end in sight. If you’re having a hard time making ends meet and debt is taking over your life, you may be asking yourself if a consumer proposal is right for you.

If you’re finding it impossible to pay off your financial debt, a consumer proposal could be a perfect choice for you. As soon as approved by your creditors and also authorized by the court, a consumer proposal is an enforceable deal between you and your creditors. You only need to pay off a part of your financial debt and in return, they write off the balance. This is an excellent method to pay off your debt as well as get your life back on course.

There are 2 main points to keep in mind when thinking of a consumer proposal. First, just an insolvency trustee (Trustee) can carry out a consumer proposal. They will first evaluate your situation and determine if this is the very best choice for you.

Secondly, you need to be able to make the promised payments to the Trustee. If you cannot, then a consumer proposal may not be right for you. There are also several non-insolvency debt relief options for people when looking at their unsecured debt and I describe them below.

Knowing how much you may need to pay in a consumer proposal in order to extinguish all of your unsecured debt is an important part of the decision-making. That is why I created this consumer proposal calculator located down below in this Brandon’s Blog.

Consumer proposal calculator: Option 1 – Pay off your debt on your own

If you have adequate savings and are in a financial situation to pay your financial obligations in a timely manner, excellent. Yet that is not every person’s circumstance. It’s not unusual for individuals to find themselves in a state where they have financial obligations coming due for payment, but, they do not have the cash. If you’re in this situation, you might be unsure about exactly how you can repay the money you owe but do not have.

There are a couple of things you ought to remember if you’re seeking to pay off the financial debt by yourself. First, you need to ensure you have a clear plan for exactly how you’re likely to pay off the money. This means establishing a budget plan and staying with it.

Second, you ought to keep communication open with the individual or company you owe the money. By doing this, they’ll understand what you’re doing to pay back the debt and can provide support if needed.

Finally, it is very important to be patient. Settling a financial debt can take time, however as long as you’re sticking to your strategy and seeing progress, you’ll ultimately get there to financial freedom.

consumer proposal calculator

Consumer proposal calculator: Option 2 – Debt consolidation

Combining your financial obligations, such as the total debt on all your credit cards, into one new debt consolidation loan can aid you to become debt-free faster and get your funds back on the right track. It can help you to repay your financial debts a lot faster and also right-size your finances. Before consolidating your financial debts and making debt consolidation payments, there are a couple of things you need to understand:

Prior to you trying to settle your financial debts through debt consolidation, it’s important to recognize just how debt consolidation loan payments work as well as what type of impact it can have on your credit rating.
See to it that you recognize what you’re getting into. Consolidating your financial debts through new loan funding to settle your existing financial obligations, ensure you recognize the terms of the new financing, including the rate of interest and how much the regular monthly payment will be.
Search for the very best deal available. There are a variety of companies that provide financial debt consolidation funding. Shop around to find the best rates of interest as well as terms.
Combining your debts will lead to a lower single monthly payment. Make sure it fits into your budget.
Making your new loan monthly payments on time will work to improve your credit rating.

Consumer proposal calculator: Option 3 – Credit counselling

If you’re struggling with credit card debt, you’re not alone. It’s one of the most common types of debt in Canada. But there’s help available. Credit counselling can help you get your debts under control and develop a plan for you.

Credit counselling can be a very therapeutic process that assists people to address their debt obstacles as well as enhance their total financial health and wellness. Your best choice is to go for credit counselling offered by a nonprofit credit counselling agency.

Credit counselling commonly involves working with a credit counsellor to develop a spending plan, understand your economic alternatives, and produce a plan to settle your financial debts. More often than not the credit counsellor can get your creditors to agree to allow you to pay off the principal amount of your debt without adding any more interest charges.

Credit counselling can aid you to get out of debt, improve your credit score, and also teach you how to make better financial decisions in the future. If you’re seriously thinking about credit counselling as an option for you, it is very important to pick a reputable firm to deal with in order to produce a personalized plan to address your unique financial situation.

consumer proposal calculator

Consumer proposal calculator: Option 4 – Debt Settlement

If you’re struggling to make your financial debt settlements and are dealing with economic difficulty, financial debt settlement may be a great choice for you. This is where you work out with your creditors to resolve your debt for less than the amount of the individual debt amounts you owe.

There are a couple of points to remember if you’re thinking about financial debt settlement:
Your credit score will take a hit.
Your creditors might send your debt to their lawyer to take legal action against you or they might send your debt to a collection agency to plague you with collection calls as soon as you divulge that you cannot settle them in full.

If you’re looking at this kind of financial debt negotiation, it is very important to evaluate the pros and cons and speak with a professional advisor to see if it’s the right option for you.

WARNING:

A for-profit debt settlement company charges fees, just like any other business. Before any of your money is used to settle your personal debts, you must pay their fees upfront. No fees are charged by the non-profit credit counsellor.

When you cannot pay anymore, the for-profit debt settlement company walks you over to their friendly Trustee for you to file either a consumer proposal or an assignment in bankruptcy.

Please stay away from for-profit debt settlement companies. I do not recommend for-profit debt settlement arrangements or debt settlement programs. These types of debt counsellors are not the debt-help professionals you should go to see.

Consumer proposal calculator: Option 5 – About consumer proposals

If you’re battling with a mountain of debt, do not worry, there is help and it avoids bankruptcy. A consumer proposal is a legal process that is the only federally-approved debt settlement process. A consumer proposal can only be carried out by a Trustee.

If you’re thinking about a consumer proposal, it is very important to understand just how the process works and also what it will indicate for your financial future. I have actually written several of Brandon’s Blogs giving a comprehensive on what consumer proposals are and how they work.

If you’re insolvent and owe $250,000 or less to your creditors (excluding any secured creditor debt like mortgages or lines of credit that are secured by registration against your personal residence), you can qualify for this government-sanctioned debt settlement plan.

This could be a good option for people who are employed and can budget their money to make the required monthly payments under this plan to the Trustee. It helps to avoid personal bankruptcy, and not have to deal with collection calls from agencies anymore. This is the best alternative to bankruptcy.

For more information, check out either one of the following Brandon’s Blogs:

consumer proposal calculator

Consumer Proposal Calculator: What will my monthly payments be in a consumer proposal?

Here is how a debt calculator calculates your total debt and estimates what your monthly payments will be in a consumer proposal debt management plan. Below you will be asked for all your unsecured debts, including any government debt or income tax debts.

Consumer proposal calculator	$

What is the total of your credit card debt?
What is your income tax debt?
What is the total of any online loan?
How much is your other government debt?
Total of other unsecured debt?
What is your payday loan debt?
Total unsecured personal loan debt?

Your total unsecured debt

# of months you wish to take to pay (max 60 months)	60

Monthly payment = (Your total unsecured debt
divided by # of months) X20%

Use this consumer proposal calculator method to compare what a monthly payment would be for you under a consumer proposal as compared to what your monthly debt payments are now. Keep in mind that in a consumer proposal, you are getting rid of all your debt if successfully completed. Right now, you may only be paying the interest charges and not making any dent in the principal reduction.

To figure out your exact monthly payment, give us a call.

Consumer Proposal Calculator: We can help you with a consumer proposal

I hope you enjoyed this consumer proposal calculator on Brandon’s Blog.

Income and cash flow shortages are critical issues facing Canadians, be they employees, entrepreneurs or companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Brandon Blog Post

PROS AND CONS OF BANKRUPTCIES CANADA: A HEALTHY FRESH START OR THE LAST RESORT?

Post author By Brandon Smith
Post date October 31, 2022

pros and cons of bankruptcies canada

Evaluating the pros and cons of bankruptcies Canada: Introduction

When you are in debt, it can feel like you are stuck in quicksand – the more you struggle, the deeper you sink. If you are considering bankruptcy, you are not alone. According to the Office of the Superintendent of Bankruptcy (OSB), almost 100,000 Canadians filed either a consumer proposal or for bankruptcy in 2021. The numbers for 2022 are rising above the 2021 level.

Before you make a decision, it is crucial to weigh the pros and cons of filing for bankruptcy in Canada. On the positive side, bankruptcy can give you a fresh start. It can discharge your debts and give you a chance to rebuild your finances. On the negative side, bankruptcy can damage your credit score more than one of the bankruptcy alternatives.

If you are struggling with debt, there are other options to consider before bankruptcy. You may be able to negotiate with your creditors and set up a payment plan. You can also improve your financial situation by cutting expenses and increasing your income. If you decide that you do need an insolvency process, a consumer proposal or a Division I Proposal may be better for you.

In this Brandon’s Blog post, I wish to aid you in gaining a better understanding of the pros and cons of bankruptcies Canada. Then you can make a much more educated choice about your financial debt issues.

What are the pros and cons of bankruptcies Canada?

When it comes to making the decision to file for bankruptcy, it is important to understand all of the implications that this will have on your life. In Canada, bankruptcy is a legal process that allows individuals to discharge all of their debts if they are unable to repay them. This process is overseen by the OSB, and there are certain requirements that must be met in order to be eligible for bankruptcy.

While bankruptcy can provide relief from debt, it is not without its drawbacks. Once you have been declared bankrupt, your credit rating will be significantly damaged, which can make it difficult to obtain new lines of credit in the future. Additionally, your assets may be seized in order to repay your creditors.

Before making the decision to file for bankruptcy, it is important to weigh the pros and cons carefully. Speak with a financial professional to get advice that is specific to your situation. Now for a more detailed discussion on the pros and cons of bankruptcies Canada.

pros and cons of bankruptcies canada

The pros of bankruptcies Canada

A fresh start

If you’re sick of being in debt, bankruptcy might be a good option for you. It can be a fresh start, and it’ll get creditors off your back. You can move on with your life without all that stress.

Rebuild your credit

As stated above, bankruptcy will cause some damage to your credit. However, it can stop the continuous damage you may be facing now. You can begin rebuilding your credit rating, rather than having to face extra charges from missed payments as well as receiving those pesky telephone calls from bill collectors.

Get rid of most if not all of your debts

In most cases, all of your obligations will be cleared by your bankruptcy discharge. Normally cleared debts are your unsecured debts like credit card debt, lines of credit, personal loans, payday loans, and income tax debts. A bankruptcy filing will let you not worry about a ton of bills but will force you to focus on balancing your budget.

There are some obligations that bankruptcy cannot clear, like child or spousal support payments, or payments for fines or penalties awarded by a court. You can get your student loans discharged too as long as you’ve been out of school for 7 years or even more.

Stop debt collectors cold

Creditors and their debt collectors making their collection calls can be pretty aggressive when they’re trying to get paid. Bill collectors demand and try to scare you as to what will happen if you do not pay up. Answering your phone or checking your VM becomes terrifying. You might also have a ton of mail from them stacking up in your mailbox, inbox, and so on.

If you’re losing the battle of staying up to date with your bill payments, personal bankruptcy might be a good option for you. Declaring bankruptcy stops all collection efforts, including calls as well as letters from your creditors. This is called the “automatic stay of proceedings”. When you’ve filed an assignment in bankruptcy, the automatic stay goes on and offers you some breathing space.

Get rid of any wage garnishment

If you file for bankruptcy, you don’t need to worry about wage garnishment or legal action anymore. The stay of proceedings also prevents any further attempts at collection, including wage garnishment. Creditors and collectors also won’t be able to take you to court.

Bankruptcy is not forever

So, if you’re thinking about filing for the bankruptcy process, know that it usually takes about nine months to go through the process for a first-time bankrupt who does not have any surplus income payments to make to your Trustee. And, if the Licensed Insolvency Trustee handling your case finds that you have surplus income, you won’t be able to get a discharge for 21 months.

If this is your second bankruptcy, it will take longer. If you don’t have surplus income payments to make, it will take 24 months. If you do need to make surplus income payments, it will take 36 months.

These are the pros when considering the pros and cons of bankruptcies Canada. Now for the cons!

pros and cons of bankruptcies canada

The cons of bankruptcy

There are many cons of filing bankruptcy, including:

Your credit rating

If you file for bankruptcy, it’ll rank you as an R9 on your credit report, which is pretty bad news for your credit score. The damages to your credit rating will not last forever. Your very first personal bankruptcy will be noted on your credit record for 6 years after the day of your bankruptcy discharge. A second bankruptcy will certainly harm your credit score for a lot longer.

At the outset of your bankruptcy journey, you cannot see the light at the end of the tunnel. At least you now have a roadmap to restoring your credit and have a date when your credit will be cleared of any damage. You can start to rebuild your credit even before you are discharged from bankruptcy.

Your assets may be liquidated

This doesn’t mean that you’ll lose everything. Your personal belongings – like clothes, household items, work tools, and even a car under a certain value – usually can’t be taken away from you in bankruptcy. This means that the proceeds from the sale of your other non-exempt assets will be used to repay your creditors.

RRSP contributions in the past 12 months are not exempt

Your retirement savings are protected, but any contributions you made in the past 12 months to your RRSP are not exempt.

Surplus income and the cost of bankruptcy

If you’re making more money than the surplus income threshold, you’ll also have to make surplus income payments to your Licensed Insolvency Trustee. If you don’t have any assets and don’t have to pay the surplus income requirement, you or a relative will have to pay your Trustee’s fee.

Complete financial disclosure

You will need to make full financial disclosure to your Trustee. Your Licensed Insolvency Trustee will use that information to help you complete a Statement of Affairs. This disclosure details your financial position and will even potentially highlight certain financial transactions. Essentially your Trustee and the court will know everything about your finances and your creditors will get a peek too.

When you’re going through bankruptcy, you’ll need to hand over your tax docs and pay stubs to show how much you’re earning. This is how the Trustee decides if you’ve gone over the surplus income threshold.

A lasting record

Once you file for bankruptcy, the paperwork will become part of the public record in Canada. To start your bankruptcy, your Licensed Insolvency Trustee files your bankruptcy documents with the OSB. It then becomes part of the public record.

Most people who file for bankruptcy will only have their Trustee, the OSB, the court, their creditors and the two Canadian credit bureaus know about it.

pros and cons of bankruptcies canada

Bankruptcy alternatives from pros and cons of bankruptcies Canada

Now that you understand the pros and cons of Canadian bankruptcies, you must just consider this option as a last choice. If you can solve your financial problems without experiencing the unfavourable elements of personal bankruptcy, that is the most effective way to go.

During your initial no-cost consultation, the Licensed Insolvency Trustee will help you should explore all the bankruptcy alternatives. I have written before in more detail about each of the bankruptcy alternatives listed below. I have included a link to each of those more detailed blogs. The main alternatives to bankruptcy are:

Debt consolidation

If you’re aiming to leave financial debt behind, debt consolidation could be a good alternative for you. By rolling all your financial obligations into one financing with a lower rate of interest, you will save money from the lower rate of interest on the new consolidation loan and leave your debt behind much faster.

Just make sure that you understand the current interest rates you are being charged, the total of your monthly payments that you currently may or may not be able to afford, the interest rate being offered to you on a debt consolidation loan, what your new monthly payment will be and make sure that you have a realistic budget of your monthly income and monthly expenses that shows that you can afford the new payments on a monthly basis.

Credit counselling

Credit counselling is a process whereby a person in debt meets with a credit counsellor to discuss their options for dealing with their debt. The credit counsellor will assess the person’s financial situation and provide advice on how to best deal with the debt. This may include negotiating with creditors to reduce interest rates or monthly payments and setting up a debt management plan.

As I have written many times before, you should only go to a community-based non-profit credit counselling agency that does not charge any fees. If the credit counsellor you choose wants to charge you fees, get out of there. It is not the best choice for you.

Debt settlement

Debt settlement is a process in which you can negotiate with your creditors to pay less than the full amount you owe. This can be a good option if you are not able to pay your debts in full and you are willing to negotiate with your creditors.

Debt settlement works well if you only have 1 or a few creditors. If you have many creditors, debt settlement is much more difficult in making sure that everyone remains on board with the negotiated settlement and that you will have enough money to pay the lower settled amounts you promised.

Many times with a multitude of creditors, either a consumer proposal or a Division I Proposal is the most effective way to bind everyone in a debt settlement process.

Like in credit counselling, I urge you to stay away from debt settlement companies that charge fees. What they do is charge you unnecessary fees, try to sell you products you don’t need and then when they cannot sell you any more products and their debt settlement techniques do not work, they then walk you to their favourite Licensed Insolvency Trustee for an insolvency process, which might just be a bankruptcy.

I would rather see you use your accountant or lawyer if you do not feel comfortable negotiating yourself. Those professionals will have your best interests at heart in return for their fee. They also won’t try to sell you more products.

Consumer proposals

When it comes to debt of $250,000 or less (other than for secured debts registered against your home), there are a number of options available to help you get back on track. One option is a consumer proposal.

A consumer proposal is a formal debt relief and debt-settlement option available in Canada. It is a legally binding agreement between you and your creditors. Under a consumer proposal, you agree to repay a portion of your debts, and your creditors agree to forgive the rest.

A consumer proposal can be an attractive option for many reasons. First, it can help you get out of debt without having to declare bankruptcy. Second, it can help you keep your assets, such as your home or car. Third, it can give you a fresh start by wiping away most, if not all, of your unsecured debts.

If you’re considering a consumer proposal, it is necessary to obtain assistance from a qualified expert. A Licensed Insolvency Trustee, who is also a consumer proposal administrator in Canada, can walk you through the process and answer your questions. This will allow you to see if it’s the right choice for you.

Division I Proposal

If you owe more than $250,000, a Division I Proposal is a great option to settle your debts. It’s not as streamlined as a consumer proposal, but it’s still a great way to get out of debt.

Other than these technical differences, it has the same aim as a consumer proposal: to provide a debt settlement option that will bind all unsecured creditors and get the person back onto their feet free of the stress and burden of their unmanageable debts.

Either a consumer proposal or a Division I Proposal are excellent debt relief options approved by the Canadian government. One of the other benefits of either of these two debt settlement options is that the person will also receive two mandatory financial counselling sessions. Getting this education will help put the person on the right track for the rest of their life.

Understanding the advantages of bankruptcy and also the disadvantages of bankruptcy for companies

When a company faces overwhelming debt, bankruptcy may seem like the only way out. However, there is only one advantage and one disadvantage to bankruptcy for a company.

One advantage of this situation is that the Trustee may be able to sell the assets to a purchaser who will then be able to use those assets to continue the former business of the company in a profitable way. This could potentially save some jobs, at least for the key employees of the old business.

The one disadvantage is that unlike a person, when a company goes bankrupt, the corporate legal entity is now dead.

Before the Directors of a company decide to bankrupt the company, they should determine if certain divisions or parts of the business can be saved and operate profitably if the unprofitable part(s) could be eliminated. If so, a financial restructuring can be done to turn this unprofitable company into a viable and profitable one and save some jobs in the process.

Pros and cons of bankruptcies Canada: Summary

I hope you enjoyed this Brandon’s Blog on the pros and cons of bankruptcies Canada.

People are falling behind with stagnant wages or tiny wage increases while there is runaway inflation and they are falling deeper and deeper into debt. Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you. There are many pros and cons of bankruptcies Canada. Whatever process we recommend for you will, we will do so in order to minimize any cons you may experience.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Brandon Blog Post

ENTREPRENEURIAL CANADIAN BUSINESS BANKRUPTCIES: THE TIP OF A HUGE ICEBERG?

Post author By Brandon Smith
Post date August 22, 2022

business bankruptcies

Insolvency for business including business bankruptcies

In the last two Brandon’s Blogs, I wrote about personal bankruptcy. The topic was the class of debts not released by a person’s discharge from personal bankruptcy. In this Brandon’s Blog, I discuss insolvency for business, and specifically, business bankruptcies, as a result of the recent report by the Canadian Federation of Independent Business (CFIB).

If a business is incapable to pay its financial obligations as they come due, it might deal with some negative effects, including legal action. However, this does not have to damage a business’s credibility forever, if management is prepared to take the required corrective activity before it is far too late.

If a business that is unable to pay its debts cannot turn itself around, it may be forced to declare business bankruptcies, which can have a devastating impact on the business and its employees.

What will happen to the company if it is insolvent?

If your company is financially troubled, it may need to assign itself into bankruptcy. Nonetheless, business bankruptcies are not always the automatic result of being insolvent. If your business is experiencing financial problems, it is essential to speak to a bankruptcy lawyer or a licensed insolvency trustee to review all of your realistic choices. Bankruptcy should be the last choice when nothing else will work.

Case in point, the recent report issued by the CFIB on small business insolvency says that its survey finds that only 10% of business owners would certainly declare bankruptcy if they were to shut down completely.

The CFIB report is meant to give a more comprehensive view of Canadian business insolvencies (bankruptcies + proposals). The data indicates that the number of businesses filing for bankruptcy has been on the rise and is now at the highest level of business insolvencies in two years.

As we recover from the COVID-19 pandemic, Canadian small businesses face a number of challenges in returning to normal operations, including debt from necessary pivots, increased costs of doing business and trouble finding employees to work.

The CFIB study found that half of the businesses (54%) are still seeing below-normal revenues, and over 60% are carrying unpaid debt from the pandemic. Small businesses are under significant financial pressure, with little room to maneuver.

Insolvency fears among Canadian small businesses are alarmingly high, and the true scope of the problem may be even greater than what is reflected in official statistics. Business owners have a range of options available to them when faced with financial difficulties, and bankruptcy is only one of these.

The CFIB recently released report details the different ways the surveyed small businesses in Canada said they would take if they had to shut down as follows:

46% – Just ceasing all operations permanently.
27% – Selling or transferring ownership to another party.
10% – Filing for business bankruptcies or business bankruptcy protection.
10% – Unsure at this time.
7% – Exploring all options.

Interestingly enough, recapitalizing the legal entity or taking on more business debt by way of loans was not one of the answers. That should tell you how tapped-out Canadian small business shareholders are and that the businesses have no borrowing base room left on their assets to increase their bank borrowings.

business bankruptcies

Business bankruptcies: The insolvency of a business – First steps

The first step for the Directors is to consult with a business bankruptcy attorney/lawyer and a licensed insolvency trustee (formerly called a bankruptcy trustee) (sometimes referred to as “Trustee”). The lawyer can confidentially discuss the situation with the Directors and develop a proposed plan to deal with the situation.

The licensed insolvency trustee will review the company’s financial position and proposed game plan, and consider all options available to the company and its Directors. In Canada, the only party licensed to run the administration of bankruptcy, or any formal insolvency process, is a licensed insolvency trustee.

The licensed insolvency trustee will want to understand fully the company’s assets and liabilities. With a clear understanding of the company’s financial status, the Trustee can explain how best to implement the plan to either restructure or liquidate the company. If necessary, the Trustee can tweak the game plan.

The next question is whether the business is viable. Does it produce goods or services that are still in demand in the marketplace? If not, one option to consider is selling the business to another company that has complementary lines of business. Would the business fit in neatly with the buyer’s existing operations?

Could it perhaps be integrated in some way that would make your standalone business, which is not currently viable, become viable? Keep in mind for this to be an option, the company would need to have a solvent business.

If you can’t sell your unprofitable but still solvent company, you could always explore the option of a statutory liquidation. This would involve liquidating all the company assets, paying off any outstanding liabilities, and then distributing the remaining amount to shareholders.

Companies under business bankruptcy protection

If your business is struggling financially but still has potential, you may be able to restructure it through business bankruptcy protection. In Canada, there are two main possible federal statutes to restructure under; (i) the Bankruptcy and Insolvency Act (Canada); and (ii) the Companies’ Creditors Arrangement Act. One of these restructuring legal proceedings is an alternative to business bankruptcies.

A proposal under the Bankruptcy and Insolvency Act (Canada) (“BIA”)

The BIA is the canadian bankruptcy legislation containing all the rules and regulations in Canada’s bankruptcy regime. However, it also includes bankruptcy options such as a Division I Proposal for debtors who owe more than $250,000. This kind of financial restructuring allows the company to remain in business while it restructures. The essence of a BIA Proposal restructuring is that the company is offering a contract to its unsecured creditors to pay less than the total it owes those unsecured creditors in return for eliminating all of its unsecured debt.

To ensure that the company can successfully implement a proposal and pay its post-filing debts, the licensed insolvency trustee will need to be satisfied that all relevant information has been obtained and that the company has a good chance of success. The company’s cash flow will need to be monitored to ensure that it is sufficient to run the business and pay for the goods and services it needs going forward.

The Trustee will send all known creditors a copy of the proposal, a portion of the company’s statement of affairs listing the company’s assets and liabilities, a list of creditors, a proof of claim form, a voting letter and the Trustee’s report providing additional information and the Trustee’s recommendation.

The meeting of creditors is then held and if the proposal is accepted by the required majority of unsecured creditors, the licensed insolvency trustee takes the proposal documentation to Court for approval. If the proposal is accepted by creditors and approved by the court, the company is now bound by the proposal.

If the companies successfully complete their financial restructuring proposal, they will avoid business bankruptcies. However, if the company fails to get creditor or court approval, or fails to successfully complete the proposal, it will automatically go into bankruptcy under the BIA.

Financial restructuring under a Companies’ Creditors Arrangement Act (“CCAA”) plan of arrangement

Restructuring through a CCAA plan of arrangement is a financial restructuring process that provides companies with a way to restructure their debts and other obligations. This process can help companies to avoid the business bankruptcy process and to continue operating while they repay their creditors. It is very similar to a BIA proposal. The main difference is that it is only for companies with debts of $5 million or more, it is much more court-time intensive and there is no automatic business bankruptcy provision. In a CCAA, the licensed insolvency trustee acts as a monitor under the CCAA to administer the restructuring process.

When you hear when a company files for protection, or bankruptcy protection, in Canada it is usually under the CCAA. In the United States, it is under Chapter 11 of the US Bankruptcy Code.

business bankruptcies

Licensed insolvency trustees say if companies are insolvent and not viable the best option may be business bankruptcies

We still want to know if the business is viable when it is insolvent. If it is viable, then we could look at doing a restructuring as outlined above. After the company is restructured, we could either keep running it or look to sell it. If there are impediments to a successful restructuring, the approach we take even through business bankruptcies will be different than if it is not a viable business model any longer.

If the business is not viable and insolvent, then there is not much that can be done. The business is financially unhealthy and the marketplace no longer wants the product or service this business provides. Therefore, we are looking at bankruptcy if there is not a secured creditor who is going to enforce their security through a receivership. Receivership is a whole topic unto itself which is for a different day.

As a licensed insolvency trustee, I am responsible for understanding all the issues in business bankruptcies and preparing the necessary documentation for limited companies to assign themselves to business bankruptcies. A meeting of directors must be called for them to resolve that the company should put its business into bankruptcy and appoint one of the directors to be the designated officer.

The officer designated by the board should be the director with the most intimate knowledge of the company’s affairs. This officer will sign the bankruptcy documentation and be the company’s representative at the first meeting of creditors.

The Trustee attends the director’s meeting and prepares the meeting minutes, or the minutes will be prepared by the directors and provided to the Trustee. Then, the licensed insolvency trustee prepares the bankruptcy documents which include the statement of affairs, which is the listing of assets and liabilities, names addresses and amounts owing to each creditor. The designated officer then attests to the truthfulness of the information and signs it all.

The companies are insolvent and have to go into business bankruptcies

The Trustee files the necessary documentation with the Superintendent of Bankruptcy, who issues a certificate of bankruptcy and appoints the Trustee. That’s when a company is officially entered into the bankruptcy process and the bankruptcy proceedings begin. This is the process of a company filing an assignment into bankruptcy.

So in a commercial bankruptcy administration, the Trustee has several responsibilities. The Trustee has to deal with the assets. The Trustee has to first determine are the assets subject to the security of a lender. Is that lender’s security good and valid?

What happens when the certificate is issued for business bankruptcies?

If every one of the assets is covered by a lender’s valid security which makes the security cover the assets in priority to the rights of a Trustee, then the bankruptcy trustee would not take steps to handle the company’s secured assets unless the secured lender particularly requests the Trustee to do so separately either as Receiver or Agent of the secured lender.

So let’s simply take the case where in bankrupting the company, the Trustee is handling the assets either due to the fact that they’re not secured or because the secured financial institution wants the Trustee to handle the secured assets within the bankruptcy (which is not normal, but not unheard of either).

The Trustee needs to make certain that the corporate assets are safeguarded, that they’re appropriately insured and that the Trustee has carried out an inventory of those assets.

The Trustee then needs to figure out how is it going to offer those business assets for sale. The Trustee must do a risk-reward analysis to see if it makes good sense for the Trustee to run the business. If so, is the Trustee looking for a sale of assets as a going-concern business sale or just shut down the business and liquidate the assets once the reasons for running the business have been met?

If it doesn’t make sense for the Trustee to run the business, the Trustee will close it down and take a look at the alternatives available. The assets can be sold by public auction, private sale or by tender sale separating the assets up into blocs. If the assets are such that they would attract a retail audience where consumers would pay more than if it was sold in lots to wholesalers, then a retail sale would be the way to go. The nature of the assets will identify what sort of sale of assets the Trustee runs.

Business bankruptcies: How will I know what’s going on?

The Trustee alerts all of the company’s creditors listed in the sworn statement of affairs of the bankruptcy in a mailing. The Trustee includes a proof of claim form so that all creditors can file their claim. The Trustee examines the claims and holds the first meeting of creditors.

After the first meeting, a meeting of inspectors is held. Inspectors are creditor representatives who assist the Trustee in providing approval for the Trustee’s recommendations and actions it wishes to take. This includes any approval of asset sales the Trustee recommends after making an informed decision. Inspectors also need to approve the Trustee’s Final Statement of Receipts and Disbursements near the end of the administration of all business bankruptcies.

Finding a Licensed Insolvency Trustee

I hope you enjoyed this Brandon’s Blog on business bankruptcies. Are you or your company in need of financial restructuring? Are you or your company unable to survive the COVID pandemic and its aftermath? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

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

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

We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

Call us now for a no-cost initial consultation.

If you would like our free e-Book, “Closing A Business Without Going Bankrupt” CLICK THE PICTURE BELOW

Brandon Blog Post

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

Post author By Brandon Smith
Post date May 23, 2022

Corporate bankruptcy: An overview

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

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

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

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

**Can a business declare corporate bankruptcy?**

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

What are the different types of corporate bankruptcy in Canada?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Corporate bankruptcy and insolvency at a glance

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

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

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

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

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

Bankruptcy and CRA Debt Introduction

Definition of Bankruptcy and CRA Debt

Bankruptcy and CRA Debt: Importance of Debt Management and Tax Relief

Bankruptcy and CRA Debt: Understanding Bankruptcy in Canada

What is bankruptcy?

Bankruptcy laws in Canada

Bankruptcy and CRA Debt

Overview of the CRA

Types of debt owed to the CRA

Consequences of CRA debt

Bankruptcy and CRA Debt: Exploring CRA Debt Solutions in Canada

Informal Debt Settlements

Debt Repayment Plans

Bankruptcy as a Debt Relief Option

Bankruptcy and CRA Debt: The Bankruptcy Process in Canada

Preparing for Bankruptcy

Filing for Bankruptcy

Duties and Responsibilities during Bankruptcy

Bankruptcy and CRA Debt Discharge Considerations

Dealing with Bankruptcy and CRA Debt

Outstanding Tax Returns

Bankruptcy and CRA Debt: Discharge in Bankruptcy

Rebuilding Your Finances After a Canadian Bankruptcy Discharge

Bankruptcy and CRA Debt FAQs

Is it possible to file for bankruptcy solely for CRA debt?

What happens to my CRA debt in bankruptcy?

How does bankruptcy affect my tax refunds?

Can I include tax debt in a consumer proposal?

What if my tax debt exceeds $200,000 and makes up over 75% of my unsecured debt?

Bankruptcy and CRA Debt Conclusion

Bankruptcy or Consumer Proposal: Introduction

Bankruptcy or Consumer Proposal: Importance of understanding the differences between the two options

Overview Explanation of Bankruptcy or Consumer Proposal

Bankruptcy: A Solution for Unmanageable Debt

Consumer Proposal: A Negotiated Settlement

Consumer Proposal Allows You to Keep More Assets

Bankruptcy or Consumer Proposal: How Does a Consumer Proposal Work?

Binding Agreement with Creditors

Administered by Licensed Insolvency Trustee

Protection from Debt Collectors and Wage Garnishments

Bankruptcy or Consumer Proposal: How Does Bankruptcy Work?

Bankruptcy: Different Payments, Bigger Credit Impact

Choosing the Right Path

Bankruptcy: Different Payments, Impact on Credit

Choosing the Best Path for You

Bankruptcy or Consumer Proposal: Debts Discharged and Not Discharged

Debts that cannot be discharged:

Debts that may be discharged after a certain time:

Impact on Your Credit Score: Bankruptcy or Consumer Proposal

Duration of Impact

Bankruptcy or Consumer Proposal: Social Stigma and Decision-Making

Bankruptcy or Consumer Proposal: Getting Professional Help for Making the Right Decision

Bankruptcy or Consumer Proposal: Conclusion

Reviving a Canadian consumer proposal: Introduction

What a Canadian consumer proposal is all about

The benefits of a Canadian consumer proposal

Eligibility requirements for a Canadian consumer proposal

Types of debt covered by a Canadian consumer proposal

Annulment of a Canadian consumer proposal

The Canadian consumer proposal before the Ontario Court

Background

Jurisdiction to revive a Canadian consumer proposal

Factors considered by the Court in deciding whether to revive a Canadian consumer proposal

Factors considered for reviving a Canadian consumer proposal

Reason for annulment of the Canadian consumer proposal

Amount paid under the Canadian consumer proposal

Creditor opposition

This Canadian consumer proposal disposition: The Court’s decision in the case of Re Cumberbatch

Canadian consumer proposal: Conclusion

Debt relief options: Introduction

Debt relief options: What is debt relief?

Debt relief options: Why managing debt is crucial

Debt relief options: Office of the Superintendent of Bankruptcy (Canada)

Debt relief options: The difference between good and bad debt relief service providers

Debt relief options: Factors to consider when choosing a debt relief service

Certification and accreditation of the debt relief service provider

Transparent fee structure

Customer reviews and rating

Debt relief options: Tips for managing your debt

Credit counselling

Bankruptcy and *CRA Debt**: Understanding Bankruptcy in Canada*

*Bankruptcy law**s in Canada*

*Debt Re**payment Plan*s

Bankruptcy and *CRA Debt**: Discharge in Bankruptcy*