Tag: Bankruptcy and Insolvency Act

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CONSUMER PROPOSAL IN CANADA: CONSUMER PROPOSAL TORONTO ONTARIO REVIEW

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consumer proposal in canada

Consumer proposal in Canada: Introduction

In this vlog, I try to provide answers to the most asked questions about a consumer proposal in Canada (the Proposal, the Plan or CP). A Proposal is an official method controlled by the Bankruptcy and Insolvency Act (BIA) readily available to people.

Consumer proposal in Canada: Collaborating with the trustee

Collaborating with a licensed insolvency trustee (LIT) serving as administrator of your Plan you make an offer to:

  • pay your creditors part of the total you owe them over a specific duration;
  • expand the length of time you need to repay that part of your financial debts; and
  • stay clear of bankruptcy

Consumer proposal in Canada: The consumer proposal payments

Payments are made with the LIT. The LIT uses that cash to pay each of your creditors their in a proportionate share based on the proven claims filed by them with the LIT. The financial obligations need to be repaid through the CP within 5 years.

Consumer proposal in Canada: Who qualifies?

You need to be a person and not a corporation. Your overall financial debts need to not surpass $250,000. This limit doesn’t include debts from a home loan, mortgage or credit line supported by your primary house.

You need to likewise satisfy the insolvency requirements. This implies that:

  • your financial debts value is above the value of your possessions;
  • if you sold off your assets you wouldn’t adequate funds to repay your financial obligations completely;
  • you are having difficulty making a complete settlement on every one of your financial obligations monthly

Making just the minimal month-to-month payments as disclosed on your credit card or loan statements do not count as repaying your financial debts.

Consumer proposal in Canada: What is the price of a consumer proposal?

Your Plan payments also cover the fee for the Proposal. There are no different costs either for:

  • submitting a Plan; or
  • charges paid to the LIT to administer your CP


Consumer proposal in Canada: How long will my consumer proposal take?

A Plan could last for no more than 5 years. You could reduce the term either by boosting the amount of your month-to-month repayment or by providing a round figure repayment all at once. The one-time repayment makes sense if you can get an adequate loan from either a financial institution or family member.

Consumer proposal in Canada: What are the steps of a consumer proposal?

A CP permits you to pay all or part of your unsecured debt in regular monthly amounts over time. The maximum length of time is 5 years.

In drafting your Plan, the LIT must make sure that your consumer proposal provides a better result for your creditors than in your bankruptcy.

The normal steps are:

  • A LIT will consult with you and develop a Plan that you both think will work for both you as well as serve the needs of your financial institutions and others you owe money to
  • The LIT administering your CP will send the Proposal to the Office of the Superintendent of Bankruptcy
  • The LIT will mail out the CP to your creditors who then have 45 days to approve or deny it
  • The creditors can approve or deny your Plan at a meeting of creditors.

Typically, in a CP in Canada, there is no need to hold a meeting.

Consumer proposal in Canada: Can a consumer proposal eliminate debt collectors and avoid my income from being seized?

Yes, as soon as the filing of a Plan happens, all creditor seizure activities stop. However, it does not stop family law payments under a proper settlement agreement or court order.

Consumer proposal in Canada: In a consumer proposal will I hand over my home and my auto?

KEEP IN MIND: If you were to surrender your secured properties after declaring your Proposal, you will not be relieved from any type of financial debt shortfall since it happened after the declaring of your consumer proposal.

Make certain that if you are offering up secured assets, wait until they have started their enforcement and are claiming any shortfall against you BEFORE you give your CP.

Normally lenders who register a mortgage or other security for a loan are outside the Plan process. It is the equity you have in your residence or car that must be considered when you and the LIT first sit down to work out a budget. This will affect the type of offer you are going to make.

If you have enough income to keep paying the mortgage against your home and/or your auto loan and you wish to keep the assets, you can do so. Again, your equity must be considered in the offer you make to your creditors. Your income and expenses must be reviewed to make sure you can afford all these expenses plus the monthly payment under your Proposal.

Consumer proposal in Canada: Will I need to surrender my charge cards?

Generally, you should be ready to offer every one of your charge cards to the LIT and you will not be able to ask for a brand-new charge card until after your Plan is finished. You nevertheless can make use of a guaranteed/secured credit card throughout this CP process.

Consumer proposal in Canada: If I miss out on repayment will I automatically become bankrupt?

We highly recommend you to make your repayments consistently and on time. If you drop 3 behind, your consumer proposal will certainly finish. If that were to happen, you will no longer have protection from your creditors and their collection efforts. However, you will not automatically become bankrupt if you default on your Proposal.

Consumer proposal in Canada: What should I do if I have excessive financial debt?

If you’re thinking about a debt settlement program or are looking for ways to end your financial debt call Ira Smith Trustee & Receiver Inc. We understand the stress and pain your financial problems are causing you. We feel your pain and we can end it for you.

Our strategy for every single person is to develop a result where Starting Over, Starting Now comes true, starting the minute you walk through our door. You’re just one call away from taking the necessary actions to get back on the road to leading a healthy and stress-free life.

 

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BANKRUPTCY AND INSOLVENCY ACT: COURT MAY NOT LISTEN TO BANKRUPTCY TRUSTEE

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Bankruptcy and insolvency act: Introduction

I want to describe to you a very interesting case that was recently decided in the Court of Appeal of British Columbia, Randen v. HPCB-Online Ltd., 2018 BCCA 123 (CanLII). The bankrupt’s creditors applied to have the transactions reviewed under section I00 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”). One of the areas of contention was that the judge in the lower court found he could not rely on the bankruptcy trustee’s opinion of value in the circumstances.

The applicants, Shawn and Edvige Cody, were the principals of the bankrupt, Half Price Computer Books Ltd. (“Half Price”) and the applicant HPCB-Online Ltd. (“Online”). About ten days before Half Price was assigned into bankruptcy, Online bought roughly 10% of the book inventory of Half Price.

The application under s.100 was originally made by the bankruptcy trustee, and later transferred to creditors David Randen, The Innovative Alliance Inc., J.R. Trading Co. Inc. and Fairmount Books Inc. under section 38 of the BIA. The lower court judge found Online acquired property from Half Price at much less than reasonable market value. The lower court judge ordered Online and the Codys to pay back the difference which he established to be $287,000.

Bankruptcy and insolvency act: Section 100

Section 100 of the BIA. The section was repealed in 2009, but applies on transactions before then. The main purpose of that section was for reversing the effects of non-arm’s length transactions that reduced value from the estate of a bankrupt person or company.

Until 2009, s. 100 of the BIA provided:

“100 (1) Where a bankrupt sold, purchased, leased, hired, supplied or received property or services in a reviewable transaction within the period beginning on the day that is one year before the date of the bankruptcy event and ending on the date of the bankruptcy, both dates included, the court may, on the application of the trustee, inquire into whether the bankrupt gave or received, as the case may be, fair market value in consideration for the property or services concerned in the transaction.

(2) Where the court in proceedings under this section finds that the consideration given or received by the bankrupt in the reviewable transaction was conspicuously greater or less than the fair market value of the property or services concerned in the transaction, the court may give judgment to the trustee against the other party to the transaction, against any other person being privy to the transaction with the bankrupt or against all those persons for the difference between the actual consideration given or received by the bankrupt and the fair market value, as determined by the court, of the property or services concerned in the transaction.”

Bankruptcy and insolvency act: The questionable transaction

The brand-new company Online bought roughly 10% of Half Price’s stock, or 44,000 books. These books were clearly selected by Mr. Cody as the best-selling. Online paid $21,964.50 for these books, about $0.50 CDN for each publication. The books and records of Half Price, including an e-commerce website which Half Price created at its expense and was the property of Half Price, were copied and used by Online to aid in the sale of these publications at the instructions of Mr. Cody.

The Half Price sorting software and mailing software program that was later used to retail these books by Online, which software was the property of Half Price, was duplicated and taken or transferred to Online. Additionally, there was a claim that the goodwill of Half Price was made use by Online. There was no evidence that Online paid anything for the use of the software and goodwill.bankruptcy and insolvency act 1

Bankruptcy and insolvency act: The lower court’s first problem

The lower court found that Online paid conspicuously much less compared to fair market value. It must pay to the bankruptcy Estate for the benefit of the creditors which he determined to be $287,000. The lower court judge noted that this was not a case in which the trustee was driving the application. The trustee assigned the action to specific creditors.

Normally, the bankruptcy trustee would have to submit evidence to the court in a section 100 application as to the value of the property in question. Since the trustee had assigned its interest to specific creditors, there was no report from the trustee. The creditors said the value of the joint assets is close to $1.07 million. The lower court had to look at the trustee’s actions in determining what the trustee must have thought the value was.

The lower court acknowledged the need in s. 100 to accept the trustee’s viewpoint about the value, unless other values are confirmed. The court however discovered it could not depend on that viewpoint in this case. The first problem was that they were standing in the place of the trustee. The trustee had determined that the software and other assets was of no value. In addition, the trustee did not figure out that there was any kind of goodwill value to this.

Bankruptcy and insolvency act: The lower court’s second problem

The second problem was that Half Price could have moved the best publications to Online at the direction of the Codys. The remaining books, being 90% of the book inventory, sold for around the same value as the 10% of publications. Though this is not entirely determinative of worth, it shows that the inventory, software and goodwill was not as valuable as these creditors represented to the lower court..

The BIA required the lower court judge to accept the trustee‘s viewpoint as to the value, or in this situation the point of view of those creditors, unless other values can be confirmed. The lower court considered the trustee’s activity when the bankruptcy first happened, that those assets had no value. The lower court found that it could not rely on any trustee viewpoint on worth.

Bankruptcy and insolvency act: The Court of Appeal

The Court of Appeal confirmed that a trustee in bankruptcy is an officer of the court and has an obligation to offer all relevant facts to the court in a dispassionate, non-adversarial fashion. It went on to say that the creditors do not have the same responsibilities. They got the right to pursue the proceedings in their very own passionate way. The Court of Appeal went on to say that it was open to the court to decline the trustee’s opinion on the evaluation of a fair market price.

The Court of Appeal finally concluded that although the Court did not have to accept the trustee’s opinion of value, there was insufficient evidence for the lower court judge to place a value. So the Court of Appeal ordered a new trial in the lower court. Now both the creditors, and certainly the trustee, will have to submit evidence about what the fair market value was, in their respective opinion. That way, the lower court will be able to rely on experts, an officer of the court and real evidence.

Bankruptcy and insolvency act: The licensed insolvency trustee

Licensed insolvency trustee is the relatively new name for a bankruptcy trustee. Is your company experiencing financial problems? Are you, or somebody you care about, experiencing personal financial problems?

Bankruptcy is the last thing we try to do for a company or person in financial difficulty. If caught early enough, we can get involved in a turnaround situation for your company to keep jobs and value. We also carry out debt settlement plans for people.

If you’ve personally fallen victim to money mistakes and are in pain and stressed out, it’s time for professional help now too.

The Ira Smith Team knows that you are worried because you are facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being. The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points.

Contact the Ira Smith Team today. We know how to solve both corporate and personal financial challenges, remove your pain and put things back on a healthy path. Contact us today for your free consultation so that we can save your company, Starting Over Starting Now.

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BUSINESS DEBT ADVICE CANADA: TROUBLE SHOOTING DEBT STRAPPED COMPANIES

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Business debt advice Canada: Introduction

When it involves money, timing is everything. Your business is getting closer to the top of its banking line and your banker is asking for more information than usual. This is where your heart starts pounding faster and your stress level increases. This is the moment you can seize to right size your business or else it very well may fail. The purpose of my blog is to give you business debt advice Canada.

Business debt advice Canada: Relationships can become strained

Relationships can become strained with your lender and suppliers when business debts are mounting and your company is facing a cash crisis. However, there are actions a borrower can take to prevent calamity. Reassuringly, most of the time, lenders would rather support you if you have a viable business plan to correct the situation going forward, and not putting you out of business.

I hope the suggestions below shows you that you should look at this as an opportunity to fix your business. I have found that in trying times when a company has mounting debts and insufficient cash, there is no replacement for good management.

A solid business plan showing how the company will turn itself around is what your lender wants to see. Communication with your lender and your suppliers is key. Do not hide from the problem. Face it head on. If your business plan shows you can turn things around, you will feel like you are dealing from a sound platform and not just running scared.

Business debt advice Canada: Take emotion out of the equation

These situations generally become more tense before they become better. You, your lender and your unpaid suppliers all want the same thing. You all want the company to be successful and profitable, and to be able to pay all of its bills in full when due. Your lender and suppliers are not out to get you. However, if they do not: (i) know that you have solid business turnaround plan; and (ii) receive ongoing information to show what steps you are taking to fix the problems, they will have no choice but to turn off the tap.

I have unfortunately seen too many companies fail in their business restructuring efforts due to lack of communication. The turnaround plan may have been sound, but nobody knew. This only creates ill will among the stakeholders and a result that nobody wants.

Business debt advice Canada: Informal and formal turnaround options

I must preface this section by saying do not be afraid to consult with a licensed insolvency trustee (LIT) for business debt advisory services. Trustees’ training makes them expert in assessing troubled business situations and implementing turnaround steps. A LIT does a lot more than just bankruptcy.

You will find it helpful to have a professional trustee assist you in developing your turnaround business plan, implementing it and keeping management focussed and accountable. You will also find it very helpful to have a LIT go with you for meetings with your banker; there will be many of those!

Business debt advice Canada: Troubleshooting

Fully understanding the full current status of the company showing signs of financial trouble is key. Things that I focus on early on when looking at troubled companies are:

  • What are all the different assets of the company and where are they located?
  • Are all the assets properly insured?
  • What is the going-concern value and the estimated liquidation value of the assets?
  • What is the full extent of all liabilities and business debt levels? This includes amounts owing to the government for:
  • What is the status of premises lease(s) for both remaining term and cost?
  • Is the cost of the leased premises above or below current market value?
  • Has anyone personally guaranteed bank debt, the landlord or any other creditor that would affect turnaround decisions to be taken?
  • Has a current crisis cash-flow statement and turnaround business plan been developed and tested for reasonableness?
  • What are the causes of the company’s current financial problems and how likely are those causes to recur?

This list is not meant to be exhaustive. No doubt other questions will arise as answers are found for these first questions. However, this is the information I first want to get before embarking on developing a restructuring plan.

Business debt advice Canada: Informal restructuring and turnaround

If the business problems have been identified early and have not been allowed to fester, then an informal restructuring may very well work. Perhaps all that will be needed is some accommodation from the lender both in time and money. Banks are quite willing to enter into a forbearance agreement with their corporate client allowing the time (and sometimes more money) to see if the turnaround plan will work.

The bank would rather have a successful turnaround than shut you down. The bank needs to know that management has the bench strength to pull off the restructuring. If not, they will expect you to have a lawyer experienced in turnarounds and a LIT active on your team.

Companies that have relatively few trade suppliers may also be able to work out a restructuring of their unsecured debt. The fewer people you have to talk to and get onside, the higher the likelihood of success. Of course, the trust developed from earlier dealings is very important. If there is no trust, or if there are just too many suppliers, an informal restructuring will not work with them.

Business debt advice Canada: Formal restructuring

The Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) and the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) are the two primary Federal statutes that govern corporate restructuring in Canada. The requirements of each statute and the exact processes themselves are weighty enough to deserve their own blog. However, the takeaways from this blog on formal restructuring are:

  • In a formal restructuring, I still go through the checklist I have identified above of issues to look into.
  • Under the BIA, the restructuring section is Part I Division III of the BIA
  • If a restructuring under the BIA does not receive the necessary creditor AND court approval, the company will automatically be bankrupt
  • In a formal restructuring, the company stays in control of its assets and business operations
  • A formal restructuring invokes a stay of proceedings so no party can begin or continue litigation or enforcement action against the company
  • A company needs to have at least $5 million in debt to restructure under the CCAA
  • A BIA restructuring will be less costly than a CCAA restructuring because the company does not have to go to Court for approval every time it wishes to do something
  • The term “bankruptcy protection” in Canada, refers to a formal restructuring under either the BIA or CCAA.

Business debt advice Canada: What to do if your company has too much debt

Is your business facing financial problems? Perhaps your company is in need of a restructuring. The Ira Smith Team can develop a restructuring plan which may or may not include the need to file for bankruptcy protection.

The Ira Smith Trustee & Receiver Inc. Team understands the pain you are going through trying to keep your company alive while trying to negotiate with potential purchasers. We understand that you are playing beat the clock, and the pain and stress you are feeling thinking that you may just run out of time. The bankruptcy protection process can ease this stress and provide a level playing field so that no potential purchaser takes advantage of you.

The Ira Smith Team has a great deal of experience in running a stalking horse stalking horse asset purchase agreement. The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. Call the Ira Smith Team today for your free consultation. We can end your pain and put your company back on a healthy profitable path, Starting Over, Starting Now.

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PERSONAL BANKRUPTCY CANADA FAQ: VIDEO – PERSONAL BANKRUPTCY FAQ CANADA

Personal bankruptcy Canada FAQpersonal bankruptcy canada faq: Introduction

Last week I provided you with my infographic, video and blog to give you information on the Canadian corporate bankruptcy Canada process. I focussed on how an incorporated business files for a voluntary bankruptcy in Canada. This week, I want to describe how an individual files for voluntary bankruptcy. I also want to answer what I have found to be the personal bankruptcy Canada faq. So look at the infographic and watch the video below. Feel free to read in more detail below the video.

Personal bankruptcy Canada faq: Personal bankruptcy process in Canada

One of the most asked questions is “What is the bankruptcy process in Canada?”. Last week our infographic and video described the corporate bankruptcy process in Canada. This week’s video describes the personal bankruptcy process in Canada.

VIDEO – Personal bankruptcy Canada faq

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Personal bankruptcy Canada faq # 1 – How do I recognize if I am in financial trouble?

If you are having difficulty paying your debts or have actually quit paying them altogether then you are in financial difficulty. Call an expert, a government qualified trustee to check your choices for reducing your debt and eliminating your stress and pain.

Personal bankruptcy Canada faq # 2 – Is bankruptcy my only alternative to get relief from debt?

The short answer is no; there are other options. You should always start first with a free consultation with a licensed insolvency trustee (LIT or Trustee). A LIT is a private party licensed by Industry Canada to carry out the restructuring and liquidation rules under the Canadian Bankruptcy and Insolvency Act (BIA). The LIT will discuss options with you to first avoid bankruptcy. These options include:

  1. credit counselling;
  2. debt settlement;
  3. restructuring; and as a last resort
  4. bankruptcy

Bankruptcy does not deal with debts such as home mortgages, vehicle loan, spousal support or child support. Debt settlement firms try to bargain with your lenders to lower the amount owing. They also prepare a payment plan for you to settle the debt; they do not “erase your debt”.

The Canadian government is in the process of implementing new rules to curb the activities of some debt settlement companies. Some of them charge you for reviews that a licensed insolvency trustee performs for free. They also sell you products you don’t need, under the guise of helping you improve your credit score.

Personal bankruptcy Canada faq # 3 – I have actually seen advertisements from Debt Settlement firms stating they could erase my debt without making use of a Trustee in bankruptcy. Just how does that work?

They don’t and their ads are misleading. If you first have a free consultation with a LIT, you will learn that a number of choices available to you that include yet are not restricted to debt reduction including a consumer proposal.

Understand that these debt settlement firms are not licensed trustees. Eventually, they stop charging you for things a LIT would do for free. Then they ultimately hand you over to a LIT for either a consumer proposal or bankruptcy. You could have just gone to see a professionally licensed Trustee to start with!

Personal bankruptcy Canada faq # 4 – Do I get approved for bankruptcy?

You qualify for individual bankruptcy in Canada if you are financially troubled, insolvent and owe greater than $1,000.

Personal bankruptcy Canada faq # 5 – Should I file bankruptcy?

Without the detailed information of your unique circumstance, that decision cannot be made. Get In touch With Ira Smith Trustee & Receiver Inc. for a complimentary no commitment session so you will understand your options for ending your debt pains, Starting Over, Starting Now.

Personal bankruptcy Canada faq # 6 – If I declare bankruptcy, will I lose my house and car?

There are certain claims that are not released by your discharge from bankruptcy. Examples are home mortgages and car loans, if you choose to keep them. It comes down to what is your equity in those assets. The answer to that question and your ability to cash-flow those debts will be the determining factor. There is a list of items that are exempt from seizure. Call Ira Smith Trustee & Receiver Inc. to find out more.

Personal bankruptcy Canada faq # 7 – Once I file bankruptcy, exactly what occurs to the money I owe?

Once you declare bankruptcy you will be required to surrender certain non-exempt assets to the Trustee. These assets will then be sold and the money earned from the sale of the assets distributed among your creditors.

Personal bankruptcy Canada faq # 8 – Even though I have not located work in my field, I still owe on my student loans. Will my bankruptcy get rid of that debt?

Is your date of bankruptcy within 7 years of when you discontinued to be a full or part-time student? If so, your student loan debt will not be released by your discharge from bankruptcy. In particular instances, you could be able to apply to the court for a discharge of your student debt obligations under the “hardship provision”.

Personal bankruptcy Canada faq # 9 – What takes place to my salary or wages throughout a bankruptcy?

Salaries and wages are not influenced by bankruptcy. However you will need to complete an Income and Expense Form noting your household earnings as well as costs. This becomes part of your budgeting procedure. If your earnings goes beyond specific requirements developed by the Office of the Superintendent of Bankruptcy (OSB) (“surplus income”), you will be required to pay part of the surplus income into the bankruptcy estate through the trustee.

Personal bankruptcy Canada faq # 10 – Canada Revenue Agency has actually frozen my bank accounts and has a garnishee with my employer on my earnings. Just how can I stop all that?

If you have filed personal bankruptcy, personal income tax debt is an unsecured debt. As soon as you’ve declared bankruptcy or made a consumer proposal, Canada Revenue Agency (CRA) cannot start or continue taking any kind of enforcement activity versus you, consisting of wage garnishment or freezing your assets. Your Trustee will alert CRA once you file. The LIT will also advise both CRA and your bank and employer that any enforcement activity against you for your debt cannot continue.

Personal bankruptcy Canada faq # 11 – Will I still owe loan after I state bankruptcy?

Maybe, due to the fact that bankruptcy does not cover secured lenders – home mortgages, auto loan, student loans (if it is less than 7 years given that you discontinued to be a full or part-time student). It also does not cover certain other debts:

  • penalties or fines enforced by the court;
  • spousal support;
  • child support; or
  • debts arising from fraud.

Personal bankruptcy Canada faq # 12 – How long will I be bankrupt?

The time you spend in bankruptcy will depend on whether this is a first or 2nd bankruptcy and if you have surplus income. Get In touch with Ira Smith Trustee & Receiver Inc. to find out more.

Personal bankruptcy Canada faq # 13 – Who will know that I have declared bankruptcy?

As soon as you declare bankruptcy your Trustee will tell your creditors, CRA, and the Superintendent of Bankruptcy. The two Canadian credit bureaus, Equifax and TransUnion, obtain filing records from the Superintendent of Bankruptcy, so it will be on your credit report.

Bankruptcy filings are a public document. On top of that particular personal bankruptcies, those with non-exempt assets estimated to realize more than $15,000, need an ad in the “legal” section of a local newspaper.

Personal bankruptcy Canada faq # 14 – How will bankruptcy influence my credit score ranking?

An individual that files bankruptcy gets the lowest credit score ranking. Details of your bankruptcy that influences your credit report is inevitably eliminated many years after your discharge from bankruptcy.

Personal bankruptcy Canada faq # 15 – What does a LIT/Trustee do?

A Trustee is an individual or company licensed by the OSB to carry out mandates under the BIA such as bankruptcy, proposal, consumer proposal, summary administration bankruptcy and business reorganizations. A LIT is an officer of the Court. The Trustee has a duty of care for the rights of both the debtor and the creditors.

The LIT also makes certain that the legal rights of the insolvent/bankrupt are not abused.

Here is a listing of standard steps taken by a Trustee:

  • Reviews and counsels debtors on available alternatives
  • Prepares official documentation that is both filed with the OSB and used to tell creditors
  • Ensures the validity of creditors’ claims
  • Ensures that debtors are provided with mandatory counselling and access to mediation services if there is a dispute about any income they are required to contribute
  • Sells the debtor’s assets, except those exempt from seizure by provincial and federal laws, and hold the proceeds in trust for distribution to creditors
  • Administers the bankrupt estate from beginning to end
  • Assesses the debtor’s conduct both before and during a bankruptcy, as well as the cause(s) of the bankruptcy; and
  • Arranges for (and if necessary reports all the above to the Court) for the bankrupt’s application for a discharge (in the case of personal debtors)

Personal bankruptcy Canada faq # 16 – How do I pick the ideal Trustee?

Make an appointment for your free consultation. Meet with the Trustee and ask any questions you might have about alternatives to bankruptcy, consumer proposal, debt settlement/restructuring, bankruptcy and/or the bankruptcy procedure. Get a feel for not only the answers you receive, but how interested does the Trustee seem in you as a person. Can you see yourself relating well to that person. Does the Trustee make you feel comfortable and the type of person you want to work with.

If not, consult with a different Trustee firm and repeat the procedure until you find a Trustee that you really feel comfy working with.

Personal bankruptcy Canada faq # 17 – Is my spouse/partner impacted by my bankruptcy?

Your partner/spouse will not be financially affected by your bankruptcy unless they have co-signed a debt or own assets jointly with you. A creditor could pursue your spouse/partner for any debt that they have co-signed for. This includes a mortgage on your jointly owned home.

Personal bankruptcy Canada faq # 18 – How will my bankruptcy impact my present divorce case?

In Canada, the bankruptcy process does not interfere with the majority of the divorce proceeding. The Trustee will stand in the shoes of the bankrupt spouse when it comes to the rights for either the equalization payment or the division of property. All issues about spouse and child support and child custody issues carry on as if there was no bankruptcy at all.

Personal bankruptcy Canada faq # 19 – What is Chapter 7?

Chapter 7 is not applicable in Canada. It is the liquidation section of the U.S. Bankruptcy Code, the federal law governing bankruptcy in America.

Personal bankruptcy Canada faq # 20 – What is Chapter 11?

Chapter 11 is not applicable in Canada. It is the corporate restructuring section of the U.S. Bankruptcy Code, the federal law governing bankruptcy protection in America.

Personal bankruptcy Canada faq – What Now?

I hope that you have found this information helpful. Bankruptcy is the last thing we try to do for a person in financial difficulty. If caught early enough, we can get involved in a debt settlement restructuring program for you.

The Ira Smith Team knows that you are worried because you are facing significant financial challenges. The stress placed upon you is enormous. We understand your pain points.

Contact the Ira Smith Team today. We know how to solve your financial challenges, remove your pain and put things back on a healthy path. Contact us today for your free consultation so that we can save your life, Starting Over Starting Now.

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PAY BANKRUPTCY FEES ONLINE? BE LIKE NIKKI HALEY AND DON’T GET CONFUSED

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Introduction

A ruling in a proposed class action against a defunct Orlando Florida attorney firm, claimed a lawyer goes against government law “if he instructs a client to pay his bankruptcy related legal costs making use of a credit card.” That would also include using a credit card, either directly or through a third-party site, to pay bankruptcy fees online with a credit card.

Note to professionals encouraging clients considering bankruptcy: tell them to keep that plastic in their pocketbooks.

United States Court of Appeals for the Eleventh Circuit ruling

In a judgment likely to resonate with bankruptcy and debt settlement legal representatives, the United States Court of Appeals for the Eleventh Circuit ruled a lawyer violates government regulation “if he advises a customer to pay his bankruptcy-related legal charges using a credit card.” This of course would include an instruction to pay bankruptcy fees online.

The opinion released March 30, 2018 reversed a lower court decision and renewed a Florida class action against shut down Kaufman, Englett & Lynd filed by a previous client. The Orlando Sentinel reported the firm dissolved in April 2016 after the suit was filed.

The panel found a lawyer who advised his client to “sustain more debt” by billing his lawful fees on a credit card contravenes of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Yes, it is fraud

That individual would certainly be committing fraud, and so would the attorney. This is because they’re making a charge knowing they never ever plan to pay that credit card.

The problem was that Kaufman Englett violated the Bankruptcy Code that does not permit a debt relief firm– consisting of a law practice– to “advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer a fee or charge for services performed as part of preparing for or representing a debtor in a case under this title.”

My Canadian view

I would suggest that the outcome in Canada would be as disastrous for both the bankrupt and the licensed insolvency trustee (bankruptcy trustee or trustee). However, that does not mean that a bankruptcy trustee cannot encourage online payments; just not those using a credit card. Before getting into my reasons why, let’s first explore the issue of online payments.

Online payment choices

I think it is important to first understand what the various online payment choices are. The report “Canadian Payment Methods and Trends: 2017” by Michael Tompkins, Research Lead, Research Unit, and Viktoria Galociova, Research Associate, Research Unit, Payments Canada. In their report, they review the various online payments:

  • credit cards;
  • Interac® online debits;
  • online transfers include online e-wallet and electronic P2P transactions initiated through online services and providers, which are either prefunded or linked to deposit accounts at financial institutions (e.g., Interac e-Transfers, PayPal and Tilt); and
  • prepaid app store cards (or virtual cards)

Credit cards are the most used for online payments. But as you can see, there are ways of making online payments using cash.

You can but not by credit card

I submit that you can use an online payment method to pay for Canadian bankruptcy costs, just not by credit card. What this means is that you can transfer cash to your bankruptcy trustee (or consumer proposal administrator) using an online system.

Why not by credit card?

My view is that it would be unlawful to use a credit card for paying a bankruptcy fee in installments or in one payment. The more likely scenario would be paying it all at once just before filing.

My reasons are as follows:

  1. Using a credit card to charge expenses or take cash advances against knowing that you are about to file for bankruptcy and will not repay it is fraud. Fraud of course is illegal. So the insolvent debtor, about to become a bankrupt, will be in trouble. Just like in the USA as cited by the Court that I mentioned at the start of this blog.
  2. Likewise, any bankruptcy trustee who accepts payment by a credit card in the name of and from the insolvent debtor would be in trouble. The same trouble would befall the professional if he or she encouraged the insolvent debtor to take a cash advance against the credit card to pay bankruptcy fee online.

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    pay bankruptcy fees online

Here’s why:

  • It is against the rules of professional conduct of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). The rules need a member to maintain the good reputation of the profession and perform professional services with integrity.
  • The General Rules of the Bankruptcy and Insolvency Act (Canada) (BIA) requires that a bankruptcy trustee maintain the high standards of ethics that are central to the maintenance of public trust. It also requires that trustees shall not assist, advise or encourage any person to engage in any conduct that the trustees know, or ought to know, is illegal or dishonest, in respect of the bankruptcy and insolvency process.

What are the risks?

The risk for the trustee, of course, is serious – the loss of his or her license to practice. But what are the risks for the insolvent debtor?

For the undischarged bankrupt, in my view, the risks are twofold: (i) criminal; and (ii) civil. The criminal repercussions are obvious. The laying of one or more fraud charges would happen and the result would be a criminal conviction, jail time and a restitution order.

In the civil sense, I focus on the bankruptcy discharge process.

Forget about getting a discharge from bankruptcy

The credit card issuer would certainly oppose the bankrupt’s discharge. In the meantime, the credit card company would get a lifting of the stay of proceedings which protects an undischarged bankrupt from lawsuits, to start litigation to find that at least the debt incurred by the debtor to pay for the Canadian bankruptcy costs was a claim against the debtor for a debt not released by order of discharge. Sections 178(1) (a) and (e) are the most likely section of the BIA that would be relied upon.

So the credit card issuer and the trustee (probably by now the substituted trustee!) must oppose the bankrupt’s discharge. I am certain that the oppositions would be successful. The most likely result would be that the Court would flat-out refuse to hear the bankrupt’s application. The result of this is complex and should be discussed in a separate blog. Suffice to say that the bankrupt will have a very hard time ever getting out of bankruptcy without making full restitution. Even then, I would expect the Court to only grant a discharge upon certain conditions being met.

In other words, it would be a disaster and a mess for both the trustee and the bankrupt. These are my reasons why I feel that to pay bankruptcy fee online using cash is fine, but not by a credit card.

Pay bankruptcy fees online: What about you?

Are you facing financial problems? The Ira Smith Team can develop a restructuring plan for you. Debt problems are stressful and confusing. But with our help, you can be just like Nikki Haley and say “I don’t get confused”!

The Ira Smith Trustee & Receiver Inc. Team understands the pain you are going through trying to stay alive and trying to support yourself and your family. We understand the pain and stress you are feeling thinking that you may just soon hit the wall.

Our debt settlement plan process can ease this stress. The Ira Smith Team has a great deal of experience in helping people avoid bankruptcy while resolving their debt problems. We understand your pain points. Call the Ira Smith Team today for your free consultation. We can end your pain and put you back on a healthy profitable path, Starting Over, Starting Now.

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COMPANY RESTRUCTURING PROCESS CASE STUDY: HOW WE USED BUSINESS RESTRUCTURING IN CANADA TO SAVE THE BUSINESS AND JOBS

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Company restructuring process: Introduction

Over the last two weeks, we have provided you with real case studies from our files. This week’s case study is about our involvement with a company restructuring process so its business could continue to serve its clients and maintain most of the jobs.

Two weeks ago we described a personal insolvency case study, CLAIM BANKRUPTCY IN ONTARIO CASE STUDY: SHE REALLY WANTED TO BUT WE STOPPED HER AND SOLVED HER PROBLEMS, was about the surgeon who became insolvent because of a failed business venture and a divorce. The events leading up to the doctor’s insolvency convinced her that she had to go bankrupt. We then described the steps we took to restructure her affairs so she could avoid bankruptcy. She completed a successful Proposal under the Bankruptcy and Insolvency Act (Canada). More importantly, she regained her confidence, we eliminated her pain points and she is once again thriving emotionally, physically and financially.

Last week, we described a situation where we used our skill set in a different way. In our case study, COURT APPOINTED ESTATE TRUSTEE CASE STUDY: IF IT WAS EASY YOU WOULDN’T NEED US, we described how we ended a war between the two beneficiaries under a Will and monetized the assets for their benefit. In that situation, the Court appointed us as the court appointed estate trustee.

Company restructuring process: The social media agency

The company was a social media agency. Their clients were some of the largest household names in North America. The company made sure that their clients’ websites were eye-catching, technologically advanced using leading search engine optimization (SEO) and search engine marketing (SEM) techniques. In short, their clients had to show up on page 1 of an online search and that their websites were eye-popping and functional. The company was a Canadian and North American leader.

Company restructuring process: Life got in the way

The sole shareholder and Director experienced some health issues with a family member; that required her attention. She was tending to that emergency and it took her away from the business for lengthy periods of time. Experienced senior staff ran the business in her absence. The entrepreneur felt she could deal with business matters by telephone. They established a process where she signed documents and cheques prepared by staff members using couriers.

Company restructuring process: Senior staff were not trustworthy

WRONG!! Although she trusted the senior staff, they turned out not to be trustworthy. They made mistakes and assured the owner that the documents and cheques they prepared were correct.

They also provided her status reports assuring her that all client activities and projects were all on schedule. The reality was that certain senior staff were plotting to establish their own agency, to steal clients. The sole Director felt something was not right, but she could not pinpoint from afar what the issues were. She returned to the office and discovered that her worst fears were her new reality.

Company restructuring process: How bad was it?

Things were very bad. Billings were way behind. Cash flow had dried up. As a result of the lack of cash flow, the company was now behind in rent and had collected but did not remit source deductions totalling over $300,000. The unremitted source deductions formed a trust claim over all the company’s assets, ahead of the company’s bank. Learning all this information made the bank very uneasy and unwilling to lend any more money.

Company restructuring process: The short-term steps in financial restructuring

The sole Director and shareholder of the company contacted us. She was operating in panic mode. We assessed the situation. Our preliminary assessment was that catching up on the billings and the clients paying them in the normal course, good cash flow would return. There was also a good book of projects to start on; just not as many as normal. Thankfully, no clients had left yet.

The short-term plan we developed had 7 steps:

  1. Fire the staff involved in the attempt to start-up their own firm and steal clients. Pay their normal wages and vacation pay, but not pay in lieu of notice.
  2. File immediately a Notice of Intention To Make a Proposal (NOI) to invoke the stay of proceedings (Stay Period) so that no creditor could take action against the company.
  3. Immediately bill all unbilled projects and begin collection efforts on any outstanding invoices.
  4. Reach out to all major clients to reassure them that the entrepreneur was in control after returning from the family emergency and that she would personally be supervising all work performed.
  5. Prepare a crisis cash flow model that thankfully showed that the company could cash flow itself since the amounts owing to the unsecured creditors was not caught in the restructuring.
  6. The company required fresh capital. Luckily, the entrepreneur had enough funds to inject.
  7. Meet with the company’s banker to explain the situation and share the emergency cash flow to show that the company did not need any new funds from the bank and that the principal was going to inject the temporary funds necessary. This gave the banker the assurance that the bank line would not be pressed any further, and that the entrepreneur was willing to put her money where her mouth was.

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Company restructuring process: The long-term plan

Now that the situation was stabilized, we worked with the company to look at longer term restructuring needs. It needed a business debt restructuring process. We determined that the company had too much space. As it did not need to immediately replace the terminated staff, it now did not need as much space. Certain space could be given up without affecting the main space and the business.

The landlord of course was not happy about this, but was willing to work with the company. If the landlord was not cooperative, the backup plan was to repudiate the unnecessary space through the formal restructuring plan.

The terminated employees retained legal counsel, who made himself known. Various issues arose from this. Were they going to seek leave of the bankruptcy court to launch litigation for damages against the company? What counterclaim could the company prove? Should we agree to attempt to value what claims they may have without litigation and include them in the restructuring plan?

Company restructuring process: The need for more time

Upon the filing of the NOI, the company obtained a first 30 day stay where its creditors could not pursue it and to file the real restructuring proposal. The company had to run for at least a few weeks to assess if the real performance was similar to the cash flow forecast developed on day 1.

Therefore, the company’s lawyers went to bankruptcy court to seek a 45 day extension for the company to file its bankruptcy protection restructuring plan. As Trustee, we had to prepare and file our report with the court to attest to the fact that:

  1. an extension of the Stay Period is required to enable the company to continue to run in the ordinary course and complete its restructuring proposal;
  2. the company continues to act in good faith and with due diligence; and
  3. no creditor would be materially prejudiced by the extension of the Stay Period.

The Court granted the extension for this company restructuring process.

Company restructuring process: The corporate debt restructuring process

We could now finish the real corporate restructuring proposal through this bankruptcy protection process. Given the unknown of the final valuation of the terminated employees’ claims, if any, we had to build in further protection for the company. We decided that the company’s bankruptcy protection plan would be what is known as a “basket proposal”. The amount of funds available for the unsecured creditors would be a fixed amount. So, whatever the claims ended up being, the size of the pot never changed.

Under the bankruptcy laws in Canada for a corporation undergoing a corporate restructuring, we had to ensure that there were sufficient funds for the unsecured creditors to share in “the pot”. The amount had to be realistic, to get the required majority of unsecured creditors voting in favour of the corporate restructuring plan. We also had to ensure that the bank was not being compromised in the proposal and that we communicated that clearly to the bank.

Company restructuring process: The government trust claim

As stated above, the unremitted source deductions were a trust claim. The restructuring bankruptcy laws in Canada state that such a claim has to be repaid in full within 6 months of Court approval of the restructuring proposal. We revisited the company’s cash flow. Although the company was on track, over the next year, money was needed to reinvest in the business.

The entrepreneur had no more money from her own resources. Therefore, after allowing for operations and the payment of the past unremitted source deduction amount of about $300,000, we could only offer the unsecured creditors roughly 5 cents on the dollar of the proven claims from future operations. The company promised to pay that amount within 6 months of retiring the government trust claim amount. So, within 1 year of Court approval, the unsecured creditors would get their money from the corporate restructuring plan.

Company restructuring process: Solving the terminated employee claims

Seeing this, the terminated employee group did not wish to spend funds on litigation, only to receive 5% of whatever claim they may have from the restructuring plan. We ended up agreeing to a very modest amount to represent their claims in the proposal.

The meeting of creditors was held and we obtained the required majority of creditors voting in favour of the business restructuring proposal. The creditors realized it was a better outcome than if they voted the company into bankruptcy. They voted in favour of the company restructuring process. We then obtained the necessary Court approval.

Company restructuring process: The result

The company turned its operations around. It survived the coup by the terminated employees. The company produced enough cash profits to retire the government trust claim debt within 6 months of court approval. It also paid the proposal fund amount to us as Trustee on time, to be distributed to the unsecured creditors.

The company successfully restructured and operated profitably afterwards. The entrepreneur was able to sell her company several years later and retire.

Company restructuring process: The financial restructuring process

The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.

We know that companies 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 company restructuring process as unique as the financial problems and pain it is 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 your company back on the road to healthy stress free operations and recover from the pain points in your life, Starting Over, Starting Now.

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CLAIM BANKRUPTCY IN ONTARIO CASE STUDY: SHE REALLY WANTED TO BUT WE STOPPED HER AND SOLVED HER PROBLEMS

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Claim bankruptcy in Ontario: Case study introduction

For today, and the next few weeks, I want to give you some interesting case studies direct from our files. I will not mention any real names of course. Hopefully from these case studies, you will see that we do a lot more than just allow people or companies to claim bankruptcy in Ontario.

Claim bankruptcy in Ontario: A variety of problems

Today’s case study deals with our client who is a specialist medical doctor and surgeon. We will call her Dr. X. She had an ongoing successful career and then opened up a specialty high-end clinic to offer services not paid for by OHIP, the provincial medical plan. Unfortunately, Dr. X did not get the best advice from her professional advisers when she established the new business venture.

She set up her clinic in a separate building that she purchased. Dr. X then had it renovated extensively to meet the business’ needs, leased or purchased equipment and hired staff.

This new venture was financed entirely by debt:

  • personal debt such as mortgage financing against the matrimonial home;

  • equipment loans or leases in her personal name; and

  • Equipment and mortgage debt in the new business venture corporation for which Dr. X personally guaranteed it.

Therefore one way or the other, her personal responsibility was for 100% of the debt to get the business started. Her husband was responsible jointly with her for the mortgage raised against the matrimonial home.

The cash flow of the business was insufficient to pay the operating costs and debt financing. She had to keep borrowing money personally to keep the new business alive. The stress this caused affected her previously stellar activities as a surgeon and hurt her marriage. By the time Dr. X was came to us, she and her husband were separated and divorce proceedings were underway.

Claim bankruptcy in Ontario: And then it got even worse

To make matters worse, she could not attempt to liquidate assets to pay down debt and ease the burden. Like most equipment, the clinic’s equipment was not worth more than its original cost. There was no excess equipment either.

The building could not be sold and leased back for a very bad reason. There was a large environmental problem associated with the building which was not discovered through due diligence prior to purchasing it. The issue arose when she tried to refinance.

The potential lender performed a Phase 1 Environmental Study, which indicated that a earlier use in the building produced contaminants which were buried in the ground. The contaminants were leaching into the neighbours’ respective properties. So now there was further personal liability exposure as the sole Director of the company that owned the real estate!

Claim bankruptcy in Ontario: Filing bankruptcy in Canada would give Dr. X more headaches

Dr. X came to us convinced that she had to go bankrupt. The stress of her failing business was taking a huge toll on her normal duties as a surgeon and her marriage was over. She had previously seen a different licensed insolvency trustee and was convinced from that meeting that bankruptcy was her only answer.

Dr. X considered herself a total failure, in spite of she was still a sought after as a brilliant medical doctor and surgeon. We considered her assets and liabilities, income and expenses and her overall situation.

Claim bankruptcy in Ontario: More complications

To further complicate matters:

  1. The matrimonial home was listed at the amount required to clear all mortgages which was well above market value.

  2. Once Dr. X inevitably stopped making the first mortgage payments on the matrimonial home, the Bank holding the mortgage would begin power of sale proceedings. The first mortgagee would probably suffer a shortfall on the sale and Dr. X and her estranged spouse would be responsible for the shortfall on the first mortgage and the entire balance of the second mortgage.

  3. Dr. X had a life insurance policy with a cash surrender value (“CSV”). The CSV was not exempt from seizure by a bankruptcy trustee because the beneficiary was her Estate. In a bankruptcy, the CSV would go to the Trustee for the benefit of her creditors.

  4. Dr. X did not know if she could get replacement insurance coverage at all and if so, at a reasonable cost.

  5. There were many creditors who currently had a contingent claim against Dr. X with a very high dollar volume. These claims would ultimately be crystallized. In a bankruptcy, we anticipated that a lot of angry ordinary unsecured creditors, many of whom were sophisticated, such as banks and equipment lenders/lessors, would oppose her discharge from bankruptcy.

  6. In a bankruptcy, Dr. X would have to pay about $82,000 in surplus income payments to us as her bankruptcy trustee over a 21 month period for a monthly payment of $3,905. Dr. X could not afford to pay that much each month and keep her normal medical practice afloat.

Bankruptcy was not a good answer for Dr. X. Notwithstanding she earned a high income, the irony was that she could not afford to claim bankruptcy in Ontario!

Claim bankruptcy in Ontario: Our assessment

We had to deal with two problems; one financial and one emotional. Dr. X was an emotional wreck as a result of the failed business venture with all of its problems. We actually had to deal with that first. It is normal for a licensed insolvency trustee to take a holistic approach. The debtor facing financial problems always needs two outcomes: (i) a solution that will allow them to shed their debts and get piece of mind; and (ii) become rehabilitated.

We advised Dr. X that a personal bankruptcy was not the answer for her. We told her that she first had to shut down her clinic. She had to deal with the employees to make sure that they were paid up to the last date work their normal wages and vacation pay. They also needed to get their Record of Employment and T4 Statements as quickly as possible. Unfortunately there was no money for pay in lieu of notice.

Claim bankruptcy in Ontario: How to deal with the failed business venture

We then advised Dr. X that she should not bankrupt the corporation carrying on this new business. Rather, she should call up the first mortgagee and tell that she is abandoning the business premises and is sending the keys over. Then call up the equipment lessors and the lender that did some equipment financing to tell them the business has shut down and they should contact the first mortgagee to gain access to retrieve their property.

Next we advised Dr. X to safeguard the business books and records, so that she could have her accountant file final tax returns. She would also have the records for when Canada Revenue Agency wished to do an audit on the business activities.

The final piece of advice for Dr. X with respect to her new business venture was this. After performing the above steps, walk away. This would end the stress of operating a failing business.

Claim bankruptcy in Ontario: Our assessment and his personal financial fix

All of the contingent debts from the failed business venture had not yet crystallized. They were still contingent. We worked out a cash flow plan with Dr. X that she could keep current with, now that she had abandoned and stopped funding the debt incurred because of the failed business. She also stopped paying the first mortgage on the matrimonial home as the value of the home was now less than the total of the mortgage debt against it.. We worked with Dr. X on a plan to avoid bankruptcy, by filing a formal restructuring proposal under the Bankruptcy and Insolvency Act (Canada) (“BIA”).

Claim bankruptcy in Ontario: The advantages of our strategy

The advantages of this strategy, if the restructuring proposal could be fully performed, are:

  • Dr. X would not give up her assets to a bankruptcy trustee;

  • She would not lose her life insurance coverage or CSV;

  • All of her debts could be eliminated through the restructuring proposal;

  • Although the total of her restructuring proposal payments had to be more than her creditors would get in her bankruptcy, we could term those payments out to a maximum of 5 years;

  • Her estimated monthly payment would be less than the monthly surplus income payment in a bankruptcy; and

  • Dr. X would avoid bankruptcy and an opposed discharge process entirely.

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Claim bankruptcy in Ontario: The result

Dr. X followed our advice. Her restructuring proposal was accepted by her creditors qualified to vote at the meeting of creditors held 21 days after the filing of the restructuring proposal. The contingent claims had not yet crystallized. Although eventually those creditors were allowed to file their proper respective claims and take part in the dividends paid out to the unsecured creditors, we made it successfully through the voting process. The proposal was then approved by the Court.

Dr. X not only maintained her regular monthly proposal payments to us, she was able to pay off the proposal early. The reason for this was that now that she had a clear head and no longer felt she was a failure, she could focus on her medical practice and surgery, which once again flourished. Her income and savings rose. These are some of the benefits that financial rehabilitation brings. Dr. X also avoided going bankrupt.

Claim bankruptcy in Ontario: Does Dr. X’s financial problems sound familiar to you?

I present this case study to show how, as a licensed insolvency trustee in the GTA, we look at the entire story of each person or company that comes to us for help. 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 stopped Dr. X from going bankrupt and devised an alternate plan for her, allowed her to solve her financial problems and get her life back.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Team today.

Call us now for a free consultation. We will get you back on the road to a healthy stress free life and your recovery will be as pain-free as possible. We may be able to stop you to claim bankruptcy in Ontario!

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TOYS R US BANKRUPTCY PROTECTION IN CANADA: COURT AGREES WITH TOYS R US BANKRUPTCY COUNSEL NEGATIVE = POSITIVE

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Toys R Us bankruptcy protection in Canada: Introduction

I want to tell you about a recent Ontario Court decision about the claims process approved in the Toys “R” Us (Canada) Ltd. and Toys “R” Us (Canada) Ltee (Toys R Us) bankruptcy protection proceedings. The Toys R Us bankruptcy protection in Canada began with the Court making the Initial Order on September 19, 2017. This Initial Order was made under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (CCAA).

On January 25, 2018, the Toys R Us bankruptcy lawyers attended in Court. There was a motion before the Court to extend the time that Toys “R” Us remains under bankruptcy protection to try to restructure. The motion was also for the Court to approve a draft claims process to quantify the outstanding creditor claims.

Toys R Us bankruptcy protection in Canada: The normal claims process

It is the claims procedure which while not novel, is also not regularly seen. That is what I want to talk about.

In a bankruptcy regulated by the provisions of the Bankruptcy and Insolvency Act, RSC 1985, c.B-3 (BIA), creditors are required to prove their claims independently. They do so by providing to the trustee in bankruptcy sworn proof of claim forms that are accompanied by supporting invoices and other pertinent documents. The detailed treatment for creditor claims to be proven and counted is not set out in the CCAA like it is in the BIA.

The Court routinely grants claims procedure orders under the Court’s general powers under ss. 11 and 12 of the CCAA. Claims process orders generally involve developing a technique to interact with all the creditors. This is so they can file their claims. It normally creates a process to communicate to (potential) creditors. It tells them that there is a process they must follow to prove their claims by a specific date.

Toys R Us bankruptcy protection in Canada: Why do we even need a claims process?

The claims process includes an opportunity for the company under restructuring proceedings, or its representative, to check all claims. The Monitor, or its representative, can disallow creditors’ claims, either in whole or in part. The claims procedure establishes an adjudication mechanism. If claims are not agreed upon and cannot be settled by negotiation, then the adjudication process begins. This could be either in court or first by arbitration. Decisions on the claims of creditors are then subject to an appeal to the Court.

Claims procedure orders will usually also set a claims bar date. Claims will not be accepted after this date. it is necessary to have a cut off to give the right numbers for voting and distribution purposes. Late claims won’t be allowed. In this way the Monitor achieves finality.

Toys R Us bankruptcy protection in Canada: Who has the most up to date books and records?

Most large businesses, including Toys R Us, have readily ascertainable payables outstanding. Sophisticated electronic systems carefully track these amounts, supervised and reviewed by the company’s senior financial staff. The electronic systems not only track purchases and payments, but also the many vendor allowances which are offsets to the accounts payable.

Such offsets include:

  • guaranteed sale provisions, which means if the product does not sell within a specific period, Toys R Us can either return the unsold items to the vendor, or take massive discounts against amounts owing for such products;
  • early payment discounts, promotional allowances, warranty fees, co-op/marketing fees and defect fees; and
  • shipping and warehousing fees

So for large companies like Toys R Us, the vendor will most likely be reconciling their books to what the company shows on its books net of the various offsets.

The recommendation to the Court was for a different type of claims process. As indicated above, the process required by the BIA is a positive one. It requires each creditor to prove the state of its outstanding claims by submitting a sworn proof of claim backed up by invoices.

The draft form of claims process submitted to the Court in the Toys R Us bankruptcy protection in Canada proceedings was a different one. It proposed to list creditor claims from the company’s books and records and to provide each known creditor with a simple claim statement. The statement would set out the amount of the respective creditor’s claim recognized by the company. If a creditor agrees with the amount that the company says it owes, the creditor need do nothing and the listed claim will become the final proven claim at the claims bar date. I call this a negative claims process.

Creditors who disagree with the amounts set out in their claims statement can file a dispute notice with the Monitor by the claims bar date to begin a review process.

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Toys R Us bankruptcy protection in Canada: Advantages of the negative option

This negative option has certain advantages in companies such as Toys R Us. These advantages include:

  • eliminating the need for filing proofs of claim and supporting evidence in the majority of cases;
  • guarantees that known claims won’t lose out if a certain percentage of creditors to fail to file their claims on a timely basis; and
  • making the claims process streamlined; and
  • making the process easier for recognizing and counting all known creditor claims

Toys R Us bankruptcy protection in Canada: The negative option approved by the Court

The proposed claims process met the needs of the Court to ensure that any claims procedure is both fair and reasonable. The negative option claims process proposed in the Toys R Us case met the needs of the Court. The Court approved the negative claims process in the Order dated January 25, 2018.

Toys R Us bankruptcy protection in Canada: Does your company require restructuring?

Your company may not be as large as Toys R US, but it is the most important one to you. Your company may be facing financial challenges, and you have tried everything you can think of to solve the problems. But the red ink still flows. Many families rely on you and your company to continue for their survival. You have invested your money, your blood, sweat and tears in your company, and want to do everything possible to save it.

If you find your company in this situation, then you need the help of a professional trustee immediately. Call Ira Smith Trustee & Receiver Inc. If we consult with you early, we could develop a restructuring and turnaround strategy. By doing this your business will once again thrive. It may not be as complex as the Toys R Us bankruptcy protection process in Canada, but it is the most significant one for you.

Our approach for every person and company is to develop an outcome where Starting Over, Starting Now takes place. You’re just one telephone call away from taking the important actions to return to leading a healthy, balanced, and stress free life.

Contact the Ira Smith Team today.

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PERSONAL BANKRUPTCY IN ONTARIO CANADA: THE SOLUTION TO YOUR NAGGING DEBT?

Declaring personal bankruptcy in Ontario Canada: Introduction

Facing serious financial difficulties is devastating, especially if you believe that declaring personal bankruptcy in Ontario Canada is your only option. In fact, many people mistakenly believe that dire financial problems automatically mean personal bankruptcy.

If you are having problems meeting your financial obligations or have stopped meeting those financial obligations as they come due you are actually insolvent, not bankrupt. Insolvency is a financial condition; bankruptcy is a legal state.

Bаnkruрtсу is a legal рrосеѕѕ under the Bankruptcy and Insolvency Act (Canada) (“BIA”) that help you to resolve уоur debts if they have become unmanageable. If you have relatively few assets and low іnсоmе and dесіdе to file for bаnkruрtсу, you will probably fіlе under the streamlined Summary Administration part of the BIA.

If you have realizable assets that will produce a value greater than $10,000, then your bankruptcy would be administered under the general administrative provisions. Don’t worry about these distinctions right now. For now, just know that the summary administration rules are shortened. The cost of this type of bankruptcy administration is fixed by a tariff set by the Superintendent of Bankruptcy.


Declaring personal bankruptcy in Ontario Canada: A summary of the bankruptcy steps

In either case, you will turn over to your Licensed Insolvency Trustee (“LIT”) all of уоur рrореrtу that is not exempt (protected) by law. The LIT will sell your property and use the proceeds to рау for the bankruptcy administration and then distribute to уоur сrеdіtоrѕ.

If you have very little property, all of it may be рrоtесtеd. In that case, you will not lose it. How much уоur сrеdіtоrѕ will get in this process dереndѕ on how much уоur unрrоtесtеd property can be sold fоr and whether you will be required to pay “surplus income” to your LIT (more on
this later).

The final step of your bankruptcy process will be to get your discharge from your debts. This means that you will not have to рау them (with certain exceptions).

Declaring personal bankruptcy in Ontario Canada: Know the basic rules BEFORE filing for bankruptcy

Gеnеrаllу, going through bankruptcy helps реорlе with debts get a fresh start. Hоwеvеr, many реорlе have false ideas about how it can help them. Bеfоrе deciding you need to fіlе for bаnkruрtсу, you should know some of the bаѕіс rules. That way you will know what bankruptcy can and cannot do for you.

Declaring personal bankruptcy in Ontario Canada: What bаnkruрtсу may do for you, dереndіng on your sіtuаtіоn

  1. Dіѕсhаrgе уоur unѕесurеd debts; depending on your assets and income, you may not рау or lose anything. If you do, you will рrоbаblу рау less than you owe.
  2. Give you a short-term “аutоmаtіс stay” аgаіnѕt уоur сrеdіtоrѕ.
  3. As opposed to bankruptcy, one of the bankruptcy alternatives under the BIA will help you work out a repayment plan that lets you take longer to рау your debt and/or рау less than you owe. If your budget allows for this approach, the (consumer) proposal, allows you to keep property that ѕесurеѕ a debt. Examples of such assets would be your home or car. It can also allow you to keep nоn-еxеmрt аѕѕеtѕ that you would рrоbаblу lоѕе in a bankruptcy filing. This is one bankruptcy alternative.

Declaring personal bankruptcy in Ontario Canada: What bankruptcy does not do for you

Getting a dіѕсhаrgе of уоur debts through the bankruptcy process will not discharge:

  1. Any award of damages by a court in civil proceedings in respect of:
    1. i) bodily harm intentionally inflicted, or sexual assault, or
       ii) wrongful death resulting therefrom
  2. A debt or liability for alimony or alimentary pension.
  3. Any debt or liability arising under a judicial decision establishing affiliation or in connection with support or maintenance, or under an agreement for maintenance and support of a spouse, former spouse, former common-law partner or child living apart from the bankrupt.
  4. Debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others.
  5. Any debt or liability resulting from obtaining property or services by false pretenses or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim.
  6. Liability for the dividend that a creditor would have been entitled to receive on any provable claim not disclosed to the trustee unless the creditor had notice or knowledge of the bankruptcy and failed to take reasonable action to prove his claim.
  7. Any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred:i) before the date on which the bankrupt ceased to be a full or part-time student, as the case may be, under the applicable Act or enactment, or
    ii) within seven years after the date on which the bankrupt ceased to be a full or part-time student;
    iii) any debt or obligation in respect of a loan made under the Apprentice Loans Act where the date of bankruptcy of the bankrupt occurred: a. before the date on which the bankrupt ceased, under that Act, to be an eligible apprentice within the meaning of that Act, or

    b. within seven years after the date on which the bankrupt ceased to be an eligible apprentice; or
  1. Any debt for interest owed with an amount referred to in the above list.declaring personal bankruptcy in ontario canada

Declaring personal bankruptcy in Ontario Canada: More things bankruptcy does not do for you

  1. The bаnkruрtсу court can refuse to dіѕсhаrgе your debts if it finds that you are abusing the рrосеѕѕ. Thеrеfоrе, you cannot run up debt just before filing for bаnkruрtсу and automatically have it forgiven. The Court will look at what you ѕреnt the money on and can deny you a discharge if it finds that you have abused the ѕуѕtеm. You must be truthful and not try to hide аѕѕеtѕ.
  2. Will not help you with any debts you take on during and after you begin the bаnkruрtсу рrосеѕѕ.
  3. Will not give you a clean slate on уоur credit report (except to show what debts have been dіѕсhаrgеd). Bankruptcy reduces your credit rating to R9. This rating remains on your record for 6 years after your discharge for the first time bankrupt. These ratings are set by the relevant credit bureaus whose rules may vary.
  4. Will not protect some kinds of іnсоmе and рrореrtу you get during the соurѕе of the bankruptcy until you are discharged (such аѕ іnhеrіtаnсе, tax refund, gifts, lottery winnings).
  5. May not dіѕсhаrgе all of уоur debts without some ѕасrіfісеѕ. If you have very few аѕѕеtѕ and little іnсоmе, you may not lоѕе anything. Debtors with more assets and income above the poverty line can lose some of their assets and have to pay surplus income.
  6. Will not allow for your discharge after 9 months if you are required to pay surplus income. A first time bankrupt must pay surplus income for 21 months and a second or more time bankrupt will have to pay surplus income for 36 months. Whether or not a first time bankrupt will be entitled to an automatic and absolute discharge after paying the required surplus income depends on the specifics of your circumstances.
  7. A second or more time bankrupt is not entitled to an automatic absolute discharge and there must first be a Court hearing to decide what form of discharge is most appropriate given your circumstances.

Filing fоr bаnkruрtсу is a big deal

Declaring personal bаnkruрtсу in Ontario Canada is a big deal. It can be a trеmеndоuѕ rеѕоurсе for the honest but unfortunate debtor who needs a new start. However, there are rules, rеѕtrісtіоnѕ and fіnаnсіаl rаmіfісаtіоnѕ to соnѕіdеr before jumping in hеаdfіrѕt.

That is why the Ira Smith Team always looks first to see if one of the bankruptcy alternatives would be a better fit for you. The alternatives we look at with you include:

The Ira Smith Team has 50+ years of cumulative experience dealing with issues just like the ones that you’re facing. Give us a call today and let us give you back peace of mind Starting Over, Starting Now.

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CANADIAN BANKRUPTCY AND INSOLVENCY LAW: WHAT TO THINK ABOUT BANKRUPTCY

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Introduction

The holiday gift buying season is over. Next month the credit card bills will be arriving. Maybe you overspent on holiday gifts this year. Maybe you had too much debt to start with, and you know this new spending will put you over the top. Perhaps you already have questions about Canadian bankruptcy and insolvency law.

Perhaps you spent wisely but modestly because you were acutely aware of your financial problems. Maybe you never were an uncontrollable spender. Perhaps a specific damaging event outside of your control caused you to wind up deep in the red. So far you have worked hard to overcome the financial challenges, but for the first time you are thinking that you should read up on Canadian bankruptcy and insolvency law.

Either one unfortunate life issue or one foolish monetary choice is all it could take. Despite how you arrived, there is no simple escape, except perhaps winning the lottery or an unexpected inheritance.

Bankruptcy is one alternative

If you’ve fallen under just what seems like impossible financial debt and you have no chance to get out of it, bankruptcy is one alternative. It’s not constantly an excellent one– and never ever one to be taken gently.

Below is exactly what you should understand prior to making any kind of choices about filing personal bankruptcy.

Long-term results

Almost 63,372 people declared bankruptcy in 2016, an action that will certainly have an effect on them for a long time to come. They have certainly started learning about the Canada bankruptcy and insolvency law regime.

While declaring bankruptcy relieves debt pressures caused by decisions and/or issues of the past, it could adversely influence your future. The record of your filing for bankruptcy will certainly stay on your record for up to 10 years.

Numerous companies run a credit check on job applicants. The record of your bankruptcy will come up. Potential employers have either their own bias or unique interpretation about this. Perhaps the job you are applying for requires you to be bonded. Faced with many qualified applicants, a potential employer may very well choose the person who does not have a bankruptcy on their record. As I have previously written, it can likewise have an influence on insurance coverage costs.

The Canadian bankruptcy and insolvency law system is designed to financially rehabilitate the honest but unfortunate debtor. As a licensed insolvency trustee, I certainly believe in our system. However, it is also my role to point out to anyone considering personal bankruptcy, there are many issues to consider before taking this choice.

Evaluating your alternatives

For some people bankruptcy many not be the only option. Just how do you recognize its the right one for you? What are the options under Canadian bankruptcy and insolvency law?

Prior to making any type of choice about filing for bankruptcy, you should first contact a licensed insolvency trustee (LIT) in your area for a free consultation. The LIT will review with you your current financial situation and ask you various questions. The purpose is for the LIT to gain an understanding of your current financial position and how you got there. Based on this information, the LIT will be able to give you a preliminary opinion about what your realistic options are.

In general, the options available to someone experiencing difficulty in paying their debts on time include: (i) credit counselling; (ii) debt consolidation; (iii) (consumer) proposal; and (iv) personal bankruptcy.

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The proposal option used for half of all personal insolvency filings in 2016

I am using brackets around the word “consumer” when talking about the proposal option. A consumer proposal is available to anyone who owes the amount of $250,000 or less, not including the amount you owe on loans registered against your home. If you owe more than this $250,000 threshold, a proposal may still be the most viable option for you. That proposal process just falls under a different section of the Bankruptcy and Insolvency Act (Canada) (BIA). It is not called a consumer proposal, but rather a Division I proposal. The BIA governs Canadian bankruptcy and insolvency law.

As I mentioned above, in 2016, 63,372 Canadians filed personal bankruptcy. However the total number of people who filed an insolvency proceeding in 2016 in Canada was 126,843. So what did the other 63,471 people do? They filed a proposal. So roughly half of the people who filed an insolvency proceeding in Canada in 2016 to solve their debt problems, were able to avoid bankruptcy.

In 2016, 63,471 individuals filed a (consumer) proposal. This bankruptcy alternative is an organized settlement of your financial debts for an amount less than the total you owe. You can take up to 60 months of regular monthly payments to complete your (consumer) proposal.

The proposal provisions of Canadian bankruptcy and insolvency law allow those people “in the red” to keep their assets they can afford to continue paying for, including their home. At the same time, they made a monthly payment to the LIT to be distributed to their creditors for their past debts that they could not afford to repay.

Canadian bankruptcy and insolvency law: Beginning the insolvency filing process

If you believe that bankruptcy may be for you, your first action is to speak with a LIT. Remember, you are not only looking to them for solutions. The LIT is not only interviewing you. You are also interviewing the LIT to decide if this is someone you feel you can work with.

If you don’t feel comfortable after speaking to that first LIT, there is nothing wrong with you getting a second opinion from a different LIT. Not only is that not anything wrong with that, I urge it. You are going to be working with your LIT for quite some time. Make sure that you believe it will be a comfortable relationship for you.

The bottom line is if you got in over your head with money, you do have alternatives. Get an expert viewpoint on just what your options might be under Canadian bankruptcy and insolvency law. If you can’t make your monthly payments, you need professional help; and you need it now. Contact a professional Toronto bankruptcy trustee.

The Ira Smith Team has a cumulative 50+ years of experience helping people who are facing a financial crisis and we deliver the highest quality of professional service. Make an appointment for a free, no obligation appointment today and Starting Over, Starting Now you’ll take your first steps towards financial freedom.

We wish all of our readers and subscribers a healthy, happy and prosperous New Year 2018.

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