Tag: bankruptcy trustee

HOW DOES DEBT RELIEF WORK: APPARENTLY NOT GREAT 4 EVERYONE

Post author By Brandon Smith
Post date November 25, 2019

NOTE: On January 13, 2022, three settlement agreements were approved by the Honourable Justice Mayer of the British Columbia Supreme Court on January 29, 2021, and November 15, 2021. As a compromise of disputed claims, these settlements are not an admission or finding of liability by the settling Defendants. You can read all about the Settlement Administration Plan and how to file a claim by CLICKING HERE to read our latest 4 Pillars blog.

If you would prefer to listen to the audio version of this how does debt relief work Brandon’s Blog, please scroll to the bottom and click on the podcast.

How does debt relief work Introduction

On October 29, 2019, The Supreme Court of British Columbia, certified a class-action lawsuit in Pearce v. 4 Pillars Consulting Group Inc., 2019 BCSC 1851. At the crux of the litigation, the question of how does debt relief work legally will be answered. In Brandon’s Blog, I describe the issues raised in this class-action lawsuit.

What is a class action?

In a class action, one or more individuals called Representative Plaintiffs sue on behalf of all other individuals with similar claims. With each other, the people included in the class action are called Class Members. One court settles the concerns for all Class Members, with the exception of those that exclude themselves from the Class.

The 4 Pillars lawsuit class-action

A class-action legal action has been begun in the B.C. Supreme Court against the 4 Pillars Consulting Group Inc. (4 Pillars). The claim is that the 4 Pillars debt consulting business has breached the B.C. Business Practices and Consumer Protection Act as well as the federal Bankruptcy and Insolvency Act (Canada) (BIA).

Plaintiff seeks to certify his action as class proceedings. The litigation looks to recoup damages for the costs billed by 4 Pillars as debt consultants to its clients. In the 4 Pillars litigation, Mr. Pearce is looking to recoup damages for the costs billed by 4 Pillars to all persons that paid fees to it in British Columbia in connection with: (i) a consumer proposal under the BIA; or (ii) an informal debt settlement proposal with the person’s creditors, all after April 1, 2016.

How does debt relief work: The allegations

In his litigation, Plaintiff claims that Defendant provided debt restructuring services in breach of both provincial legislation and the BIA.

Mr. Pearce alleges that:

The major, if not single, debt restructuring solution given by 4 Pillars is to prepare the consumer proposal documents to hand over to licensed insolvency trustees (formerly called licensed bankruptcy trustees or a bankruptcy trustee) (Trustee) and schedules a meeting with the Trustee so that the consumer proposal can be submitted;
4 Pillars debt consultants represent that it might hold financial liability negotiations directly with a customer’s creditors, trying to get you an informal debt settlement, although that service is hardly ever really supplied;
Their standard form agreement, which clients need to enter into with them, allows 4 Pillars to speak to the client’s creditors on their behalf;
Under their standard procedures, 4 Pillars gets in touch with the debtor’s creditors to advise them that they are acting for the debtor and they will need time to make plans for the debtor; and
They meet the debtor numerous times, collect information from the borrower, prepare a consumer proposal to provide to a Trustee and afterward meets the Trustee to administer the consumer proposal process.

Mr. Pearce goes on to state the 4 Pillars:

acts only for its clients, the borrowers;
prepares a consumer proposal for its clients and afterward represents to the Trustee why the proposal terms are reasonable;

urges the Trustee to recommend that the creditors accept the proposal on the suggested terms;
meets the Trustee and helps in answering the Trustee’s concerns; and

will, ideally, create an alternate proposal and, once more, advocate the Trustee, if their first consumer proposal is rejected by the borrower’s creditors.

The alleged cause of action under the BIA: Are the activities of a debt consulting business in breach of the BIA?

Mr. Pearce claims that contrary to the provisions of the BIA:

none of the entities or individuals offering financial debt restructuring services are Trustees;
performed various regulated activities that only Trustees are authorized to carry out;

collected financial information from their customers and prepared consumer proposals for them; required borrowers to pay fees and costs which are not allowed; and
4 Pillars has actively solicited people to file consumer proposals which is prohibited.

There are many more claims being made by Mr. Pearce, including that there is not any real debt settlement negotiation with creditors or any real debt relief management, other than the preparation of the consumer proposal. Defendant, of course, denies it all. After hearing all the evidence, the Court found that there were sufficient grounds for this litigation to go forward as a class-action lawsuit.

Are Debt Relief Programs a good idea?

Is debt settlement a good idea?

Debt relief programs are a good idea. However, as Mr. Pearce’s litigation shows, there are companies that charge high fees and really provide no value. Worse, they may actually do more harm than good.

I have previously blogged about the risks of debt settlement businesses. In 2017, I covered the study by the Office of the Superintendent of Bankruptcy (OSB) on debt negotiation companies.

The major findings of the OSB study were that in 2016:

In 17% of all consumer proposal filings, the client reported having spent initially for debt counselling from a debt settlement company before being guided to a Trustee.
57% of the consumer proposal filings for which earlier financial debt settlement advice was obtained, the Trustees had strong ties with 2 large-volume financial debt settlement companies. These 2 companies represented 64% of the total for those Trustee fees reported in 2016 for financial advice before submitting to a proceeding with a Trustee.
Thirteen Trustee firms, that included one national-level firm, were uncovered to have countless Trustees running in routine partnership with large-volume financial debt settlement firms.
For about 50 Trustees within these 13 firms, much better than 40% of their consumer filings were sourced from these debt settlement companies. For about 20 of those Trustees, more than 90% of their consumer proposal work stems from these 2 organizations.
Financial debt negotiation companies have actually long utilized scare tactics with consumers to draw in business. They tell consumers that all a Trustee intends to do is put them into bankruptcy.

The OSB concluded that customers were paying financial debt settlement companies fees with cash they could not afford to pay. Only when they could no longer pay, then the debt settlement company referred the people to their favourite Trustees! The OSB was additionally concerned about the business arrangements being made between financial debt settlement outfits and those same Trustees. The OSB is very concerned with how does debt relief work in Canada since it supervises the insolvency process in Canada.

Ever since the OSB has actually introduced modifications to methods that Trustees have to comply with for the regulation of debt counsellors and business arrangements with a view to curb these practices. For the record, I as well as my Firm have no relationship with any type of debt negotiation company

Do Debt relief companies really work?

How does debt relief work with a legitimate credit counsellor? What this says is that a legitimate credit counselling service can offer a good debt settlement program. There are community-based credit counselling agencies that do not charge fees and they really do know how does debt relief work. These organizations provide a valuable service in the areas of budgeting and debt management. They are not the kind of debt consulting services that rips off unsuspecting people and prey on their fears of going to see a Trustee.

How does a debt relief program affect your credit?

With a debt relief program run by a reputable credit counselling agency, you make one regular monthly repayment to the credit counsellor, which after that disburses repayments to your creditors. This kind of plan can have a negative influence on your credit rating. Naturally, any type of late payments or high unpaid amounts on accounts will certainly worsen your credit rating The unscrupulous debt relief companies have an additional trick up their sleeve that makes your credit score worse.

The debt restructuring businesses that actually do try to negotiate with your creditors first do not make payments to them from the funds you supply for some time. Their theory is that your account must first go into arrears. Some people speculate that the money you are paying them, while they are not passing it on to your creditors, goes to the company only. When your account is now months in default, your credit score worsens.

So, the debt settlement credit score impact is real.

Is Debt Settlement Really Worth It?

How does debt relief work with a true debt settlement program? Is it really is worth it? With real consumer debt relief you can:

get real credit counselling;
help with setting and following a family budget where you do not spend more than you earn;
receive true debt settlement where you will pay off all your debts for less than what the full amount is;
enjoy the time you need to pay this lesser amount to get rid of all your debts;
avoid interest and other high fees and charges; and
end the stress in your life and move forward without the pain, worry, and guilt that your unmanageable debts have caused you.

There is only one government-approved debt settlement program in Canada. It achieves all of the above. The only professional authorized to administer it is a Trustee. As Pearce, now class-action litigation shows, it is a consumer proposal. A consumer proposal and a Division 1 proposal are alternatives to filing for bankruptcy. As the Pearce litigation confirms, only a Trustee can administer these kinds of debt restructuring proposal.

Although they are the same in a number of ways, there are some substantial distinctions between a consumer proposal and a Division I Proposal. Consumer proposals are used for people whose financial debts aren’t greater than $250,000, not including any type of debts registered against your house. Division 1 proposals are readily available to both companies and also people whose financial obligations go beyond $250,000 (omitting mortgages signed up on their home).

A consumer proposal is an official process under the BIA. With a Trustee, you make a proposal to:

Pay your creditors a percentage of what you owe them over a particular amount of time, not greater than 5 years.
Prolong the time you need to pay back the reduced amount taking care of all of your unsecured debts.
A mix of both.

Settlements are made by the Trustee, using the monthly cash payments you make to the Trustee to make regular distributions to all your unsecured creditors.

4 Pillars lawsuit update May 24, 2021

4 Pillars appealed the decision that Mr. Pearce’s lawsuit should be converted into a class action proceeding to the Court of Appeal for British Columbia. See our updated blog describing the appeal:

4 PILLARS LAWSUIT GETS GIGANTIC APPROVAL TO PROCEED FROM COURT OF APPEAL FOR BRITISH COLUMBIA

How does debt relief work Summary

I hope you enjoyed this Brandon’s Blog on how does debt relief work and the 4 Pillars lawsuit. 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 corporate 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, so many dollars in debt. 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 develop a financial plan to get you debt relief freedom and you can stop feeling the shame of debt.

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

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

Tags 4 pillars lawsuit, are debt relief programs a good idea, Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy trustee, BIA, consumer debt relief, Consumer Proposal, debt settlement credit score impact, debt settlement negotiation, do debt relief programs really work, how does a debt relief program affect your credit, how does debt relief work, Ira Smith Trustee, is debt settlement a good idea, is debt settlement really worth it, licensed insolvency trustee, Pearce v. 4 Pillars Consulting Group Inc.

Brandon Blog Post

CREDIT COUNSELLING CANADA: VERY BUSY WITH BANKRUPTCY ONLINE CHATTER

Post author By Brandon Smith
Post date November 18, 2019

If you would prefer to listen to the audio version of this credit counselling Canada Brandon’s Blog, please scroll down to the bottom and click on the podcast

Introduction

Like many people, I have set up various Google News alerts. Mine are mostly on the topic of insolvency. I have done this so that whenever a news article is posted on the topic, I will be alerted. One of the alerts I have set up is for the term “credit counselling Canada”. Last week I have noticed that a fair bit of bankruptcy online chatter.

The posts being promoted include:

I have taken a look at the posts. Generally, they are very accurate.

Unscrupulous debt consultants

I was very happy to see some of the posts warning against going to the unscrupulous debt consultants that I have written about before. The Office of the Superintendent of Bankruptcy (OSB) has also warned against them.

The purpose of this Brandon’s Blog is to comment and shed light on several comments in their recent busy online articles that I think are slightly misleading.

Consumer Proposal Ontario

In the Ontario consumer proposal blog, it is stated that a consumer proposal can only be arranged and administered by a bankruptcy trustee (now called a licensed insolvency trustee) (Trustee) which is true. They then go on to state what the cost of a consumer proposal is, that you need to pay an initial setup fee. They also state that the Trustee will also keep 20% of all of your consumer proposal payments.

This is misleading. The way I read it, is they claim you will have to pay a Trustee a setup fee, their fee and an additional 20%. This is not correct. In reality, the Trustee’s fee is a fixed tariff set by the Bankruptcy and Insolvency Act (Canada) (BIA). The fee and disbursements of the Trustee are set in the statute. It is illegal, for the Trustee to collect anything above and beyond the statutory tariff.

The reality is that the Trustee’s fee and disbursements, set by a tariff, come out of the person’s consumer proposal payments. The consumer proposal payments are calculated off of what your creditors can expect in that person’s bankruptcy. Whatever that amount is, the bankruptcy law says that the amount offered in the consumer proposal must be higher. Therefore, the amount a person must offer to get creditor buy-in to accept the consumer proposal has zero relationships to the Trustee’s fee and disbursements.

As the Trustee is entitled to take its capped fee and disbursements from the consumer proposal fund, rather than costing the person, the Trustee’s fee and disbursements are actually free to the insolvent debtor!

Bankruptcy Trustee, Creditor & Debtor

The blog I read on this topic discussed is pretty accurate. The only issue I take is that when describing the role of the Trustee, they pull out the old scare tactic that although the Trustee makes sure that the rights of the debtor are not abused, the Trustee acts for your creditors. This is technically true but overlooks the role of the Trustee as a credit counsellor before the debtor decides whether or not to file either a consumer proposal or for bankruptcy.

In my professional practice, before I allow anyone to file for bankruptcy, I provide an exhaustive and detailed analysis of the person’s financial situation. I first ask the person to explain the issues and financial crisis they are facing which is upending their life. We then together look at their assets, liabilities and income so that I can come up with realistic options. We then discuss the options available and I explain the advantages and disadvantages of each. Then I provide my recommendation. All of this is done in an initial consultation and is no charge to the person.

If they wish to explore the options we discussed more seriously, I then have them complete our standard intake form called the Debt Relief Worksheet. That document when fully completed and provided to me with appropriate backup, allows me to confirm my initial diagnosis and recommendations. Then it is up to the debtor to make their choice as to how they wish to proceed.

After going through this process, with everything fully explained by me, there are no surprises. If the debtor follows my advice, they will have either a successful debt settlement consumer proposal or will discharge their debts through the bankruptcy process. During and after this entire process, the debtor does not feel that I am biased against them in favour of their creditors. Although I have acted formally on behalf of their creditors, the debtor thanks me for saving them and allowing them to restart their lives.

Personal bankruptcy Toronto

The blog I read on personal bankruptcy, part of a credit counselling Canada series, said that people will tell you that bankruptcy eliminated all of their debts. They then ask the question: Did they tell you that it is not possible for everyone? The obvious answer is no because someone who eliminated all of their debts isn’t worried about someone else’s situation and distinctions.

The three types of debts given as examples that cannot be eliminated by a discharge from bankruptcy are:

Secured debts, like mortgages and car loans
Student loans where you have ceased being a full-time or part-time student less than 7 years ago
Child and alimony support payments

This is all true. When I counsel debtors during the free consultation, we review issues like this. We discuss all of the person’s debts, which can be discharged and which cannot be. Just because a certain debt on its face cannot be discharged through bankruptcy, does not mean that the person cannot properly avail themselves of an insolvency process and improve their financial position in life.

Specifically, with secured debt, I attack it from the perspective of can you afford to keep paying that debt, or should you keep paying it. If the home is fully encumbered and there is no or little equity, perhaps renting is a cheaper alternative. We go through the same analysis for a car loan.

In some cases, it might make sense for the person to give up the asset to the mortgagee/lender and allow them to make a demand on the debtor for the shortfall. A shortfall happens when the lender sells the asset but the market will only pay less than the secured debt owing. The lender’s loss is the shortfall. They can pursue the debtor for the loss.

That lender loss, or shortfall, is now an unsecured debt. The person has hopefully found a car they can afford and home, condo or apartment to rent they can afford in their budget. They have now turned the secured debt into an unsecured shortfall claim. That unsecured debt can be discharged through either a consumer proposal or bankruptcy process.

So just because a secured debt cannot be discharged in bankruptcy, it doesn’t mean the person can afford or should keep that debt and continue making payments. They may have a better way to live while then being able to discharge their debts through an insolvency process.

Bankruptcy Discharge in Canada

The blog I read on bankruptcy discharge does not say too much about the bankruptcy discharge process. Rather, they do focus on the dangers of not getting a discharge and remaining undischarged bankrupt.

Everything they say on the topic is true. However, I believe it does leave out a lot of information. In my experience, if someone follows my advice and lives up to all of their obligations during the lifetime of their bankruptcy, then they are not going to have a problem with discharge. It really is only those who try to “game” the system, do not fully cooperate and refuse to make full and transparent disclosure who have problems.

That is how the BIA is designed to work. You are asking your creditors to forgo a lot of the debt you owe them. In return, you have to be fully cooperative and make full disclosure, so that every stakeholder in the bankruptcy process knows that it has been a fair process.

In all of the personal bankruptcies I have administered, it is a very small minority who have a problem with discharge. In all cases, it is their past behaviour or their lack of full disclosure in bankruptcy that has caused the problems, not the bankruptcy process itself.

Summary

I hope you enjoyed this Brandon’s Blog on credit counselling Canada. 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 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 deal with this problem and devise a corporate restructuring plan, we know that we can help you and your company too.

We know that companies facing financial problems need 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.

Tags Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy discharge, bankruptcy discharge in canada, bankruptcy toronto, bankruptcy trustee, BIA, Consumer Proposal, consumer proposal ontario, credit counselling, credit counselling canada, licensed insolvency trustee, Office of the Superintendent of Bankruptcy, ontario consumer proposal, personal bankruptcy toronto, what is a consumer proposal

Brandon Blog Post

INSOLVENCY LAW CANADA AMENDMENTS FOR INTELLECTUAL PROPERTY RIGHTS

Post author By Brandon Smith
Post date November 6, 2019

Insolvency Canada news

The Federal government published in the Canada Gazette, Part II, Volume 153, Number 18, its intention to amend Canadian insolvency law for intellectual property rights (IP). On November 1, 2019, those changes came into effect. This change was part of the Canadian 2019 Budget. In Brandon’s Blog, I will discuss what the changes are and why they were made.

Insolvency law amendments for IP in Canada

Amendments relating to how IP is treated under Canadian insolvency law were made to 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) was made. The BIA controls liquidations and restructurings for people and companies, and the CCAA covers large company restructurings.

The changes are meant to shield IP user rights in cases where the IP licensor becomes insolvent.

The BIA, as well as CCAA changes in the Budget Implementation Act, 2019, No. 1, are intended to improve retired life protection by making the insolvency procedure fairer and much more clear.

Previous Canadian IP insolvency law

Previously, Canadian insolvency law only explicitly dealt with IP in restructuring proceedings. Both the BIA and the CCAA allows for a debtor to disclaim or resiliate agreements. There are certain conditions that the debtor business must meet. This essentially boils down to being able to prove that the agreement in question is either so onerous and/or costly to the debtor business, that a successful restructuring is impossible if the debtor must continue honouring that agreement.

Specifically, as it relates to IP, the BIA, and CCAA if a debtor who is a licensor under an IP agreement disclaims the agreement, the licensee has rights. The licensee can continue to use the IP and gain all benefits it had bargained for, as long as the licensee continues to perform its responsibilities under the IP agreement concerning the use of that IP.

There was no such equivalent section for the receivership or bankruptcy of the debtor. So, if there was a liquidation, the licensee was not protected the same way they would be if the licensor debtor business disclaimed the agreement in financial restructuring.

Insolvency law reform

The amendments in Budget Implementation Act, 2018, No. 2 were done to protect copyright (IP) individual rights in situations where the IP licensor comes to be insolvent.

Effective for all filings beginning on November 1, 2019, or later, there are changes to the BIA and the CCAA, Canada’s main insolvency statutes. The November 1 amendments are done so that the rights of a licensee under an IP agreement where the licensor has disclaimed the agreement will be the same in a financial restructuring or a liquidation through either receivership or bankruptcy.

The following modifications accomplish the goal of safeguarding IP customer’s rights in instances where the IP licensor ends up being insolvent:

Many times as part of a corporate restructuring, the Court authorizes the company that filed a Notice of Intention To Make a Proposal, or a Proposal, to sell assets. The new amendments now make it so that if the corporation being restructured is the licensor under an IP agreement and sells it, the licensee retains its rights to use the IP, as long as they are and stay current under the agreement.
If a bankruptcy trustee (now called a licensed insolvency trustee) (Trustee) administering the bankruptcy (or receivership) of a licensor under an IP agreement sells the agreement, the licensee retains its rights under that agreement. Again, the licensee must be current in its obligations to continue enjoying the benefit of the IP agreement.
The Trustee disclaims the debtor licensor’s interest in an IP agreement as part of a bankruptcy (or receivership) administration. The licensee will continue to enjoy the rights and benefits of the IP agreement as long as it is current in all of its responsibilities under that same agreement.
If that IP is sold in a CCAA restructuring, the CCAA legislation has now been amended, for administrations that began after October 31, 2019, offers that an IP licensee in excellent standing can continue to utilize the IP.

Proposed BIA wording for IP insolvency proceedings

These are new amendments. There have not been any court decisions on these new amendments yet. The new legislation is not available yet as far as I know. However, my understanding is that the BIA will be amended, in part, to implement the changes concerning IP agreements as I have discussed, along the following lines:

“Intellectual property — sale or disposition

246.1 (1) If the insolvent person or the bankrupt is a party to an agreement that grants to another party a right to use intellectual property that is included in a sale or disposition by the receiver, that sale or disposition does not affect that other party’s right to use the intellectual property — including the other party’s right to enforce an exclusive use — during the term of the agreement, including any period for which the other party extends the agreement as of right, as long as the other party continues to perform its obligations under the agreement in relation to the use of the intellectual property.

Intellectual property — disclaimer or resiliation

(2) If the insolvent person or the bankrupt is a party to an agreement that grants to another party a right to use intellectual property, the disclaimer or resiliation of that agreement by the receiver does not affect that other party’s right to use the intellectual property — including the other party’s right to enforce an exclusive use — during the term of the agreement, including any period for which the other party extends the agreement as of right, as long as the other party continues to perform its obligations under the agreement in relation to the use of the intellectual property.”

Summary

I hope you enjoyed this Brandon’s Blog on the insolvency amendments effective November 1, 2019. 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 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.

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.

Tags Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy trustee, BIA, CCAA, Companies’ Creditors Arrangement Act, corporate restructuring, financial restructuring, insolvency, insolvency law, insolvency law canada amendments, insolvency law reform, intellectual property rights, Ira Smith Trustee, licensed insolvency trustee, notice of intention to make a proposal, proposal, receivership, trustee

Brandon Blog Post

BANKRUPTCY LAW, A SHOE STORE CHAIN AND GOLF: WHAT DO THEY HAVE IN COMMON?

Post author By Brandon Smith
Post date November 4, 2019

If you would prefer to listen to the audio version of this BANKRUPTCY LAW, A SHOE STORE CHAIN AND GOLF: WHAT DO THEY HAVE IN COMMON? Brandon’s Blog, please scroll down to the bottom and click on the podcast.

Introduction

I am writing this Brandon’s Blog more as an interesting story for those that live in the GTA and enjoy golf. Although as you will see, bankruptcy law does play a major role in this tale, it really is a story about what is probably the most famous Canadian golf course.

Bankruptcy and Insolvency Canada

Before getting into the interesting Greater Toronto Area golf course story, by way of background to it, I will first describe the bankruptcy law aspect.

A bankrupt shoe store chain workers lost their jobs when a Receiving Order (as a Bankruptcy Order was then called) was made putting an Ontario shoe store chain, Rizzo & Rizzo Shoes Ltd., into bankruptcy. All salaries, wages, commissions and vacation pay were paid to the date of bankruptcy. The province’s Ministry of Labour audited the company’s payroll books and records.

The Ministry’s audit determined that although the employees were all paid up to date, liability for termination or severance pay was owing to former employees under the Employment Standards Act (ESA). The Ministry delivered a proof of claim to the bankruptcy trustee (now called a Licensed Insolvency Trustee) (Trustee).

The Trustee disallowed the claim under the provisions of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). The Trustee’s disallowance was based on the ground that the bankruptcy of an employer acts to terminate the employment of the workers. This does not constitute termination by an employer. Therefore, no such liability for severance or termination pay exists.

The appeal of the Trustee’s disallowance

The Ministry successfully appealed the Trustee’s disallowance to the Ontario Court (General Division). The Trustee appealed to the Ontario Court of Appeal. The appellate court restored the Trustee’s decision. The Ministry sought leave to appeal to the Supreme Court of Canada but ultimately terminated that application.

After the discontinuance of the appeal, the Trustee paid a dividend to Rizzo’s creditors, therefore leaving much fewer funds in the bankruptcy estate.

After that, five previous staff members of Rizzo applied to set aside the discontinuance, add themselves as applicants to the Supreme Court of Canada leave to appeal. An order was made approving them to continue the appeal.

The Supreme Court of Canada decision

In a 1998 decision, the Supreme Court of Canada ultimately decided that the bankruptcy of an employer does terminate the employment of the workers. However, the Court felt that it was necessary to take a wider view of the ESA. The Court felt that one of the objects of the ESA was to protect the rights of employees when they lost their job. A finding that the severance and termination pay sections of the ESA to not apply in bankruptcy circumstances is incompatible with both the object of the ESA.

The Court went on to find that the legislature does not intend to generate ridiculous results if employees dismissed before the bankruptcy of an employer would generate a completely different result than those employees who lost their job by the bankruptcy of an employer.

Therefore, the Supreme Court of Canada found that employee rights to severance pay or termination pay is a claim provable in bankruptcy even if the dismissal occurred by the bankruptcy of the employer. This claim is an ordinary unsecured claim and does not have any priority.

The broader effect of the Supreme Court of Canada Rizzo & Rizzo decision

The obvious effect of the Rizzo & Rizzo decision is the bankruptcy law decision. However, the decision also stands for the concept that a statue must be looked at in a broader context. The Supreme Court decision in paragraph 21 states that “…statutory interpretation cannot be founded on the wording of the legislation alone”.

It goes on to say that “Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.”. This codified what can be called a modern approach to the interpretation of legislation.

So what does this have to do with a golf course?

Looking at the title of this Brandon’s Blog, I think I have now covered off the first two parts, namely, bankruptcy law and shoe store. Now for golf! On October 23, 2019, the Court of Appeal for Ontario released its decision in Oakville (Town) v. Clublink Corporation ULC, 2019 ONCA 826.

All golfers in the GTA know that Clublink owns and operates a chain of golf clubs in Ontario and Quebec, as well as Florida. The most famous and iconic golf course in the Clublink family and all of Canada is Glen Abbey in Oakville, ON. Clublink purchased this golf course in 1999.

Glen Abbey was the initial golf course solely created by Jack Nicklaus, one of the greatest professional golfers of all-time. The style of the course shows a specific focus on the viewer experience. Along with this value, the Town of Oakville believes Glen Abbey has substantial historical value. Glen Abbey has held the Canadian Open 30 times – 3 times greater than any other course in Canada. It, therefore, is connected with some of the most memorable events in Canadian golf history.

The 18th hole is significant as a result of its connection to Tiger Woods. In the final round of the 2000 Canadian Open, he hit a six-iron shot 218 yards from a bunker on the right side of the fairway to about 18 feet from the hole. The shot had to fly over a huge pond protecting the green.

On October 22, 2015, Clublink told the Town that they plan to redevelop Glen Abbey into a residential and mixed-use neighbourhood. Clublink proposed to develop 3,000 to 3,200 residences and 140,000 to 170,000 square feet of office and retail space. If Clublink’s plan to build succeeds, the word “four” will no longer be yelled out on the property!

The Court case

In November 2016, Clublink submitted applications to change the Town’s Official Plan and zoning by-laws and looked for authorization of a plan of subdivision, in connection with its redevelopment plan of Glen Abbey. In 2017, the Town recognized Glen Abbey as a considerable cultural heritage property under s. 29 of the Ontario Heritage Act (OHA). This notification stated the property’s cultural heritage value according to the provincial requirements of the OHA.

Clublink did not object to the heritage designation. Rather, they made an application to the Town under section 34 of the OHA to demolish and remove Glen Abbey. The Town alerted Clublink that their s. 34 application was legally beyond the range of a section 34 OHA application but was correctly within the range of s. 33 of the OHA which permits an owner to relate to altering a designated property.

Clublink commenced its very own application in the Superior Court for an affirmation that they could make an application under s. 34 of the OHA “for the demolition and removal of buildings and structures on the lands municipally known as 1313 and 1333 Dorval Drive … including but not limited to the tees, greens, hazards, fairways and cart paths”. Clublink was successful in its application and the Town of Oakville appealed the decision to the Ontario Court of Appeal.

What is the difference?

A study of the OHA is not why I am writing this Brandon’s Blog. The important point to know is that under s. 33 of the OHA, the owner may appeal to the Conservation Review Board. The Conservation Review Board holds a hearing and produces a report, in which it is to recommend whether the application must or ought to not be authorized. The Conservation Review Board’s report is not binding on the metropolitan council.

Unlike s. 33, if the metropolitan council rejects the owner’s application under s. 34, the owner of the property can appeal to the Local Planning Appeal Tribunal (LPAT). The local council is bound by the LPAT decision.

So as you can see, Clublink needs the Court ruling to stand that its s. 34 application is the correct one.

Is a golf course a structure?

In order to be successful, Clublink needs to prove that a golf course is a structure. The application judge found that Glen Abbey is both composed of structures as well as the golf course itself is a structure for the objective of s. 34 of the OHA. Clublink had actually correctly mounted its application under s. 34.

The application judge reached this decision because of the uncontroverted evidence before him was that Glen Abbey was the product of substantial engineering, design and construction. Relying on judicial and also administrative decisions from other contexts, he decided up that a golf course fits within the meaning of a “structure” as being a “thing constructed”.

After a very lengthy analysis, the Ontario Court of Appeal, with one Judge dissenting, confirmed the lower court’s decision.

So what does this have to do with Canadian bankruptcies laws?

The majority decision relied upon the Rizzo & Rizzo case. The Ontario Court of Appeal followed the confirmation in the bankruptcy law case by the Supreme Court of Canada that a strict dictionary or common usage interpretation of the word “structure” was inappropriate. A “…statutory interpretation cannot be founded on the wording of the legislation alone”.

Rather, a wider modern law approach must be used. The “…words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention…”. Therefore, finding that a golf course has detailed engineering, design and construction, it is a structure and Clublink was correct.

This is how bankruptcy law ties into a bankrupt Ontario shoe store chain and a golf course. It took a bit of a journey to piece it all together, but I am so glad that you stuck with me.

Summary

As you can see, not everything necessarily is how it appears at first blush. When I look out onto a golf course, I would never say, “what a marvellous structure”, but it is.

In the same way, financial decisions that we make along the way do not always turn out as we once thought it would be. Sometimes these decisions are forced upon us by life getting in the way, and sometimes they are voluntary. Nevertheless, when financial hardships strike, you need to find a way to solve your financial problems.

Do you have way too much debt? Before you reach the phase where you can’t stay afloat and where financial restructuring is no longer a viable alternative, contact the Ira Smith Team. We know full well the discomfort and tension excessive debt can create. We can help you to eliminate that pain and address your financial issues supplying timely, realistic and easy to implement action steps in finding the optimal strategy created just for you.

Call Ira Smith Trustee & Receiver Inc. today. Make a free appointment to visit with one of the Ira Smith Team for a totally free, no-obligation assessment. You can be on your path to a carefree life Starting Over, Starting Now. Give us a call today so that we can help you return to an anxiety-free and pain-free life, Starting Over, Starting Now.

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Brandon Blog Post

SINGLE SPOUSE BANKRUPTCY ON-DEMAND: LEGAL EFFECTS WHEN ONLY 1 SPOUSE FILES FOR BANKRUPTCY

Post author By Brandon Smith
Post date October 23, 2019

***Single Spouse Bankruptcy: Does Declaring Bankruptcy Affect Your Spouse?***

You are in either a common-law relationship or are married. You are thinking about filing bankruptcy alone as a single spouse bankruptcy without your partner filing. You have actually possibly questioned just how will your bankruptcy affect your spouse. The bright side is that in the vast bulk of situations, your bankruptcy will have no influence on your spouse. In most cases, there will be no legal effects when only one spouse files for bankruptcy.

The purpose of this Brandon’s Blog is to discuss the financial and legal implications of a single spouse bankruptcy. No doubt the stress and strain of one spouse’s debt load will place a strain on the household and the partner. Providing marriage advice is not my specialty, but insolvency is.

How Will My Bankruptcy Filing Impact My Spouse’s Credit and a Non-Filing Spouse’s Income In Bankruptcy?

Each individual has a separate credit rating and a unique credit report. When married, people’s credit scores and credit reports are not blended. When both spouses are working, their respective employers do not blend or pool their combined monthly incomes.

There is no credit record or wage or salary aggregators that combine credit reports or incomes of married or common-law partners. That merely does not exist. So when people wed, their credit ratings are not combined or averaged in any way. They stay separate.

For example, if you open up a credit card in your own name and do not include your partner as a supplementary cardholder, the credit history and debt for that credit card will never appear on your partner’s credit history record. If you make your payments on that separate credit card and they’re on time, or even continually late, it does not aid or harm your partner’s credit rating. Different financial obligations are never ever reported on anybody else’s credit report and do not impact their credit score.

Marriage or a common-law relationship, does not alter the fact that credit scores and reports are not combined in any way. For that same reason if you file an assignment in bankruptcy on the separate debt it is also not recorded on your partner’s credit report and will certainly not influence their credit score.

Joint debt is where both you and your partner are responsible for that debt. If just one partner files for bankruptcy there is no impact on the non-filing partner’s credit rating. However, the non-bankrupt spouse remains responsible to pay that debt. If the non-filing spouse does not do so, then it will affect that spouse’s credit rating and score.

Not because their spouse filed an assignment in bankruptcy, but because they are fully responsible for a joint debt. That’s the trick. So in a single spouse bankruptcy, initially the filing for bankruptcy by one spouse does not impact the non-bankrupt spouse credit rating, it can affect their financial situation and possibly their credit rating if there are joint debts that go unpaid.

single spouse bankruptcy

Single spouse bankruptcy: How Will Filing Bankruptcy Affect My Spouse’s Property Or Income?

The second reason why one spouse’s assignment in bankruptcy will generally not impact a non-bankrupt spouse is that spouses are allowed to own separate property in their separate names. Added to this, the vast majority of unsecured debts such as credit cards, or secured debts like car loans mortgages are created by contract.

This means that only the person who agreed to be liable for the debt can be affected by it. Except in rare instances, one spouse is not required to pay the debts that are solely those of when the other spouse files bankruptcy either through their wages or their assets.

If you have joint property, bankruptcy law does not allow your non-bankrupt spouse’s portion of that property cannot be taken to pay your debts. Your licensed insolvency trustee (formerly called a trustee in bankruptcy) (Trustee) only holds the bankrupt person’s interest in the property.

While joint property can sometimes be sold, the non-filing spouse’s portion of that property must be returned to the non-filing spouse. It is never used to pay the debts of the filing spouse. The non-bankrupt spouse would, of course, be the natural purchaser of the bankrupt spouse’s interest in such joint property.

If you are filing in Canadian bankruptcy proceedings and wonder how the bankruptcy process will affect your spouse’s income, you are most likely confused about how bankruptcy can affect your spouse’s income. Your spouse does not need to be a part of a bankruptcy. It is a common misconception that bankruptcy affects your spouse’s monthly income.

The truth is, the courts do not look into your spouse’s income at all in a single spouse bankruptcy. However, your spouse’s income may be included in the calculation of family income and household expenses to calculate if the bankrupt spouse has any obligation to make surplus income payments from the household monthly income to contribute to his or her bankruptcy estate.

The individual contributions to household income also affect the surplus income calculation. Most of the monthly living expenses have an effect on the surplus income calculation.

Does Single Spouse Bankruptcy Change the Nature of Joint or Co-Signed Debts?

So you open a new account with one of the credit card companies in your name and do not get a supplementary card for your spouse. In that situation, your partner does not get a card for your account. Therefore, your partner also did not consent to be collectively responsible with you on that credit card. If you fail to make a payment on that bank card, they cannot sue your spouse.

If they can’t sue your partner, they cannot get a judgment against him or her. If they can’t get a judgment, then they cannot garnish your partner’s wages. They can not take your partner’s different bank account or different assets. They can try to collect the credit card debt from the individual that consented to be liable for it. This does not change because of a marital or common-law relationship. Therefore, if you file a personal assignment in bankruptcy, your non-filing spouse’s separate property and income cannot be taken by either the Court or your Trustee.

If unsecured creditors report a joint debt in the single spouse bankruptcy estate on that person’s credit record, that does not influence the non-filing partner’s credit history. However, for any joint debt, or a debt of the filing spouse that is guaranteed by the non-filing spouse, that is a different story. The non-filing spouse must live up to his or her obligations, which includes the responsibility for that joint or guaranteed debt after the partner files for bankruptcy.

If not, then the unsecured creditor definitely has remedies against the non-filing spouse. Not because they are the non-filing spouse, but because they are equally liable for the unsecured debt. However, if a creditor incorrectly reports the joint debt as being included in personal bankruptcy on the non-filing partner’s credit report, I do suggest that the non-filing spouse writes to the credit reporting agencies to get it corrected. The reason for this is because the non-filing spouse is not involved in bankruptcy.

single spouse bankruptcy

A Non-Filing Spouse’s Joint Debt: Can my spouse and I file for joint bankruptcy?

Section 155 (f) of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) states:

“in such circumstances as are specified in directives of the Superintendent, the estates of individuals who, because of their relationship, could reasonably be dealt with as one estate may be dealt with as one estate”.

Section 66.12(1.1) of the BIA states:

“Two or more consumer proposals may, in such circumstances as are specified in directives of the Superintendent, be dealt with as one consumer proposal where they could reasonably be dealt with together because of the financial relationship of the consumer debtors involved.”

So, it is possible for the individual debtors who are spouses to file a joint consumer proposal to avoid personal bankruptcies or if it is really the only solution, a joint assignment in bankruptcy. What is necessary is that there should be is that the majority of their debts are joint, even though they are individual debtors.

Each situation will be different. Many times I have advised couples that they should file jointly and not do a single spouse bankruptcy. This is most useful where if only one spouse files either a consumer proposal or bankruptcy, the other spouse will not be able on their own to pay the joint debts. A joint bankruptcy filing will be more streamlined and less costly than if each spouse filed separately.

When considering a joint filing vs. single filing, follow the financial advice the Trustee provides. I once had a situation where the husband came to see me. He needed to file, but so did his wife. The reason was because of the predominance of joint debts. I advised that it would be best for the husband and wife to come to see me together so that I could explain the benefits of a joint consumer proposal filing to both of them.

The husband, thinking that he was protecting his wife, was adamant that only he would file in a single spouse bankruptcy process. Against my recommendation, he insisted on filing alone. We filed his debt management plan consumer proposal. As expected, the creditors where the debts were joint, starting making demands on the wife. She was unable to pay up, so, she too had to file a consumer proposal with me.

The unfortunate part was that the sum of the amounts that needed to be paid for a successful consumer proposal was greater than if they had filed jointly. So, as a family household, it cost them more than it would have if they filed jointly.

Both the husband and wife each made all the payments required under their respective accepted consumer proposals. It is just too bad that the total paid was more than if they had filed jointly. As always, I gave my best recommendations upfront. Unfortunately, the advice was not followed.

Single spouse bankruptcy: Bankruptcy and the non-filing spouse – Say goodbye to debt stress

Now what we have discussed are simply generalities in a single spouse bankruptcy. There are situations that do not fit neatly within these rules but that’s why you need an experienced Trustee to help review your situation and provide you with information on legal effects when only one spouse files for bankruptcy.

Do you have way too much debt? Prior to you getting to the phase where you can’t make ends meet and your credit report looks awful, reach out to a licensed insolvency trustee (previously called a bankruptcy trustee). In fact, if you understand that you can’t pay your separate debts, contact us.

We understand the pain and stress excessive financial debt can trigger. We can aid you to get rid of that discomfort as well as address your financial affairs and problems by offering prompt action and the ideal plan. We will be able to advise you on the legal effects when only one spouse files for bankruptcy or a consumer proposal.

Call Ira Smith Trustee & Receiver Inc. today.

Make an appointment with one of the Ira Smith Team for a free, no-obligation consultation and you can be on your way to enjoying a carefree life Starting Over, Starting Now.

Give us a call today so that we can help you get back to a stress and pain-free life, Starting Over, Starting Now.

legal effects when single spouse bankruptcy — *single spouse bankruptcy*

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Brandon Blog Post

CANADIAN DEBT RELIEF: WHAT ABOUT “Government Approved” GRIPPING DEBT PROGRAMS?

Post author By Brandon Smith
Post date October 21, 2019

If you would prefer to listen to an audio version of this Canadian Debt Relief Brandon’s Blog, please scroll down to the bottom and click on the podcast.

Canadian debt relief: What is debt relief Canada?

Canadian debt relief is the reconstruction of debt in any kind of form so as to give the indebted person or company a measure of breathing space.

Canadian debt relief measures can take a number of forms. It can be through an informal process or formal process (discussed below).

I just read a recently issued Scotiabank Economics report that says Canadians are going deeper into debt. With that in mind, I believe it important to describe the Scotiabank findings and then discuss the options available for reliable Canadian debt relief.

Canadian debt relief: The Scotiabank findings

The main Scotiabank findings are:

Canadian home credit increased to a 2-year high in August 2019.
Residential mortgage growth posted a 2-year high, supported by a mid-July 2019 decrease in the mortgage rate used for qualification under the stress testing as well as a decline in posted home mortgage pricing.
Consumer credit growth struck a 10-month high on the whole but the year over year pattern was the same as July 2019.

The increase in overall household credit was boosted by a much easier borrowing environment. The main types of debt were fuelled by a strong acceleration in both mortgage loans as well as non-mortgage consumer liability growth. Right now Canadians’ household debt-service ratio is at an all-time high. According to the Scotiabank findings, that has not stopped Canadians from continuing their borrowing binge. It seems that super-low interest rates and a strong job market are providing Canadians with either confidence or blind ignorance, to continue to borrow.

With unpredictability staying at raised levels and worldwide demand weakening, business financial investment and exports are not going to be a force to keep the Canadian economy strong. Therefore, it is essentially up to people buying homes primarily in the Vancouver and Toronto housing markets and general consumer credit demand, with government spending, to keep the Canadian economy strong. So, it seems that for the foreseeable future, the Bank of Canada will keep interest rates low. It seems that interest rates will only increase in reaction to events from outside the Canadian economy.

How debt relief works in Canada

It is not that difficult to qualify for real Canadian debt relief services. You need to be insolvent, or at least, be unable to pay your financial obligations as they come due. I am not talking about a consolidation loan that you need to apply for. If you are trying for approval from one of the debt consolidation loans providers, you also need to be able to qualify for a new loan. If you are applying for a Canadian debt relief program that requires you to get a consolidation loan, and you don’t qualify for the loan, then you will not qualify for that type of debt management plan.

However, for financial relief that does not involve you borrowing money, the bar to qualify is set very low. All you need is to admit that you have a debt problem. Once you do that, you can certainly get help from one of the Canadian debt relief alternatives.

I will describe the various levels of Canadian debt relief programs, but first, I want to answer a question I am asked regularly. The question is: Can you get credit card debt forgiven?

Canadian debt relief: Do credit card companies ever forgive debts?

I have never seen complete and full credit card forgiveness given by a credit card company (except for two situations described in this section). It is possible, to achieve partial credit card forgiveness, but it is not easy. Credit card companies generally will not give any form of forgiveness.

If you stop making your minimum payments, the credit card company will ultimately “ charge off ” a person’s credit card amount owing after giving them an R9 rating on their credit report. A charge-off takes place when an account is seriously overdue for credit card bills. That will be after 180 days of not making the minimum repayment.

Charging off the amount owing on the credit card is not writing it off or forgiving it. It is just a way for the credit card issuer to mark it as uncollectible and eliminate the debt from their active books. What is done when the debt is charged off, is that it is either given or sold to a collection agent. You may be able to make a deal with the collection agency to pay less than the full amount you owe. However, it will still be a substantial sum and has to be paid all at once.

There are only two exceptions to this I ever heard. One is a recent feel-good story. In August 2019, it was reported that Chase Bank announced that it was leaving Canada. Chase Bank issued and administered the Amazon.ca Rewards Visa and the Marriott Rewards Premier Visa in Canada. In order to exit Canada quickly, Chase Bank announced that it was forgiving all credit card amounts owed by clients of its two Canadian charge cards. Highly unusual.

The only other exception is not such a feel-good story. If a person dies and the deceased Estate has no cash available after the funeral and testamentary costs or worse, has no assets including cash, then the credit card company is going to have no choice but to write off the liability. The Estate Trustee will, of course, have to provide proof that there are no funds available.

Canadian debt relief: Informal options

There are various informal debt-relief options available in Canada. The most common options are:

Debt consolidation

When when we hear the words debt consolidation we understand that it is the process of qualifying for and taking on a brand-new loan, in order to repay many or numerous smaller debt obligations.

Consolidating debt involves borrowing money. The concept is that either:

your credit rating is good enough so that you can take on the new unsecured debt; or
you have decided to offer security for the loan.

The primary purpose of resolving your debt via this type of borrowing is to lower the overall interest costs you are currently paying across many credit cards and other debt.

Credit counselling

Credit counselling can solve debt problems and supplies you with the skills to live debt-free. Credit counselling solutions consist of teaching proper budgeting, how to use debt sensibly, rebuilding credit and debt management programs.

A word of caution. Please make sure that if you want a credit counselling program that has a qualified and licensed non-profit credit counsellor, you reach out to a real Canadian debt relief provider such as a credit counselling agency and not a debt settlement company.

The Financial Consumer Agency of Canada has provided a stern warning for consumers to be careful when considering using a debt settlement company. Do not be pulled into what looks like the cheapest Canadian debt relief company. The danger signals and warning signs that the Agency warns consumers about are:

High-pressure sales
Unrealistic assurances
High costs
Companies collecting monthly payments from you to pay to your creditors supposedly for an agreed-upon settlement amount but postponing repayments to the creditors and never coming up with a real Canadian debt relief plan.

Debt settlement

I have also written about the dangers of debt settlement companies. In 2017, I wrote about the study by the Office of the Superintendent of Bankruptcy (OSB) on debt settlement companies. The main findings of the OSB report were that in 2016:

The OSB record indicates that in 2016:

17 % of all consumer proposal filings, the customer reported having spent first for debt counselling from a debt settlement firm before being directed to a Licensed Insolvency Trustee (LIT) (formerly called a bankruptcy trustee).
57 % of the consumer proposal filings for which earlier debt settlement guidance was obtained, the LITs had connections with 2 large-volume debt settlement businesses. These 2 companies stood for 64 % of the total LIT fees reported in 2016 consumer insolvency filings for debt settlement advice before submitting to an insolvency proceeding with a LIT.
Thirteen LIT firms, that included one national-level business, were discovered to have numerous LITs operating in regular partnership with large-volume debt settlement firms.
For about 50 individual LITs within these 13 firms, better than 40% of their consumer proposal filings were sourced from these debt settlement organizations. For about 20 of those LITs, more than 90% of their consumer proposal work originates from these 2 businesses.

Debt settlement companies have long used scare tactics with consumers to attract business. They tell consumers that all a LIT wants to do is put them into bankruptcy. Nothing could be further from the truth. As seen by the OSB study results, consumers were paying debt settlement firms fees with money they could not afford to pay. When they could not pay any longer, the debt settlement company then referred the people to their favourite LITs! Now that is the pot calling the kettle black. The OSB was also concerned about the business arrangements being made between debt settlement outfits and LITs.

Since then, the OSB has introduced amendments to practices that LITs must follow concerning credit counsellors and business arrangements with a view to curb this behaviour. For the record, I and my Firm have no relationship with any debt settlement company.

Canadian debt relief: What about “Government Approved” debt programs?

There are only 2 Canadian government debt relief programs in our country: (i) consumer proposal; and (ii) bankruptcy, which is the most drastic one.

I have written about consumer proposals many times. A consumer proposal is the only structured formal procedure sanctioned by the Government of Canada under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). This process permits insolvent people to make an official offer with specific terms, to pay their creditors less than the full amount owing in full settlement of all debts. This federal government authorized debt settlement strategy is to pay back only a portion of what you owe and you can take as long as 5 years of routine monthly payments to do so.

To qualify, a person must be insolvent and owe $250,000 or less to all creditors, other than for any financial debts protected security against their principal home. The most common examples are either a home mortgage or home equity line of credit registered against the real estate. The consumer proposal process provides protection from creditors. It is aimed at compromising unsecured consumer debts, including income tax debt, while the debtor makes regular payments. The end result of a successfully completed consumer proposal is debt cancellation of your remaining outstanding debts.

A consumer proposal is a streamlined process meant to either reduce or totally eliminate the need to go to Court. A successful consumer proposal allows the person to avoid bankruptcy while ultimately discharging all of his or her debts for an amount much less than the total amount owed.

Canadian debt relief summary

Since the purpose of this Brandon’s Blog is about eliminating your burden of debt before having to consider bankruptcy, I won’t discuss the bankruptcy topic here. Of course, anyone wanting to find out more about either a consumer proposal or bankruptcy can always call me.

We understand the pain and stress excessive financial debt can trigger. We can aid you to get rid of that discomfort as well as address your financial problems by offering prompt action and the ideal plan to give you freedom from debt.

Call Ira Smith Trustee & Receiver Inc. today.

Make an appointment with one of the Ira Smith Team for a free, no-obligation consultation and you can be on your way to enjoying a carefree retirement Starting Over, Starting Now. Give us a call today so that we can help you get back to a stress and pain-free life, Starting Over, Starting Now.

Tags Bankruptcy, bankruptcy trustee, can you get credit card debt forgiven, canadian debt relief, Consumer Proposal, credit counselling, debt consolidation, debt relief, debt relief companies, debt settlement, government debt relief programs, How debt relief works in Canada, how do you qualify for debt relief, Ira Smith Trustee, licensed insolvency trustee, scotiabank consumer proposal, What is debt relief Canada

Brandon Blog Post

WHAT IS RECEIVERSHIP – CAN YOU UNDO A PROVEN RECEIVERSHIP ORDER?

Post author By Brandon Smith
Post date October 14, 2019

If you would prefer to listen to an audio version of this what is receivership Brandon’s Blog, please scroll down to the bottom of this page and click on the podcast.

What is receivership: Introduction

Last spring I wrote about a Court of Appeal For Ontario decision. That decision confirmed that the time allowed to appeal a receivership Court order is 10 days under the Bankruptcy and Insolvency Act (Canada) (BIA).

This Brandon’s Blog on what is receivership discusses a decision of the Court of Appeal of Manitoba which further sets out a framework for anyone wishing to appeal an order made in this court-appointed receivership legal process. Prior to discussing this Manitoba case, I ought to go over some receiver 101 facts.

What is receivership?

What is receivership? A receivership is a solution for secured lenders, such as a chartered bank. The bank loans the company money and the company agrees in the loan agreement to pledge the business assets as security for the loan. If the business defaults on its lending arrangement, generally by non-payment, the secured lender can enforce its security against the assets in receivership.

This is the lender using its enforcement rights to recover its secured debt. Other than for a government trust claim, the secured creditor’s debt ranks on a priority basis above all other creditor claims. Enforcement action is definitely a form of legal action. So receivership is a remedy for secured creditors.

There are 2 types of receivers in Canada; 1) a privately appointed receiver or; 2) a court-appointed receivership. A receiver gets its authority and powers from either the security documents in a private appointment or the Court Order in a court appointment. Once appointed, regardless of the type of appointment, the receiver has the power to take possession of all the assets of the company, including sending notices to all customers to advise that the receiver is now collecting the accounts receivable.

The BIA specifies that only a licensed insolvency trustee (previously called a bankruptcy trustee or also can be called a licensed insolvency practitioner) (LIT) can serve as a receiver. A receiver in a private appointment acts on behalf of the appointing secured creditor. A court-appointed receivership creates a responsibility to all creditors upon the court’s receiver, not just the applicant in the court process. This would include any unsecured creditor also. The BIA also requires the receiver to do file notice of its appointment with the Official Receiver at the Office of the Superintendent of Bankruptcy and to send the required statutory notice to all known creditors.

What is a company receivership?

Normally, the procedure starts with the secured creditor, who lent money to a company under a security agreement, talking to the insolvency trustee. The security document tends to secure all company assets, including accounts receivable.

When it is decided that there ought to be a receiver designated, the secured lender needs to decide if it will be a private appointment, or if the assistance of the Court is required. Each situation will dictate what is the best method for receivership. They can either appoint the receiver under an appointment letter (private appointed) or apply to the Court for an Order selecting the receiver (court-appointed receivership). So when considering what is receivership, you must look at all the circumstances and decide what kind of appointment is needed.

what is receivership

As a former employee, what am I entitled to? The Wage Earner Protection Program

Upon a company going into receivership (or bankruptcy), the LIT is obliged to inform workers of the Wage Earner Protection Program (WEPP) as well as offer former employees information about amounts owing to them. From the day of bankruptcy or receivership, trustees and also receivers have 45 days to send out Trustee Information Forms showing the amounts owing to workers. WEPP is administered by Service Canada.

Employees have 56 days to send their Service Canada WEPP application to the WEPP. The Service Canada handling time for a WEPP payment is within 35 days of receipt of a completed WEPP Canada application and Trustee Information Form.

The WEPP gives funds to Canadian former staff members owed money when their employer becomes either bankrupt or goes into receivership. The amount of employee earnings covered is an amount equivalent to 7 times maximum regular insurable earnings under the Employment Insurance Act.

As of January 1, 2020, the max yearly insurable earnings amount is $54,200. This means that the max amount a previous worker can assert under WEPP is $7,296.17 in 2020. A certain portion is a trust claim and the balance is an ordinary claim. Normally, the receiver makes at least the trust claim payment to the former employees. Service Canada will pay the balance.

So in what is receivership, if the receiver does not pay the trust claim, Service Canada will and bill it back to the receiver. This all takes time and will increase the cost of administration. That is why the receiver normally pays the trust portion directly.

What is receivership: Receivers and receiverships

In a private receivership, the receiver needs to get the approval of the party that made the secured loan and appointed the receiver prior to implementing its recommended action steps. In a court-appointed receivership, the receiver needs the authorization of the court for its activities and actions.

The receiver’s very first responsibility is to take possession and control of the assets, properties and undertaking of the company in receivership. In a private appointment, the receiver takes possession of the assets covered by the secured creditor’s security agreement. In a court-appointed receivership, the receiver takes possession of whatever assets it has authority over from the Court Order.

The receiver has to make a decision whether it can obtain a better value for the business asses if it runs the business. Conversely, the receiver might determine that the danger of running the business negates any potential upside in value. In that case, the receiver would not operate the business and merely liquidate the assets.

The receiver after that establishes a strategy for the sale of assets. The receiver also has to make sure that the assets are physically secured and insured. The what is receivership process is fairly complex and all-encompassing.

The receiver, whether in a private appointment or a court appointment, has wide powers to perform its duties.

What is receivership: Challenging a receivership appointment Court Order

On September 19, 2019, the Court of Appeal of Manitoba released its decision in 7451190 Manitoba Ltd v CWB Maxium Financial Inc et al, 2019 MBCA 95. On December 20, 2018, the Court made an Order appointing a receiver (Receivership Order) over the assets of 7451190 Manitoba Ltd. (Company). The Order was made upon the application to Court by the lender who made the secured loan.

On January 14, 2019, the Company launched an appeal to the Receivership Order. The secured lender opposed the appeal on 2 main grounds, being:

the company did not have an appeal as of right, rather, it requires to seek leave to appeal first (which should be declined); and
the appeal was statute-barred as it was not submitted within 10 days of the Appointment Order appealed from.

The issues the Appeal Court needed to consider were::

whether the nature of the Company’s appeal of the Appointment Order in what is receivership requires an application for leave or if it is a right under Section 193 of the BIA;
if the leave to appeal is necessary, should such leave be provided;
whether the Company should be given more time to submit its notice of appeal.
what is receivership

What is receivership: Appealing a business receivership Court Order

So the first issue the Court had to consider in what is receivership was whether or not the Company had an appeal of the receivership Order as a right, or if it needed to first apply to the Court with leave to appeal motion. The Court determined that the Company’s appeal of the receivership Appointment Order is not of right. Rather, leave to appeal needed to be made.

The things that the Appeal Court considered in making its determination included that:

The security documents entered into by the Company clearly outlined the lender’s remedy to appoint a receiver when there was an event of default.
The company was represented and made submissions against the appointment of a receiver at the initial hearing where the Appointment Order was made.
The Appointment Order contained the necessary “comeback clause”. No party made an application under this clause to amend the powers of the receiver under the Appointment Order.
Since appointed, the receiver has actually filed two reports with the Court. The reports notified all stakeholders and the Court of the decisions taken and choices made. The receiver also sought approval of different activities. The Company has actually not filed any type of motion challenging the actions taken by the receiver.

Should leave to appeal the appointment of the receiver-manager be granted?

Section 193 of the BIA allows that an appeal lies to the Court of Appeal from any kind of order of a judge of the court in certain situations. The Court confirmed that the criteria to think about in making a decision whether to give leave to appeal under section 193(e) of the BIA are:

The suggested appeal raises an issue of general importance to the practice of bankruptcy/insolvency matters or to the administration of justice as a whole.
The issue raised is of relevance to the action itself.
The proposed appeal is prima facie meritorious.
Whether the suggested appeal will unduly hinder the progression of the bankruptcy/insolvency case.

The Court went on to say that, regardless of these criteria, the Court retains a residual discretion to grant leave to appeal in what is receivership where the refusal to do so would result in oppression.

When the Court considered these requirements, taking into consideration the whole context, the Court was not persuaded to grant the Company leave to appeal the receivership order.

The Court determined that in this case, the Company’s appeal should be denied. This Court of Appeal of Manitoba is consistent with the Court of Appeal for Ontario case that I mentioned at the top of this Brandon’s Blog and previously wrote about. It also provided additional detail and reasons as to why appealing a receivership order is not a right, but leave to appeal needs to be granted.

What is receivership: Summary

I hope you enjoyed this what is receivership Brandon’s Blog. Is your company in need of financial restructuring? 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 business owner entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides an 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 about 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.

what is receivership

Brandon Blog Post

WHAT HAPPENS TO MORTGAGE WHEN YOU DIE CANADA: AMAZING DEBT PHILOSOPHY EXPLAINED

Post author By Brandon Smith
Post date October 9, 2019

what happens to mortgage when you die Canada

Check out our 2023 update “What happens to your mortgage when you die?”

What happens to debt if you die?

When discussions of debt come up, individuals frequently joke around and claim they’ll be rid of financial debt when they pass away. However, is that real? I have actually blogged about this before. One of our most-read ever Brandon’s Blog is WHAT HAPPENS TO DEBT WHEN YOU DIE CANADA: ARE YOU FREE OF DEBT.

Similarly, my Brandon’s Blog CREDIT CARD DEBT AFTER DEATH IN CANADA: WHO IS RESPONSIBLE is also about debt and death and is also popular.

So although I have written about what happens to debt if you die before, from my blog stats, I see it is a very popular topic. So, I thought this would be a great opportunity to drill down a bit more to write about what happens to mortgage when you die Canada?

what happens to mortgage debt when you die canada?

What happens to mortgage at death?

The short answer is, usually, nothing. A homeowner’s loan of this kind is a secured loan debt registered against the asset, the house. Except for one situation which I will talk about in a minute, the pledge and its related debt stay and must be dealt with.

Before being able to answer the question properly, there are several possible situations. Is the deceased:

The sole owner?
Owns the home jointly with his/her spouse or partner who is still alive?

Either way, the contract and its debt at the date of death does not go away. If the deceased is the sole owner of the home, then it is an asset that the Estate Trustee named in the person’s Will must deal with. The home will need to be cleaned up and perhaps some repairs are done to get it ready for sale. Either the existing furniture works or the home will need to be staged to show it off in its best light.

The Estate Trustee will also have made sure that there was proper insurance on the home, obtained one or more appraisals and made arrangements for the home to be checked on a regular basis to make sure no damage occurs. Then the home will be put up for sale and sold.

Upon the sale, the home debt will have to be paid off in order for a discharge of the homeowner’s loan contract to be registered. This will be a requirement of the purchaser and it will be impossible to convey title to the home without paying off the pledge and getting a discharge.

If there is a surviving spouse or partner, and the home was owned jointly, then the ownership of the home continues automatically in the name of the surviving spouse. The home also does not need to go through probate in Ontario. The surviving spouse’s lawyer will take care of getting the name of the deceased eliminated from the home loan and title.

If the surviving spouse or partner wants to remain in the home and can afford to keep up the payments, then that is what he or she will do. If not, then the spouse will need to sell the home and downsize. As discussed previously, to sell the home, the loan contract debt will have to be repaid in full and the mortgage discharged.

Is my mortgage paid off if I die?

There is only one way that the debt will be paid off when the owner dies. That is if the owner had taken out specific home loan insurance. Upon the death of the insured, the insurance company will pay the lender the amount needed to pay off the mortgage in full. The Estate Trustee or surviving spouse or partner will have to make sure that the lender discharges the mortgage.

In a similar way, if the deceased had a current life insurance policy, but not necessarily a specific mortgage insurance policy, that may also come into play. A surviving spouse or partner who is the designated beneficiary will receive the life insurance proceeds directly. The proceeds will not have to go through probate in Ontario. They could use all or a portion of the life insurance proceeds to pay off the mortgage and remain in the home.

This is how life insurance can be used to answer the question, what happens to mortgage when you die Canada.

what happens to mortgage when you die canada

Joint mortgage what happens if one dies?

Where both spouses or partners owned the home jointly, they will also be joint on the mortgage. As I mentioned above, when one of the spouses or partners dies, the family’s lawyer will notify the mortgagee lender.

What if the lender was relying upon the creditworthiness of the deceased spouse or partner and not that of the surviving spouse? If the mortgage payments are kept current, then in the interim, probably nothing. But what will happen when the mortgage comes up for renewal and the remaining spouse or partner cannot repay it and wishes to renew it?

Only time will tell. The lender can either just offer a renewal or can require the sole owner to requalify the mortgage. If the now sole owner cannot qualify, then the mortgagee will demand that the mortgage be repaid in full upon maturity. This might pose a hardship for the now sole owner spouse.

What happens to a mortgage when the lender dies?

If the mortgage lender is a Bank or corporation, then, of course, this question does not apply. What happens if the mortgagee is an individual who lent on what is called a private mortgage? In this case, the mortgage debt and the mortgage does not go away. The mortgage is an asset of the deceased lender’s Estate. The lender’s Estate Trustee will be responsible for collecting everything properly owing on that debt, subject to the terms of the mortgage document. If the mortgage does not mature for many years and is kept current, then the deceased lender’s Estate Trustee will have to keep the administration open.

what happens to mortgage when you die canada

What happens to a house with a reverse mortgage when the owner dies?

So far, I have written about what happens with a traditional mortgage. What if the mortgage is actually a reverse mortgage? What happens to a house with such a mortgage when the owner dies?

A Canadian reverse mortgage is financing that allows any person of the age of 55+ to get a mortgage loan relying upon their residence equity. The mortgage loan is secured using a mortgage registered against the house. This is typically called an “equity release”. You have the capacity to raise up to 55% of today’s worth of your home. The actual percentage and the dollar amount you will have the ability to obtain relies on your age, your residence’s appraised value and the lending terms of your reverse mortgage loan provider.

You do not need to make payments on a reverse mortgage up until it is due for repayment. This is usually when you sell your house or the last owner passes away. The loan interest accrues on a reverse mortgage. It must be paid on the payout of the mortgage, but no payments are required while you are living in your home.

The longer the funding is outstanding, the more time you go without paying. Consequently, the longer the interest accrues. This clearly reduces the equity in your house.

For a full discussion of how a reverse mortgage works, check out my Brandon’s Blog – CANADIAN REVERSE MORTGAGE: SENIORS MOVING FORWARD WITH INCREASED DEBT.

**Summary: What happens to mortgage when you die Canada?**

The death of a loved one is probably the most traumatic life event you will encounter. It is doubly so when you relied on the income of the deceased for your own well-being. I hope you have found this what happens to mortgage when you die Canada Brandon’s Blog informative.

Do you have way too much financial debt? Prior to you getting to the phase where you can’t make ends meet and you need to borrow against the equity in your house, reach out to a licensed insolvency trustee (previously called a bankruptcy trustee). In fact, if you understand that you can’t pay your financial debts heading into or in your retired life, contact us.

Call Ira Smith Trustee & Receiver Inc. today. Make an appointment with one of the Ira Smith Team for a free, no-obligation consultation and you can be on your way to enjoying a carefree retirement Starting Over, Starting Now. Give us a call today so that we can help you get back to a stress and pain-free life, Starting Over, Starting Now.

*what happens to mortgage when you die canada*

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Brandon Blog Post

GST/HST CREDIT PAYMENTS IN BANKRUPTCY: DOES BANKRUPTCY HARM MY REFUND?

Post author By Brandon Smith
Post date October 7, 2019

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

Who is eligible for GST/HST credit?

The GST/HST credit payment is a tax-free quarterly distribution by the Federal government. It assists people and their family members with low or moderate earnings counter all or a component of the GST or HST that they pay in their everyday lives. The purpose of this Brandon’s Blog is to discuss GST/HST credit payments in bankruptcy.

The base year is the year of the income tax return used to determine eligibility for the credit payment amount. As an example, GST/HST credit payments calculated from the 2018 income tax return will start being released in July 2019, which is the start of the repayment year. The payment period ranges from July 1 of the year after the year of the income tax return being relied upon. The payments for that year run to June 30 of the following year. So if the 2018 tax return is being used to calculate eligibility, for those who qualify, the payment year runs from July 1, 2019, to June 30, 2020.

You qualify for this credit if you are a Canadian resident under the Income Tax Act (Canada) in the month prior to and at the start of the month in which the Canada Revenue Agency (CRA) makes a payment. You also need to satisfy one of that you::

are at least 19 years of age
have (or had) a spouse or common-law partner
are (or were) a parent and also live (or lived) with your son or daughter

What is the maximum income for GST HST credit?

The maximum income for GST HST credit, based on a 2018 income tax return, is a sliding scale as follows:

Family members	Family net income $

Single person	46,649
Single parent 1 child	52,449
A single parent with 2 children	55,509
A single parent with 3 children	58,569
A single parent with 4 children	61,629
Married or common-law with no children	49,389
Married or common-law with 1 child	52,449
Married or common-law with 2 children	55,509
Married or common-law with 3 children	58,569
Married or common-law with 4 children	61,629

To see the GST/HST credit calculator, check out the CRA formula.

Can the bankruptcy trustee keep my tax refund?

It used to be the position of the Superintendent of Bankruptcy (OSB), that, a bankruptcy trustee (now called a licensed insolvency trustee) (LIT) that an insolvent person could assign their GST/HST credit payments in bankruptcy to the LIT for the period of time they are an undischarged bankrupt. The LIT could only keep those credit payments if those credit payments are necessary to cover the LIT’s fee and disbursements. The OSB also stated that it could not be kept in files where there would be a distribution to creditors from the realization of the assets of the bankrupt person.

A recent decision from the Court of Queen’s Bench of Alberta, following a decision from the Superior Court of Justice – Ontario (In Bankruptcy and Insolvency), rather than a prior Alberta Court decision, has changed all that for GST/HST credit payments in bankruptcy.

The GST/HST credit payments in bankruptcy case

The Alberta Court case decision released on September 17, 2019, is Rites-Miguens (Re), 2019 ABQB 721. The LIT applied for advice and direction as to whether LITs should follow the OSB position paper “GST/HST credit payments in bankruptcy” or, the prior Alberta Court decision.

The Court reviewed the prior Alberta case, the OSB position paper and the Ontario decision in Glasgow (Re), 2018 ONSC 4608. The OSB position paper follows the Glasgow decision. The Alberta Court sided with the OSB’s position arising from Glasgow (Re). Here is why.

Can the bankruptcy trustee keep my tax refund?

Let us first discuss the GST/HST credit payments in bankruptcy, which is not really a refund. It is an income tax credit paid to those residents of Canada with low or modest incomes who qualify. After that, I will broaden the discussion to include actual tax refunds.

Section 67(1) (b.1) of the Bankruptcy and Insolvency Act (Canada) (BIA) states that the GST/HST credit payments in bankruptcy that are made in prescribed circumstances to the bankrupt are not a property that falls to the LIT for division amongst the creditors. Rule 59 of the BIA defines what the “prescribed circumstances” are. It states that if no dividend would be paid to the creditors of the bankrupt, even when these credit payments are considered, then all such credit payments received by the LIT form property of the bankrupt.

In other words, the GST/HST credit payments in bankruptcy can go to help fund the LIT’s fee and disbursements, but not any distribution to creditors. In this way, Canadians of modest means could have access to the Canadian bankruptcy system using all or some of the credit payments to pay for the bankruptcy process.

The Ontario Court looked at that prior Alberta decision. The Ontario Court disagreed with the Alberta decision that in a properly worded assignment agreement, the LIT could keep the payments as long as the prescribed circumstances existed. So, the Ontario Court did not follow that decision. Rather, the Ontario Court looked at Section 67 of the Financial Administration Act which says that a Crown debt is not assignable without a specific Act of Parliament authorizing it. This credit is a Crown debt for which there is no Act of Parliament allowing its designation by way of assignment.

It was this Ontario decision that the Alberta Court followed in Rites-Miguens (Re), 2019 ABQB 721.

The OSB position

As a result, the OSB updated its position paper on the topic of GST/HST credit payments in bankruptcy. The OSB’s position is:

Where there will not be a distribution to creditors, the credit payments comprise property of the bankrupt payable to the LIT through the operation of the BIA as described above.
Where there will be a distribution to creditors, the credit payments are exempt from seizure, cannot be assigned to the LIT and must be paid to the individual.

The OSB goes on to give an example as to how a LIT may treat the GST/HST credit payments in bankruptcy that are otherwise exempt. It is a bit cumbersome, but, goes as follows:

The LIT gets a GST/HST credit cheque;
It must be excluded according to the BIA as there will be a dividend paid to the creditors.
The bankrupt consents to pay an amount matching that credit cheque to the LIT.
The LIT needs to give the credit cheque to the bankrupt, despite any kind of contract between them. Based on the Ontario Court decision described above, that contract is not enforceable anyway.
The bankrupt gets and cashes the cheque.
The bankrupt pays to the LIT an amount matching to the credit cheque they just cashed. That payment can be by cash, bank draft, money order or a cheque drawn on the bankrupt person’s own chequing account.

How does filing bankruptcy affect your tax refund?

Real income tax refunds are a result of an overpayment of income tax by the tax debtor. In the year of bankruptcy, the two income tax returns that must be prepared and filed are:

A pre-bankruptcy income tax return covers your tax obligation from Jan. 1 to the day prior to your date of bankruptcy.
The post-bankruptcy income tax return covers the tax obligations from the day of bankruptcy to Dec. 31 of that year.

If there are assets that are liquidated that have income tax attributes, an in-bankruptcy tax return will also have to be prepared and filed.

Any pre-bankruptcy income tax refund is a property of the bankrupt divisible amongst the creditors. So, the LIT is entitled to keep the pre-bankruptcy income tax refund. It is also possible for the post-bankruptcy income tax refund to be assigned to the LIT. Any amount owing by the bankrupt person from the post-bankruptcy tax return must be paid by the bankrupt person as it is a post-filing debt.

Any income tax refunds for years prior to the year of bankruptcy is also a property of the bankrupt payable to the LIT and forms part of the bankruptcy estate.

Summary

Financial problems can happen to anyone. Not just people who have low or moderate incomes. It happens to those that we might think are rich too. It can happen to a person, a business or a company.

Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do both a personal debt restructuring/debt settlement program as well as a complex corporate restructuring. However, more importantly, we understand the needs of people.

You are worried because you or your company faces significant financial challenges. The stress placed upon you due to your 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 problems; financial and emotional. The way we deal with your problem and prepare and implement a restructuring plan, we know that we can help you.

We know that facing financial problems is scary and that you 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 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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Brandon Blog Post

CONSUMERS PROPOSAL COMPANIES IN TORONTO

Post author By Brandon Smith
Post date September 23, 2019

If you would prefer to listen to an audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast

What is a consumer proposal?

I have written Brandon’s Blogs before on the topic of consumer proposals. Recently, I have heard some people refer to them as “consumers proposal”. Placing the “s” on the wrong word. So, I thought it would be good for me to write a refresher blog on the most asked questions when it comes to a consumer proposal. A consumer proposal Canada faq Brandon’s Blog.

In summary, a consumer proposal is a structured process under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). This procedure allows insolvent individuals to make an official deal with the people and companies they owe money to. This government accepted debt negotiation plan allows you to pay back only a portion of what you owe. You can take as long as 5 years of regular month-to-month repayments to do so.

When is a consumer proposal appropriate?

To be able to take advantage of this government-sanctioned debt settlement plan, you need to be insolvent and owe $250,000 or less to all your creditors. This dollar limit is apart from any financial debts secured by registration against your personal residence.

It is appropriate for anyone who:

has full-time employment;
can make their household budget allow them to make the required monthly payment you promised to make towards your debts; and
wants to avoid bankruptcy

What happens when you file a consumer proposal?

Under the BIA, a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) administers the consumers’ proposal.

The LIT will submit the necessary documents with the Office of the Superintendent of Bankruptcy (OSB). As soon as it is filed, you stop paying your unsecured creditors as of the date of your filing. You also will have stopped paying any secured creditors where you decided that you couldn’t afford to keep the secured asset(s) that you already returned.

On top of that, if your creditors are suing you, then your filing stops those legal actions If certain creditors already have a judgment against you and are garnisheeing your assets or your income, those actions are also stopped. This is called a stay of proceedings.

The LIT will send the proposal to your creditors. The proposal will include a listing of your assets and liabilities. It will also tell the creditors the reasons for your money difficulties.

Creditors then have 45 days to either accept or decline the proposal. They can do this either before or at the meeting of creditors if one is held.

When is a meeting of creditors held?

In order for consumers proposal to be approved, a simple majority of your creditors by dollar value that has actually filed a proof of claim need to authorize it. If creditors that have actually filed a proof of claim pick not to vote, that is considered a vote in favour.

You may not require to have a meeting of creditors. Unless creditors holding 25% in the dollar amount of the claims submitted ask for one, or the OSB requests it, there is no requirement to hold one. If a meeting is not requested, the proposal is deemed to be accepted by the creditors.

There is not a whole lot to understand. As I mentioned, a simple majority by dollar value tells the tale. There is either a majority to accept or refuse your consumers proposal.

If your proposal is accepted, the OSB, or any other interested party, has 15 days to ask the LIT to put it on the Court list to have the proposal examined by the Court. If no such demand is made, the proposal will be considered to have been approved by the Court.

If your consumer proposal is accepted

An accepted proposal is a contract between you and your creditors. You have promised to make monthly payments to the LIT for a period of up to 60 months. You carry out your end of the deal by making all the required payments.

You also need to attend two mandatory credit counselling courses run by the LIT. If you complete all the payments and the two counselling sessions, you have discharged the balance of your debt. You have also been successful in avoiding bankruptcy.

If your consumer proposal is not accepted

If your consumer proposal is not accepted, you can:

make changes to it and resubmit;
consider various other choices for addressing your financial problems; or
file for personal bankruptcy

As mentioned above, if you complete all the payments and the two counselling sessions, you have discharged the balance of your debt. You have also been successful in avoiding bankruptcy.

How will a consumer proposal affect my credit rating?

Normally, a person who submits a consumer proposal is given the lowest credit rating.

Information that affects your credit report is typically removed from after a certain period of time. In Ontario, the notation of your consumer proposal insolvency proceeding stays on your credit record for 3 years after you complete all your payments and receive your certificate of full performance.

You will start rebuilding your credit. Through making a conscientious effort to show you can now handle credit, your credit score will start rising.

Is a consumer proposal worth it?

I think so. You had financial problems and maybe your assets and employment income were being garnisheed. You needed a solution. You chose the only government-sanctioned debt settlement plan in Canada. You successfully completed it. You shed a lot of debt. You also avoided bankruptcy.

I would say, that for sure, makes it worth it.

Is a consumer proposal bad?

A consumer proposal in itself is not bad. It has saved thousands of Canadians from their financial problems. It has made sure that the bankruptcy numbers in Canada are not as high as otherwise might have been.

The bad part was the financial trouble the person got into. Thankfully, in a country like Canada with a mature economy, there is a legal means to help the honest but unfortunate person shed their debt without going into bankruptcy.

What happens after a consumer proposal?

After you have successfully completed a consumer proposal, you have hopefully learned proper budgeting skills through credit counselling sessions. You are also now better equipped to make sure that you use credit more wisely. You also now know better that you cannot spend more than you earn, on an after-tax basis.

You can now start rebuilding your credit. Ways of doing that are:

Obtain a secured credit card. This is one where you put up a certain amount of money and you get a credit limit in line with your deposit. Every month that you pay your credit card balance in full, that is reported to the credit reporting agencies. When you show responsible use of the credit card, your credit score improves. If you do not handle that credit well, that is also reported. Hopefully, that will not be the case.
Take out a small RRSP loan your first year after getting your certificate of full performance. Pay that loan off within the next 12 month period. Making your loan payments on time is reported and helps increase your credit score.

Be careful with credit. You don’t want to fall back into the trap of taking on too much debt and having financial problems again.

Consumers proposal summary

Are you in financial distress? Do you not have enough funds to pay your bills as they come due?

As a Trustee, we are the only professionals acknowledged, accredited and also managed by the federal government to provide insolvency advice and services. A consumer proposal is a federal government licensed debt settlement approach to eliminate your debt. We will certainly help you to pick what is best for you to clear your own debt issues.

Call the Ira Smith Team today so we can eliminate the stress, anxiety, discomfort and pain from your life that your cash problems have produced. With the distinct roadmap, we develop just for you, we will swiftly return you right into a healthy and balanced problem-free life.

We have years and generations of experience assisting people and companies looking for debt restructuring to PREVENT bankruptcy. You can have a no-cost analysis so we can help you to fix your financial troubles. Call the Ira Smith Team today. This will certainly allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

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