Tag: Bankruptcy

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CREDIT KARMA CA: CREDIT KARMA CANADA REVIEWS MILLENNIAL DEBT

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If you would rather listen to an audio version of this Credit Karma ca Brandon’s Blog, please scroll down and click on the podcast

Introduction

A brand-new Credit Karma ca report on millennial debt is out. Credit Karma Canada reports that its US company has performed a research survey of 1,041 millennial customers in the United States. As far as I can tell, they did not do a similar Canadian survey. However, I highly doubt that a Canadian millennials debt study would produce results drastically different than this survey.

The results reveal that virtually fifty percent (48%) of millennials have spent money they really did not actually have by going into debt. Why? To keep up with their pals.

Unfortunately, this is a significant increase from the findings of the 2018 survey (up from 39% of participants evaluated in 2018).

The nature of the millennial debt

Whether it’s on food or beverages, concerts or tattoos, they discovered that more and more millennials are spending beyond their means as a result of increasing public opinions. Greater than 2 in 5 millennials (44%) from the study stated they’re terrified to miss out on unique or once in-.a-lifetime experiences. Over one-third (36%) don’t want to look like an outsider.

Despite the fact that according to Credit Karma ca, almost 1 in 2 millennials have actually experienced fear of missing out (FOMO) driven debt, they’re mostly being silent about it. Of the participants that have actually entered into debt just to keep up with their mates, 80% claimed they would certainly keep the fact that they have gone into debt quiet and not tell friends or family.

Why do they wish to keep it secret? The survey shows that their reasons are ones of regret, guilt and embarrassment. They do not feel good about the debt they have incurred.

In 2014 their survey showed that millennials were most likely to use the money they really did not have for unique experiences, such as events, nightlife or holidays with their buddies. The new survey also looked at what experiences and purchases were triggering millennials to acquire FOMO debt.

According to their study this year, the #1 point driving millennials to spend beyond your means is food ( 47%), and then clothing (41%). As well as there are some millennials that have entered into FOMO fueled debt on much bigger and long-term items. Cars and trucks (15%), tattoos (11%) and real estate (9%). So out of all the millennials that go into debt, only 9% of millennials go into debt in order to acquire an asset that will grow in value over time, millennial home ownership. Another way of looking at it, 91% of millennials go into debt either for an experience that once it is over, it is over or for a tattoo!

Regardless of the product or experience, social networks play a huge component in driving the millennials’ need to spend beyond their means. The survey results show that 2 in 5 participants (40%) claimed they spent money on something a minimum of one time per year simply to publish that fact on social media sites.

Why do millennials really feel forced to spend too much?

According to the survey, the main reasons that millennials really feel pressured to go into debt to keep up with their close friends are:

  1. A concern of losing out on a unique or unbelievable experience 44%
  2. Worry of not being included in future outings 41%
  3. The concern of being treated like an outsider 36%
  4. Worry of being evaluated 25%
  5. Concern over losing close friends 24%

As you can see, 4 out of the top 5 responses has to do with what their friends may think. This makes sense. The majority of the things millennials go into debt for, such as vacations, concerts and restaurants, are things that you do with friends.

So what is the answer?

Obviously, no one can keep going into debt on an unlimited basis, especially when the reason is to keep up with others. I have some tips on how to deal with friends that either has more money than you or are willing to go deeper into debt than you. Or, at least are not concerned about their debt like you are.

Hang out together in ways that don’t force you to spend

Consider how you can invest in quality time but not your cash. Time spent with close friends and loved ones is an experience that can be valued over something that pushes you into debt. Those good times also last forever.

There is no need to be embarrassed about being not able to pay for an evening out or a costly getaway. As I pointed out previously, 80% of millennials that spend beyond their means hide it from others. However, by being straightforward with your buddies, you may be amazed to discover they really feel similar to you.

Speak to your pals concerning your worries and also do cost-free or much more modest cost things that let you hang out with each other.

Control your funds, do not allow it to control you

Eighty-one percent of participants stated they have a month-to-month budget that they attempt to stick to, which is wonderful. Nonetheless, the millenials that have such a plan seem to have a hard time keeping within it once they feel the peer pressure being applied.

If you’re amongst those that have a problem with budgeting, it can be handy to be a lot more conscious about the consequences of buying something. Take into consideration whether you can really afford it and if you didn’t buy it, will it really hurt your life. If not, then reevaluate, don’t buy it and build up some savings.

Another tip is to lock your debit and credit cards away and spend only cash. By using real cash and not plastic (or a debit card) you get a better sense of what you are spending on extras and how much you need to still have for essentials until the next paycheque. When cash is gone, it is gone. This behaviour will force you to think about how much money you need for essentials for the number of days until the next payday – which is a good thing.

Will this item or experience be important in 5 years?

In some cases, the answer is no, and sometimes it is yes. If the answer is yes, then slot it into your budget and see if you can afford it. Make sure your budget also has a line for savings. That way you will be building up a fund for investing. This fund can also be called upon in the event of a real emergency that could not have been planned for. Examples are increased health costs or reduced income through job loss.

It is essential to have an emergency fund that you can tap into in the event of a real crisis. It isn’t so bad to also have further savings and investments. It is never too early to start planning for retirement. If you wait until you are closer to retirement than the start of your career, you will never be able to catch up.

Conclusion

I hope you found the Credit Karma ca study as informative as I did. Of course, budgeting and debt issues are not limited to only millennials. Financial problems can affect anyone. Whenever I sit down with a person to talk about his or her insolvency, or with an owner of a company to discuss business financial problems, I make sure that we have an entire discussion. I not only talk to them about what process I recommend for their unique situation, but I also walk them through the entire process and what all the rights and responsibilities are.

Are you or your business experiencing money troubles? Are you on the verge of bankruptcy? Do not wait till it is far too late to understand how you can restructure your financial affairs and avoid bankruptcy. You do not need to be one more person or company declaring bankruptcy in Canada.

As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only specialists certified, accredited and overseen by the federal government to provide insolvency guidance and to apply remedies under the BIA. We will certainly help you to choose what is best for you to release you from your debt problems.

Call the Ira Smith Team today so we can get rid you of the stress, anxiety, pain and discomfort that your money issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Staring Now. Call the Ira Smith Team today.

 

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Brandon Blog Post

FILING BANKRUPTCY IN CANADA: RETAILER BANKRUPTCIES AND CO-TENANCY

filing bankruptcy in canada

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

Introduction

I read one article and one legal case over this past weekend that gave me the idea for this Brandon’s Blog about filing bankruptcy in Canada. The article was about the large US jewelry and accessories retailer Charming Charlie’s filing Chapter 11 bankruptcy for the second time in just over a year. In its 2018 filing, the retailer shed almost half of its 400 stores in a restructuring. Unfortunately, that was not good enough to save them. They have now filed again and announced they are closing their remaining stores.

The case I read is Old Navy (Canada) Inc. v. The Eglinton Town Centre Inc., 2019 ONSC 3740 (CanLII). This decision of the Ontario Superior Court of Justice was released on June 21, 2019. This case involves a retail tenant’s right to put into play rights it has as a result of a co-tenancy requirement under its commercial lease.

What Is Co-Tenancy Provision?

Simply put, a co-tenancy clause in retail lease agreements permits retail tenants to reduce their lease payments if key renters or a specific variety of lessees leave the retail premises. The idea being that certain tenants are major draws to a shopping centre and produce traffic for themselves and the other tenants. Those types of tenants are called anchor tenants.

A retail tenant agrees with the landlord to specific lease terms, especially the amount of rent to be paid. The commercial tenant agrees to those terms expecting a certain level of traffic in the mall or shopping centre. If anchor tenants leave, a co-tenancy provision allows a tenant to decide if it wishes to remain or not. If it decides to stay, then the lower amount of rent to be paid when a co-tenancy provision comes into play is meant to compensate the tenant for the lower traffic volume.

The Players

Old Navy is a famous retailer of clothes. It runs stores throughout Canada, the United States, and worldwide. Old Navy is a subsidiary of Gap Inc. (GAP), which is headquartered in San Francisco, California. Old Navy’s operations and stores are owned and operated by GAP.

GAP is the biggest specialty retailer in the USA. It has roughly 3,700 locations globally, consisting of 240 shops in malls and strip/power centres throughout Canada. GAP also owns the Banana Republic brand. Of the three, Banana Republic is taken to be on the top end of the GAP household of brand names, while Old Navy is the reduced level, affordable or budget brand name.

The landlord, The Eglinton Town Centre Inc., is owned and run by Lebovic Enterprises, a major Canadian property developer with its head office in Toronto, Ontario. Among others, it owns and runs the “Power Centre”, situated at Eglinton Opportunity East (the Centre).

The Old Navy Canada Lease

The Old Navy Canada lease, of course, had many terms in it. It included a co-tenancy provision. The clause named the key retailers (Key Shops) and their square footage. The Key Shops are the following retailers with the flooring area indicated:

Key ShopsSquare footage
Cineplex68,000 sf
Roots6,545 sf
Globo Shoes12,084 sf
Danier Leather 6,548 sf

Although the co-tenancy clause had various alternative remedies in it, all of them are not essential for you to know for the purpose of this Brandon’s Blog.

It is important for us to know that the co-tenancy section consisted of three main parts: (i) the number of Key Shops; (ii) a gross leasable area test; and (iii) a requirement for the landlord to advise the tenant in writing when a co-tenancy failure has actually happened.

Simply put, if the co-tenancy provision kicked in Old Navy Canada had the option to either:

  1. Shut down its store and leave on proper notice to the landlord; or
  2. Remain and pay a lesser “Alternate Rent” for the period that the co-tenancy issue remained unresolved.

The Danier Leather bankruptcy

Danier Leather (Danier) was a prominent Canadian seller of leather clothing and related leather items. The landlord entered into a lease with Danier for a preliminary 10-year term from June 10, 1999, to June 9, 2009. Danier’s lease was renewed in 2009 and Danier continued to be a renter of the Centre up until 2016. Danier’s premises of 6,548 square feet of space was out of a total of 285,425.37 square feet of gross leasable area in the Centre. Danier’s retail outlet represented just 2.3% of the gross leasable area.

Danier was a public company. Its shares were traded on the Toronto Stock Exchange. Nonetheless, public filings showed that Danier had been battling financial issues since 2014. Decreased earnings and yearly losses were unfortunately now its norm.

The negative operating results were thought to have been attributable to a change in the preferences of the buying public. There was a sentiment among some people to stop wearing leather items and apparel. On February 4, 2016, Danier submitted a Notice of Intention to File a Proposal (NOI) under the Bankruptcy and Insolvency Act, R.S.C., 1985 c. B-3.

Certainly, Danier’s insolvency was major news in the retail market. It was publicly reported in the nationwide media. At the time of the NOI filing, Danier operated 84 stores throughout Canada. Every one of the shops was leased. Ultimately, nonetheless, Danier determined not to submit a proposal and instead made an assignment in bankruptcy. A receiver was also appointed over Danier to liquidate the shops. Danier continued running until July 2016.

Definitely, every one of the occupants at the Centre, including the local staff of the Old Navy shop, would have recognized that Danier was conducting a going out of business inventory sale. It was unclear if anyone from Old Navy Canada told this to its senior management at the GAP.

Throughout the duration of the closing of the Danier outlet, the various other retailers at the Centre were growing. The Centre’s construction had long been completed and was well over 90% rented at the time of Danier’s insolvency. Cineplex was drawing audiences daily. The remaining stores in the portion of the Centre in which the Old Navy shop was located, across the parking area from the Danier outlet, were all operating. There was no proof they were not operating well and profitably.

The Dispute

The landlord believed that the closure of Danier had no material impact whatsoever on traffic at the Centre or on Old Navy’s sales. Given its interpretation of the co-tenancy requirements, the landlord ruled out that a co-tenancy failing had actually occurred. Therefore it did not provide any notice to the Old Navy care of GAP.

By September 15, 2016, GAP asserted they had ultimately found out about Danier’s filing bankruptcy in Canada. Thus, Old Navy issued a Notice of Co-Tenancy Failure to the Landlord and took the view that:

  • Danier’s bankruptcy constituted a “co-tenancy failure” under the lease;
  • that the landlord had breached the lease by not advising Old Navy of Danier’s bankruptcy; and
  • that Old Navy was, as a result, exercising its “right” under the lease to pay the lesser rent to the landlord, retroactive to May 1, 2016.

The landlord argued that the Centre was in co-tenancy failure as a result of the closure of Danier and stated that if the current lease was not paid, the landlord would declare Old Navy Canada to be in default under the terms of the lease.

Various communications took place between lawyers for the landlord and Old Navy Canada. The landlord also kept them up to date on discussions it was having with various potential retailers that would be interested in either the Danier space or larger premises. One such retailer was a global party supply store chain. Another, that ultimately entered into a lease and began operating in the Centre, was a retailer of pets and pet products.

Old Navy Canada, through its parent the GAP, took the position that only a retailer of upscale clothing like Danier was, would be a suitable replacement. It also stated that it had a corporate policy not to be located in shopping centres that had a pet retailer as a tenant.

It turns out that assertion was untrue. The landlord produced evidence that there is a power centre in the west end of Toronto where the opposite is true. That centre was the Stock Yards Village, where the anchor was Target Canada until it failed several years ago. There is an Old Navy store operating in that shopping centre along with a PetSmart retail outlet. This contradicted Old Navy Canada’s and the GAP’s position on suitable co-tenants.

The landlord and Old Navy Canada continued to agree to disagree. Old Navy Canada continued to pay the normal rent but under protest. Ultimately, Old Navy Canada launched the litigation against the landlord looking for reimbursement of rent that it asserts to have actually overpaid to the Landlord.

The Court’s decision

The Court went through a complex analysis of legal precedents that are beyond the scope of this Brandon’s Blog. After careful consideration of the lease, the issues involved and precedent case law, the Judge decided:

  1. Old Navy’s interpretation of the provisions of the lease for the co-tenancy requirements is rejected.
  2. He accepted the landlord’s interpretation of the relevant terms as being the most objective.
  3. GAP/Old Navy’s evidence which was speculative.
  4. It was not sensible for GAP/Old Navy to anticipate to be able to occupy the facilities for the rest of its lease term without paying proper rent, merely because of a technical issue that had no noticeable effect on its operations.
  5. The landlord acted throughout in a commercially reasonable way.

Summary

What this case shows is that the bankruptcy of a retailer may very well invoke co-tenancy rights. However, it is not the bankruptcy that is the determining factor. Rather, it is the terms of the co-tenancy clause and its formulas contained in the clause that we have to look to. As seen in this example, the breach was not just because one of the Key Shops no longer operated. The terms of the Old Navy Canada Lease also forced a gross leasable area calculation to be performed. If the gross leasable area test was not met, then there was no breach.

Is your company experiencing financial problems? Are you on the brink of insolvency just like Danier was? Don’t wait until it is too late to properly restructure your company’s financial affairs. You don’t have to be another one filing bankruptcy in Canada.

As a Trustee, we are the only professionals licensed, authorized and supervised by the federal government to offer insolvency advice and to implement solutions under the Bankruptcy Act Canada. We will help you to select what is best for you to free you from your debt issues.

Call the Ira Smith Team today so we can eliminate the anxiousness, tension, discomfort and pain from your life that your cash problems have caused. With the unique roadmap, we develop just for you, we will promptly return you right into a healthy and balanced problem-free life.

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Brandon Blog Post

BANKRUPTCY ACT CANADA: ARE YOU REALLY PREPARED FOR IT?

Introduction

No person wishes to go make a filing under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (Bankruptcy Act Canada), however occasionally it is inevitable. You might think that people who file are just those that are careless with their finances. However, with most of the people I see, it is usually an event outside of their control that pushes them over the edge.

In personal bankruptcy, things such as illness, divorce, job loss, unanticipated catastrophes, identity theft and fraud are many times the causes of insolvency. Of course, lack of proper budgeting, overspending and inappropriate uses of credit are also involved. In corporate insolvency, the #1 cause always seems to track back to management.

Insolvency filings happen every year. In 2018, a total amount of 128,846 insolvency filings were made with the Office of the Superintendent of Bankruptcy (OSB). This is 2.4% more from 2017. Consumer insolvency filings increased 2.5% (125,266 filings), while company filings dropped 0.8% to 3,580.

At the very same time, people choosing to avoid bankruptcy by filing a proposal continued increasing in 2018, bringing this number to a brand-new level. Proposals represented 52.6% of consumer filings in 2017. In 2018, they expanded by 6.6% to 56% of all personal filings.

Are you considering a Bankruptcy Act Canada filing, or at least speaking to a Licensed Insolvency Trustee (formerly called a trustee in bankruptcy) (Trustee)? In order to help you start your fact-finding, I want to tell you what will happen to your bank accounts, retirement accounts and your other important financial funds. Understanding what to anticipate can assist you to stay clear of some pricey blunders.

Bankruptcy or (consumer) proposal

Being insolvent is that you are not able to settle your financial debts. People with severe financial problems can make Bankruptcy Act Canada filing by filing either for bankruptcy, a consumer proposal or Division I proposal.

Proposals are official methods controlled by the Bankruptcy Act Canada for personal filings. Dealing with a Trustee you make a proposal to:

  • Pay your creditors a portion of what you owe them over a particular time period not going beyond 60 months
  • Extend the time you need to settle the debt
  • Or a mix of both

The Proposal is made via the Trustee, who uses the money in your proposal fund to pay the cost of administration and distribution to each of your creditors their pro-rata share. A consumer proposal needs to be finished within 5 years from the day of filing.

Proposal

People with severe financial problems can apply for bankruptcy. They can also try to avoid bankruptcy by using the Proposal provisions of the Bankruptcy Act Canada.

There are numerous advantages to avoiding bankruptcy. The main differences between proposals and bankruptcy are:

  • Unlike informal debt settlement, a Proposal produces a binding discussion forum where each of your unsecured creditors has to participate in for your debt restructuring.
  • You can keep your property, including your home, if you can afford to in your budget.
  • Lawsuits against you and enforcement proceedings, such as wage garnishments, cannot begin or continue.
  • In a successfully completed Proposal, you do not need to file for bankruptcy.

Keep in mind that financial institutions have “set-off” legal rights, implying that if you declare bankruptcy or file for bankruptcy when you’re behind in payments to them, they will take the funds in your accounts to try to cover all or some of what you owe them. This is notwithstanding that there is a stay of proceedings once a Bankruptcy Act Canada filing takes place and such an offset really should not take place.

So if you are thinking of filing either for bankruptcy or a proposal, I want you to be prepared for what might happen to your financial assets.

Your bank account

In a bankruptcy, the cash in your bank account is a property which must be paid over to the Trustee. Upon your filing, the Trustee will put all your banks on notice to provide the funds in any accounts maintained with them to the Trustee. As noted above, the bank may very well offset cash in your savings or chequing account against the money you may owe them, including credit card debt.

In a Proposal, you do not lose control of the money in your bank accounts. Rather, they are considered by the Trustee in formulating the type of Proposal you should offer your creditors. Remember, your Proposal must offer your creditors a better alternative than your bankruptcy would. However, even though there is a stay of proceedings invoked once you file your Proposal, it is not uncommon for a bank where you maintain an account and to whom you owe money, to take the money in your account and offset it against what you owe them.

So the moral of this story is that you are best to have bank accounts at financial institutions to whom you do not owe any money.

Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF) or Deferred Profit Sharing Plan (DPSP)

In a bankruptcy, your RRSP, RRIF or DPSP are excluded from seizure. However, the Trustee is entitled under the Bankruptcy Act Canada to receive the equivalent to any amounts contributed to these accounts in the 12 months preceding your filing date. In a Proposal, this 12-month amount must be included by the Trustee in the calculation of what amount your Proposal should offer your creditors.

Canada Pension Plan (CPP) and Old Age Security income (OAS)

Canada Revenue Agency (CRA) is the only one permitted to garnish your CPP earnings if you have an unpaid personal income tax. By filing either for bankruptcy or a Proposal, the stay of proceedings will be invoked and CRA will have to stop the garnishment of your CPP and you will get the CPP payments you are qualified for.

However, the earnings obtained from CPP and OAS will certainly be taken into account by the Trustee in determining if you have any surplus income payment obligation in bankruptcy. In a Proposal, that amount also has to be considered in developing your Proposal.

Tax-Free Savings Account (TFSA), Registered Education Savings Plan (RESP) and other non-registered account investments

In a bankruptcy, just like any other non-exempt property, the amount held in your TFSA and any other non-registered investment account must be paid to the Trustee. In a Proposal, these amounts need to be taken into account in determining what type of Proposal to make. It may very well be that these accounts are collapsed in order to help fund a Proposal.

Similarly, RESPs are not excluded in personal bankruptcy. In a Proposal, the amount must be considered as an asset in calculating how much must be offered in your Proposal to stand a chance for success.

The reason that an RESP is not excluded from seizure in bankruptcy is relatively straightforward. Your child does not acquire ownership or other entitlement to the RESP funds as parents can take possession of the funds prior to the child becoming a post-secondary school student. For that reason, it is the parents who have ownership of the funds.

Consequently, the Trustee of an insolvent mother or father that has an RESP can collapse it. If the parent in bankruptcy wants the RESP to not collapse, adequate arrangements need to be made with the Trustee for the equal amount of funds in the RESP at the filing date be paid to the Trustee for the bankruptcy estate and the bankrupt’s creditors.

Annuity revenue in bankruptcy

Annuities are agreements where you pay a company (normally an insurance company) a specific amount, in order to get regular monthly payments for a specific period of time or for the remainder of your life.

If an annuity contract is properly set up with an insurance company, it will be exempt from seizure in bankruptcy. However, the income stream it produces will be considered by the Trustee in determining whether the bankrupt person has a surplus income obligation.

Your RRIF can also be considered as an annuity as it provides a legislated stream of payments. The RRIF is exempt from seizure in a bankruptcy, other than for any contributions in the 12 months immediately prior to filing. Like an annuity, the entitlement to payments will be considered by the Trustee in doing the surplus income calculation.

In a Proposal, you don’t give up ownership of an annuity contract or RRIF, but the income must be considered in preparing a suitable Proposal.

Bankruptcy Act Canada summary

Do you have financial problems? Do you not have enough money to pay your bills in full when due?

As a Trustee, we are the only professionals licensed, authorized and supervised by the federal government to offer insolvency advice and to implement solutions under the Bankruptcy Act Canada. A consumer proposal is a federal government licensed debt settlement plan to eliminate your debt. We will help you to select what is best for you to free you from your debt issues.

Call the Ira Smith Team today so we can eliminate the anxiousness, tension, discomfort and pain from your life that your cash problems have caused. With the unique roadmap, we develop just for you, we will promptly return you right into a healthy and balanced problem-free life.

Call the Ira Smith Team today. We have generations and decades of experience helping people and companies looking for debt restructuring and a debt settlement plan to AVOID bankruptcy.

You can have a no-cost consultation so we can work with you to fix your money 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.

bankruptcy act canada

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CONSUMER PROPOSALS: HOW MANY ARE REJECTED?

Introduction

When people with high debt come to see me for their free consultation, many times I shock them. They are shocked when I tell them that bankruptcy might not be required. I then tell them about consumer proposals. I also explain why I think they would be able to successfully complete a consumer proposal (CP) and therefore avoid bankruptcy.

What are consumer proposals?

I have written on the topic many times. In summary, a consumer proposal is a streamlined process under the Bankruptcy and Insolvency Act (Canada) (BIA). This process allows insolvent people to make a formal deal with their creditors. This government approved debt settlement plan is to repay only a portion of what you owe and you can take as long as 5 years of regular monthly payments to do so.

To qualify, the person must be insolvent and owe $250,000 or less to all creditors, other than for any debts secured by way of registration against your principal residence, such as a mortgage.

The person will then ask me how many we have done were rejected. They are trying to determine what the odds are for their deal to be accepted by their creditors. What I tell them is that I first do an assessment and tell them what amount of offer I think they need to make to gain the approval of their creditors. I also tell them that so far, anyone who has followed my advice has had their consumer proposal accepted by their creditors. Therefore, the number of those rejected by people who follow my advice is ZERO.

The benefits

There are benefits to submitting a successful debt settlement payment plan sanctioned under the BIA. The benefits include:

  • Unlike an informal debt arrangement, the CP develops a forum where each of your unsecured creditors has to participate in for your debt restructuring.
  • You maintain your assets and don’t have to give them up.
  • Lawsuits against you or your property and financial debts, or enforcement actions such as wage garnishments, cannot proceed.
  • You do not need to submit an assignment in bankruptcy

The process

Once prepared, the CP is submitted to the Office of the Superintendent of Bankruptcy Canada (OSB), the government department that controls Licensed Insolvency Trustees (formerly called bankruptcy trustees) (Trustee). The Trustee acts as the Administrator of the CP.

Once it is submitted, you will quit paying your unsecured creditors for past debts. The Trustee will send a notice of the filing along with a copy of the CP to all creditors affected by the CP. This includes anyone suing you or garnishing your earnings. Those activities against you will stop also.

Your creditors will have 45 days to accept or decline the debt settlement CP deal. If your unsecured creditors are disappointed with the proposal, they can vote against. In that case, the Trustee will discuss modifications with you that the Trustee believes the creditors might accept. That discussion will take place prior to the against vote counting. Usually, this means offering more money to them over the maximum 5 year period. The key is that you have to be able to afford to make those higher monthly payments. It will still be only a portion of the total you owe.

In order for consumer proposals to be accepted, a simple majority of your creditors by dollar value who has filed a proof of claim must approve it. If creditors who have filed a proof of claim choose not to vote, that is considered a vote in favour. You also may not even need to have a meeting of creditors. Unless creditors holding 25% in dollar value of the claims filed to request a meeting, or the OSB requests a meeting, there is no need to hold one. If a meeting is not requested, the proposal is deemed to be accepted by the creditors. This is all part of the streamlining.

Acceptance and performance

If your CP is accepted, the OSB (or any type of other interested parties) has 15 days to ask the Trustee to go to court to have the deal court approved. If no such demand is made, the debt plan is deemed to have actually been accepted by the court. More streamlining.

After acceptance and approval, the person is then accountable for making the regular monthly payments to the Trustee that was promised in the debt management plan. There will also be 2 counselling sessions for the person to attend with the Trustee to help them with their financial issues and behaviour.

If you miss 3 monthly payments, or you are greater than 3 months overdue since your last payment, the proposal will be considered annulled. This indicates to your creditors that they are now able to either resume or begin collection actions against you. Not a good thing.

Full performance

As I previously mentioned, the person must successfully complete the debt management settlement plan by making all the required payments and attending the 2 counselling sessions. When completed, the person is entitled to receive a Certificate of Full Performance. This means that you have successfully completed the CP and that all debts caught by it are discharged.

The Trustee will then finalize the administration of your debt settlement plan, get the necessary OSB approval and distribute the money to all the creditors who have filed a proof of claim. The Administrator also is entitled to the government approved fee.

Summary

Consumer proposals must provide your creditors with a better outcome than what they would get in your bankruptcy. I have never had a consumer proposal rejected for someone who took my advice and made all the payments required.

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.

consumer proposals

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CONSUMER PROPOSAL CALCULATOR REVIEW FOR YOU

consumer proposal calculator

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

Introduction

A consumer proposal calculator is important to figure out what sort of debt settlement plan should be offered to your creditors. But to have a truly successful one, you really need clear language. In Brandon’s Blog, I review a recent court case that explains why.

Shelly Gail Corriveau bankruptcy

I recently read the Reasons for Decision dated June 13, 2019 by Registrar in Bankruptcy L.A. Smart of Court of Queen’s Bench of Alberta. This case is in the matter of the bankruptcy of Shelly Gail Corriveau. The case reference is Corriveau (Re), 2019 ABQB 438 (CanLII).

Ms. Corriveau filed an assignment in bankruptcy in April 2012. She had unsecured creditors of roughly $73,000. The reason for her insolvency was stated as offering monetary help to her child’s business. She was by all accounts a perfect example of an honest but unfortunate debtor. At the time of the bankruptcy, her only asset was her house.

In June 2012, Ms. Corriveau got a gift from her mom of $46,000. It featured instructions that $6,000 of those funds be utilized for children and certain other matters. She spent the $6,000 as instructed, with the balance of the $40,000 being paid to her licensed insolvency trustee (formerly called a trustee in bankruptcy) (the Trustee) for the benefit of her creditors.

The home was sold in October 2012. From the sale, she received her provincial exemption of $40,000 with the balance of $3,916.21 being paid to her bankruptcy estate.

Ms. Corriveau files a consumer proposal

On May 12, 2013, Ms. Corriveau advised her Trustee she had received an inheritance of $15,000 from her Mother’s estate. On May 26, 2013, Ms. Corriveau submitted a consumer proposal. The Trustee served as the Administrator of the consumer proposal.

The proposal in paragraph 4 states:

“4. That the following payments be made to [Name omitted to not embarrass the guilty] Trustee in Bankruptcy, the administrator of the consumer proposal, for the benefit of the unsecured creditors:

Proposal payments to total $10,000.00. The of (sic) funds will be provided to the Administrator as follows – $300.00 filing fee to be paid at time of filing and then a lump sum payment of $9,700.00 due 60 days after the proposal is court approved (all payments to be made within the 60 months proposal period)

The debtor reserves the right to accelerate payments should funds become available.

*** NOTE *** – There will be a significant dividend paid from the bankruptcy administration.”

In accordance with the requirements of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), the consumer proposal Canada read that the payments must be completed within 60 months.

The Trustee recommended acceptance of the proposal. In his report to creditors he stated:

“This proposal will provide the debtor with relief and allow the debtor’s affairs to be restructured in an orderly fashion. It will allow the debtor to annul her bankruptcy and provide for a greater return to the creditors when compared to the bankruptcy option.”

The consumer proposal was deemed accepted by the creditors and approved by the Court. Ms. Corriveau made all the required payments and received her Certificate of Full Performance on August 2, 2013.

Have you “Noted” the problem yet?

Under the BIA, a bankrupt is allowed to lodge a proposal with the Trustee; either a consumer proposal or a Division I Proposal. In either format, it is a debt settlement plan that the bankrupt is proposing for acceptance by the debtor’s creditors. By definition, if the proposal is fully carried out, then the person or company’s bankruptcy is annulled.

When bankruptcy is annulled, it is declared to have had no legal existence. It is as if it never happened. The annulment of the bankruptcy takes place upon the approval or deemed approved by the court of the consumer proposal. There will never be a distribution to the creditors from the bankruptcy administration. The Trustee, in this case, did not issue any funds from the bankruptcy, yet.

So the Note that the Trustee added, “There will be a significant dividend paid from the bankruptcy administration.” is problematic. Actually, it is more than problematic. It is just plain wrong.

Now the Trustee wishes to complete the bankruptcy administration. The Trustee submits its Statement of Receipts and Disbursements as required to the Superintendent of Bankruptcy (OSB) for approval. This issue came before the Court because of the OSB’s unfavourable comment letter dated June 15, 2018.

The Court’s analysis

Section 66.4(2) of the BIA states:

“Where consumer debtor is bankrupt

(2) Where a consumer proposal is made by a consumer debtor who is a bankrupt,

(a) the consumer proposal must be approved by the inspectors, if any, before any further action is taken thereon;

(b) the consumer debtor must have obtained the assistance of a trustee who shall act as administrator of the proposal in the preparation and execution thereof;

(c) the time with respect to which the claims of creditors shall be determined is the time at which the consumer debtor became bankrupt; and

(d) the approval or deemed approval by the court of the consumer proposal operates to annul the bankruptcy and to revest in the consumer debtor, or in such other person as the court may approve, all the right, title and interest of the trustee in the property of the consumer debtor, unless the terms of the consumer proposal otherwise provide.”

There is a similar provision for Division I Proposals.

The Court looked at the:

  • Statute
  • wording of the consumer proposal
  • Trustee’s report to the creditors on the consumer proposal; and the
  • Trustee’s actions in administering the proposal.

The Court had to decide if the Note was a term of the proposal or not. The Registrar took all factors into consideration, including that the Trustee issued to Ms. Corriveau the certificate evidencing full completion of the proposal upon her payment of $10,000.

The Registrar decided that the Note was an unfortunate error and that the only intention was for the creditors to share in the distribution from the consumer proposal with a gross value of $10,000.

Now for the treatment of the funds collected by the Trustee under the bankruptcy that is now annulled. The Registrar further concluded that consumer proposals that purport to also include a distribution from the funds held in the bankruptcy administration, must include clear and precise language in the proposal. The Registrar said that the Trustee failed to do so.

Therefore, the Registrar concluded that subject to any entitlement to fees by the Trustee from the bankruptcy administration, the funds held in the annulled bankruptcy are Ms. Corriveau’s property and should be returned to her. Costs of the application will be dealt with at the taxation of the Trustee’s account. The Trustee was directed to arrange a suitable date for that taxation to proceed before that Registrar.

Consumer proposal calculator summary

A proposal must offer the creditors a better result than what they would get in a person or company’s bankruptcy. So although a consumer proposal calculator is important, I think clear language is more important.

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

Call the Ira Smith Team today so we can remove the anxiety, stress, pain and discomfort from your life that your money troubles have created. With the distinctive roadmap, we establish simply for you, we will quickly return you right into a healthy and balanced problem-free life.

As a Trustee, we are the only experts recognized, licensed and supervised by the federal government to give insolvency recommendations and to carry out insolvency procedures. A consumer proposal is a federal government authorized debt negotiation strategy to do that. We will assist you to choose what is best for you to rid yourself of your debt problems.

Call the Ira Smith Team today. We have years as well as generations of experience helping people and companies searching for debt restructuring, a debt negotiation strategy, or a consumer proposal Ontario to AVOID bankruptcy. You can have a no-cost evaluation so we can aid you to repair your financial problems. Call the Ira Smith Team today. This will let you return to a brand-new healthy and balanced life, Starting Over Starting Now.

 

Categories
Brandon Blog Post

CREDIT COUNSELING: EVEN FREE MAY NOT GET YOU TO TALK

Introduction

In my May 3, 2017, Brandon’s Blog, DEBT SETTLEMENT OR CONSUMER PROPOSAL CANADA: REPORT SAYS CONSUMERS HARMED, I told you about a Government of Canada research study. On April 28, 2017, the Office of the Superintendent of Bankruptcy (OSB), released its study. It revealed the OSB’s concerns about credit counseling services in Canada who were doing more than just counselling, be they for-profit or non-profit.

The concerns

The concern was that the consumer was being harmed. The main areas of concern for the OSB were:

  1. Consumers paid more money than required if they had first seen a licensed insolvency trustee (previously called a bankruptcy trustee) (LIT or Trustee) rather than the debt settlement company.
  2. Dishonest debt relief firms chatted customers right into expensive car loans under the scare tactic that they would not qualify once they filed either a consumer proposal or for bankruptcy so now was the time to improve their credit score.
  3. The debt negotiation firms had no accreditation or experience to provide the sort of financial advice they were offering.
  4. Creditors obtained much less than they would have received if the insolvent person went first to see the LIT.
  5. Debtors had no idea of their obligations under the insolvency process they ended up filing for. They were not offered the chance to experience one of the most essential facets of the Canadian bankruptcy system, economic recovery.

Public consultation

On November 24, 2017, the OSB sought public consultation on amending the process by which a LIT must perform credit counselling as part of the administration of consumer proposal filings. Changes were implemented and given time to see how they would work in practice.

On June 17, 2019, the OSB announced that it was seeking public consultation on a new Directive for LITs on credit counselling. These changes are meant to streamline the administrative structure for insolvency credit counseling.

All the changes are to better control the Trustees who receive referrals from debt settlement companies that charge the debtors for services that they really do not require before handing them over to a LIT to administer a consumer proposal.

Why not just go see a Trustee first?

It makes the most sense when you realize you are in financial trouble to see a LIT. A Trustee is only professional licensed, recognized and supervised by the federal government to provide insolvency advice and to administer insolvency filings to eliminate debt problems. A restructuring proposal is a government and court approved debt settlement plan to do that. In a first consultation, a Trustee will listen to all the issues and then provide a debtor with all the available alternatives. The aim is to avoid bankruptcy. This first consultation is also free! No charge! Gratis!

So why don’t more people do so? I believe the answer is in a recent Angus Reid poll titled The Awkward Silences Survey 2019. The survey says one-in-five Canadians claimed they least like to talk about:

  1. Embarrassing health and wellness concerns – 20%
  2. Sex – 18%
  3. Finances – 17%
  4. Religious beliefs or politics 17%
  5. Small talk – 15%
  6. Family and relationships – 13%

The unwillingness to talk about humiliating health and wellness problems was more widespread amongst males (23%) than females (17%).

When asked which one money and finance subject people like discussing the very least, personal debt and bankruptcy led by a big margin with one-in-three stating it was off limits to discuss (34%). This number is significantly greater in Quebec (42%) and least in Ontario (28%).

The survey says Canadians said that in the money and finance area, the least favourite topics they like to talk about are:

  1. Personal debt or bankruptcy – 34%
  2. Assets, liabilities and net worth – 22%
  3. Their income – 16%
  4. How they spend their money – 12%
  5. Savings and investments – 11%
  6. Their mortgage – 5%

I don’t do government approved and free

I always knew that going to see a Trustee to talk about financial problems was not high on anyone’s list. This recent survey is the first time that I have seen it studied with anything other than anecdotal stories. This could explain why even though it makes the most sense, people avoid it for as long as they can. It also explains why people will search out companies that try to candy coat the topic and call it something nicer. Unfortunately, as the OSB studies have shown, consumers do so to their own detriment.

People would rather pay good money they can’t afford to be hoodwinked by an unscrupulous debt consultant until they realize they have no choice but to see a Trustee. At that point, most of their various options are no longer available and bankruptcy is more often than not inevitable.

Whether it is a business or a person, corporate or personal, it will help to talk about it to a Trustee. Sticking your head in the sand will not make things better. There are various options to look at depending on how early on you seek help.

Corporate financial problems

For corporate financial problems, the options may include:

Refinancing with a new lender who has not grown weary.

Sometimes relationships, including business relationships, just run their course and fatigue sets in. I was recently consulted by a company whose banker grew tired of their turnaround plan, that was working. By introducing this company and its senior management to a new lender, who saw the long term benefits of lending to a company that was successfully turning itself around, the company was able to refinance and continue their business.

Corporate restructuring.

Sometimes a more formal plan needs to be put into place using one of Canada’s two federal statutes: (i) Companies’ Creditors Arrangement Act (Canada) (CCAA); or (ii) the proposal provisions of the Bankruptcy and Insolvency Act (Canada) (BIA). We have done many.

Receivership or bankruptcy proceedings to take assets from a sick company and get them into a healthy one to save jobs and the business.

Sometimes the corporate body is just too sick and weak and cannot continue. However, taking healthy assets and employees and transferring them to a new or different corporation can revitalize a business and save jobs. The old shareholders may or may not be associated with the new company. However, the highest value will be obtained for creditors, employees and all other stakeholders.

Personal financial problems

For personal financial problems, the options may include:

Credit counseling and budgeting.

Many people need help with items such as:

  • Budgeting
  • achieving financial goals
  • spending habits
  • responsible use of credit

Many times once this help is received, people can continue on themselves without any further problems.

Debt consolidation.

Debt consolidation is the process that permits you to roll your varied financial debts owing to many creditors into one single loan, leaving you with just one creditor. If you are starting to have troubles staying on top of your minimum month-to-month payments, and the amount of your debt is frustrating you, debt consolidation is a choice worth thinking about.

A consumer proposal and Division I Proposal.

A consumer proposal and a Division 1 proposal are options to filing bankruptcy. Although comparable in several aspects, there are some significant distinctions. Consumer proposals are offered to people whose financial debts aren’t more than $250,000, not including any debts registered against your personal house. Division 1 proposals are readily available to both companies and people whose financial obligations go beyond $250,000 (omitting mortgages registered on their primary home).

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

  • Pay your creditors a percentage of what you owe them over a specific amount of time
  • Extend the time you need to repay the debt
  • A mix of both

Repayments are made via the Trustee, who makes use of that money to distribute to each of your creditors. The agreed to a lesser amount of debt has to be repaid within 5 years.

Bankruptcy.

Sometimes when there are no other options, but the pain and stress of your debt load are just too much for you to handle, and you can’t see any other way, bankruptcy may be the only answer. The purpose of bankruptcy in Canada is to return the honest but unfortunate debtor back into society, so that they may be a productive member going forward.

Are you ready to talk about finances now and get some real credit counseling?

Don’t be like those people who took part in the Angus Reid survey. Take a positive step in the right direction to help your company and yourself.

Is your business in financial distress because you cannot collect your billings? Do you not have adequate funds to pay your creditors as their bills to you come due?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

A restructuring proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a restructuring proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

credit counseling

Categories
Brandon Blog Post

INSOLVENT MEANING RESTORED IN COURT OF APPEAL FOR ONTARIO

insolvent meaning

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

Introduction

On November 28, 2018, I published my Brandon’s Blog titled “INSOLVENT DEFINITION: A NEW FOCUS FOR TORONTO BANKRUPTCY TRUSTEE”. I wrote about a then recent decision of the Ontario Superior Court of Justice in Bankruptcy and Insolvency in Kormos v. Fast, 2018 ONSC 6044 (CanLII). In that decision, the Judge gave a new twist on deciding whether or not Mr. and Mrs. Fast was insolvent.

If they were found to not be insolvent, their respective consumer proposal and bankruptcy filings would be annulled. In that event, Mr. and Mrs. Kormos would be able to continue enforcing their judgement against Mr. and Mrs. Fast. If unsuccessful in annulling the filings, then their only remedy would be to file a proof of claim in each insolvency proceeding. That would result in a payment far less than what might otherwise be available.

The lower court ruling

Mr. and Mrs. Kormos submitted evidence that the Fast’s assets had a value greater than their total liabilities. They submitted that therefore, Mr. and Mrs. Fast was not insolvent and should not have been able to file under the Bankruptcy and Insolvency Act (Canada) (BIA).

The evidence submitted by Mr. and Mrs. Kormos was not challenged. However, the Judge seized upon the fact that the income and expense statement of each of Mr. and Mrs. Fast indicated that on a monthly basis, their income was much less than their expenses. The Judge, therefore, concluded that Mr. and Mrs. Fast was insolvent and their separate insolvency filings should not be annulled. Accordingly, he dismissed the application by Mr. and Mrs. Kormos.

The appeal

Mr. and Mrs. Kormos did not believe that this ruling was either fair or appropriate. Therefore, they appealed the Judge’s decision with respect to Mrs. Fast only to the Court of Appeal for Ontario. On May 23, 2019, the Court of Appeal for Ontario released its unanimous decision in Kormos v. Fast, 2019 ONCA 430.

The position of Mr. and Mrs. Kormos was that the Judge erred in dismissing their application by not annulling Mrs. Fast’s assignment in bankruptcy and not deciding that her filing was a misuse of the bankruptcy procedure. They further submitted that therefore, the Judge legitimized an unjustified technique to protect the equity in Mrs. Fast’s home.

The Court of Appeal agreed with Mr. and Mrs. Kormos. They stated that the lower court erred in failing to decide that Mrs. Fast was not an insolvent person. It is for that reason, it was not necessary for the Court of Appeal to decide if her filing was a misuse of the bankruptcy scheme and procedure.

The Court of Appeal Judges determined that on the day of her bankruptcy, Mrs. Fast was not an “insolvent person” as that term is specified under s. 2 of the BIA. Her assets substantially went beyond and were readily available to pay off all of her liabilities.

Apart from the unexplained regular monthly cash deficiency, there was no proof that she could not satisfy or had actually stopped paying her liabilities as they normally came due. Instead, the undisputed proof was that she could. The only single item submitted as proof of any kind of financial hardship was that Mrs. Fast had not paid the debt owed to Mr. and Mrs. Kormos under their judgement.

The Court’s power for bankruptcy annullment

Under s. 181(1) of the BIA, a court might annul a bankruptcy order if it feels that it ought not to have actually been made. An annulment will be approved where it is revealed either:

  1. the bankrupt was not an insolvent individual when he or she made the assignment in bankruptcy, or
  2. the bankrupt abused the procedure of the court or performed a fraud on his or her creditors.

What is an insolvent person?

Section 2 of the BIA specifies an “insolvent person” as:

“insolvent person means a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors provable as claims under this Act amount to one thousand dollars, and

(a) who is for any reason unable to meet his obligations as they generally become due,

(b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or

(c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due;”

Mrs. Fast plainly did not meet any of the requirements to be considered insolvent. The lower court erred by ignoring Mrs. Fast’s capacity to satisfy her liabilities and her accessibility to considerable assets.

On the day of her bankruptcy, Mrs. Fast’s real value of her assets over her liabilities, including her share in the value of the real estate, was $417,581.24. The debt owing to Mr. and Mrs. Kormos under their judgement was $25,565.64 plus interest. Therefore, she definitely was not insolvent.

Out and out lies

Mrs. Fast was motivated to take the actions she did because Mr. and Mrs. Kormos was beginning to execute on their judgement and there was real value in the real estate to eventually get paid from. So, Mrs. Fast lied on her sworn statement of affairs she completed with her licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT). She also manufactured an income and expense statement to show that on a cash basis, she suffered a monthly loss.

It is obvious that first, her LIT did insufficient work to establish the bona fides of the values Mrs. Fast used in her bankruptcy filing. Second, the lower court Judge ignored what should have been obvious. Mrs. Fast should not have been allowed to file an assignment in bankruptcy. At least now we are back to the tried and true definition of an insolvent person with clarity from the Ontario appellate court.

The Court of Appeal ordered the annulment of Mrs. Fast’s bankruptcy. They also awarded costs to Mr. and Mrs. Kormos on a partial indemnity basis in the amount of $2,000, including disbursements and HST.

Are you insolvent?

Are you unable to pay your debts as they come due? Are your bills past due and you don’t know how you are going to pay them? Is the true value of your assets less than what you owe to your creditors? If so, then you are insolvent, and we can help end your pain and anxiety.

A LIT is the only insolvency expert accredited, licensed and supervised by the federal government to handle debt restructuring. As a LIT, our personalized strategy will assist you to know all your alternatives. The alternative you choose based on our recommendations will take away the stress and pain you are feeling because of your debt problems.

Nobody wants to visit a bankruptcy trustee. However, the Ira Smith Team has decades and generations of experience people and companies in financial trouble. We will treat you with the respect and dignity that you deserve. Whether it is a consumer proposal debt settlement plan, a larger personal or corporate restructuring proposal debt settlement plan, or as a last resort, bankruptcy, we have the experience.

Our approach for each file is to create a result where Starting Over, Starting Now takes place. This starts the minute you are at our front door. You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life.

Call us today for your free consultation, Starting Over, Starting Now.

Categories
Brandon Blog Post

WHAT IS A CREDITOR IN BUSINESS LAW NOT TO DO?

What is a creditor introduction

The purpose of this Brandon’s Blog is to tell you a true story that all business people can learn from. Especially those wishing to provide consulting services to stakeholders in an insolvency proceeding. Let’s start simply by answering what is a creditor.

A creditor is a person or company that has advanced credit and is owed the payment by a different person or company. The debtor is the party that owes the money and a creditor is a person or company that wishes to be paid.

Vaughan Crossings Inc.

In January 2017, my Firm became the court-appointed receiver of the real property of Vaughan Crossings Inc. (VCI). VCI owned real property comprised of 5.5 acres of commercial development land located at the northwest corner of Dufferin and Centre Streets in the City of Vaughan. The first mortgagee made the application to Court for our appointment. The second mortgagee was a fund made up of many small investors.

Upon our appointment, we learned that the second mortgagee stakeholders had retained a business consultant to advise and assist these investors to try to obtain value out of the receivership from their investment. We dealt with the business consultant throughout the receivership.

It became clear to everyone that there was insufficient value for the second mortgagee group to recoup any funds through the sale of the property. So, the business consultant put together a group which included those who had registered a lien against the property for non-payment and the second mortgagee group.

The business consultant was not paid in cash by the second mortgagee group for his work. His fee and costs were also part of the buying group. They ended up paying above market value in all cash. I was not involved in their financing discussions so, I don’t know how they were able to get the required financing.

The sale was completed and we were discharged as the court-appointed receiver. Now it gets even more interesting.

The business consultant

The second mortgagee group of VCI was put together by a promoter. It turns out that promoter had other properties that they financed by way of the second mortgage the same way. My Firm was not involved in those other properties. However, it appears the same business consultant was involved in at least one other property.

It also appears that the business consultant experienced the same problem in that other property that he did in VCI; no cash to be paid from. In fact, as it turns out, he didn’t even have a retainer to act on behalf of the second mortgage investors in those other properties. That didn’t stop him from trying to work that property and chase his VCI dollars!

The court case

That issue was decided in the court case, The Superintendent of Financial Services v. Textbook Student Suites (525 Princess Street) Trustee Corporation, 2018 ONSC 7392 (CanLII). The consultant’s primary claim is against the Investors’ Committee. He asserts to be entitled to costs for solutions that he executed for the board. He claimed against the Investors’ Committee that because of the work he did in advising them, his charges need to be safeguarded by a court-ordered charge against the properties.

He claims that as a “bankruptcy expert” that his solutions were for the advantage of the stakeholders. Therefore, he ought to be paid his charges in advance of any kind of distributions to lenders.

He also said that his job also helped the lenders in their recuperation of the funds owing to them. He did not provide the court with any case law to support his position. Rather, he was relying on the inherent jurisdiction of the court to order such security.

The analysis

Of course, there was not a written agreement between the consultant and the Investor’s Committee signed by both parties. The Judge stated that the legislation is well-settled that in identifying whether the parties had a binding agreement, the court will take into consideration whether they reached agreement on every one of the material terms. One term that can be material is whether an arrangement requires to be in writing or whether an oral contract will be enough.

As it turns out, there were several drafts of the consultant’s engagement letter discussed with the Chair of the Investors’ Committee. However, the Investor’s Committee found the engagement letter to be too vague. They told the consultant this and asked him to provide a more detailed engagement letter of the activities he would undertake, the time estimate for each phase of his work and what his hourly rate would be for those services. The consultant did not provide a more formal engagement letter and as a result, one was never signed.

Rather, the court found that the consultant continued working. At the same time, he was exchanging emails with the Investors’ Committee. The Committee learned that at this same time, the consultant was trying to strike a deal with the second mortgagee stakeholder in my VCI file. Now the Investors’ Committee felt that the consultant may have a conflict, and did not seek an engagement letter to sign. At the same time, the consultant advised the Investors’ Committee that his retainer, was subject to their legal counsel obtaining a court-ordered charge for his fee and costs ahead of any distribution to be paid to the second mortgage investors.

This email turned out to be the downfall of the consultant in this court case. The court found that by this email, the consultant knew that he did not have that priority, yet was continuing his work. No court application was ever made to obtain that court-ordered charge. The consultant tried advancing all sorts of other arguments as to why he should now be granted the priority claim, but none were persuasive, or even correct!

The Judge ruled against the consultant. So, not only did the consultant not get paid for his work, but he also had costs awarded against him for losing this court battle.

So what is a creditor not to do?

What you should not do is:

  • Not start working if you do not have a properly written retainer to provide the consulting services.
  • Even if you have the properly written retainer, know how you are going to be paid and that the party you are contracting with has the ability to pay.

This is especially true in an insolvency situation. In a receivership or bankruptcy administration, there are many claimants against the assets. Many times the creditor claims are competing. So anyone wishing to provide goods or services to a stakeholder in an insolvency administration better make sure there is a clear contract and know who is going to be actually paying. This consultant found out the hard way that a court is not going to protect you for your mistakes later on, no matter how reasonable you believe it is.

What is a creditor?

Is your business in financial distress because you cannot collect your billings? Do you not have adequate funds to pay your creditors as their bills to you come due?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only professionals accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A restructuring proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a restructuring proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

what is a creditor

Categories
Brandon Blog Post

RESP CONTRIBUTION NOT PROTECTED IN BANKRUPTCY

resp contribution
resp contribution

If you would prefer to listen to the audio version of this RESP contribution not protected in bankruptcy Brandon’s Blog, please scroll down to the bottom and click on the podcast

Introduction

Many parents contribute to a Registered Education Savings Plan (RESP) to save for their children’s post-secondary education. Unlike a Registered Retirement Savings Plan (RRSP), an RESP contribution, or the total of all contributions made by the parent(s), is subject to seizure in the bankruptcy of the owner of the RESP.

In Brandon’s Blog, I discuss the history of why an RRSP is largely exempt from seizure in a bankruptcy, while a Registered Disability Savings Plan (RDSP) and an RESP are not. The rules governing whether an RRSP or Registered Retirement Income Fund (RRIF), RDSP or RESP are exempt from seizure or not is an interplay between both federal and provincial laws. As I practise in the province of Ontario, I will speak only about the Ontario situation.

resp contribution
resp contribution

RRSP or RRIF exemption

Before 2008, whether an RRSP was exempt from seizure or not relied solely upon provincial law. There was no federal law which outlined the treatment for an RRSP in bankruptcy. Effective July 2008, the assets contained in either an RRSP or a RRIF were codified in the Bankruptcy and Insolvency Act (Canada) (BIA) to be exempt from seizure, except for contributions made to an RRSP in the 12 months prior to the date of bankruptcy.

The only exception would be based on whether or not RRSPs and RRIFs were exempt from seizure under provincial law. So, in the case of Ontario, the 12-month clawback exists. The bankrupt has to pay the equivalent of the contributions made in the 12 months before the date of bankruptcy.

The reason for making this change to the BIA was because there was an inequality amongst RRSPs. If you held your RRSP at a financial institution, then it was not exempt from seizure in a bankruptcy. However, if you held your RRSP:

  • with an insurance company; AND
  • you had made an irrevocable designation that in the event of your death, the beneficiary of your plan was a spouse, child, parent or grandchild

then under the Ontario Insurance Act the entire RRSP or RRIF was exempt from seizure.

The amendment to the BIA was done for two main reasons:

  • to put all RRSPs and RRIFs on the same footing, regardless of what institution it was held with; and
  • in order to not be destitute in their fresh start that the bankruptcy system allows them to have, retired Canadians who had to go bankrupt should not lose what was probably their single largest source of retirement income as a result of their financial problems.

So before the July 2008 amendment, people who were going to file for bankruptcy and who had a sizeable RRSP held with a chartered bank, would transfer the RRSP to an insurance company and make the required beneficiary designation. Many cases were heard in bankruptcy Courts across Canada.

If the beneficiary in an insurance policy, including the RRSP or RRIF investments, was revocable, it was held that the licensed insolvency trustee (then called a bankruptcy trustee) could revoke the named beneficiary, replace it with designating the Estate as the beneficiary, and then collapsing the plan to obtain the funds.

If the beneficiary was irrevocable, then the Trustee could not collapse the investment. Rather, it would have to be 1 of the reasons why a Trustee would oppose the bankrupt’s discharge. The reason being is that the person, knowing themselves to be insolvent, transferred an asset out of the creditors’ reach for no value obtained. This was called a settlement.

The leading case which was subsequently followed by other Courts, including Ontario, was The Court of Appeal for Saskatchewan case Royal Bank of Canada v. North American Life Assurance Co., 1994 CanLII 4696 (SK CA) which became known as the Ramgotra case.

The reason is that Dr. Ramgotra was bankrupt. Royal Bank was a creditor and obtained Court approval to appeal, in lieu of the Trustee, a lower Court decision on what should happen to the RRSP, turned into an RRIF, funds. The Court of Appeal determined that since Mrs. Ramgotra obtained an irrevocable interest in the property, notwithstanding the RRSP transfer was a settlement, the Trustee could not obtain the money.

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RDSP and Budget 2019

An RDSP is a financial savings strategy that is planned to assist moms and dads and others build up funds for the long-term financial safety of an individual who qualifies for the disability tax credit.

Unlike RRSPs, the balance kept in RDSPs are not excluded from seizure in a bankruptcy. The reason for this is because the settlor of the RDSP may do an RDSP withdrawal of funds at any time. The theory is that funds will be withdrawn for the welfare of the disabled person. However, it is the ability to withdraw funds at any time, that renders this vehicle to not be a true legal trust.

In Budget 2019, it is proposed that RDSPs be given the identical treatment to RRSPs. The societal aim is to make sure that the needs of a disabled person are not negatively affected due to the financial problems of the person who is looking out for and financially contributing to the welfare of the disabled person. More than likely the contributor is a parent.

Budget 2019 intends to exclude RDSPs from seizure in bankruptcy, except for payments made in the 12 months prior to the date of bankruptcy. This will put in on the same footing as RRSPs.

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RESPs are not exempt

The reason that RESP contribution funds are not exempt from seizure in bankruptcy is fairly simple. The child does not obtain property interest in the RESP funds as the parent can collapse the plan any time before maturity. Therefore it is not a trust or any form of transfer of property to the child. Therefore, the Trustee of a bankrupt parent who owns an RESP can collapse it.

If the parent wishes the RESP to continue and not be collapsed, satisfactory arrangements have to be made with the Trustee for the equivalent amount of funds in the RESP as at the date of bankruptcy be paid to the Trustee for the benefit of the bankruptcy Estate and the bankrupt’s creditors.

As a result of perceived inequality, on June 3, 2019, Dan Albas, Conservative MP for Central Okanagan—Similkameen—Nicola (B.C.), introduced as a private member’s bill, Bill C-453, An Act to amend the Bankruptcy and Insolvency Act (property of bankrupt — registered education savings plan). This Bill intends to amend s. 67(1)‍(b.‍3) of the BIA, so that RESPs receive the same treatment as RRSPs and the treatment proposed in Budget 2019 for RDSPs.

The thrust is obviously to make sure that other than for contributions made in the 12 months before the date of bankruptcy, a parent should not lose the RESP benefits for their child’s post-secondary school education because of their bankruptcy.

As private member’s bills rarely become law, I am doubtful that this initiative, no matter how well-meaning, will pass. There may also be a societal distinction between a retiree whose income earning days are behind him or her, a disabled person who is reliant upon a trust set up for their care and benefit and an elementary or high school student’s future university or college tuition.

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What about you?

Are you in financial distress? Are you worried about any RRSP, RDSP or RESP contribution? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

As a licensed insolvency trustee, we are the only professionals accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

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Brandon Blog Post

CONSUMER PROPOSAL STORY 4 – TRUE STORIES

Introduction

This consumer proposal story 4 Brandon’s Blog is about how four of our clients were able to enter into a government approved debt settlement program, shed their debt and restart their lives.

As I have written in previous blogs, a consumer proposal is the only government approved debt settlement plan. It is designed for people who have $250,000 or less in total debt, other than for any debts secured against their home such as a mortgage or secured home equity line of credit.

If the consumer proposal receives the (deemed) acceptance by the required majority of creditors and it also receives (deemed) court approval, then the consumer proposal is approved. The insolvent person must now make the payments to the licensed insolvency trustee who is the consumer proposal administrator.

The following four real client consumer proposal story situations of mine I believe are representative of the kind of person we help end the pain and anxiety their debts are causing them. I have changed the names of the people for this Brandon’s Blog.

Buzz

This client is a 56-year-old married male. I will call him Buzz. He has annual income, net of income tax of $100,000. He has assets with a net realizable value of $1,000. His consumer debt totalled $71,000.

In reviewing his budget and affairs, we calculated that in personal bankruptcy, he would be required to contribute surplus income for 36 months as he was previously bankrupt. His surplus income obligation in bankruptcy was just over $34,000 in equal monthly instalments of $944.44.

We advised him that since his budget had room for him to make monthly payments, he should consider a consumer proposal. We drafted and filed his consumer proposal requiring him to pay $40,000 in total over 5 years. This resulted in equal monthly payments each of $667.

Buzz’s creditors accepted his consumer proposal and he is making the payments. This way he avoided bankruptcy and ended up with an approved debt settlement plan with monthly payments he can afford.

Woody

This client is a 65-year-old single male. I will call him Woody. He has annual income, net of income tax of $27,600. He has assets with a net realizable value of $500. His consumer debt totalled $108,000.

In reviewing his budget and affairs, we calculated that in personal bankruptcy, he would be required to contribute surplus income for 9 months as he was never previously bankrupt. His surplus income obligation in bankruptcy was just over $1,880 in equal monthly instalments of $208.89.

We advised him that since his budget had room for him to make monthly payments, he should consider a consumer proposal. We drafted and filed his consumer proposal requiring him to pay $24,000 in total over 5 years. This resulted in equal monthly payments each of $400.

Woody’s creditors accepted his consumer proposal and he is making his payments. This way he avoided bankruptcy and ended up with an approved debt settlement plan with monthly payments he can afford.

Mr. & Mrs. Potato Head

Our 3rd client is a 47-year-old married man and his 43-year-old wife. I will call them Mr. & Mrs. Potato Head. Their yearly income, net of tax obligations was $51,996. Their assets had a realizable value of $953. They are collectively responsible for the exact same consumer financial debts amounting to $31,820.

In assessing their budget, we computed that in a bankruptcy, they would need to pay surplus income for 9 months as neither were bankrupt before. Their surplus income responsibility in a joint bankruptcy was $5,271 in regular monthly instalments of $585.67.

We encouraged them that given their budget plan had room to make month-to-month payments, they must take into consideration the possibility of making a consumer proposal. We prepared and filed their consumer proposal needing them to pay $7,020 over 3 years. This led to regular monthly payments each of $195.

Mr. & Mrs. Potato Head’s creditors approved the consumer proposal and they are making their payments. In this manner, they will not go bankrupt and wound up with an accepted debt negotiation strategy with month-to-month payments they can manage.

Jessie

This client is a 67-year-old married female. I will call her Jessie. She has annual income, net of income tax of $58,416. She has assets with a net realizable value of $250. Her consumer debt totalled $67,000.

In examining her budget plan, we determined that in bankruptcy, she would be called for surplus income payments for 36 months as she was once a bankrupt. Her surplus income commitment in a bankruptcy would be $17,465 in regular monthly instalments of $485.13.

Considering that her spending plan had space to make month-to-month repayments, we encouraged her to seriously think about making a consumer proposal. We composed and submitted her consumer proposal needing her to pay $21,500 over a 40 month period. This would be regular monthly payments each of $537.50.

Jessie’s creditors approved her consumer proposal and she is making her repayments. By doing this she stayed clear of bankruptcy and wound up with an approved debt negotiation strategy with regular monthly repayments she can manage.

Consumer proposal story summary

I hope these real-life consumer proposal story 4 examples gives you a better idea of the kind of people this debt settlement program strategy is meant to help. It is a way for people to shed their debt and get back on a proper footing.

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

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only professionals accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

consumer proposal story

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