Tag: Bankruptcy

WHAT IS A CONSUMER PROPOSAL? OUR AMAZING EXCELLENT INSOLVENCY FAQ PRIMER

Post author By Brandon Smith
Post date December 23, 2019

what is a consumer proposal

What is a consumer proposal introduction

Let us start with a what is a consumer proposal definition: A consumer proposal is a formal binding offer made to your creditors to settle your debt for less than the full amount owing.

To help you decide if a consumer proposal is the right option for you, I will provide answers to the most frequently asked questions I receive about what is a consumer proposal in Canada.

What is a consumer proposal?

A consumer proposal is a government-regulated debt settlement program filed with a Licensed Insolvency Trustee (Trustee). The purpose of filing one is to get rid of problem debt so that you can start the process of rebuilding your credit debt-free.

It can only be filed with the Trustee. When you sign your documents, they are then filed with the federal government. It is a legal process under the Bankruptcy and Insolvency Act (Canada) (BIA).

This process is a legal agreement between you and your creditors to repay part of the debt that you owe. If a simple majority, in dollars, of creditors agree to the terms you have offered, then your proposal is binding on all your unsecured debts.

What is a consumer proposal? It is a court-sanctioned process that allows you to negotiate a settlement with your unsecured creditors. This kind of arrangement does not deal with secured creditors.

What is a consumer proposal: Is it worth it?

I would say definitely yes. A successful restructuring is binding on all unsecured creditors. It is a legally binding deal between you and your creditors if the offer is accepted. A consumer proposal is the ideal debt repayment plan for individuals who are able to repay a portion of their debts, but not the full amount.

What is a consumer proposal? This consumer proposal process is a way to avoid filing bankruptcy by making a deal with your creditors to repay a portion of what you owe. If you have high or even just regular monthly income, it is a more sensible option to eliminate your debt obligation than to file for bankruptcy. This process results in a legally binding agreement between you and your creditors that allows you to settle your unsecured debts at a much lower rate, interest-free, over an extended period of time.

The Trustee’s motivation in a consumer proposal is to find a common sweet spot. A number is high enough that it is a better alternative for your creditors than your bankruptcy. A number that the creditors will likely accept yet still a number low enough that it is affordable for you to pay each month.

A consumer proposal is often the way of achieving that objective. In fact, the number one advantage is that you get to keep all assets. Such a proposal can last up to a maximum of 5 years. It is a debt relief solution that allows you to significantly reduce your debt and repay a portion without interest while keeping your assets. That is what is a consumer proposal.

What is a consumer proposal? How do you qualify for one?

A consumer proposal is for individuals who are able to make payments to creditors (either monthly or as a lump sum), but need to change the current arrangement of their payments.

You can file one if you are a person who owes $250,000 or less in unsecured debt.

The big difference between bankruptcy and this kind of restructuring plan is the monthly payment. Once the negotiation is complete and the arrangement agreed to, you make a single payment each month while the proposal is running.

The consumer proposal is one of the most frequently used options for getting out of debt in Canada. If you and your Trustee determine that a proposal is better for your financial situation than bankruptcy or any other debt relief option, you and your Trustee will begin to craft a settlement offer. Your offer will be reviewed by your creditors.

A consumer proposal is typically the preferred alternative to bankruptcy, both in terms of financial affordability and credit ratings. Part of deciding whether bankruptcy or a debt settlement is right for you is knowing what kinds of debts can be included and will be discharged when the process is successfully completed.

A consumer proposal does not deal with secured creditors. Filing one can make keeping up with your mortgage or car loan more affordable. This assumes that in your monthly budget, you can afford to keep them. If not, you will have to give them up to be able to get ones that you can afford. This process does NOT affect the mortgage on your principal residence or a secured car loan. That is what is a consumer proposal is not.

A proposal is an agreement made between the Trustee and your creditors. Through a legally-binding document, it requires you to pay off a percentage of your debts and/or extend the time you need to pay off your debts in full. For those who cannot afford to repay their debts, it is the best debt consolidation program available. If you are looking for debt relief, this is a better option.

For most people, a consumer proposal is a more attractive alternative to bankruptcy; however, it is still considered a form of the insolvency process. For Canadians seeking debt relief, it is an option for insolvent debtors that isn’t as severe as filing for bankruptcy. During your initial no-cost consultation, your Trustee will explain all your debt relief options to determine which one is the right solution for you.

The Trustee acting in your consumer proposal acts as the Administrator. Within ten days after filing with the official receiver, the Administrator will prepare a report containing the results of its investigation, the Administrator’s opinion as to whether the consumer proposal is fair and reasonable to the creditors and the debtor, and whether the consumer debtor will be able to perform it.

If the documents have been successfully filed, accepted by your creditors, court-approved, and then paid through completion, a certificate is given indicating the full performance of the proposal to you and the Official Receiver.

What is a consumer proposal? What does it do to your credit?

Getting out of debt with a consumer proposal is often the first step to rebuilding credit. As with any repayment program, including a debt management plan, this process will for a short while lower your credit score. However, most clients see an improvement in their credit scores shortly after completing the program.

For those who don’t want to go through the bankruptcy process, or want to keep more of their assets, the proposal is less invasive. A proposal is combined with mandatory credit counselling. Trustee fees come out of any monies paid to creditors. If you are unable to repay all of the unsecured debt that you owe but have a steady job and income you could find that a proposal is a viable alternative to bankruptcy.

Once your consumer proposal is completed, you are in the next phase of taking control of your finances.

A proposal is a viable alternative if you have significant surplus income or assets you want to keep. A proposal is a legal proceeding under the BIA that provides a stay of proceedings that immediately stops all creditor actions. This includes most wage garnishments and calls from creditors and collection agencies. If you are dealing with creditor calls or being threatened with legal action, this debt settlement process can help you eliminate your debts and stop dealing with those creditors again.

Payments in a consumer proposal are negotiated upfront. The duties required in a proposal are less than those in bankruptcy. A proposal has fewer required duties than bankruptcy. As you can see, it is a viable way to eliminate all your overwhelming unsecured debt and get your life back on track.

A consumer proposal is also something to consider if your debts are higher than $10,000 and your monthly payment under a debt management plan may be too high for you to afford. Your monthly payment on your consumer proposal is remitted to your creditors once all applicable fees have been paid.

A consumer proposal will eliminate income tax owing

For spouses, if your debts are generally common, you can make a joint consumer proposal. If such a joint filing is made, the unsecured debt threshold increases to $500,000.

A consumer proposal is the only method that can be used to negotiate a reduced balance owing to taxes to the Canada Revenue Agency. A consumer proposal is a safe and reliable way to get out of debt but it can also be the cheapest in terms of monthly payments. The consumer proposal will only include taxes owed from tax returns that were filed prior to the proposal date.

Because each personal situation is unique, the benefit of what is a consumer proposal is that it can be tailored specifically to meet your needs. This is the only government-approved debt settlement option for resolving your debts in Canada, besides filing an assignment in bankruptcy. A consumer proposal is an option to negotiate repayment terms with your creditors through the Trustee, for much less than what you owe today.

No matter what stage in this process you may be at (even if you are still considering one), you probably have questions about what to expect after your consumer proposal is finished. A consumer proposal is a little better than a bankruptcy with regard to your credit score. A consumer proposal is an R7 rating and a bit of an improvement in exchange for the effort of repaying a portion of what you owe. A successful consumer proposal will actually help you avoid bankruptcy.

Another advantage of an arrangement like this is that your Trustee is often able to negotiate greater principal and interest reductions than you could on your own. What sets this plan apart from paying the minimum payments to your creditors on your own is the fact that a consumer proposal includes freezing your interest payments and an agreement that your creditors will consider your debts paid in full for less than what you actually owe.

A consumer proposal is a very commonly used way to settle your debts, without declaring bankruptcy, (or filing for full bankruptcy, as it is referred to by many of our clients). The consumer proposal is a very powerful legally binding way to settle your debts, which normally puts an end to garnishments and other legal actions against you, stops collection calls, and allows you to maintain control of your assets.

Is a Consumer Proposal Right for You?

This is an exceptional program for individuals, families, and sole proprietors who are facing financial hardship and need a practical solution to their debt problems. This process has no hidden fees. While a consumer proposal often lasts longer than bankruptcy proceedings, the total cost to you may be less because you retain your assets and there are no surplus payments.

A consumer proposal is a viable option to deal with small business debts in a proprietorship if the total debts do not exceed $250,000. This program does not deal with debts owed by an incorporated business. It is one of the best, and safest, debt consolidation options available.

What is a consumer proposal good for? It is a great way to take advantage of many of the advantages of bankruptcy without the severe drawbacks such as the loss of assets you must endure during the bankruptcy process. All of your assets are protected from a seizure when your consumer proposal is accepted, and the more you can offer your creditors, the greater the likelihood that they will accept your proposal, thereby allowing you to keep all your assets.

Both bankruptcy and consumer proposals are debt relief options allowing those who are in a significant amount of debt to get out from under what they owe. However, the consumer proposal is far less disruptive to their lives.

Deciding to file a consumer proposal is about dealing with your debt, but I understand that you may be concerned about the impact a consumer proposal has on your credit report.

If your financial situation is such that budgeting or refinancing cannot resolve your ongoing financial crisis, a consumer proposal is one of the options under the BIA to resolve your debts. A consumer proposal may be the best way to help you avoid bankruptcy and achieve real relief from your outstanding debts.

Each situation is different. Each program is tailored to fit the budget and circumstances of each person. The payments you make are then divided among your unsecured creditors. As with bankruptcy, one of the immediate pros of entering such a debt settlement program is that it stops wage garnishments.

Even during the time that this debt settlement process is noted on your credit history, it may still be possible to obtain new credit, including renewal of ongoing commitments such as your mortgage, financing the purchase of a new vehicle, or even a credit card. For consumers who worked seasonally or have fluctuating income, a consumer proposal can be structured so that higher payments are made during peak earning times and lower payments are made during low earning times. Individuals who file a consumer proposal must complete two mandatory financial counselling sessions with a qualified insolvency counsellor.

What is a consumer proposal summary

I hope you found this Brandon’s Blog about what is a consumer proposal helpful. Sometimes things are too far gone and more drastic and immediate triage action is required.

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

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

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

We know that people 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 restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

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

what is a consumer proposal

Tags Bankruptcy, Bankruptcy and Insolvency Act, BIA, Consumer Proposal, consumer proposal canada, Debt, how do you qualify for consumer proposal, insolvency, Ira Smith Trustee, is a consumer proposal right for you, is consumer proposal worth it, licensed insolvency trustee, offical receiver, Office of the Superintendent of Bankruptcy, trustee, what is a consumer proposal

Brandon Blog Post

TRUSTEES IN BANKRUPTCY TORONTO ONTARIO USUALLY FORBIDDEN TO DIG THIS

Post author By Brandon Smith
Post date December 18, 2019

Trustees in bankruptcy Toronto Ontario introduction

On April 15, 2019, a group of companies operating as QuadrigaCX (Quadriga) became bankrupt. This followed their initial application under the Companies’ Creditors Arrangement Act (CCAA) to get bankruptcy protection.

The purpose of this Brandon’s Blog is to describe the latest events in this ongoing saga. Especially something trustees in bankruptcy Toronto Ontario usually don’t dig this.

What was Quadriga

Quadriga operated a crypto money exchange permitting customers to save, get, and offer various cryptocurrencies (including Bitcoin, Bitcoin Cash Money, Bitcoin Cash SV, Litecoin and Ethereum) on the Quadriga platform.

The cryptocurrency industry is not regulated in Canada and there is no governing body giving oversight.

Canadian chartered banks generally do not supply financial services such as bank accounts to companies operating in the cryptocurrency sector. This held true at Quadriga who needed the solutions offered by Third-Party Payment Processors (TPPP) to provide Quadriga’s treasury functions.

TPPP’s utilize various banking facilities in many countries around the globe. It can be very difficult to trace the flow of funds. Especially if the TPPP purposely sets up an international flow of funds through various intermediaries. We found this when we administered the bankruptcy of Conquest Vacations Inc. (Conquest).

No Canadian or US TPPP would clear Conquest’s credit card transactions. So, Conquest entered into an arrangement with a UK TPPP who utilized, amongst other banks, a financial institution in Mauritius. Our ability to trace the flow of funds with a high level of accuracy was thwarted in that case.

Quadriga was started by Mr. Gerald Cotten. It is reported that he died at. the age of 30 from complications from Crohn’s disease. At the time of his reported death, he was travelling in India.

Apparently, Mr. Cotten was the only person who knew the passwords associated with all the wallet addresses holding cryptocurrency.

Various issues faced by Trustees in bankruptcy Toronto Ontario

The Trustee was unable to find any documentation or other information regarding passwords. The Trustee also was unable to locate conventional books and records. The Trustee was not able to locate basic company records or accounting records.

There were also no records found documenting the location of Quadriga’s cryptocurrency and money reserves between third party settlement processors, savings account, wallet addresses and other third-party exchanges.

There also appeared to be no segregation of assets between funds of Quadriga and its customers. This would make it extremely difficult in any bankruptcy administration for trustees in bankruptcy Toronto Ontario or anywhere else in Canada.

The Trustee found that a substantial volume of cryptocurrency from Quadriga’s platform was transferred to competitor exchanges, some of which were transferred into personal accounts controlled by Mr. Cotten.

Additionally, significant amounts of cryptocurrency were moved to wallet holders whose identification was impossible to identify.

trustees in bankruptcy Toronto Ontario

Gerald Cotten enrichment found by Trustees in bankruptcy Toronto Ontario

It turns out that the cryptocurrency of Quadriga’s customers was taken off the Quadriga system to other third party exchanges and traded on those exchanges.

In other situations, cryptocurrency and its resultant cash were utilized for a margin trading account established by Mr. Cotten. Trading losses sustained and also incremental fees charged by exchanges negatively affected Quadriga’s cryptocurrency books.

Mr. Cotten created particular accounts on the Quadriga system under pen names where it appears that make-believe cryptocurrency and cash funds were deposited and used to trade within the Quadriga platform.

This resulted in inflated revenue numbers and ultimately the withdrawal of customers’ cryptocurrency. Substantial funds were moved to Mr. Cotten directly and various other associated accounts. This resulted in a substantial amount of cash and cryptocurrency reserves that could not be located.

The Trustee’s examination revealed that Mr. Cotten occasionally moved substantial cryptocurrency as well as various other funds outside of Quadriga. In certain instances, these transfers were for considerable amounts of currency routed to Mr. Cotten directly. Funds were used to fund personal costs and also the purchase of various personal assets.

In various other cases, transfers were made straight to his wife, Jennnifer Robertson. Funds were also used to pay personal expenses and to purchase personal assets both in her name or the name of companies which she controlled.

**The trustees in bankruptcy Toronto Ontario settlement with Jennifer Robertson**

Ms. Robertson has offered the Trustee a settlement offer that involves returning the majority of her possessions, the assets of Mr. Cotten’s Estate and also the assets of entities owned by Ms. Robertson or the Estate to the Trustee.

Negotiations have led to a settlement agreement acceptable to the Trustee. The Trustee was of the view that a negotiated settlement was more effective than ongoing litigation.

The settlement arrangements were substantial and conducted at arm’s length. The Trustee sought and obtained the agreement of the Inspectors in the Quadriga bankruptcy administration.

The settlement to transfer almost all of the assets owned by Ms. Robertson, the various companies and the Estate was also approved by the Court. So everything seems to be going smoothly, right?

Trustees in bankruptcy Toronto Ontario usually don’t dig this!

Not quite. On Friday, December 13, 2019, the legal team representing individuals who were users of the platform in these bankruptcy proceedings and who have lost collectively millions of dollars, sent a letter.

The letter went to the Royal Canadian Mounted Police seeking an exhumation and also post-mortem autopsy be performed on the body. The reason is to confirm both its identity as well as the cause of death.

They say information revealed during the proceedings, even more, highlights the requirement for assurance around the concern of whether Mr. Cotten is in fact deceased.

I don’t know why these lawyers feel that proving Mr. Cotten is in fact dead is so important. Maybe they feel that anyone who would give up substantially all of her assets, the Estate’s assets and related companies’ assets, must have more money somewhere else hidden.

Maybe they think that Mr. Cotten faked his own death, has millions of dollars that still have not been found and the two will reunite once the heat is off. I don’t know why, but this certainly is an unusual turn of events in a bankruptcy administration.

It is certainly something that trustees in bankruptcy Toronto Ontario or anywhere else in Canada don’t dig!

We will have to see how this saga unfolds and if there will be any more surprises.

Summary

I hope you found this Brandon’s Blog, Trustees in bankruptcy Toronto Ontario usually don’t dig this interesting. Sometimes things are too far gone and more drastic and immediate triage action is required.

Do you have too much debt? Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring.

However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

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

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a 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 about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

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

Tags Bankruptcy, bankruptcy toronto, CCAA, Companies’ Creditors Arrangement Act, crypto currency, cryptocurrency, gerald cotten, Ira Smith Trustee, jennifer robertson, quadriga, trustee in bankruptcy, trustee in bankruptcy toronto, trustees in bankruptcy toronto ontario

Brandon Blog Post

FILING FOR BANKRUPTCY IN ONTARIO: 3RD TIME SHOULD NOT BE A CHARM

Post author By Brandon Smith
Post date December 11, 2019

Filing for bankruptcy in Ontario introduction

We have all heard the expression “third time’s a charm” or “third time lucky”. You say this when someone is successful the third time they try something after they failed the first two times. This expression is not meant to apply to the world of Canadian insolvency or a desperate financial situation. Certainly not for filing for bankruptcy in Ontario.

On December 9, 2019, the Toronto Star published an article by investigative reporters Jesse McLean and David Bruser titled “Rack up debt. Declare bankruptcy. Repeat. And repeat again. How thousands of Canadians are doing it and costing the rest of us”. The article talks about four specific people who file for bankruptcy multiple times.

In this Brandon’s Blog, I want to describe how filing for bankruptcy in Ontario works. Thankfully, the article does state that in the Toronto Bankruptcy CourtFreme, it is much tougher to get away with multiple bankruptcies, as it should be.

Filing for bankruptcy in Ontario: How do I declare bankruptcy in Canada?

Filing for bankruptcy in Ontario begins with a no-cost consultation with a licensed insolvency trustee (formerly called a bankruptcy trustee ) (Trustee). In that consultation, the Trustee will want to get a good understanding of your assets, liabilities, income and expenses. That way, the Trustee will be able to discuss with you all the available options and help you narrow them down to the most viable options to solve your debt problems.

At the end of the meeting, the Trustee will give you the standard intake form. By completing the form fully, you will provide the Trustee with the proper information needed for your filing for bankruptcy in Ontario. My Firm calls our standard intake form the Debt Relief Worksheet The information is then used in order for the Trustee to finalize his or her recommendations to you for dealing with your debt. The options available in general for dealing with personal debt are:

A consumer proposal is an insolvency process which is one of the best of all the alternatives to bankruptcy. It is much preferable than filing for bankruptcy in Ontario. In a consumer proposal, you are able to compromise your debt. You make an offer to pay less than the total you owe. You then make the monthly payment to the Trustee until you have paid the total you agreed to.

If you end up deciding on either a consumer proposal or bankruptcy, the Trustee will prepare the required documentation. This is the case for consumer proposal documents or those necessary for filing for bankruptcy in Ontario.

The Licensed Insolvency Trustee then takes the fully completed worksheet and all additional documents in support of your information. The information is then used in order to prepare the documentation necessary for filing for bankruptcy in Ontario. The documents include your Statement of Affairs and your Statement of Income and Expenses.

The Statement of Affairs used for filing is attested to by the debtor as to its accuracy. This statement includes a listing of all of the person’s assets and indicates which are exempt from seizure and which are not. The asset exemptions are guided by provincial law. As there are some variations between provinces, in this blog I will only be referring to bankruptcy process Ontario exemptions.

The assets not exempt from a seizure will be surrendered to the Trustee to be sold. The statement also lists all the names of the creditors, their respective addresses and the amount owed to each.

The Statement of Income and Expenses, as the name suggests, shows the monthly income and expenses of the household. It also shows whether or not the person will be subject to surplus income payments to the Trustee or not.

When all the documents are ready, the Trustee electronically files them with the Office of the Superintendent of Bankruptcy (OSB). The local OSB representative reviews the filing. If everything is in order, the OSB issues a Bankruptcy Certificate. The issuance of that certificate is the moment the person is now bankrupt.

Filing for bankruptcy in Ontario: How long does bankruptcy last in Ontario?

The Canadian bankruptcy system is administered under the Bankruptcy and Insolvency Act (Canada). This is a federal statute and bankruptcy is a complex legal process. Bankruptcy allows you to compromise the debts to your unsecured creditors. It does not deal with the debt owing to a secured creditor if you are able and wish to keep the asset.

So the question is not how long does bankruptcy last in Ontario? Rather, it really is how long does bankruptcy last in Canada?

The Toronto Star investigative article talks about the length of a bankruptcy. It correctly states that a first-time bankrupt, that does not need to pay surplus income, is entitled to an automatic discharge after 9 months. This assumes that they have lived up to all of their commitments as an undischarged bankrupt as well as completely cooperated with the Trustee.

If a first-time bankrupt surplus income, they must pay it for 21 months prior to qualifying for a discharge. This again assumes that they have fully cooperated with the Trustee. In both cases, if neither the Trustee nor a creditor opposes the discharge of the bankrupt, the Trustee can issue the discharge certificate.

In a second time bankruptcy, with no surplus income, the bankrupt has to wait for 24 months before being eligible for a discharge. Again, if the bankrupt has completed all duties and has cooperated fully, and no creditor opposes the discharge, the Trustee can issue the discharge certificate. If there is a surplus income requirement, then the minimum period before being eligible for a discharge is 36 months. Under the same conditions, the Trustee can issue the discharge certificate if there is no opposition.

The article highlights, correctly, that if it is the person’s third or more bankruptcy, the Trustee cannot issue a discharge certificate. The discharge hearing must be held in Court, even if the Trustee is not opposing. The reason for this is because the Canadian bankruptcy system is supposed to financially rehabilitate the honest but unfortunate debtor.

So in a third or more bankruptcy, the Court wants to review the circumstances of the person’s bankruptcy and why rehabilitation has not been accomplished yet. If there is a Trustee or creditor opposition to discharge, the hearing becomes more complicated.

I have written several blogs previously on the bankruptcy discharge process. You can search for them up above in the search function. If you wish to find out more about the bankruptcy process, you can CLICK HERE and read our filing for bankruptcy in Ontario faq.

**What about my credit cards when filing for bankruptcy in Ontario?**

When filing for bankruptcy in Ontario, you have to do the following:

disclose to the Trustee information regarding every one of your assets and financial debts;
disclose to the Trustee any transactions where you sold or transferred any of your property in the last 5 years;
surrender your credit cards to the Licensed Insolvency Trustee;
attend the initial meeting of creditors (if required);
attend 1 credit counselling session near the beginning of the insolvency process and another 1 credit counselling session later on in the administration;
keep the bankruptcy Trustee informed of any address change; and
assist the Trustee whenever asked for information, documents or property

**What about my credit report when filing for bankruptcy in Ontario?**

The information in your credit report that affects your credit score is usually eliminated after a specific period of time. Generally, it will be removed after six or 7 years for initial bankruptcy. The time frame is a bit less in a consumer proposal.

Sometimes you may hear people say that you remain in bankruptcy for seven years. That is not true. What that time frame really is all about when filing for bankruptcy in Ontario is the amount of time it takes for the notation of your bankruptcy to affect your credit rating and to be eliminated from your credit record. However, even before you are discharged from bankruptcy, or finish your consumer proposal, there are steps you can take to begin rebuilding your credit score and credit report.

filing for bankruptcy in ontario

**How bankruptcies work in Canada – Filing for bankruptcy in Ontario multiple times**

The investigative reporting in the Toronto Star details the multiple bankruptcies of four different people. These people range from being in their third to fifth bankruptcy. The article states that the Province of Quebec has the most people who have gone bankrupt multiple times. The article, of course, and rightly so, takes a very dim view of people who “game the system” with multiple bankruptcies.

As I mentioned earlier, the article clearly states that from their research in Ontario and Quebec, the writers found that the Toronto bankruptcy court takes the dimmest view of people with multiple bankruptcies when they come up for their discharge hearing.

Being a serial bankrupt is not a good thing. The reporting is fair and balanced. It does admit that some people just get a curveball thrown at them in life and have no choice but for filing for bankruptcy in Ontario. However, there are two themes stressed in the article which I don’t think are accurate. They are:

“Unpaid taxes owed by repeat bankrupts make up a portion of the nearly $4 billion the Canada Revenue Agency (CRA) has written off since 2009 because of consumer and commercial insolvencies. In Quebec, the provincial tax agency has lost nearly $2 billion to insolvencies in the last five years alone.” While this is true, it assumes that the taxes would have been paid if the people did not file for bankruptcy multiple times.

My belief is that people who go bankrupt multiple times have their affairs arranged in such a way that they do not have much to lose in bankruptcy. If they don’t have much to lose in a bankruptcy, then there isn’t much for CRA to seize if the person is not bankrupt. So the reality is that there is a class of Canadians that will not pay their fair share no matter what. This is clearly unfair to society as a whole, but it isn’t bankruptcy that causes it.

“Meanwhile, credit card lenders absorb the cost of bankrupts who do not pay their bills by charging high-interest rates to their customers who do pay their debts.”

The fact that credit card companies charge high-interest rates is true. However, in my experience, customers who do pay their credit card debt are not incurring interest charges. They pay their credit card balance off monthly.

Those who only make the minimum payment are the ones who are incurring high-interest charges. Ultimately, those people cannot afford to make all their debt payments and they ultimately invoke an insolvency process, being either a consumer proposal or bankruptcy.

So even a one-time-only bankrupt pushes a loss onto a credit card company. Hence the high-interest rates charged. By the way, who is it that makes the credit decision to extend new credit to a multiple time bankrupt? It isn’t the bankruptcy system, it is the credit card issuer. Perhaps they should not give a credit card to someone who has demonstrated many times that they cannot handle the credit responsibly.

Filing for bankruptcy in Ontario – Rack up debt

The statistics quoted in the article shows that although there has been an increase over the years in multiple time bankrupts, this is somewhat of a self-fulfilling prophecy. By definition, if a certain segment of the Canadian population goes bankrupt multiple times, then the statistics have to show an increase.

The statistics used in the article shows the following regarding the percentage between 1st and 2nd + out of total personal bankruptcies between 2011 through 2018:

Year	Total # bankruptcies	1st time %	2nd + time %
2011	77,993	84.41	15.59
2012	71,495	83.83	16.17
2013	69,224	82.74	17.26
2014	64,839	81.31	18.69
2015	63,406	80.52	19.48
2016	63,372	80.10	19.90
2017	57,969	79.23	20.77
2018	55,091	78.99	21.01

My takeaways from these statistics are:

Personal bankruptcies in Canada dropped by 29.4% between 2011 and 2018. I believe there are two main reasons. First, fewer Canadians are opting for an insolvency process in an era of unprecedented low-interest rates. Second, those requiring an insolvency process, have sufficient income to perform a successful consumer proposal thereby being able to avoid bankruptcy.
The increase in second and more time bankrupts is just under 5%. I believe most of the increase is as mentioned above, somewhat self-fulfilling. Every time the same person goes bankrupt, the statistic has to increase! So, what percentage increase is because of the actual mathematical formula, and what percentage increase is because there are actually more people in raw numbers are filing for bankruptcy more than one time?

Filing for bankruptcy in Ontario – The bankruptcy discharge

A discharge from bankruptcy releases you from the legal commitment to pay off your debts you had as of the day you applied for bankruptcy, with certain exceptions. Examples of certain exceptions are alimony, child support, certain student loans (if you stopped being a student less than seven years before filing), court-ordered penalties or fines and financial debts as a result of a fraud finding against you.

Of course, the ultimate objective for those filing for bankruptcy in Ontario is to receive the most sought after discharge from bankruptcy after you have performed all of your duties. The bankruptcy discharge releases a person from the majority of his or her debts as indicated above.

While many people thinking about bankruptcy currently have a poor credit score, it’s usually not irreparable. Declaring personal bankruptcy, nevertheless, will drop it to an R9 rating. This is the worst possible score there is. Unfortunately, this rating will last for about 6 years post-discharge. As I have already mentioned, there are steps you can take to start rebuilding your credit score.

Filing for bankruptcy in Ontario summary

I hope you found this Brandon’s Blog on filing for bankruptcy in Ontario useful. Sometimes things are too far gone and more drastic and immediate triage action is required.

Do you have too much debt? Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. We can help with your personal debt situation. We can also help with insolvency for business.

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.

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 about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

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

Tags Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy in ontario, bankruptcy ontario exemptions, Consumer Proposal, debt relief worksheet, filing bankruptcy, filing bankruptcy in ontario, filing bankruptcy in ontario faq, filing for bankruptcy, filing for bankruptcy in ontario, how do I declare bankruptcy in canada, how long does bankruptcy last in ontario, office of the superintendent of bankrkuptcy, rack up debt, statement of affairs, statement of income and expenses

Brandon Blog Post

UNDISCHARGED BANKRUPT: WHAT YOU NEED TO KNOW ABOUT BANKRUPTCY DISCHARGE

Post author By Brandon Smith
Post date December 2, 2019

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

Undischarged bankrupt introduction

I recently read a Manitoba court decision issued in late October about the position taken by a judgment creditor in an undischarged bankrupt’s hearing. The creditor holding the judgment realized that the bankrupt’s discharge would discharge that debt. So, they tried to convince the court that their debt fit into one of the limited classes of debt that is not discharged by the bankrupt discharge.

That court case reminded me that is not so unusual. Many times a creditor who holds a judgment against the undischarged bankrupt tries to bootstrap their position. One of the leading cases cited by the Manitoba court is a 2018 decision from the Court of Appeal for Ontario.

The purpose of this Brandon’s Blog is to describe the bankruptcy discharge process, the position taken by the judgment creditor and what the Court has to say about that.

How bankruptcies work in Canada

The Canadian bankruptcy legislation is open for an insolvent and not viable company, or the insolvent, honest but unfortunate person can obtain relief. Subject to trust claimants’ rights and secured creditors, the company or person is assigning all of their unencumbered assets to the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee). In return, the bankrupt person can have all of their debts discharged, subject to certain exceptions.

The bankruptcy discharge is amongst the primary advantages of relief under the Bankruptcy and Insolvency Act (Canada) (BIA). The discharge is vital to the bankruptcy procedure. Debtors, after bankruptcy, can wipe the slate tidy as well as begin over. This is a central concept under the BIA law. That is the essence of the bankruptcy discharge meaning.

A bankruptcy discharge is when the bankrupt is released under Canadian bankruptcy law from his or her financial debts as part of the bankruptcy discharge procedure. Some people think that it is the declaring for bankruptcy that releases the insolvent from obligation. This is not the case, it is the discharge that releases a bankrupt from debt.

A bankruptcy discharge provides the discharge of all unsecured debts, except for:

support payments to a previous partner or children;
penalties or fines enforced by the Court;
financial debts arising from fraud or fraudulent breach of trust;
student loans if less than seven years have actually passed since the bankrupt stopped being a part-time or full-time student.

Can an undischarged bankrupt leave the country?

If you are an undischarged bankrupt, you can travel. There are no restrictions on you leaving or returning to Canada if you are travelling for work or on vacation. Just make sure that your travel plans do not interfere with your legal obligation and your duties in your personal bankruptcy case, including:

attending a meeting of creditors (if one is required);
showing up for your mandatory counselling sessions;
submitting your monthly income reports to the Trustee;
remitting any surplus income payments you are required to make;
providing your financial information to the Trustee so that your pre and post-bankruptcy income tax returns can be filed;
being able to respond to any inquiries from your Trustee; and
attending in Court for your bankruptcy discharge hearing in an opposed discharge application.
undischarged bankrupt

Undischarged bankrupt: What is an undischarged debt?

When a bankrupt is discharged from bankruptcy, the individual is released from the legal obligation to repay their different types of debt that is unsecured and existed on the day that the bankruptcy was filed, except for the following types of original debt:

Alimony or support payments to a previous spouse or for the children;
Fines or monetary penalties imposed by the Court;
Financial obligations arising from fraud, misappropriation or defalcation; or
Student loans if less than seven years have actually passed since the person stopped being a full or part-time student.

So other than for the small category of debts that are not discharged, once the bankrupt is discharged from their bankruptcy, they do not have to make payments on debts that existed at the date of bankruptcy.

Undischarged bankrupt: Trustee opposed the discharge

A first-time bankrupt, who does not need to pay surplus income, is entitled to an automatic discharge after 9 months. This assumes that they have lived up to all of their obligations as an undischarged bankrupt and fully cooperated with the LIT. If this first-time bankrupt is subject to surplus income, then they must pay it for 21 months before they are entitled to a discharge. Longer timelines apply for a second or more time bankrupt.

If the Trustee has evidence that the bankrupt has not been forthright and fully cooperative, or has actually committed one or more bankruptcy offences, then the Trustee has a duty to oppose the bankrupt’s discharge.

Notice of opposition to discharge

Similarly, any unsecured creditor can oppose the bankrupt’s discharge. The grounds of opposition would likewise be evidence of lack of honesty or that one or more offences have been committed. The process for a creditor opposing the discharge of the bankrupt is by filing a notice of opposition to discharge.

In either a Trustee or creditor opposed discharge, the bankrupt’s application for discharge must be heard in Bankruptcy Court. For more on the discharge process, you can read about it in one of my previous Brandon’s Blogs.

The judgement creditor

Often, a judgment creditor thinks they have a higher position in the pecking order than other unsecured creditors because they have a judgment. They may have even registered the judgement against the title to real estate owned wholly or partially by the defendant. Unfortunately, upon the bankruptcy of a person, all enforcement proceedings on a judgment must stop.

The judgment for a debt, in bankruptcy, is merely a piece of paper that proves you have unsecured debt. Nothing else. Anyone who understands the litigation process knows that there is a big difference between getting a judgment and collecting on it.

Judgement creditors may take a keener interest in the bankruptcy proceedings, including opposing the discharge from bankruptcy. The reasons for this are twofold:

The judgment creditor has already spent time in court, money on legal fees and still has not collected their debt, so they are more invested in this person’s bankruptcy than someone who did not go the court route.
They are hoping that they can somehow fit their money judgment only into a position where they can claim that the debt is one not released by an order of discharge.

It is this second reason that this Manitoba court case, and the Court of Appeal for Ontario decision relied upon by the Manitoba court, revolves around.

Undischarged bankrupt: Can more evidence be introduced by a judgment creditor at the discharge hearing?

Most judgements that I see in a debt settlement program under the BIA or bankruptcy tend to fall into the same category. A service or good was supplied and not paid for. A contract was entered into and was breached. That is just normal business. There is no fraud, embezzlement, misappropriation, defalcation, fraudulent misrepresentation or fraudulent breach of trust.

It is simply someone owes money and didn’t pay. The plaintiff entered all of the evidence they thought was important, the defendant either defended or allowed for default judgment to be obtained because they did not defend. Regardless, the court ordered the defendant to pay the money.

The judgement creditor was unpaid and then one day received the Trustee’s notice of bankruptcy in the mail. The judgment creditor was incensed. The creditor took an active interest in the bankruptcy proceedings and maybe even served as a bankruptcy inspector. The bankrupt person is now entitled to apply for his or her discharge from bankruptcy.

The judgment creditor is unhappy because they now know that they are receiving either nothing or a small dividend from the Trustee compared to the debt to be written off. So they now oppose the bankrupt’s discharge and try to get new evidence submitted to the Bankruptcy Court to somehow prove that their judgment is a claim that is not extinguished by the person’s bankruptcy discharge.

This is what the Court of Appeal decision was all about. Can you introduce new evidence at a bankruptcy discharge hearing?

The case I am referring to, Lawyers’ Professional Indemnity Company v. Rodriguez, 2018 ONCA 171 (CanLII). The appeals court said that the answer is no. You can read the entire decision here if you like. The Court of Appeal essentially said that the Court is allowed to look at:

the judgment
the proof that would certainly have been entered as evidence at the time in the pleadings
as well as that evidence which has been led in the bankruptcy discharge hearing

to analyze whether the judgment debt falls within an exclusion to the general discharge rules. The Court also said that in a bankruptcy discharge hearing, the application judge was limited to looking at the judgment, the pleadings, the statement of claim and any statement of defence, to determine whether the judgment fell into the class of those debts not released by a discharge from bankruptcy. New evidence is not allowed.

This finding has been followed and further clarified. It is now apparent that the only purpose of a bankrupt’s application for discharge is to consider the bankrupt’s application. It is not a forum to attempt to advance new or amended claims.

Undischarged bankrupt summary

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

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

We 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 about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

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

undischarged bankrupt

Brandon Blog Post

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.

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

THE EASIEST WAY TO ACTUALLY LIKE WHAT IS A DIVISION i PROPOSAL ONTARIO

Post author By Brandon Smith
Post date October 28, 2019

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

Introduction

Over recent times, I have been receiving increased inquiries as to what is a division i proposal. The purpose of this Brandon’s Blog is to explain what it is. No person or company actually likes to enter a restructuring process to avoid bankruptcy, so hopefully, this discussion will be helpful to those that really need it to appreciate why if necessary, it is actually easy to like it; especially a successful one!

What is a division i proposal?

Division I is one of the two divisions of Part III of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3). Division I is a restructuring provision. It is available to people who owe more than $250,000 and companies with any level of debt, in need of financial restructuring.

At the beginning of any consultation with an insolvent person or for an insolvent company, is to determine if a successful restructuring can be accomplished. If not, the only other realistic alternative is bankruptcy. A successful restructuring of a person will allow that person to keep the assets they wish to keep and can afford to hold onto.

A company that successfully restructures will continue to provide employment. The jobs that will be preserved are not only those of the company that restructures. Its continuing to do business with suppliers who continue to do business with the restructured company will also avoid layoffs or terminations of their own staff. The reason for this is that their own volumes will not decrease, or decrease as much as if its customers went bankrupt and could no longer buy from them.

How do I start a restructuring plan for a person?

The first thing the insolvent person or company needs to do is hire a licensed insolvency trustee (LIT) (formerly called a trustee in bankruptcy). The reason why is because a LIT is the only one in Canada authorized to administer a restructuring proposal.

The LIT will discuss with the insolvent person about the nature of his or her assets and liabilities. Which assets are financed and which are owned free and clear. There will also be a frank analysis and discussion of the person’s income and expenses. The reason for this is to do preliminary credit counselling to help the person recognize how their historical household budget (whether they actually knew it or not) needs to change. Is there room in a new solvent budget to pay for an expensive asset, or does it need to be replaced by a less expensive one? A leased or financed auto is a prime example.

I want to make that determination upfront because a financed asset given up before the debt is fully repaid will create an acceleration of the full amount of that liability claim. I will want to make sure that it is done the right way, so the new accelerated liability will be caught as a debt being compromised, not a post-filing debt not caught in the financial restructuring.

Once the issues have been identified and the realistic options identified, I will then want to work with the person to put together a realistic post-filing cash flow budget. There are three main reasons for this, being:

I want to make sure that there is a budget that shows the person’s monthly expenses will be no more than, and hopefully less than, their monthly after-tax income.
We must be sure that the monthly cash flow shows the person can afford the monthly payments to the LIT required to have a successful restructuring.
One step needed to have a successful restructuring is to have such a monthly cash flow budget signed off by both the insolvent person and the LIT showing the person can survive through and afford a successful restructuring. Any creditor can request to see a copy of that signed off cash flow budget.

How do I start a corporate restructuring plan for a company?

The initial step in any corporate restructuring is for the board of directors to recognize and also resolve that the company is insolvent, that it needs to reorganize under this part of the BIA and to approve the hiring of a LIT.

I described the consultation process I first go through with a person to determine if they can successfully complete a restructuring proposal and then to start developing it. Similarly, I go through a consultation process with the senior management of the company.

I first want to determine if we have the basic requirement for a successful corporate restructuring. That basic requirement is, the company’s business, or one or more portions of the business, must be viable, notwithstanding that it is insolvent. There must be a true demand for the business and that it will be able to operate successfully once its financial position is right-sized. It may be the whole business, or it may be the case that we need to use the restructuring process to cut away the dead business units, in order to allow the viable one to survive and ultimately flourish.

By its nature, corporate restructuring is more complex than a personal one. There are many more moving parts to a company. However, the basic analysis is similar. What are the assets and liabilities of the company? Which business units are capable of being operated profitably? Which assets that are financed are essential to the future of the restructured company. Which are redundant and must be jettisoned. How will all the answers to these questions affect the company’s labour force? How many jobs will be lost and how many will be saved?

Ultimately, all these answers must be compiled into a cash flow statement. We must know does the company have sufficient financing or funds available to it so that it can properly operate during the restructuring process. There is no point in starting a restructuring if the company cannot survive the restructuring period. What will the company’s post-restructuring cash flow look like? We want to know that answer also to make sure that there is a real business that can operate profitably after coming out of the restructuring process. Just like in a personal financial restructuring, the company and the LIT must sign off on a realistic cash flow budget to show that the company can operate and survive the restructuring process.

What if the person or company needs immediate protection but is not ready to file the real proposal yet?

Just like in a bankruptcy, the filing of a Proposal brings in an immediate stay of proceedings. What this means is that no creditor can either begin or continue any action against the person or company for the enforcement or collection of a debt. Sometimes the insolvent debtor is under attack from a creditor.

Examples of proceedings against a person or company need protection from are numerous. The more standard ones are:

They need to defend a lawsuit but can’t afford the cost and therefore a default judgment is about to be issued.
Attendance is required at a judgment debtor examination to disclose the nature and whereabouts of their assets.
The Sheriff may be seizing an asset that if successful, it will stop the person or company from conducting business.

The BIA provides a way for an insolvent debtor under such an attack to invoke a stay of proceedings before they are ready to file their formal restructuring plan. That option is to first file what is called a Notice of Intention To Make A Proposal (NOI). This is a BIA filing that serves as a notification to the creditors that the debtor will certainly be making a restructuring proposal but it needs to have the stay of proceedings start right now.

How the concept of NOI evolved is very interesting. Before the 1992 amendments to the BIA, there was no such thing as an NOI. However, people and companies needed to invoke an immediate stay of proceedings, but the BIA did not contain such provisions. So, what was done, is that the LIT would prepare what was called a holding proposal. All the proposal said was that I promise to file a real restructuring proposal as soon as possible. That holding proposal was then filed which brought on a stay of proceedings.

Paperwork and procedures

The LIT needs to be satisfied that: (i) all the relevant details have been gotten; (ii) the person or company has a likelihood of a successful proposal restructuring; as well as (iii) the person’s or company’s cash flow is enough that it can pay its ongoing post-filing debts through the restructuring process.

The LIT then assists the insolvent debtor in completing the necessary paperwork. The LIT also prepares its own report. The LIT then does a mailing to all known creditors to advise them of the filing of the Proposal, a means by which they can file their claim with the LIT and a description of what the process is and what it all means. The documents are:

the Proposal
a statement of the person’s or company’s assets and liabilities
a listing of creditors
the form 31 proof of claim
the voting letter
LIT’s report on the insolvent debtor, the Proposal and the LIT’s recommendation for voting in favour of (or against) acceptance of the Proposal

The meeting of creditors is then held to allow the creditors to vote on the Proposal. If the Proposal is accepted by the required majority of the creditors, then the LIT applies to Court for approval of the Proposal. Once approved by the Court, it forms a contract between the debtor and the creditors is formed. The person or company then needs to perform the promises it made in the Proposal to its creditors. This, of course, includes paying the necessary funding to the LIT for distribution to the creditors.

Executing on the Proposal promise

The Proposal of a person will require that insolvent debtor to make monthly payments to the LIT. The payments are made out of the person’s monthly cash flow, as indicated in its budget. The person can take up to 60 months to fulfill the promise of payments to the LIT for distribution to the creditors.

A company carries out its Proposal as it continues its operations. It hopefully succeeds in operating profitably. The firm would be conserving a particular amount of its earnings in money and paying to the LIT what is needed under the company’s restructuring strategy to create the Proposal fund it promised. The LIT after that makes the distribution to the creditors called for in the restructuring plan. When all the payments have actually been made, the company has effectively reorganized and continues its business having successfully completed its restructuring.

What happens if a Proposal is unsuccessful?

This is a very simple question to answer. What is a division i proposal if not successful? It is called bankruptcy. If a restructuring plan does not get either acceptance by the necessary majority of creditors or approval by the Court, then the person or company is automatically bankrupt. If the person or company fails to make all the payments called for, that also creates an unsuccessful restructuring. In any of those cases, It is as if the insolvent debtor filed an assignment in bankruptcy.

In that case, the LIT administering the restructuring program becomes the LIT administering a bankruptcy.

What is a division 1 consumer proposal?

I have been asked this question several times. Firstly, there is no such thing as a division 1 consumer proposal, but there is such a thing as a consumer proposal. A consumer proposal is found in Part III Division II of the BIA. So, it is called either a division 2 proposal or a consumer proposal.

Is consumer proposal worth it?

Before being able to decide if a consumer proposal is worth it, we need to understand what a consumer proposal is. The same way I described what is a division i proposal, I need to describe a consumer proposal. The consumer proposal process is a streamlined version of the personal division i proposal already described. It is only for people and not companies. Further, the person cannot owe more than $250,000, not including any loans registered against the person’s home, such as a mortgage or home equity line of credit.

I have written many times about different issues concerning consumer proposals. Rather than repeating it in Brandon’s Blog, I recommend you read my earlier blogs on the consumer proposal topic. Some of the blogs I have written for ease of reference are:

Summary

I hope that I have adequately answered the question of what is a division i proposal and how you can like it. The honest answer is that no one really does. However, if it is necessary for you or your company’s survival, it becomes very easy to like it.

Do you or your company 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.

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*

Tags Bankruptcy, bankruptcy trustee, BIA, can just one spouse file bankruptcy, can my spouse and i file for joint bankruptcy, can my wife file bankruptcy without affecting me, can one spouse file for bankruptcy if you share debts, can one spouse file for bankruptcy if you share property, does a consumer proposal affect my spouse, does declaring bankruptcy affect your spouse, how will my bankruptcy filing impact my spouse’s credit, Ira Smith Trustee, joint bankruptcy, joint consumer proposal, legal effects when only one spouse files for bankruptcy, licensed insolvency trustee, single spouse bankruptcy, trustee in bankruptcy

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.

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