Tag: Consumer Proposal

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Debt problems: 8 Mistakes To Avoid When You Are Having Money Problems

debt problemsIntroduction

I have advised many entrepreneurs and non-business people who have debt problems. Many times, there are things they have done before coming to see me for a no-cost consultation that I wished they had not done. So, I thought I would discuss the 8 mistakes to avoid when you are having money problems.

1. Using money from your RRSP to pay debts

This can be a costly error. Using retirement funds to pay off debts can hurt you in numerous ways. The vast majority of retirement accounts are exempt. This means your creditors cannot get at them and you won’t lose them if you file for a consumer proposal or for bankruptcy (“an insolvency filing”).

Using retirement money to pay debts that can be discharged in an insolvency filing, like credit card and income tax debt, rarely makes sense. If you make an insolvency filing, you can eliminate the debt without spending any of your retirement funds. Using retirement funds to pay debt jeopardizes your future when you will be in more need of the funds due to lack of other income.

The withdrawal from the RRSP counts as income on which you will owe taxes and possibly even an early withdrawal penalty. Depending on how large the amount is, the added income and related income tax debt could affect the nature of your insolvency filing, the total amount you will still have to pay and provide problems with your discharge from bankruptcy.

2. Paying unsecured debts like credit cards, income tax and personal instead of secured debts like mortgages and car loans

Some creditors are so aggressive and sometimes predatory that they make you think that you must pay off their debts immediately or suffer severe consequences. Frightened by these tactics you may be tempted to pay their unsecured loans first and leave a secured loan unpaid. This creates multiple problems.

The two most common types of property subject to a security interest are probably the two most important things you own: your home and your car. A car loan creditor can repossess a car after one missed payment. If that occurs, you will lose your car and you will be responsible for any deficiency amount you still owe on your car loan after the car is auctioned off usually for significantly less than it is worth.

While a mortgage lender may not be able to kick you out of your home as quickly, arrears, a higher arrears rate of interest that kicks in upon default and late fees can significantly increase what you owe and make it very difficult to catch up. As a general rule, you should prefer to pay your secured creditors so you can keep your car and home, as opposed to paying unsecured creditors who don’t have near the recourse that a secured creditor has. This assumes that you will be able to afford the car and mortgage payments after we help you eliminate your debts and balance your budget.

In addition, if you decide to make an insolvency filing, the money paid to your unsecured creditors might as well have been thrown in the trash. Meanwhile, you will still have to catch up on your secured debts if you want to keep the property.

Finally, you might have to explain to the licensed insolvency trustee why you were able to pay certain creditors, but not others, so close to the filing. Such payments may be considered preferences that the trustee can force the creditor to return in a bankruptcy. It is always better to avoid such a problem and keep your secured debts current, even if you have to neglect the unsecured ones.

3. Maintaining accounts at a bank or other financial institution where you owe money

Almost every bank and financial institution will require you to sign an agreement authorizing the bank to automatically garnish your account if you miss a payment owed to it. In other words, if you have your mortgage and a savings account at the same bank and you miss a mortgage payment, the bank can take it from your savings account. This is called a setoff.

You should transfer your accounts, other than for the one account need to pay your monthly loan payment, to another institution where you don’t owe money to avoid this situation. You can keep a minimum amount in that one account and replenish it monthly so you can’t lose much in case of a setoff.

4. Using a second mortgage or home equity line of credit to pay off credit cards or other unsecured debt

As mentioned previously, credit card and other unsecured debt can be discharged in an insolvency filing. If you don’t make your mortgage payments, you could lose your home.

If the amount you borrow against your home doesn’t get you out of debt, you may have no choice but to end up not being able to afford the higher payments, in bankruptcy, having wasted money that could have been used elsewhere. To make matters worse, you have allowed a second lien against your home, which increases your monthly expenses and the length of time before you are able to pay your home off. In addition, the second mortgage, is a secured debt, will not be dischargeable in an insolvency filing and you may end up losing your home.

Don’t fall for the advertisements that suggest you consolidate your debts with a home equity loan. This strategy only makes sense after you have seen a licensed credit counsellor and have created and understood your balanced budget. The licensed insolvency trustees at Ira Smith Trustee & Receiver Inc. are also licensed, credit counsellors.

5. Not filing your tax returns

If you do not file your tax returns on time, you will have an issue if you make an insolvency filing. Your case will not be closed and your debts will not be discharged until you file your missing income tax returns with the Canada Revenue Agency (“CRA”) and they have a chance to review it. The CRA will not allow you to get through the insolvency filing without ensuring your returns have been filed.

It will also be impossible for us to properly advise you on whether you can avoid bankruptcy through a consumer proposal because will not know the total amount you owe to CRA. You always need to bring your income tax filings current BEFORE making an insolvency filing. Better not to have this problem delay a filing when you really need to protect yourself immediately at that time.

6. Telling a creditor that you intend to pay

When you have debt problems, it is always best not to say anything to a creditor than to promise the creditor that you will pay. Once you tell creditors to expect money, their harassment will grow every day they don’t receive the promised money.

7. Making a written promise to pay or making a partial payment on an old debt

Creditors are barred from collecting a debt once the limitation period has run. The limitation period on a particular unsecured debt incurred in Ontario is 2 years. Making a written promise to pay or making a partial payment on the debt (no matter how small) may reset the clock on the creditor’s ability to take legal action.

8. Ignoring pending lawsuits

Pending lawsuits on debts is an obvious sign that you have debt problems. Ignoring pending lawsuits is a huge mistake as these lawsuits lead to judgments. Upon receiving a judgment, the creditor will be able to garnish your wages and freeze your bank accounts.

If you are sued on a debt, it’s wise to at least consult a lawyer. You may have legal defenses. It is normally best to make an insolvency filing either before or immediately upon a judgment being made against you. That way, the creditor who received the judgment cannot enforce against your wages or bank accounts. You are protected in an insolvency filing by an automatic stay of proceedings.

Debt problems summary

I hope you found this Brandon’s Blog, 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.

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

what is a consumer proposal
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
what is a consumer proposal
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FILING FOR BANKRUPTCY IN ONTARIO: 3RD TIME SHOULD NOT BE A CHARM

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:

YearTotal # bankruptcies1st time

%

2nd + time

%

2011

77,99384.41

15.59

2012

71,49583.83

16.17

2013

69,22482.74

17.26

2014

64,83981.31

18.69

2015

63,40680.52

19.48

2016

63,37280.10

19.90

2017

57,96979.23

20.77

2018

55,09178.99

21.01

My takeaways from these statistics are:

  1. 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.
  2. 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.

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.

filing for bankruptcy in ontario

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Brandon Blog Post

CANADA DEBT HELP: ARE YOU MAKING THESE DEBT RELIEF MISTAKES?

Introduction

On Friday, November 22, 2019, Manulife Bank published its most recent Manulife Bank Canada debt help survey. Manulife Bank publishes its survey annually. The 2019 survey, compared to previous ones, shows that two in five Canadians have given up all hope of ever being debt-free.

In Brandon’s Blog, I review the main findings of the survey. The results show the debt relief mistakes being made. I will also discuss how you can get yourself out of debt so that you won’t be one of the 40% of Canadians that have given up all hope.

Manulife Bank Canadian customer debt relief reviews

The Manulife Bank Canada poll questioned 2,001 Canadians in all provinces between ages 20 and 69 with household revenue of more than $40,000. The survey was carried out on the internet by Ipsos between September 20 to September 26, 2019. National results were weighted by gender, age, area as well as education.

The 2019 survey results show:

  1. Two in 5 question will they ever be debt-free in their lifetime.
  2. Spending-to-income % is trending negatively in Canada.
  3. Ninety-four percent of Canadians say the ordinary home is in too much financial debt.
  4. The spending-to-income proportion is trending adversely as 45 percent record that their expenses are rising faster than their revenue.
  5. Sixty-seven percent of Canadians with too much debt presume everybody else does too.

“There is a financial wellness crisis, and it’s affecting Canadians of all demographics,” said Rick Lunny, President and CEO, Manulife Bank.

Canadians not really asking “How can I get out of debt in Canada?”

One of the saddest parts of the survey is what I did not read. Apparently, Canadians surveyed are not asking how they can get out of debt. Rather, they are just resigned to that being their normal reality.

The survey also shows differences by generation. Whether you are a Boomer, Generation X or Millennial makes a difference. This makes sense as the different generations are at different stages of life.

The generational differences are:

  1. Boomers – 38% of these survey participants say that their spending is greater than their income and 31% feel they will never be debt-free.
  2. Millennials – 46% of those surveyed say that their costs are greater than their earnings and 42% feel they don’t see themselves ever paying off debt.
  3. Generation X – 54% of these study participants state that their expenses are higher than their earnings and 49% feel they will certainly never ever get out of debt.

How can I get relief from debt?

So with these survey results as a backdrop, the question these Canadians need to ask is how to get debt relief. There are no free Canadian government grants to pay off debt. According to Manulife Bank Canada debt help is required by many Canadians.

People have to take matters into their own hands. It starts with a household budget. All members of the family have to be involved in preparing it and you need complete buy-in for it to be successful. The budgeting process begins with understanding what the family’s after-tax income is every month and what all of the household expenses are. Then, all the expenses have to be looked at critically to determine which are necessary and which represent “wants” not “needs”. You can also look at the income side and see if there are opportunities to also increase income.

The goal of the budgeting process is to end up with a household budget that is realistic, will be tracked and all family members will be accountable for. Monthly expenses cannot be greater than the monthly net after-tax income. The budget must also have room for making regular monthly payments to pay down debt, including credit card debt. The budget must also include regular monthly savings, in order to build up an emergency fund. The emergency fund is essential to meet unexpected expenses or income loss.

The 6 main benefits of a household budget

The 6 main benefits of a household budget are:

  1. A budget offers you the ability to have control over your cash: A budget plan is a list of all revenues and costs. It permits you to plan exactly how you intend to spend your money. Rather than money just flying out of your pocketbook, you make deliberate choices on where you desire your cash to go. You’ll never need to wonder each month where your money went.
  2. A budget keeps you concentrated on your economic goals: Budgeting will enable you to meet your money objectives – paying down debt, putting money away in a retirement savings plan, getting a home – as long as you follow it consistently. With a budget, you’ll know exactly what you can afford and you can separate your money appropriately. E.g. If your instant goal is to save for the deposit of a house, then you might need to pass up that holiday you wanted to take. Your spending plan will inform you specifically what you can or can’t manage.
  3. A budget plan will ensure that you do not spend what you do not have: Charge cards are a great convenience yet they also make it really easy to spend due to the fact that there is no cash exchanged in the transaction. Many Canadians rack up major credit card spending and land up deep in debt before they recognize what’s occurred. When you use and stay with your spending plan you need to record every little thing you spend, even if it’s a bank card purchase. You will not wake up deep in debt, ask yourself how you arrived there.
  4. A spending plan will prepare you for the unanticipated: Every budget plan must have a rainy day fund for those unanticipated costs. It’s recommended that you should budget for three months worth of costs for when there may be an unanticipated layoff or various other unplanned for a significant expense. Don’t be distressed; you do not need to save all the cash at once. Build your fund up slowly.
  5. A budget decreases tension: Lots of Canadians panic every month about where the money will come from to pay their bills. A budget will offer you satisfaction. It reveals to you just how much you earn and what your expenses are. If need be you can reduce unneeded expenditures or take on an extra gig to live within a well-balanced budget. No more panicking at the end of the month.
  6. A budget plan can assist you to pay for the retirement you’ve been desiring: Saving for your retirement is really essential and your spending plan can help you save for your future. Reserve part of your income every month for retirement savings. Beginning early as well as consistently stick to it. The money you conserve now will determine the type of retirement you can anticipate.

Is there a government debt relief program?

There is a government-approved debt relief program. It is governed under the federal Bankruptcy and Insolvency Act (Canada) (BIA). There are 3 personal debt government approved debt relief programs. The only person authorized to administer any of these debt settlement programs is a licensed insolvency trustee (formerly called a trustee in bankruptcy).

I have written about them before, but I will summarize here what they are:

  1. Consumer proposal: A consumer proposal is a streamlined process. This process enables insolvent people to make a formal deal with their creditors. This federal government authorized financial debt settlement program allows you to repay only a portion of what you owe to eliminate all of your debts. You can take as long as 5 years of routine month-to-month payments to do so. To qualify, you have to be insolvent and owe $250,000 or less to all creditors, apart from for any kind of financial obligations secured by way of registration against your house. A successful consumer proposal allows you to keep your assets that you can afford to keep. It also allows you to avoid bankruptcy.
  2. Division I proposal: A Division I proposal offers the same protections as a consumer proposal. If successfully completed, it provides the same benefits as the consumer proposal, including avoiding bankruptcy. This kind of proposal is not as streamlined as a consumer proposal and is for people who owe more than $250,000, not including any mortgage or other loan registration against your home. The other major difference is that an unsuccessful Division I Proposal results in an automatic bankruptcy. A consumer proposal does not have this same automatic provision.
  3. Bankruptcy: Bankruptcy is a process whereby in exchange for giving up your assets to the Trustee (with certain provincial exemptions), the honest but unfortunate debtor will be able to discharge all of their debts (with certain exceptions). When I meet with insolvent people for their no-cost consultation to explore their options, I always try to find the option that allows them to avoid bankruptcy as long as it is feasible and realistic.

Canada debt help summary

I hope you enjoyed this Brandon’s Blog on Canada debt help. 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 your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.canada debt help

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Brandon Blog Post

HOW DOES DEBT RELIEF WORK: APPARENTLY NOT GREAT 4 EVERYONE

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.

how does debt relief work
how does debt relief work

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).

how does debt relief work
how does debt relief work

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

how does debt relief work
how does debt relief work

Do Debt relief companies really work?

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

How does a debt relief program affect your credit?

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

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

So, the debt settlement credit score impact is real.

Is Debt Settlement Really Worth It?

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

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

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

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

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

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

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

4 Pillars lawsuit update May 24, 2021

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

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

How does debt relief work Summary

I hope you enjoyed this Brandon’s Blog on how does debt relief work and the 4 Pillars lawsuit. Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

It is not your fault that you are in this situation, so many dollars in debt. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can develop a financial plan to get you debt relief freedom and you can stop feeling the shame of debt.

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

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

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

 

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Brandon Blog Post

CREDIT COUNSELLING CANADA: VERY BUSY WITH BANKRUPTCY ONLINE CHATTER

credit counselling canada
credit counselling canada

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.

 

Categories
Brandon Blog Post

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

canadian debt reliefIf 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

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.

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 financial 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 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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DEBT CONSOLIDATION IN CANADA: DEBT CONSOLIDATION CANADA REVIEWS

Introduction

In Brandon’s Blog, I will be talking about both the advantages and disadvantages of debt consolidation in Canada. Generally, when we hear the words “debt consolidation”, we recognize that we are talking about a loan. We are taking on a new loan, in order to repay several or many smaller outstanding balances.

What is the smartest way to consolidate debt?

People have several choices when it comes to consolidating debt. It always involves borrowing. The theory is that either:

  • your credit score is good enough so that you can get an unsecured loan; or
  • you are choosing to offer security for the loan.

The primary objective of settling your debt through this kind of borrowing is to decrease the rate of interest you are currently paying. It is very common for people to have debts spread among various credit cards.

For example, you may have amounts outstanding on 5 credit cards. You are pushing the upper limits of your approved credit. The average annual interest rate you are being charged among those credit cards is 19.9%. If you can get a home equity line of credit at say, an annual interest rate of 5.5%, the benefit is obvious. So it would be a smart choice to offer security to get a consolidation loan.

If you didn’t want to or didn’t have security to offer, you may have a good enough credit score to get an unsecured personal loan. Let’s say you could get this kind of loan at an annual interest rate of 8%. The rate may sound high in today’s interest rate environment, but it is a lot better than 19.9%. So this too would be a smart way to go.

But as I will discuss below, there is a difference between being smart about debt consolidation and settling for what makes sense!

Is it a good idea to get a debt consolidation loan?

If you can get this kind of loan and you are wise about it (more on that in a little bit), I say yes. In the example of the 5 different credit cards I gave, you are juggling multiple debts carrying a high rate of interest and are running out of credit room. The debt consolidation loan will lower the interest you are paying dramatically and will term out your payments.

You will stop being a juggler. That is an advantage.

Should I get a loan to pay off my credit cards?

In a typical debt consolidation funding, you need to get a fixed, not variable, interest rate. You also need to have a fixed repayment schedule which offers you a set time to pay it off. You do not want a variable rate of interest or a revolving line of credit. You want the loan to be automatically reduced with every payment you make, with no chance of increasing the loan for any reason.

That is the kind of loan you need to pay off your credit cards. It is that predictability and certainty that you need to work into your life. If you can get that kind of loan to pay off your credit cards, then that is an advantage and you should.

What happens when you consolidate your debt?

What happens depends on the type of loan you get to consolidate your debt. The various types of loans I have seen people get are:

  • an unsecured personal loan from their bank
  • a home equity line of credit or second mortgage
  • A credit card balance transfer at a promotional interest rate of either a 0% or a special introductory very low rate
  • in more recent times, a peer to peer loan

I already spoke about the benefits of either a home equity line of credit or an unsecured personal loan. When it comes to a balance transfer, you can obtain introduction rates that are as low as 0% or 1.99% for a specific period of time, such as 12 or 18 months. You need to have sufficient credit available on such a new balance transfer credit card to assume the total debt spread among the 5 credit cards. With banks competing for your business, it may be possible.

What happens when you are able to consolidate your debts into one loan is that you achieve simplification in your life. You now have just one settlement to make. It’s much less to keep an eye on.

Simply put, simplicity is an advantage. As long as you stay current in your new loan payment, you are working towards paying off your total debt.

How does debt consolidation affect your credit score?

Initially, debt consolidation could improve or at least maintain your credit score. Falling behind on credit card balances hurts your credit score. Paying off those loans and being current on your new debt consolidation loan can improve your credit score. However, there are some traps that you cannot fall into. If you do, then you will not have ended up fixing anything and will end up worse off.

So a debt consolidation loan in itself does not hurt your credit score and could improve it as long as you meet the repayment terms of your new loan. A discussion of the traps leads us into a discussion of the disadvantages of this kind of loan. It is important to recognize that it is not a loan that is the problem, it is the person’s behaviour.

Does a debt consolidation loan look bad?

I would rather have a new loan showing up on my credit report, than have my 5 credit card loans going bad on my credit report. A debt consolidation loan is only a loan. Debt consolidation in itself is not bad, it doesn’t look bad. An experienced financial or credit person looking at your credit report will know what you have done. However, it will also show them that you have been able to get a new loan. So it shows that a lender feels you are a good credit risk. None of that is bad.

What is bad, are the traps that you could fall into. If you fall into one of them, it could be bad for you. This is all about your behaviour, not the consolidation loan.

The disadvantages of debt consolidation in Canada

I will discuss the disadvantages of the type of loan and by behaviour.

Home equity line of credit

If you get a home equity line of credit (HELOC) that is anything other than a fixed interest rate loan that is not a revolving line of credit, you could fall into a trap. You are looking for simplicity and certainty. If your interest rate can rise if the prime rate charged by your bank rises, then you are not getting the full benefits.

Granted a 5.5% loan isn’t going to rise to a 19.9% interest rate, but your room for interest rate increases may be small. If a 1% or 2% increase in the interest rate would make the difference between you being able to afford the repayment and not being able to make them, you will constantly be worried about it in an increasing interest rate environment.

You also want to make sure that the HELOC is not a revolving line of credit. Once you make a payment, you want the principal portion of a paydown by each payment to be permanent. You cannot be enticed about the ability to borrow more on the line. Remember, you took on this loan to pay off debt, not to either remain at the same debt level or to increase it.

So having to pay more interest or being able to go deeper into debt are two traps to avoid with this kind of loan.

A credit card balance transfer at a promotional interest rate

As I mentioned earlier, normally these zero or very low-interest promotional rate is for a fixed period of time. So if you can repay the whole amount, in the monthly payments required, within the time period given, it is a great thing. However, if you can’t, then your promotional interest rate goes up to probably at least the average 19.9% rate in our example. Now you are back to where you started.

Maybe you missed a payment; either because something got in your way or inadvertently. Normally when this happens, you immediately lose your promotional interest rate and a fee is charged. That is a disadvantage.

You may have used this method because you were being chased by a bank for your business, but could have used one of the other methods at the time. If that is the case, and you plan for replacing the promotional interest rate loan balance before it reprices, with one of the other methods, then great. However, if you don’t, then you are back to where you started. Maybe not worse off (see more below), but certainly no better, other than for the principal you were able to pay down.

An unsecured loan

Just like a HELOC, if the unsecured loan cannot revolve and has a fixed rate of interest, that is a good thing. If it does revolve and you have not paid down any principal, and/or your interest rate rose, that is a trap. That is a disadvantage.

Do consolidation loans work?

This is where we talk about the biggest trap or the greatest benefit. It all comes down to answering this one question. Has your behaviour changed?

Debt consolidation in Canada is a terrific device when your behaviour changes. The first step to changing your spending behaviour is to budget. I have written several of Brandon’s Blogs on the topic of the need to have a proper household budget and stick to it.

But what if your behaviour doesn’t change? Did you close out the 5 other credit card accounts when you did the debt consolidation loan? Or, did you keep them open and keep running up the balances for spending greater than your income, while paying down your debt consolidation loan?

They were paid down to zero when you consolidated them. Now you have run them back up and have only made the minimal necessary payments. So, once more, you have overspent and are now back to the same stress-filled life as before. There is only one thing different now – you owe even more money, so your life has worsened. Your credit score is probably worse now too.

So if you change your financial behaviour, debt consolidation works well. If you don’t, then it doesn’t either.

What can you do now that a debt consolidation is no longer an option?

There are various options available. Most will negatively impact your credit score and provide a worse credit report. However, when you have run out of options, perhaps a lower credit score stopping you from taking on more debt might be a good thing. Maybe the fact that no one will loan you more money is what you needed as a wake-up call to once and for all get back on track.

The options include:

Credit counselling and budgeting

Many people require aid with things such as:

  • budgeting
  • accomplishing certain financial objectives
  • a spending plan
  • learning how to use credit wisely

Often times as soon as this assistance is received, people can continue by themselves with no more troubles.

A consumer proposal or Division I Proposal

A consumer proposal and also a Division 1 proposal are alternatives to bankruptcy. Although equivalent in numerous facets, there are some substantial differences. Consumer proposals are used by people whose debts aren’t greater than $250,000, not consisting of any kind of financial debts registered against your home. Division 1 proposals are for both companies, and for people debts exceed $250,000 (again leaving out home mortgages).

A consumer proposal is a procedure under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). With the licensed insolvency trustee (Trustee) you make a proposal to:

  • pay your creditors a portion of what you owe them over a certain period of time not greater than 5 years.
  • prolong the time you have to pay what you promise to pay in your accepted proposal.
  • a mix of both

Payments are made to the Trustee. That cash pays the administration fees of your proposal and distributes money to your creditors. When you have made all the required payments, the balance of your debt that you did not pay is written off and discharged forever (with certain exceptions outlined in the BIA).

These are your realistic options, once a debt consolidation in Canada option is no longer viable.

Summary

I hope this Brandon’s Blog has provided you with some insight into when debt consolidation is a useful tool and its advantages. I also hope you can see where it could also be a trap for some people. If debt consolidation relieves the pressure on you because of the state of your finances AND motivates you to budget and bring your spending in line, then it is a good thing.

If it does not change the necessary behaviour pattern that got you into financial trouble in the first place, then things will only get worse. Is it now time for you to take a positive step in the right direction to free yourself from your debts?

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

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

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

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

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

debt consolidation in canada

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HOW TO FILE FOR BANKRUPTCY IN CANADA: PERSONAL BANKRUPTCY MODUS OPERANDI

how to file for bankruptcy in canada

If you would prefer to listen to the audio version of this how to file for bankruptcy in Canada Brandon’s Blog, please scroll to the bottom and click on the podcast below

Introduction

I am most often asked by people how to file for bankruptcy in Canada. When I receive that question, I tell people that there are a few steps that need taking before the actual filing. These steps are the process I use to make sure that the person can actually benefit from personal bankruptcy. I don’t just put someone into bankruptcy and hope that it will work out alright for them. I have to make sure upfront that there is a benefit for them. It has to make sense.

Getting over the initial fear

It takes a lot for a person to overcome that initial fear and reach out to phone me. They are admitting that they have financial problems. I understand the fear a person has. My role in that first phone call or meeting, for which there is no charge, is to help the person get over their fears. I answer the most important questions the person wants to be answered. I also need to remind them that the answers are by necessity, generic. Once I have their specific information, then I can answer their questions in a way that is specific to their situation.

How do I apply for bankruptcy in Canada?

The first step in the application process is providing me with detailed information about your specific situation. We get this information by having you complete our initial assessment intake sheet. We call ours the Debt Relief Worksheet.

The Debt Relief Worksheet collects the information we need to do a proper initial assessment. The information collected includes:

  1. Basic details such as name, address and marital status.
  2. A listing of all your assets and your debts.
  3. Your employment.
  4. Your household monthly cash flow/budget.
  5. Questions whose answers are important to understanding who you are.

You can click here to see a copy of our Debt Relief Worksheet.

The free assessment

Once I have a fully completed Debt Relief Worksheet, I can then analyze the information and provide you with an assessment designed specifically for you. Normally, when you first submit the information to me, I will have to follow up on questions for you to answer. This is all normal.

Once I have the full picture, I can properly assess what bankruptcy will mean for you. This will lead us to a discussion of alternatives to avoid bankruptcy that is right for you. It may be that you have a specific issue that can be dealt with outside of bankruptcy. Once resolved, the rest of your situation is manageable without resorting to a filing under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA).

The next possibility is you can’t fix things on your own, but you still do not need a licensed insolvency trustee (formerly known as a trustee in bankruptcy) (Trustee) to do a BIA filing on you. Perhaps with credit counselling, you can get your budget under control and pay down your debts.

If the right answer is that you do not need to file under the BIA, I will tell you so and connect you with the proper help that you need. The cost for me to review your situation and provide you with the right alternatives available to you is zero. It will not cost you anything.

Consumer proposal vs bankruptcy

If you do need a formal insolvency filing, we have to figure out which one. We are still looking at if you can avoid bankruptcy. We do this by looking at your whole situation. We first look at what bankruptcy means to you. What would the outcome of your bankruptcy be?

Some of the factors we consider are:

  1. Your assets that would not be exempt and therefore would be handed over to us as your Trustee.
  2. Have you ever been bankrupt before?
  3. Are your debts $250,000 or higher, not including any mortgages or other loans secured by your principal residence?
  4. Do you owe $200,000 or more to Canada Revenue Agency (CRA) for unpaid income tax?
  5. Are all your tax filings up to date?
  6. Your income and do you have a surplus income?
  7. If you do have surplus income, what would your monthly payment be and can you afford it in your budget?
  8. Based on the information you gave us, can we determine the likelihood of any creditor opposing your discharge from bankruptcy?
  9. Any other special circumstances you have told us about.

The answers to these questions help us determine if you need to file for bankruptcy or not. In many cases, I help people avoid bankruptcy by filing a consumer proposal. As I have written before, in many cases, it is possible to avoid bankruptcy.

By filing a viable consumer proposal debt settlement plan, you are offering to pay your creditors a fraction of what you owe. You are promising to make monthly payments for a time period not greater than 60 months. A successfully completed consumer proposal will release you from your debts that exist at the time of your filing.

Those that are eligible to file a consumer proposal choose this option. They are happy to avoid bankruptcy. Our assessment and the advice we give you on consumer proposal vs bankruptcy is still free.

How to file for bankruptcy in Canada

If we decide that bankruptcy is necessary, we will then prepare the required documents. These documents include your sworn Statement of Affairs and your monthly cash flow budget. The Statement of Affairs is a document that:

  1. Identifies you.
  2. Lists your assets with their respective estimated realizable value.
  3. Indicates which assets are exempt from seizure, if any.
  4. Lists your creditors by name and amount owing.

Part of the filing process is that the insolvent person swears that the document is accurate. This is done in our office as our Trustees are also commissioners for taking oaths for the work we do. All of this is done in my office.

I then electronically file the sworn Statement of Affairs and other required documents with the Superintendent of Bankruptcy. Once the Official Receiver, who is the Superintendent of Bankruptcy’s local official, reviews and accepts the filing, the insolvent person is officially bankrupt.

This is how a person files for bankruptcy in Canada.

What happens if I declare bankruptcy in Canada?

Once you declare bankruptcy (or file a consumer proposal), all collection and enforcement action against you stops. Creditors can no longer sue you or harass you trying to collect the outstanding debts. You are now protected by the stay of proceedings.

Then the Trustee needs to take possession of your assets that are not exempt from seizure under provincial law. Before you file, I always tell you what those assets are and what will happen.

If you declare bankruptcy (or file a consumer proposal), you will have to attend two counselling sessions. Those sessions are conducted in my office by the Trustee who is also a qualified credit counsellor.

If you have met all of your duties and responsibilities in your bankruptcy, including the payment of surplus income if required, you are then entitled to a discharge from bankruptcy. If no creditor or the Trustee objects to your discharge, then you receive an absolute discharge. If there is something in your activities or your background where there is an objection to your discharge, then the matter must be heard in the bankruptcy court.

Before you file, I will give you my best-educated guess on the likelihood of an objection to your discharge arising.

Will I lose my house if I file bankruptcy in Canada?

If you declare bankruptcy, there are various ways and conditions in bankruptcy that you will NOT lose your house.

Everybody who owns a house and also experiences financial issues is worried about losing their house. Losing your home is possibly among the most terrible concerns people with a huge debt load that is crushing them have. This is exactly how it functions if you file for personal bankruptcy in Ontario.

In Ontario, the provincial regulation that describes what is excluded from seizure is called the Execution Act, R.S.O. 1990, c. E.24. For a full checklist of all bankruptcy Ontario exemptions, please review my Brandon’s Blog, BANKRUPTCY IN ONTARIO CANADA SECRETS EXPOSED.

The exemption in Ontario for your house is $10,000 of equity. The present thinking is that if your equity is $10,000 or less, if you go bankrupt, then your entire equity is excluded from seizure by the Trustee. Nonetheless, if your equity is $10,001 or greater, your whole equity in your home is NOT exempt and also is readily available to your Trustee for the benefit of your creditors.

Keep in mind that we are talking about your equity. In determining your equity, we first have to determine the market value of the house. We then deduct any mortgages or other loans registered against the property. The net result of this calculation represents your equity. If you own the home jointly with your spouse, then it is half of that number that is your equity. The other half belongs to your spouse.

If someone is available and willing to purchase your equity from the Trustee for its value, then the Trustee will collect that money. Once the Trustee sells its interest in the equity of your home, the Trustee no longer has an interest. If the person purchasing your equity is your spouse, another relative or friend, they are doing it so that you will not have to leave your home.

If that happens, then you will not lose your house if you file for bankruptcy. If you have no equity because the loans registered against your home is equal to the home’s value, again, you will not lose your home.

How much does it cost to file bankruptcy in Canada?

The expense of declaring bankruptcy is something you will certainly need to take into consideration. Just how much you will need to pay to go bankrupt relies on a number of variables, including:

  • your month-to-month income;
  • what assets you own;
  • the size of your family members; and also
  • whether you have ever been bankrupt in the past.

You are required to your surplus income into your estate every month. Surplus income is defined by the federal government. If your household makes over a certain amount every month, you pay a component of your earnings over that base set by the government each year. That base is essentially the poverty line.

The surplus income computation is reasonably complicated. I recommend you bring your current pay stubs to your meeting with me to make sure that I can accurately estimate it for you.

The fee a Trustee is entitled to charge in an ordinary personal bankruptcy must be approved by the Court. In a bankruptcy where there really are no assets, the fee is set in the statute.

If you have non-exempt assets, the Trustee sells them and receives the proceeds of the sale(s). If you have surplus income to pay, the Trustee collects those payments from you. The Trustee’s fee, which is the cost of the bankruptcy, comes from the money collected by the Trustee. So, in this example, where the Trustee has collected more than the cost of the bankruptcy approved by the Court, there is no additional cost to you at all. In this way, the Trustee is free!

If there are no assets or surplus income, then the bankrupt has to make monthly payments to the Trustee to cover the cost of the bankruptcy. If the bankrupt person cannot afford to, then you will have to get a relative to put up the money necessary to pay for the cost of your filing for bankruptcy. In this case, the government approved fee is in the range of $1,800.

Summary

I hope this Brandon’s Blog gives you a good idea of how to file for bankruptcy in Canada. We know that having too much debt is very stressful.

The Ira Smith Team understands how to help you rid yourself of your debts. However, more importantly, we understand your emotional needs. You are worried because you are facing significant financial challenges. You are worried not only about yourself but also your family.

The stress placed upon you due to your financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we deal with your problems and devise a debt settlement plan, we know that we can help you.

We know that when you are facing financial problems you need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a debt settlement plan for you 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 back on the road to a healthy stress-free life. We will help you to recover from the pain points in your life, Starting Over, Starting Now.

 

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CANADA BANKRUPTCY AND INSOLVENCY ACT GRANTS STAY OF EXECUTION

canada bankruptcy and insolvency act

Canada bankruptcy and insolvency act introduction

The Canada Bankruptcy and Insolvency Act is a federal statute. It attempts to balance the rights of an insolvent debtor with the rights of creditors to get paid. One of those balancing acts is that when you file under the statute, the person filing is granted a stay of proceedings. What that means is that debt collection and enforcement activities are stopped and cannot continue without the prior permission of the Court.

I recently read a very interesting decision of the Ontario Superior Court of Justice out of Ottawa, ON. What that case also shows is that if the insolvent and the then bankrupt person just told the truth, he would have been much better off.

Before getting into the actual case, there are a few questions that I am regularly asked that I would also like to answer. I think those answers will also help with understanding this case.

What is the purpose of the Canada Bankruptcy and Insolvency Act?

The main purpose of the Canada Bankruptcy and Insolvency Act is to help the honest but unfortunate debtor. It is designed to allow a person or a company to get financial rehabilitation through financial restructuring. It also allows a person the same opportunity to shed their debts through bankruptcy.

As mentioned above, at the same time, the rights of the creditors to get paid are also balanced. So that is why in a true restructuring, the creditors must receive more money than if the person or company went bankrupt. That is also why in a bankruptcy, the debtor must give up all their assets to the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee). The only assets not given up are those for which there is an exemption under either provincial or federal law. That is also why there is the concept of surplus income payments in a personal bankruptcy filing.

The presumption is that the debtor is honest but unfortunate. That is both before and during their insolvency process. As you will see from the case description below, the debtor was not honest and it is his lies that got him into trouble.

The insolvency process begins with the requirement that in order to obtain relief from debt, the insolvent debtor will be truthful. That is why a filing is initiated by a sworn statement of affairs.

Is insolvency a criminal offence?

As you may recall from some of my prior Brandon’s Blog posts, being insolvent is a financial condition. It is that:

  • your debts are greater than your assets;
  • if you liquidated your assets there would not be enough money to pay off your debts in full; and
  • you have generally ceased paying your debts when they come due.

So becoming insolvent is not a criminal offence.

Similarly, filing for either a consumer proposal, Division I Proposal or for bankruptcy is not a criminal offence. However, if you really are not the honest part of the honest but unfortunate person the Canada Bankruptcy and Insolvency Act is designed to help, you must seek the advice of a lawyer before filing anything.

There are also certain offences a person could commit under the actual bankruptcy statute. Some are quasi-criminal in nature. Again, if you think you are in trouble, you need the advice of a lawyer.canada bankruptcy and insolvency act

canada bankruptcy and insolvency act

Now for the case – Re Brennan, 2019 ONSC 4712 (CanLII)

On August 8, 2019, this decision of The Honourable Mr. Justice Kershman was released. The case involved the bankruptcy of Mr. Lawrence Brennan (Mr. Brennan) and his creditor, Mr.André Robert (Mr. Robert).

Mr. Robert made an application to the Court to lift the stay of proceedings stopping Mr. Robert from enforcing his judgment against Mr. Brennan’s asset. Mr. Robert said that Mr. Brennan supplied incorrect and deceptive details relating to the presence of a Registered Retirement Savings Plan (RRSP) throughout a judgment debtor exam on July 10, 2018.

Mr. Robert brought this motion for:

  1. An Order stating that the stay of proceedings according to sections 69 to 69.31 of the Canada Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 does not apply in regard to Mr. André Robert, yet is restricted to the seizure of Mr. Brennan’s RRSP with the Lawyers Financial Investment Program.
  2. An Order proclaiming that Mr. Robert will be qualified to proceed with his enforcement process for repayment of his judgment, plus interest and the cost of enforcement restricted to Mr. Brennan’s above-noted RRSP.
  3. Indemnification for the costs of this motion.

Mr. Robert’s argument was that, had it not been for Mr. Brennan’s bankruptcy, there would be no stay of proceedings and he would have the ability to take Mr. Brennan’s RRSP according to the Execution Act, R.S.O. 1990, c. E.24.

The honest but unfortunate debtor

Mr. Robert is a lawyer. Mr. Brennan and others sought and obtained his legal advice. Mr. Robert then billed Mr. Brennan and each of his colleagues for the legal work. They thanked Mr. Robert by not paying him.

Mr. Robert went to Court to claim his legal fees and won. He then sent the Sheriff to seize any assets that could be found belonging to the defendants, including Mr. Brennan. That exercise awarded Mr. Robert with the princely sum of just under $65. So, Mr. Robert then notified Mr. Brennan that he was required to attend a judgment debtor examination. The purpose of this exam was for Mr. Brennan to answer questions, truthfully under oath, as to the nature, extent and location of all of his assets.

Throughout the judgment debtor exam, Mr. Robert asked Mr. Brennan if he possessed any kind of RRSPs. Mr. Brennan said, under oath, that he did not. This response was substantiated by Mr. Brennan’s written financial form, which was finished by Mr. Brennan as a component of the examination under oath.

It turns out that Mr. Brennan lied under oath to Mr. Robert. Seventeen days later, Mr. Brennan filed for bankruptcy. In his sworn statement of affairs completed as part of his bankruptcy filing, Mr. Brennan attested that he owned an RRSP in the amount of $13,017.00 held by the Lawyers Financial Investment Program.

Mr. Brennan may have been unfortunate, but prior to his assignment in bankruptcy, he was not honest.

Seizure of an RRSP – in bankruptcy and no bankruptcy

The evidence before the Court was that there were no contributions to Mr. Brennan’s RRSP in the 12 months prior to his date of bankruptcy. There was also evidence that there was no insurance element to the RRSP either.

This is important for 2 reasons:

  • If there is an insurance element to an RRSP, and the beneficiary is what is called a “designated beneficiary”, normally a spouse, parent, child or grandchild, then the RRSP is exempt from seizure under Ontario law.
  • In bankruptcy, an RRSP is exempt from seizure under federal law. The only amount that can be recouped by a Trustee is any contributions made to the RRSP within the 12 months prior to the date of bankruptcy.

So in this case, none of those conditions existed. The issue before the Court was because under Ontario Law, absent a bankruptcy, a judgment creditor can execute against a defendant’s RRSP. In other words, if there is no bankruptcy, in Ontario, the judgment creditor can seize the RRSP.canada bankruptcy and insolvency act

canada bankruptcy and insolvency act

Mr. Brennan’s defence

Mr. Brennan represented himself in Court. His defence consisted of that he:

  1. Did not understand that he had any RRSPs in his name.
  2. Informed Mr. Robert around one month prior to the examination that he would certainly need to go bankrupt.
  3. Needs the Court to have pity for his circumstances.

Certainly not the most compelling defence in the circumstances.

The Court agrees with Mr. Robert

The Court went through an analysis of the Canada Bankruptcy and Insolvency Act as well as the relevant Ontario laws. The Court concluded that:

  1. The RRSP currently in this bankruptcy is exempt from seizure but was available to be seized before the bankruptcy. If Mr. Brennan had been truthful in his examination under oath, Mr. Robert would have seized the RRSP through the Sheriff in enforcing his judgment.
  2. Therefore, the Court lifted the stay according to section 69.4 of the Canada Bankruptcy and Insolvency Act to be equitable so that Mr. Andre can seize them.
  3. To alleviate any kind of tax obligation effects, the Court ordered that 30% of the RRSP should be subtracted at source and also to the Canada Revenue Agency to the credit of Mr. Brennan’s current year income tax account. The remaining amount of the RRSP is to be paid to the Sheriff of the Judicial District of Ottawa, who will disperse it in conformity to the Execution Act and the Creditors Relief Act.

The moral to Mr. Brennan’s story

Although the Court decision does not say it, Mr. Brennan must have not obtained any legal advice before participating in the judgment debtor examination. Any lawyer hearing his story would have told him exactly what I tell every person who comes to my office to talk about an insolvency proceeding. Be honest and truthful.

Mr. Brennan did a really dumb thing. Part of the evidence that came out in Court is that he went to see the Trustee who did his bankruptcy filing six weeks prior to the July 10, 2018 judgment debtor examination to discuss his financial situation. He must have talked about the RRSP then.

If Mr. Brennan was honest and truthful at his judgment debtor examination, he could have filed for bankruptcy before the Sheriff managed to seize his RRSP. In that case, Mr. Brennan would have told the truth and his RRSP would have been exempt from seizure in his bankruptcy.

So instead of telling the truth and keeping his RRSP after bankruptcy, Mr. Brennan lied and therefore lost his RRSP, notwithstanding his bankruptcy.

That is the moral of Mr. Brennan’s story. By telling the truth and then becoming the honest but unfortunate debtor, the Canadian bankruptcy system will protect you.

Canada Bankruptcy and Insolvency Act summary

Are you an honest but unfortunate person in financial trouble? Have you run your company in an honest fashion but through various circumstances, the company’s debts are greater than its assets. Is there just not enough cash to pay all the bills?

If so, you need to call me today. As a licensed insolvency trustee (formerly called trustee in bankruptcy) we are the only professionals licensed, recognized as well as supervised by the federal government to give insolvency assistance. We are also the only authorized party in Canada to apply remedies under the Bankruptcy and Insolvency Act (Canada). I can definitely help you to choose what is best for you to free you from your financial debt issues.

Call the Ira Smith Team today so we can get free you from the stress, anxiety, and discomfort that your cash issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now.canada bankruptcy and insolvency actcanada bankruptcy and insolvency act

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