Tag: debt collection

PROOF OF CLAIM FORM 31: ESSENTIAL TIPS TO SUCCESSFULLY COMPLETE THE NEW CANADIAN BANKRUPTCY FORM 31

Post author By Brandon Smith
Post date June 24, 2024

Form 31 Proof of Claim Introduction

The Office of the Superintendent of Bankruptcy (OSB) published several amended Forms under the Bankruptcy and Insolvency Act (Canada) (BIA) to promote a more efficient and effective insolvency system, removing some outdated elements and ensuring better data integrity for all stakeholders. These amended Forms were originally set to come into force on July 15, 2024. One of those new forms is the Form 31 proof of claim. This morning, the OSB announced that the effective date has now been pushed back to September 16, 2024.

In this Brandon’s Blog, given the new proof of claim form coming into use effective July 15, I feel I need to update my October 2018 blog titled: FORM 31 PROOF OF CLAIM: HOW TO PROPERLY COMPLETE THE PROOF OF CLAIM. I will compare the new form to the old one as there are substantial changes and advise on how it should be properly completed as we walk through the new form.

Background Information on Form 31 Proof of Claim

Purpose of Form 31 Proof of Claim

Claims of creditors in bankruptcy or restructuring proposal cases are made on a very specific proof of claim form. The purpose of the form is to furnish information about the claim by the creditor against the debtor. It asks for such things as the contact details of the creditor and permission to represent it if it is a corporate body. Additionally, there are interrogatives on debt aspects like the amount due and supporting papers.

The types of claims section encompasses unsecured claims, lessor claims, secured claims, farm or wage earner claims, plan administrator’s claims, director’s liability claims and client claims against their bankrupt securities dealer.

It also inquires whether or not there has been any relationship between the debtor’s recent transactions with the creditor such as recent payments.

One can obtain information regarding an insolvent person’s financial condition and their application for discharge from bankruptcy. There is a caution at the end of this document concerning penalties for making fake claims or giving false statements. The creditor must sign it himself or through the representative. If an affidavit is attached thereto, then it must be sworn by a person who is authorized by law to administer oaths.

Importance of Properly Completing Form 31

The proper completion of Form 31, Proof of Claim, is crucial in the claims process for creditors with substantiated claims. This form serves as a critical document for creditors looking to assert and potentially recover owed debts. Providing accurate and thorough information on this form is essential for creditors to establish a strong foundation for their claims.

Failure to provide complete or accurate information on Form 31 can lead to delays, rejections, or the disqualification of the claim. Therefore, it is imperative for creditors to closely follow the instructions and guidelines stipulated in Form 31. By doing so, creditors can ensure that their claims are accurately documented and processed efficiently within the specified timelines.

Section 1: Understanding the Basics of Form 31 Proof of Claim

Definition of Provable Claim

Section 2 of the BIA contains the definitions. In that section, a provable claim is defined:

“includes any claim or liability provable in proceedings under this Act by a creditor“

What does this mean? it means that a provable claim refers to a debt or obligation owed by a debtor that can be verified and substantiated through documentary evidence. For a claim to be considered provable, it must meet certain criteria established by the Act, including an amount that can be determined, is due and payable at the time of the bankruptcy or within a reasonable period after that, and not be contingent on some other event or unliquidated.

Difference Between Provable and Unliquidated Claims

An unliquidated claim under the BIA refers to a claim for a specific amount of money that has not yet been determined or quantified. This type of claim typically arises when the exact amount owed to a creditor is uncertain or requires further investigation to establish.

In the context of bankruptcy proceedings, unliquidated claims present a challenge as they may complicate the distribution of assets to creditors. To address this issue, mechanisms for resolving unliquidated claims include negotiations, mediation, a disallowance of the claim by the licensed insolvency trustee (formerly known as a bankruptcy trustee) (the “Trustee”) or court proceedings to determine the appropriate amount owed.

Properly handling unliquidated claims is essential for ensuring fair and efficient bankruptcy proceedings under Canadian law.

Identifying False Claims

Ensuring the validity of claims in Canadian bankruptcy proceedings is a crucial element in safeguarding the integrity of the bankruptcy system. Baseless claims hinder the fair distribution of assets to rightful creditors and undermine confidence in the process. The proliferation of meritless claims can result in delays, increased expenses, and potential financial harm to creditors.

It is essential for Trustees to thoroughly evaluate the authenticity of claims to prevent manipulation and dishonesty. Implementing rigorous verification procedures and penalties for unsubstantiated claims are essential strategies for upholding the fairness and transparency of Canadian bankruptcy proceedings.

Section 2: Required Information for Completing Form 31 Proof of Claim

Completing and returning a Form 31 proof of claim is an important phase in the bankruptcy process. They are one of the documents included with the notice of bankruptcy documents sent out by the Trustee to formally notify the creditors of the bankruptcy.

Personal Details of the Creditor

For proof of claim to be properly completed, the creditor must furnish their contact information, encompassing their mailing address, fax number, and email address. Moreover, the creditor must substantiate their legitimacy as a creditor of the debtor and exhibit a thorough understanding of all pertinent details related to the claim. This takes you from the top of the new Form 31 proof of claim down to numbered paragraph #2.

Details of the Claim

It is incumbent upon the creditor to clearly outline the total sum of the outstanding debt owed by the debtor, in addition to any potential counterclaims, accompanied by relevant documentation or substantiating evidence. The new proof of claim form now requires a creditor to verify that the debt remains within the statutory limitations stipulated by the pertinent provincial laws and regulations. In other words, the claim is not statute-barred.

Those details are covered by paragraphs 3 through 5 of the form.

Priority of the Claim

Paragraph 6 is where, as an unsecured creditor, you need to insert the amount for what you believe to be your claim provable in the actual restructuring proposal to creditors or bankruptcy of the person or company. You must also declare whether you do or do not claim a right to a priority. If you do not, this means that you are an ordinary unsecured creditor.

If you are claiming a right to a priority claim as an unsecured creditor, you are stating that you are entitled to a priority of payment ahead of the ordinary unsecured creditors. The new Form 31 proof of claim requires you to identify what type of priority you are claiming.

The various types of unsecured claims that can have priority over ordinary unsecured claims, which are called preferred claims, are, in order of priority:

For a deceased bankrupt, reasonable funeral and testamentary costs.
The claims for wages by a wage earner employee for unpaid wage claims and certain other amounts treated like remuneration for services rendered during the period beginning on the day that is six months before the date of the initial bankruptcy event or the first day on which there was a receiver. This claim is limited to a maximum payment of $2,000, less any amounts paid for their services by the licensed insolvency trustee.
Any shortfall to a secured creditor as a result of the claim for employees’ priority above.
Any shortfall to a secured creditor as a result of the claim of employees paid out for unpaid amounts regarding prescribed pension plans.
Alimony or support payments payable by the bankrupt person under either a court order or an agreement made before the date of the initial bankruptcy event.
municipal taxes levied against a bankrupt’s real property within the two years immediately preceding the bankruptcy not registered as a lien against the property. This preferred claim cannot exceed the value of the bankrupt’s interest in the property.
A lessor for rent arrears for no more than 3 months before the date of bankruptcy and only if stipulated in the lease, a claim for accelerated rent for no more than an additional 3 months. This claim is limited to the amount realized by the Trustee from the property of the bankrupt on those premises. Further, any payment made by the licensed insolvency trustee for accelerated rent shall be credited against any amount the Trustee may owe the landlord for the Trustee’s occupation of those leased premises.
One bill of costs of a lawyer for a judgment creditor who is the first to have garnished or otherwise executed against the property of the bankrupt, but only to a maximum of the amount obtained by the Trustee from the realization of assets from the sale of such property.
Certain government debts.
Claims from injuries to employees of the bankrupt where workers’ compensation legislation does not apply, but only if there is an insurer or surety guaranteeing damages from injuries and up to the maximum guaranteed.

Section 3: Additional Considerations for Completing Form 31 Proof of Claim

There are also specialized claims that a creditor may qualify for.

A Claim of Lessor For Disclaimer of a Lease

In a corporate restructuring under the Proposal provisions of the BIA, the insolvent company can disclaim or resiliate a commercial lease. The insolvent debtor must be able to show that it cannot successfully restructure if it still has to be responsible for that commercial lease. Upon the disclaiming or resiliation of the commercial lease, the landlord is allowed to calculate its claim using the formula and provisions laid out in the BIA.

Valuing a Secured Claim

Secured creditors have the option, though not a mandatory requirement unless stipulated by the licensed insolvency trustee, to file their claim. This process involves the secured creditor completing the proof of claim form, where they estimate the value of the assets linked to their security. Any outstanding amount owed to the creditor beyond the assets’ value is also specified on the proof of claim, thereby converting it into an unsecured claim.

Secured creditors must exercise caution when determining the value of their secured claim. As per subsection 128(3) of the BIA, a Trustee may opt to redeem a security by reimbursing the secured creditor with the security’s assessed value, as indicated by the secured creditor in the proof of claim. A licensed insolvency trustee would only proceed with redemption if they ascertain that the actual value of the assets surpasses the value assigned by the secured creditor to its security.

Moreover, a Trustee must seek an independent legal opinion on the security documents. That is why a Trustee will always ask for proof of security.

*Claim by Farmer**, Fisherman or Aquaculturist*

Claims of farmers, fishermen, and aquaculturists are granted specific privileges for claims under the BIA legislation. This particular category of creditors is entitled to certain rights. In addition to the standard revindication rights, farmers, fishermen, and aquaculturists have a 30-day window following the initiation of bankruptcy proceedings or the appointment of a receiver to submit their claim for products supplied within 15 days before the bankruptcy event. Once the claim is successfully filed, these creditors are granted a primary lien on all the inventory of the insolvent debtor, excluding any inventory that may be subject to another party’s repossession rights.

Claim by Pension Plan for the unpaid amount

I alluded to claims in respect of an unpaid pension amount above. In 2008 the BIA was amended in reaction to several high-profile corporate restructurings and bankruptcies where there were pension payment amounts deducted from employee wages but not remitted to the pension plan. When the employer went bankrupt, the employees’ pension entitlement was negatively affected (think Sears Canada). Pension entitlement is an important component of the overall employees’ remuneration.

Therefore, Parliament mandated a reform where a super-priority is created for claims for unremitted pension contributions outstanding when an employer becomes bankrupt. The kinds of amounts given this super-priority are pension payments deducted from an employee’s wages but not remitted to the pension plan administrator, amounts owed by the employer for the cost of benefits paid by the pension plan and employer contributions to a defined benefit pension plan. What is excluded from this super-priority is any amount needed to reduce an unfunded pension liability.

Claims Against Directors

This kind of claim comes into play when a BIA corporate restructuring proposal provides for the compromise of claims against directors. The kind of claims against directors that a corporate proposal can compromise must have a very specific set of characteristics:

A claim against directors is being compromised in the corporate Proposal.
Arose before the filing of the Notice of Intention To Make A Proposal or the Proposal itself.
Relate to corporate obligations that are director liabilities by operation of law.

They do not include any corporate liabilities that one or more directors may have personally guaranteed as individuals.

Claim of a Customer of a Bankrupt Securities Firm

The BIA delineates precise protocols for the allocation and distribution of cash and securities within a securities firm customer pool fund. The intricacies of this process are highly technical and exceed the purview of this blog post on completing a Form 31 proof of claim. It is essential to understand that distinct provisions are in place for companies of this nature that have filed for bankruptcy.

Complicated or Contingent Claims

There are a variety of claims that by their very nature, produce complications. Just because a claim might be complicated, it does not mean the proof of claim should not be fully completed and filed with the Trustee. It also does not mean that the licensed insolvency trustee does not have to review it to determine if it is admissible or not.

Examples of complicated claims are unliquidated claims discussed above and contingent claims. In a Canadian insolvency case, a contingent claim is a claim that is not yet due and payable but may become due and payable in the future. Contingent claims are often referred to as “contingent debts” or “contingent liabilities.”

A contingent claim may arise in various situations, such as:

A lawsuit or legal action that has not yet been resolved, but may result in a payment or settlement in the future.
A contract or agreement that provides for payment or performance in the future, but only if certain conditions are met.
A guarantee or indemnity that may become payable in the future if a specific event occurs.

When a contingent claim is filed in a bankruptcy or proposal case, the licensed insolvency trustee must handle it in a specific manner. Here are the key steps:

Initial Review: The Trustee reviews the contingent claim to determine its validity and the likelihood of it becoming due and payable in the future.
Assessment of Likelihood of Payment: The Trustee assesses the likelihood of the contingent claim becoming due and payable, considering factors such as the strength of the underlying legal claim, the likelihood of a settlement or judgment, and the potential for future payments or performance.
Valuation of the Claim: The Trustee values the contingent claim, taking into account the likelihood of payment and the potential amount of the payment.
Inclusion in the Statement of Affairs: The Trustee should include a contingent claim in the sworn Statement of Affairs, which is the document that outlines the insolvent debtor’s assets, liabilities, and financial affairs. The creditor would be listed as a contingent creditor. Because at this stage the Trustee has not received a proof of claim to review, it is wise to list the amount of this contingent debt either as “unknown” or with a value of just $1.
Monitoring and Follow-up: The Trustee monitors the contingent claim and follows up with the creditor to ensure that any future payments or performance are made following the terms of the agreement or contract.
Distribution of Funds: If the contingent claim becomes due and payable in a specific amount and the creditor has filed the proof of claim properly, the Trustee needs to include the valued claim in calculating a distribution to the unsecured creditors.

Creditors are required to furnish the licensed insolvency trustee with all essential documentation and information to substantiate their contingent claim. Subsequently, the Trustee will work with the creditor to ensure the appropriate handling of the claim.

Section 4: Procedural Requirements for Submitting Form 31 Proof of Claim

As a creditor, it’s crucial to understand the procedural requirements for submitting a Form 31 Proof of Claim in a Canadian insolvency case. In this section, we’ll delve into the key issues that creditors should be aware of when submitting their Proof of Claim.

Deadline for Submitting Proof of Claim

The deadline for submitting a proof of claim is a critical aspect of the insolvency process. In Canada, creditors have a specific timeframe to file their proof of claim. Until a creditor files a proof of claim with the Trustee, the creditor cannot participate in the insolvency process. Creditors should ensure they submit their proof of claim well within the deadline to avoid any potential issues.

The First Meeting of Creditors in bankruptcy or the Meeting of Creditors in a restructuring proposal takes place 21 days after the date of filing. If a creditor who has a provable claim wishes to vote at the meeting of creditors, then it is important to have filed the fully completed proof of claim, with all supporting backup documentation, in time for the Trustee to be able to review it.

At the meeting of creditors, it is up to the meeting chair to admit or disallow any claim for voting purposes. In a bankruptcy, the creditors vote on several matters, including the appointment of Inspectors. The Meeting of Inspectors normally immediately follows the meeting of creditors. So if a creditor wishes to nominate an Inspector, it has to have filed its claim to be able to vote. To be able to vote for or against a consumer proposal or corporate restructuring proposal, the proof of claim must be filed.

The only other real deadline to file a proof of claim is before the Trustee is going to make a distribution. A Trustee must send each creditor listed on the Statement of Affairs who has not yet filed a proof of claim notice to file a claim before making a final distribution. That notice will have a deadline in it. If the creditor misses that deadline then they are not entitled to receive any dividend from the insolvency estate.

Properly Filing the Form 31

Properly filing the Form 31 proof of claim is a critical step. Creditors must ensure they complete the form accurately and thoroughly, providing all necessary information, including the amount of the debt, the date the debt was incurred, and any relevant documentation. It’s also essential to sign and date the form, as well as attach any supporting documentation. Creditors should also ensure they file the form with the correct office, as specified in the bankruptcy notice.

*Notice of Intention**To Make A Proposal*

In some cases, the insolvent individual or corporation may file a Notice of Intention To Make A Proposal, which provides creditors with advance notice of the impending restructuring proposal. At the Notice of Intention stage, there is not a specific deadline for submitting a proof of claim. A proof of claim is not sent out at this notice stage. After the Proposal is filed and the Trustee sends out the Proposal package to the known creditors, in that package the proof of claim form 31 is provided. Creditors should carefully review the Proposal package and ensure they submit their proof of claim by the specified deadline.

I was involved some time ago in a corporate restructuring case where a financial institution creditor filed a proof of claim and a voting letter using their form at the notice of intention stage. The form was improperly completed and I warned the creditor that its proof of claim was not being accepted and that they must file a new one, properly and fully completed, after they receive the Proposal package from our Firm.

They ignored my warnings and did not do so. I therefore disallowed their claim which meant their vote did not count. They appealed my decision to the Court. The Court agreed with the Trustee. Not only did their vote not count, but because they lost the appeal, they also had to pay our lawyer’s costs!

Notice of Bankruptcy Process

The bankruptcy notification is a crucial document that provides creditors with essential information about the bankruptcy proceedings, including the timeline for submitting a proof of claim. This notification is distributed by the licensed insolvency trustee managing the bankruptcy process and offers creditors a detailed overview of the procedures involved, including the deadline for submitting proof of claims.

To ensure the accurate and complete submission of the claim form, it is advisable to follow the guidelines outlined below in Section 5. Submitting a Form 31 proof of claim is a critical aspect of the bankruptcy process. Creditors must meet the submission deadline, correctly file the form, and provide all necessary information. Understanding the procedural requirements for submitting a proof of claim helps creditors protect their rights and ensure their interests are properly represented throughout the process.

Section 5: Ensuring Accuracy in Completing Form 31 Proof of Claim – A Step-by-Step Guide to Filing a Proof of Claim

As a creditor, it’s essential to know how to complete Form 31, also known as the Proof of Claim, when dealing with bankruptcy or proposal proceedings. The only way for creditor claims to be registered properly is through the filing of a properly and fully completed proof of claim form.

Let me walk you through the step-by-step process of filling out this crucial document.

Step 1: Gather Required Information

Before starting to fill out Form 31, make sure you have the following information readily available:

The name of the bankrupt individual or corporation
The amount of the debt owed to you
The date the debt was incurred
Any relevant documentation, such as invoices or contracts

Step 2: Complete the Header Information

Begin by filling out the header section of the form, which includes:

The name of the bankrupt individual or corporation
The file number assigned to the bankruptcy proceeding

Step 3: Furnish Creditor Details

In this step, kindly provide the following details as the creditor:

Your full name and mailing address
Your business name and registered address (if applicable)
Your contact information, including phone number and email address

Step 4: Specify the Debt

Specify the debt you’re claiming:

The amount of the debt owed to you
The date the debt was incurred
A brief description of the debt, including any relevant details
Completing whether or not you are a secured, claiming a priority or an ordinary unsecured creditor
Make sure that you include the entire claim

Step 5: Provide Supporting Documentation

Attach any relevant documentation to support your claim, such as:

Invoices or receipts
Contracts or agreements
Bank statements or other financial records

Step 6: Sign and Date the Form

Once you’ve completed the form, including completing the proxy form section if the creditor is a corporation, sign and date it in the designated areas.

Step 7: File the Form

Submit the completed Form 31 to the professional trustee administering the bankruptcy, along with any supporting documentation. You can submit the proof of claim by fax, email, snail mail or delivery. The most important reason of course is that if there is going to be a distribution to the creditors, you want to make sure that you have submitted your claim for dividend purposes.

Additional Tips and Reminders

Ensure to maintain a copy of the completed form for your records.
If you’re unsure about any part of the process, consider consulting with a bankruptcy lawyer or the Trustee handling the bankruptcy case . In case of any uncertainties regarding any aspect of the process, it is advisable to seek advice from a bankruptcy lawyer or the Trustee overseeing the bankruptcy case.
File your claim on time to safeguard your rights as a creditor.

By adhering to these guidelines and furnishing precise information, you will complete Form 31 and safeguard your creditor rights throughout the bankruptcy or restructuring proceedings.

Section 6: Common Mistakes to Avoid when Completing Form 31 Proof of Claim

When engaging in the intricate process of submitting a proof of claim to the Trustee, it is imperative to steer clear of common errors that may result in delays, rejections, or potential dismissal of your claim. This section will outline three crucial errors to avoid when completing Form 31 for the proof of claim.

Providing incomplete or inaccurate information on your proof of claim: This can significantly hinder the processing of your claim or result in its rejection. To mitigate this risk, it is crucial to take the following steps:

- Thoroughly review your claim amount to ensure it aligns with your records.
- Verify the accuracy of creditor information, including names, addresses, and account numbers
- Organize your documents coherently and logically to facilitate efficient processing and evaluation.

By paying close attention to these details, you can enhance the accuracy and efficiency of your claim submission process.

Failure to include supporting documentation: This is a significant oversight that can result in the rejection or delay of your claim. To mitigate this risk, it is imperative to adhere to the following guidelines:

- Attach all pertinent supporting documents, including invoices, receipts, and contracts.
- Ensure that all documents are clear, legible, and easily readable.
- Organize your documents in a clear and logical order

Missed Deadlines for Submission: Be sure to allocate extra time for any unforeseen delays or complications when submitting your proof of claim before the deadline. To minimize last-minute stress, make sure to submit your claim well ahead of the due date. By being proactive and avoiding these typical errors, you can streamline the filing process and increase your chances of a successful outcome. Remember to thoroughly review your details, attach all necessary documentation, and submit your claim with ample time to spare. Finally, missing deadlines for submitting your proof of claim can have severe consequences, including dismissal of your claim.

To ensure a successful filing process, it’s important to avoid these common mistakes. Make sure to thoroughly review your information, attach all necessary supporting documents, and submit your claim with ample time before the deadline.

Section 7: Form 31 Proof of Claim FAQs

In this section, we’ll address some frequently asked questions about completing Form 31 proof of claim.

Q1: What is Form 31 Proof of Claim?

A1: Form 31 Proof of Claim is a prescribed form that creditors use to indicate their claim against a bankrupt estate or in a formal restructuring under the BIA. It is a crucial step in the process, as it allows creditors to assert their rights and receive a portion of the available funds.

Q2: Where can I find Form 31 Proof of Claim?

A2: Form 31 Proof of Claim may be obtained from the office of the Trustee or downloaded from the official website of the Office of the Superintendent of Bankruptcy Canada. Make sure you get the most up-to-date version of the form as the new one goes into effect on July 15, 2024.

Q3: What information should I include in Form 31 Proof of Claim?

A3: When completing Form 31 Proof of Claim, you should provide accurate and detailed information, including your name and address, the debtor’s name, the amount of your claim, and any supporting documentation.

Q4: Are there any specific formatting guidelines for completing Form 31 Proof of Claim?

A4: While there are no strict formatting guidelines, it’s important to ensure that your form is neat, legible, and organized. Use clear and concise language, and avoid any unnecessary details. Attach supporting documents in a logical order and label them appropriately.

Q5: Can I submit multiple claims using Form 31 Proof of Claim?

A5: Yes, you can submit multiple claims using Form 31 Proof of Claim. However, you must separate each claim clearly and provide all the necessary information and supporting documentation for each claim.

Q6: Can I make changes to my submitted Form 31 Proof of Claim?

A6: Once you have submitted your Form 31 Proof of Claim, it depends on the change. If it is something very minor, like your phone number, the Trustee will make that change for you. If it is a major change, like the amount you are claiming, it is recommended that you file an amended claim. Therefore, reviewing your form carefully before submission and ensuring its accuracy is crucial. If you need to make corrections or updates, contact the Trustee’s office immediately.

Remember, completing Form 31 Proof of Claim accurately and on time is essential to assert your rights as a creditor and receive a fair distribution from the estate. By following these tips and guidelines, you can navigate the process successfully.

Conclusion

Completing Form 31 Proof of Claim is crucial for creditors seeking to assert their rights in a bankruptcy case. By avoiding common mistakes, including providing inaccurate information, failing to include supporting documentation, and missing submission deadlines, creditors can enhance their chances of a smooth filing process. Remember to double-check all information, attach relevant supporting documents, and submit your claim on time. By doing so, you can ensure that your claim is properly considered and increase your chances of a successful outcome.

Do you or your company have too much debt? 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 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 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.

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage resulting from reliance on the information provided herein.

Brandon Blog Post

DEBT COLLECTIONS NEWS: EXPECT MENACING DEBT COLLECTIONS ACTIVITY TO PICK UP AS THE ECONOMY REOPENS

Post author By Brandon Smith
Post date March 8, 2021

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this debt collections Brandon Blog, please scroll to the very bottom and click play on the podcast.

Expect debt collections activity to pick up as economy reopens: experts

On March 2, 2021, The Canadian Press published an article by Salmaan Farooqui titled Expect debt collections activity to pick up as economy reopens: experts. The crux of the article is that credit specialists state Canadian consumers who owe money must prepare for debt collection agencies to increase their activities as the Canadian economy reopens.

During 2020, lenders and by extension, their collections agencies, had eased up on debt collections from Canadian households and companies. The reason for this drop in demands being made on outstanding debt was the COVID-19 pandemic. Lenders knew that all Canadians were hurting and there were even some loan deferral programs put into place.

But these credit experts are now seeing signs of debt collections picking up. Statistics Canada reported that the Canadian economy started to bounce back in January 2021. No doubt this pickup in the economic activity is making creditors consider if now is a good time to start taking action to try to collect on credit card and other delinquent debt.

As the article indicates, there is a fair bit of pent-up demand now for collection agency services. So if you are one of those expecting calls from debt collection agencies, here are some tips that they do not want you to know.

Debt collections: What is a debt collection agency?

The best answer is found in the question itself: A debt collection agency is an organization that collects debts. Now, ask yourself the follow-up question: What is a debt? It’s money that you owe to another person, company or organization.

In essence, debt collection agencies are hired by businesses and individuals to collect money that is owed to them. The agencies work for the creditors and not for consumers.

In Ontario, collections agencies or debt collectors are people or companies who:

obtains or arranges for settlement of debts owing to a person or company;
sells forms or letters claiming to be a debt collections system;
offers debt settlement services; or
buys up from lenders different types of debt that are in arrears and tries to collect on the debts.

Ontario debt collectors need to pass the eligibility requirements to register and operate a collection agency.

Debt collections: What debt collectors do

When a person or company is unable to pay what is owed, they are said to be in debt. When a creditor cannot collect the debt, the creditor may contact a debt collection agency for assistance.

A debt collector contacts the individual or business that owes the money and attempts to collect debts owed to the debt collector’s client. Debt collectors earn a commission of around 25% of the money collected. They are not allowed to harass or threaten people to get money.

In Canada, the law on debt collections and debt collectors is set by the individual provincial governments. In Ontario, the Collection and Debt Settlement Services Act, R.S.O. 1990, c. C.14 sets out all the requirements that collections agencies and each collection agent must abide by.

How Reputable Collectors Operate

We have all heard horror stories about collectors. Reputable collectors use their reputations to help recover funds. For example, if you are a lawyer specializing in debt collections, you use your reputation to persuade clients that you will recover the funds owed to them. If you are a supplier, you can use your reputation to persuade a debtor to pay. If you can prove your reputation, you have a better chance of collecting the monies owed to you.

Let’s say you’re a collector, and you’ve been retained to collect on a debt. The debtor has previously agreed to repay the debt but has not yet done so. What do you do next? Reputable debt collectors will first send a demand letter that also acts as a debt validation letter.

In the letter, they confirm the debt and give a certain period of time for the debtor to pay. If the debtor does not then contact the collector to try to enter into a debt settlement plan, then the collector starts calling the debtor to collect on the debt. But there’s a chance that these activities will not be enough to get the debtor to pay. In fact, the debtor might even become hostile. In that case, a lawsuit may be their next step.

What to Expect When You Have Debt in Collections

Canadian debt collectors are regulated by the province they operate in. They keep creditors from giving up on their credit delinquencies. In most cases, debt that gets to the debt collections stage is in the hands of a debt collector within a few months of the date the debt went into default. Debt collectors have the power to negotiate settlements for delinquent debt. Their success rate in collecting on debt is better than that of a creditor. The debt collector will make one or more attempts to collect on the debt, usually first by mail and then by phone.

If you have received a letter from a debt collector, or you are being sued for any outstanding debts, you are at a turning point in your financial life. You may have already begun to feel overwhelmed and don’t know where to turn. If you have been sued, the court may have already ordered you to pay. This can feel overwhelming, but there are options for you to consider.

With a debt in default, credit scores suffer. Debt collectors will report any unpaid debt to the credit bureaus, regardless of whether or not the debt is legitimate. It will negatively affect your credit score.

This is because the credit bureaus consider unpaid debt collections to be a negative financial obligation or credit risk. If you have a debt in default, you are probably worried about your credit score.

Debt collections: What Can a Collection Agency Do To Me in Canada?

A collection agency can demand payment for an outstanding debt. When the debt is handed over to a collection agency to try to recover the debt, that places a bad mark on your credit report. With you being in debt collections, you will have to pay some money if you want to settle the debt. The payment will depend on the situation, and there is a lot to consider when making a decision.

For example, you will need to consider how much money you owe and how much the collection agency will require you to pay. When you have outstanding debt, it is important that you make sure you either pay it in full if you can afford to, work out a payment plan to pay the full amount over time or, see if you can settle with the collection agency for a reduced amount you can afford to pay immediately. This will avoid the potential for the collection agency to turn the account over to a lawyer and take legal action against you.

Debt Collections: Can a Collection Agency Charge Interest in Canada?

The rate of interest that some debt collection agencies charge their customers is quite high. The reason is that the type of debt they are collecting, such as credit card debt, originally charged a high rate of interest on late or defaulted payments, or on the outstanding balance if you only made minimum payments.

A lot of Canadians do not know that a debt collection agency in Canada can charge interest on the outstanding financial obligation. A collection agency may be able to charge interest on the debts they are collecting. Nevertheless, this can be no greater than what was originally described in the agreement between the lender and customer.

So, while they can bill you interest just like a lender can, they cannot control how much the interest is and cannot tack on any extra charges, such as for their collection service.

Debt Collections: What Should You Do If You Are Being Pestered By a Collection Agency?

So, what should you do if they won’t leave you alone? Well, the most effective answer is to, certainly, answer them and agree to pay your financial obligations. This can be done by paying completely, setting up a payment plan, or reaching an agreement to pay a lesser amount immediately.

Each option will have its pros and cons, and its success relies upon your financial scenario as well as preferences. Typically speaking, it is best to pay the financial debt completely. However, I recognize that can be challenging, specifically if the amount of debt you owe is quite considerable. Any way that you are able to get this debt off of your credit report as well as off of your back is a good thing. Any one of the techniques I mentioned is much better than just allowing the financial debt to age and worsen.

The debt collection agencies will be calling

Information from Equifax Canada reveals that just 24 percent of debt-ridden Canadians who accessed deferral programs beginning in 2020 were able to utilize the breathing space to improve their credit situation.

So what we discussed so far is:

The Canadian economy seems to be starting its recovery and should show economic growth in 2021. For sure there are still people feeling pain in different sectors of the economy and we are not finished with the shutdown conditions in Toronto and elsewhere in Ontario.
How the debt collections business works in Ontario.
There are many Canadians who are debt-ridden.
If everyone in Canada pulled their credit report only 24% of the reports would show an improvement since the COVID-19 pandemic began.
The news according to the experts is that there will be growth in the debt collections industry. These businesses are going to return to make their phone calls to consumers trying to collect on old unpaid debts. They may even start legal action against some borrowers.

So what is next as the economy and consumer confidence pick up is that debt collections activities will pick up again too. What can the remaining 76% of Canadians who could not improve their situation since the COVID-19 virus hit do when the bill collectors call? There are various options for them, and the 24% that wish to still make improvements to their credit reports and credit scores. Here are some suggestions.

6 fantastic reasons to create and follow a household budget to track your household spending

As you know, I have written many blogs on the benefits of preparing, monitoring and following a budget for your household spending. The advantages of doing so include:

Here are 6 fantastic reasons you should have a household budget plan:

A spending plan offers you control over your cash: A budget plan is a list of all sources of your monthly income and all your expenses that you need to make those monthly payments on. It enables you to plan how you will use your cash. As opposed to money just flying out of your wallet, you make willful decisions on where you desire your cash to go. You’ll never have to wonder at the end of the month where your cash went.
A family budget keeps you concentrated on your financial objectives: Budgeting will permit you to fulfill your economic objectives – paying down debt should be the primary objective so that you don’t get nasty calls from the debt collectors. Then you can allocate savings for other purposes such as an emergency fund, a vacation, money for a retirement savings plan and purchasing a home. With a budget, you’ll recognize specifically what you can afford and you can choose where your cash is spent. For example, if your immediate objective is to save for that down payment on a condo or house, then you might need to abandon that vacation you intended to take. Your budget plan will inform you precisely what you can or can’t afford.
A household budget will make certain that you don’t spend what you don’t have: Credit cards provide such ease of use but that is also what makes them really easy to up your spending since it does not feel like there is any real money traded in the deal. Canadians can rack up serious charge card bills and land up deep in the red before they realize what’s happened. When you create and adhere to your budget plan you have to count every little amount you spend, even if it’s a credit card purchase. You will not wake up deep in the red, wondering just how you arrived at that place.
A spending plan will prepare you for the unanticipated: Every budget plan should have a rainy day fund for those unforeseen expenses. It’s suggested that you must budget for 3 months worth of costs for when there may be an unexpected layoff or various other unplanned major expenditures. Do not be alarmed; you don’t have to create that 3-month cash fund immediately. Grow your fund up gradually. If you haven’t started one yet, then even a small amount each month set aside is an improvement.
A family budget minimizes stress: Many Canadians panic on a monthly basis about where the money will come from to pay their expenses. A budget will offer you peace of mind. It shows you just how much you earn and also what your expenses are. If need be you can decrease unneeded expenses or try to get added work to live within a balanced budget plan. Say goodbye to panic at the end of the month.
A budget plan can help you get the retired life you’ve been dreaming of: Saving for your retirement is very crucial and your spending plan can help you save for your future. Set aside part of your revenue on a monthly basis for retirement savings. Begin early and also constantly stay with it. The money you save now will certainly determine the kind of retired life you can anticipate.

When budgeting alone is not enough and you need some debt settlement

In many previous Brandon Blogs, I have described the important role of the community-based non-profit credit counselling organization. I am not talking about for-profit debt counselling services that have inviting advertising and jingles. Those kinds of organizations you must stay away from. In fact, one is defending a class-action lawsuit in British Columbia. If the class-action lawsuit is successful, it and companies just like it will be put out of business.

These companies suck fees out of the debtor until they cannot pay anymore. Then they walk you down to their favourite licensed insolvency trustee to file a consumer proposal. Consumer proposals are the only federal government-approved debt settlement plan. Only a licensed insolvency trustee can administer consumer proposals.

You could have saved the fees that you really couldn’t afford to pay in the first place, just by going for a no-cost consultation first with the licensed insolvency trustee.

What I am talking about is the true non-profit debt counselling agency. They do not charge you fees. They can review your budget to make sure that it is realistic and give you additional help. They can also try to strike a deal with your creditors for you to either pay the full balance out over time without additional interest or penalties or, a reduced payout now.

Can you raise money on a payment plan that you can afford the monthly payments?

Should you consolidate your unsecured debts? Consolidation is the combining of unsecured debts into one low monthly payment with one creditor. These loans typically carry a lower interest rate than the original credit cards or other unsecured debts. You have to make sure that the terms of the consolidation loan are as good as or better than their current credit card terms.

When it comes to getting a consolidation loan, there are a few things you should know. First, a consolidation loan is a loan that you take out to pay off multiple other loans. Second, you may already have a consolidation loan if you have a home equity loan or a home equity line of credit. If you have an unsecured loan, you can consolidate it into a secured loan, where the creditor can take your home if you don’t pay back the loan.

Turning an unsecured loan into a secured loan is not something you should do if you are already contemplating filing a consumer proposal or an assignment in bankruptcy. However, working with your financial advisor, accountant or non-profit credit counselling services agency, you may find that the risk is worth it. That would be because your budget shows that you can afford the lower monthly payment repayment plan if you get the debt consolidation loan. It is also good if it actually helps you avoid an insolvency filing.

Aggressive debt collections techniques may force some into an insolvency filing

This would be the last step if any of the above options do not work for some of the 76% of Canadians with high debt levels who have not been able to improve their debt situation since the onset of COVID-19 cases. The purpose of this Brandon Blog is not to go into detail on the consumer proposal or bankruptcy processes. I have written many detailed blogs before on each of these insolvency processes. You can find them by using the search function at the top of this blog.

These two would be a great place for you to start:

Debt collections summary

Everyone is hoping that the negative effects of the coronavirus pandemic will soon be in our rearview mirror and Canada will experience continued growth. The article referred to at the beginning of this blog says that the experts feel that soon credit collectors will be increasingly active. You will start receiving those harassing phone calls again. They will be taking action from debt against you, which could even include legal action against you.

If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with theIra Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.