I have previously written about joint bank accounts and joint credit cards. I recently read a decision of the Tax Court of Canada that will be of interest to every entrepreneur whose company may be behind in their HST remittance and who has a joint bank account with their spouse.
Joint bank account considerations
Opening a joint bank account is a relatively easy procedure. People who share a joint savings or chequing account can each make deposits and withdrawals from the account without the signature of the person they share the account with. As a matter of fact, any person listed on the joint account can close it using proper identification. Data held by a bank on the owners of the joint account, similar to any other account, consists of personal identifiers of the holders of the account, which enables anyone legally authorized to get that information.
I have written before on the dangers of a joint bank account. The dangers have nothing to do with the bank per se. They are more non-bank related. Examples of problems include:
Sometimes moms and dads will share an account with a small child. The reason is to begin providing the youngster with financial literacy education. However, if you share a bank account with your minor child and your spouse, you are taking a chance that your partner can access that joint bank account that you share with your child without your authorization.
There is a threat with a joint account between partners when you have a saver as well as a spender who each has access to the account without the other’s signature. It can trigger family, relationships or business problems.
I wanted to give this brief background information, but it is not what is of most interest to entrepreneurs. The following Tax Court of Canada decision which I will now describe is.
Tammy White and Her Majesty The Queen facts
This judgement was rendered on February 4, 2020, in the Tax Court of Canada in Vancouver, BC. Ms. White appealed an assessment by Canada Revenue Agency (CRA) against her under subsection 160(1) of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)) (Income Tax Act) and subsection 325(1) of the Excise Tax Act (R.S.C., 1985, c. E-15) (Excise Tax Act). You will recall that last week, I spoke about the danger of receiving transfers of property from someone who owes money to CRA in my blog, DO YOU INHERIT DEBT IN CANADA: CRA SAYS YES TO PROPERTY TRANSFERS. That blog dealt with debt in death and the deceased Estate. This week, nobody died. You are probably wondering what this has to do with entrepreneurs and joint bank accounts. I will now tie it all together. I promise!
The appeal deals with the concern of whether the deposit of funds by a person into a joint account held with the entrepreneur’s partner comprises a transfer of property under subsection 160(1) of the Income Tax Act and subsection 325(1) of the Excise Tax Act.
The facts of the case are as follows:
On March 1, 2016, Mrs. White was assessed $49,962.45 under section 160 of the Income Tax Act and $90,886.35 under section 325 of the Excise Tax Act. She appealed both assessments to the Court. The assessments are a result of amounts that her husband, former business owner Andy White, apparently moved to his wife between March 15, 2013, and October 30, 2015.
Department of Justice counsel on behalf of CRA at the hearing backed off part of the claim by agreeing that any kind of purported transfers made after the date of the consumer proposal is beyond the range of the assessments in concern in this appeal.
Tammy and Andy were married in 1984 and always held the same joint bank account.
For the last 35 years, Andy and Tammy have made use of the joint bank account to pay their personal expenditures and the costs of running their family household.
Andy was a part-owner of White & Davidson Logging Limited, a company he started working for from a very young age.
The company began to experience financial troubles in 2004 as a result of weak demand in the British Columbia forestry industry and also a government-mandated decrease in cutting rights. These troubles resulted in the business selling its assets in 2006 and discontinuing business. At the time the business stopped operating, it had not remitted all amounts it had held back as payroll source deductions. It also did not make the required payment of the amounts it owed as HST tax obligations. Accordingly, it was not current in its tax obligations and did not make its final payroll or HST remittance.
Andy was a Director of the defunct company and therefore was assessed by CRA personally for the company’s unremitted payroll source deductions and unpaid HST.
After a while, and after being assessed by CRA, Andy eventually found full-time employment and deposited his pay into the joint bank account he shared with Tammy.
Andy owed CRA almost $91,000 for the company’s unremitted HST.
Tammy was also employed in a retail store. In the late 1990s, she opened up a bank account only in her name. Her pay was deposited into that new account.
Tammy was the sole owner of the family’s home. She admitted under oath that she made payments out of the joint account to pay the mortgage, utilities, property taxes and any other costs of running the home.
Certain amounts were also transferred from the joint account into Tammy’s personal account.
The issues
The issues are fairly narrow. In last week’s blog, I went through the criteria a court must look at to determine if there was a transfer of property at a time when the transferor owed an amount to CRA. You can refresh yourself on the criteria by clicking here.
CRA’s position was that a transfer of property from Andy to Tammy took place the moment his pay was deposited into the joint bank account. They also stated that Tammy gave no consideration for this.
Tammy’s position was that no transfer could have taken place by merely depositing the funds into the joint bank account. Andy maintained full control of the money. CRA, or the Sheriff, acting on a valid judgement, could garnishee Andy’s share of the funds in the joint bank account.
At the time in question, Andy’s pay that was deposited into the joint bank account totalled $89,806.72.
The Court’s decision
The court did not agree with CRA. The Judge found that:
Just depositing the funds in a joint account does not comprise a transfer. Mr. White did not unload himself of the funds when they were deposited into the joint account. He continued to have complete access to the funds in the account. As a matter of fact, the evidence was that Andy, as he had done since 1984, used some of the funds to pay his personal expenses and specific costs of his household.
Andy did not defeat or whatsoever prevent the Minister of Revenue from collecting any tax he owed by placing his compensation in the joint account. CRA could have taken collection activity relative to funds in the joint account. In fact, part of the evidence before the court was that the joint bank account was garnished by a third party to repay one of Andy’s debts.
As soon as the funds were put in the joint bank account, Tammy had the ability to impact a transfer. Nonetheless, such transfer did not happen until the funds were removed from the joint account and placed into the account only in Tammy’s name.
The Judge was very critical of CRA. They did not properly identify funds taken out of the joint account and put into Tammy’s account. There was limited evidence before the court. So, the Judge had to “guesstimate” as best as possible from the scant evidence how much was transferred from the time Tammy opened up her sole account and the date of Andy filing a consumer proposal.
The Judge determined that the amount of property Andy transferred to Tammy during the relevant period for no consideration was the amount of $34,052.
Accordingly, the Judge allowed the appeal and vacated the assessment. He referred it back to the Minister of Revenue to reconsider a reassessment of Tammy in the amount of $34,052.
HST remittance and the entrepreneur
So what does this mean for the entrepreneur? It tells me that if you are:
Director of an insolvent company that owes unremitted source deductions or unpaid HST;
you are assessed personally by CRA because you were the Director; and
you get another job and deposit your pay into a joint bank account you hold with a spouse or child.
Your spouse or child will not be liable under the property transfer laws of the Income Tax Act and/or the Excise Tax Act by the mere depositing of your money into the joint bank account. What it also tells me is, if you are in this situation and do not have a joint bank account, maybe you should! If so, go back to the “Joint bank account considerations” section of this blog to see if it is the right thing for you to do in your situation.
Summary
I hope you enjoyed this blog on HST remittance and joint bank accounts. The Ira Smith Team is available to help you at any time. We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time.
Do you or your company have too much debt? If yes, then you need immediate help. The Ira Smith Team comprehends just how to do a debt restructuring. Much more notably, we know the demands of the business owner or the person who has too much debt. Due to the fact that you are managing these stressful financial problems, you are anxious.
It is not your fault you cannot fix this issue on your own. You have just been shown the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief now.
At Ira Smith Trustee & Receiver Inc., we take a look at your whole condition and layout a strategy that is as unique as you are. We take the load off of your shoulders as a part of the debt negotiation approach we will create just for you.
We understand that individuals facing financial troubles require a lifeline. That is why we can establish a restructuring procedure for you as well as end the pain you feel.
Call us now for a no-cost consultation. We will certainly get you or your business back on the road to a well balanced and healthy life and end the pain factors in your life, Starting Over, Starting Now.
If you would prefer to listen to an audio version of this divorce debt Brandon’s Blog, please scroll to the bottom of this page and click on the podcast.
Divorce debt and bankruptcy introduction
The topic of divorce debt and bankruptcy is always a tricky topic. There are 6 indisputable facts when it comes to this topic:
The primary reason for marital failure and also separation is financial issues. Divorce.com
Research shows that one out of every seven people who made an insolvency filing in Canada detailed separation, marital breakdown and/or divorce debt as a contributing variable to their economic troubles.
One-third of all people facing bankruptcy issues are likewise experiencing a family breakdown and divorce.
Bankruptcy won’t end all separation responsibilities. e. g. It does not end spousal support or child support.
Personal bankruptcy of one of the spouses, where certain divorce debts are joint, the bankruptcy, notwithstanding the divorce, will negatively affect the non-bankrupt spouse.
With really only one exception, bankruptcy law in Canada has been purposely designed not to interfere with the administration of provincial family law proceedings.
The only exception to this in Ontario is that an equalization payment is an unsecured divorce debt from one spouse to the other. If the spouse who has to make the equalization payment goes bankrupt during or after the divorce proceedings, then that debt is a debt caught by the bankruptcy. The spouse entitled to receive the equalization payment will have a provable claim in the bankruptcy for at least that amount. This does not apply to support payments.
The purpose of this Brandon’s Blog is to review a recent Ontario court decision released on February 19, 2020, that determines the answer to the question: can a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) begin an equalization claim against the non-bankrupt spouse under the Ontario Family Law Act, R.S.O. 1990, c. F.3 (“FLA”).
Divorce debt: The facts
The facts of the case were not in dispute. They are:
The husband and wife purchased a house in Toronto where they resided.
The matrimonial home was bought solely in the wife’s name.
The spouses separated in February 2015.
He left the marital residence in October 2015 and has never returned.
There is no disagreement that there the issues facing the husband and wife are irreconcilable, that the separation will be permanent and that the parties wish a divorce.
Neither the husband nor the wife had commenced an application for an equalization of the net family property prior to the husband filing an assignment in bankruptcy. It was not a divorce debt claim that he made. The husband remains an undischarged bankrupt. His sworn statement of affairs shows liabilities totalling $282,700.
The wife deposed that she paid the deposit and all other amounts to buy the marital residence. She also stated that in addition, she paid the mortgage, taxes, and all other expenses associated with the home.
Her affidavit sets out that there was never any intention that the husband would have any interest in the matrimonial house.
If the trustee is successful in asserting an equalization claim then she and her kids aged 12 and 15 would be forced to leave the home as it would have to be put up for sale in order to raise the necessary funds to pay the equalization claim.
divorce debt
Equalization in Ontario, divorce debt and bankruptcy
Trustees have various rights under the Bankruptcy and Insolvency Act (Canada) (BIA). One of those rights is to have the benefit of laws dealing with property in the BIA. There is no dispute that the marital home falls under the definition of property. There is also no dispute that if the husband had begun an equalization claim of divorce debt before his bankruptcy, the Trustee would have the right to continue that claim.
Under the FLA, where spouses are separated without any possibility of reconciliation, the FLA qualifies the partner with the lesser of the spouses’ two net family property to one-half of the difference between them. If the trustee is permitted to make a case for equalization and is successful, then his share of the marital residence assets (based on any applicable reductions or offsets) would be included as an asset in his bankruptcy estate.
There is no disagreement that equalization claim is a divorce debt chose in action that a Trustee inherits upon the bankruptcy of the spouse who started that action. The question is, can a Trustee, standing in the shoes of the bankrupt spouse who has not yet started that action, start it?
There are many cases dealing with valid scenarios in which an equalization claim had already been started. The applicant Trustee’s position is that the Trustee has the capability to begin a claim for equalization of the net family property where neither partner has made such a case. The Trustee is relying on the fact that an equalization claim is a chose in action which the Trustee inherits.
The Judge’s decision
The Judge disagreed with the Trustee’s position. The court held that while the decision to continue with the divorce debt equalization claim made by the spouse can be left to a stranger to the marriage, the decision itself to make the claim cannot. So the Trustee can continue the decision of the spouse to make a formerly begun equalization claim however the choice to make the claim may not be made by anyone other than the spouse. That decision continues to be personal as between the spouses.
The Judge dismissed the Trustee’s motion and ordered the Trustee to pay $20,000 in costs to the wife immediately.
divorce debt
Summary
I am not aware of that question ever having been asked and decided by the Court before. So for now, in Ontario, that is the answer to that kind of divorce debt question. Do you have too much debt because of marital breakdown or for some other reason? Does your company have excessive debt and in need of debt restructuring? Would it not be great if you could do a turn-around?
The Ira Smith team is available to help you at any time. We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time. For more information on a no-cost basis please call us.
The Ira Smith Team understands how to do a debt restructuring. More notably, we comprehend the requirements of the business owner or the person who has too much individual debt. Because you are dealing with these stressful financial issues, you are anxious.
It is not your fault you can’t fix this problem on your own. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.
We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.
We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.
Call us now for a no-cost consultation. We will get you or your business back on the roadway to healthy and balanced worry-free operations and end the pain points in your life, Starting Over, Starting Now.
It is true that winning a lotto game can transform lives. Most people hope for winning lottery numbers. They hope for a lotto win to bring life-altering money. They hope their winning ticket will let them quickly repay a home mortgage or get a new home, purchase a brand-new vehicle, bring on early retirement and also limitless travelling.
That dream result is not always the case. I really hope a money windfall will bring excellent luck and fortune to you. However, this Brandon’s Blog is about how betting on winning lottery numbers to erase your debt or repair all your troubles, might not always hold true.
The probability of having the winning lottery numbers
Winning lotto is an unbelievable experience. The possibility of winning a lotto game are controlled by the law of probabilities. You do not need to have a Ph.D. in mathematics to recognize that winning a lottery game is a once-in-many-lifetimes chance. The likelihood of winning a lottery game is truly a conditional probability.
Your chances of winning are conditional on the number of tickets you have purchased. The selling of individual tickets and the selection of the winning lottery numbers are independent events. After that, the probability of winning a lottery is the combined event wherein your ticket matches the numbers selected.
There are just two ways of raising your possibilities to win a lottery game:
Purchase extra tickets.
You and your associate engage in fraudulent behaviour by having inside details on which numbers your pal can manipulate the bouncing spheres to get you the win!
Religious people say that everything they obtain is a true blessing. So, I assume winning a lottery falls into that same category. So, rather than thinking about their probabilities of winning, they buy lotto tickets and put their faith a higher power. Some people claim that the opportunity of winning a lottery game is so low, it is almost like throwing your cash away. The opposite side of the coin is that people who talk about the small probability of winning the lotto are met with the argument: But what if I’m the one?
Winning a lottery is not a debt elimination plan
For sure winning a lotto will put a smile on your face. Winning a lotto may be among the best experiences in someone’s life. Winning a lottery has constantly been the only opportunity for the typical individual with financial debts to get their financial freedom. Surveys show that virtually half of Canadians are counting on either receiving an inheritance or winning a lotto game for their retirement, with similar numbers showing up in various other developed nations.
Some people incorrectly think winning a lotto will fix all their troubles. If you see that your desire for winning a lotto has developed into troubles in any other facets of your life, understand that you are a lottery addict. The addiction is fuelled because the possibility of winning the lotto is so little and there are none of the regular small gains which persuade the habitual casino player to take their winnings and leave the table a winner that day. Chasing after the desire of winning the lottery keeps many people always coming back for more because their requirement to win has actually not been satisfied.
Winning a lotto game can have both adverse as well as positive influences in your life. Winning a lotto can totally transform you. A few years ago I wrote two blogs on how winning a lottery can ruin a person’s life as opposed to saving it. Those people actually lost money with winning lottery numbers.
Worse problems from winning a lottery
Most provincial lotteries have similar rules. One common rule is the need for transparency by publishing the name and other details about the winner. This can lead to worse problems than the ones I have already mentioned. Consider this coming from the United States.
One fortunate lottery winner from New Jersey might have the ability to relish all the cash from the next state lottery in secret– many thanks to a brand-new regulation that went into effect just last month. New Jersey Gov. Phil Murphy signed a law in January that enables winners to stay confidential.
Previous Governor Chris Christie vetoed the regulation saying that it would certainly threaten the openness that provides taxpayers confidence in the honesty of the lottery game. But advocates of the regulation, which was passed unanimously this year, claimed lottery winners must be able to make their own choice on whether they want the publicity or not.
New Jersey joined a handful of various other states consisting of Arizona, Delaware, Georgia as well as Kansas that permit lotto game champions to conceal their identifications if their winnings exceed a particular amount.
The legislation excuses names and addresses from the state’s public records, but state departments are still able to share the information internally to collect child assistance or other state social assistance overpayments.
Winning the lottery can lead to great pleasures like high-end cars, holidays and homes. However, it can also attract a lot of unwanted attention. All sorts of scammers come out of the woodwork to try to get the lotto winners to separate from their money. It can also lead to unwanted attention, harassment and even physical violence.
In 2016, a 20-year-old male that had won an almost half-million-dollar lottery game prize was killed during a home invasion robbery in Georgia. In 2010, a man that won $31 million, was found buried under concrete. His good friend was found guilty of his murder.
So from these examples, it is possible to lose money and more, with winning lottery numbers.
Summary
You can’t rely on winning lottery numbers to solve your financial problems. In fact, always buying lottery tickets might lead some people to have bigger problems. Do you have too much debt? Are you banking on some outside event that you have no control over, like an inheritance or gambling winnings to save you or your company?
If yes, then you need immediate help. The Ira Smith Team comprehends just how to do a debt restructuring. Much more notably, we know the demands of the business owner or the person who has too much debt. Due to the fact that you are managing these stressful financial problems, you are anxious.
It is not your fault you cannot fix this issue on your own. You have just been shown the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief now.
At Ira Smith Trustee & Receiver Inc., we take a look at your whole condition and layout a strategy that is as unique as you are. We take the load off of your shoulders as a part of the debt negotiation approach we will create just for you.
We understand that individuals facing financial troubles require a lifeline. That is why we can establish a restructuring procedure for you as well as end the pain you feel.
Call us now for a no-cost consultation. We will certainly get you or your business back on the road to a well balanced and healthy life and end the pain factors in your life, Starting Over, Starting Now.
If you would rather listen to an audio version of this Brandon’s Blog, please scroll to the bottom of this page and click on the podcast.
Introduction
I recently read an interesting case from the Court of Queen’s Bench of Alberta involving a court appointed receiver. To me, it highlights that sometimes the simplest of things can provide major difficulty. I will explain, but first, I will go over some basic facts that will help you understand the issue in this case better.
What is a court appointed receiver?
When a borrower defaults on its borrowing agreement, typically by non-payment, the secured creditor needs to decide if it is required to enforce against its security. The most common method for a lender to use is receivership. There are 2 types of these procedures in Canada; 1) private appointed or; 2) court appointed.
Normally, the procedure begins with the secured creditor seeking advice from its legal counsel and the receiver it is thinking of using. If it is chosen that there should be a receiver appointed, the secured creditor, normally a financial institution, then makes a selection. They can either appoint the receiver by private letter of appointment or make an application to the Court for an Order designating the receiver (court-appointed).
1305402 Alberta Inc v 0774238 B.C. Ltd, 2019 ABQB 982
This case was an application by the court appointed receiver (as a British Columbia Court designated receiver of two individuals and also several companies) to have funds in the amount of $281,711.11 paid to it in its capacity as the receiver. The application on its face seemed simple.
The British Columbia Securities Commission (the “Securities Commission”) made considerable enforcement orders versus the individuals and the companies (the “Debtors”). The total fines exceeded $9 million in total. They arose from the Debtors having gotten from various parties real estate financial investments without a prospectus and various other violations.
The Securities Commission got a receivership court order from the Supreme Court of British Columbia on October 3, 2019, appointing a receiver (the Receivership Order). The Debtors are the named parties whose assets the Receivership Order covers.
This application in the Alberta Court was made by the court appointed receiver to take possession of surplus cash paid into the Alberta Court, available from the sale of a property located in the Province of Alberta.
The Court’s problems
On the face of the Receivership Order, it was difficult to tell which parties were originally served with notice of the case. The Receivership Order indicates that a list of those served was attached as Schedule A. Yet Schedule A was not the service list. Rather, it was an example of the Receiver’s Certificate to be utilized in securing financing of the receivership. There was also a Schedule B to the Receivership Order. Unfortunately, it also was of no help. Its only purpose was to list the legal description of the subject land.
Counsel for the applicant argued that certain findings in the original receivership application would decide the outcome of this case. As a result, the Master said that it would certainly have been handy to understand whether the objecting party to this application had any type of capacity to make any kind of argument now!
For example, was the matter in this application already decided in the original motion, or, are there any estoppel issues that would stop someone with notice of the original receivership application from objecting now? In the end, the Master decided that the documents now before the Alberta Court was not adequate to figure out those problems now.
Duties of a court appointed receiver
In addition to having a general duty of care to all stakeholders, the specific duties are spelled out in the Receivership Order. Like all such orders, this one gave the receiver the duty to take possession of all of the assets of the Debtors.
The funds in Court are surplus from a sale or foreclosure in Alberta known as the “Rocky View Lands”. There was a consent order for repossession in the foreclosure action giving the mortgagee title. It was not readily evident from the material before the Master just how surplus proceeds were generated. Nevertheless, the funds were being held by the Court and the receiver was applying to take possession of the cash under its Receivership Order powers and duties.
The receiver’s problem
The proceeds were paid into Court on the application of the previous authorized owner of the Rocky View Lands. Unfortunately, that owner was not one of the Debtors! Just to make matters worse, one of the individuals who were one of the Debtors, filed an affidavit that appended a purported Trust Agreement. The Trust Agreement stated that the owner of the Rocky View Lands was holding the property in trust for 19 different named investors who were opposing this application.
The Master held that the applicant did not adequately prove its case to its entitlement to the funds paid into the Court. The owner of the lands was not one of the Debtors. It was only the property of the Debtors the court appointed receiver had authority over.
So the Master decided that the parties could come back to Court for a full trial to figure out who really had an interest in the funds. This could only be decided after full argument by both the receiver and the opposing parties. It was too early to direct that the funds be paid to the court appointed receiver now.
The devil is in the details
From the Master’s decision, it is obvious that the court appointed receiver came to Court without knowing all the details. In addition, the details that it must have known about who was served with the original receivership application were missing. I am sure this receiver was not trying to pull a fast one over anybody – they were just sloppy.
A detail like whose property was the receiver trying to take possession of is not a small thing. A detail like was any party who was opposing the receiver’s request already stopped from raising such opposition is also not such a small thing. The Master was correct in not allowing the receiver’s application to take possession of the cash sitting in the Alberta Court. This receiver will have to do its homework for when it comes back to Court when a full hearing is conducted.
Summary
I hope you have seen why details matter. Not only for a Court but for a licensed insolvency trustee also. When someone comes to consult with me about their business or personal debts and financial situation, I need details too so that I can fully understand their situation.
Do you or your company have too much debt and in need of debt restructuring? Wouldn’t it be beautiful, though, if you could do a turnaround?
The Ira Smith Team understands how to do a debt restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.
It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.
The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.
We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious 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.
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.
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:
Two in 5 question will they ever be debt-free in their lifetime.
Spending-to-income % is trending negatively in Canada.
Ninety-four percent of Canadians say the ordinary home is in too much financial debt.
The spending-to-income proportion is trending adversely as 45 percent record that their expenses are rising faster than their revenue.
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:
Boomers – 38% of these survey participants say that their spending is greater than their income and 31% feel they will never be debt-free.
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.
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:
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.
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.
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.
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.
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.
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.
I have written about them before, but I will summarize here what they are:
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.
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.
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.
If you prefer to listen to the audio version of this small business in Ontario Brandon’s blog, please scroll down to the bottom and click on the podcast
Starting a home-based business in Ontario
Are you fantasizing about beginning your very own small business in Ontario? Do you have a great passion and you feel it in your bones it could be profitable and provide a comfortable side or main income for you? Well, you’re not the only one. Lots of Canadians like you have their very own commercial desires. Many boomers could not afford to retire, so they have become seniorpreneurs.
Let’s say you have a dream to start your own biz doing what you love. In the beginning, you probably want to keep it simple. No employees, no fancy office, just you meeting with clients at your kitchen table. Sounds pretty simple but what do you need to go from a drawing to a solid business plan to a real endeavour?
A good plan is critical a realistic look at your market your potential customers and your goals current and future. It should map out what success means for your trading. From there, details of the next steps are different in each province or territory so you need to find out how it works where you want to operate your company. This Brandon’s Blog will deal with a livelihood in the province of Ontario.
How do I start a small business in Ontario?
A typical new commercial venture starts with the following four steps. The most basic first step is to choose a legal ownership structure. For example, you may have trouble choosing. Will it be a sole proprietorship, which is really just yourself trading, or will you choose incorporation, setting up a separate legal entity? This decision is very important. Each has its own advantages, disadvantages and differences in financial reporting and taxation.
Step 2 is to decide on a name. What are you going to call your new venture? You could choose to work under your own full name, especially if you’re a sole proprietor. Something like your name, operating as the style name you want for your business. Or, you could choose to incorporate and choose a company name.
Do I need to register my business Ontario?
Step three is registering your business. If you are operating as a sole proprietor, you would register provincially. If you are incorporating a company, you could register either provincially or federally. It really depends on the type of business you are operating and whether you will be operating in more than one province. You will also need to register with the Canada Revenue Agency. These registrations are about getting a business number to communicate with the government and about setting up for your various tax reporting and remittance obligations.
Step 4 involves getting whatever civic, provincial or federal business licenses you will need for your business to operate in a specific province, territory or city.
So four basic steps will get your business started. Decide on your legal structure and business name then look into business licensing and registration. And there you have it. You are now on your way.
How much does it cost to register a business in Ontario?
Before you sign up a new business name, or when altering the name/legal form of the business, you should browse the provincial database of existing registrations. The reason for doing this is to see if the name of your business is already taken and being utilized by another business. Once you are sure the name you want is available, you go ahead and register it.
The costs to search and then register a business name is:
Search – $ 8-$ 26 depending on the sorts of records you intend to search
Registration – $ 60
Renewing a registration – $ 60
If you plan to incorporate, you need the services of a lawyer or paralegal. They will do the incorporation and registration for you. You need to check with a professional to understand the costs involved in setting up a corporation.
How many small businesses are there in Ontario?
The last time Statistics Canada collected this information was for 2017. As of December 2017, there were 1.18 million businesses in Canada are categorized as follows:
21,926 (1.9 percent) were medium-sized organizations; and
2,939 (0.2 percent) were classified as big businesses.
Over half of Canada’s small businesses are focused in Ontario and Quebec (417,742 and 236,705 respectively). Western Canada has a large number of small businesses led by British Columbia, which had 179,517 as of December 2017. In the Atlantic region, Nova Scotia has the greatest variety of small biz at 28,874.
The province with the best variety of businesses per thousand individuals over 18 years old is Prince Edward Island (49.4), then Alberta (48.8). On the other hand, Quebec has the tiniest variety of services per thousand people over 18 years old (35.3), followed by Ontario (37.2) as well as Nova Scotia (37.3).
So you can see by these numbers the importance of small businesses in employing people and contributing to the Canadian economy.
How to start a business in Ontario with no money
You cannot start a business in Ontario or anywhere else with no money. Depending on the type of business you are starting, you may not need a lot of money, but you cannot start one with nothing. Basic expenditures like a website and business cards require money. Your marketing and advertising to get your business off the ground will require money.
Banks will not lend money to a startup. They also will not lend any money to a business where the owner has not made an investment into his or her own business. The reason is that the bank wants to see dedication. They want to know that when things get tough, and they will, that the owner has a reason to stick around. Having your own money in the business that you don’t want to lose is a great incentive to stick it out.
So in the beginning, you will need some money to get started. There are some ways that you can fund your new business. They include:
Don’t start your business until you have built up enough savings for expenditures to sustain the business for say, 6 to 9 months
Figure out what you can do and obtain for free
Ask your family and friends for funds
Apply for a small business loan after you have invested your own money in your business for when you need added cash
Look to small company government grants as well as local funding possibilities
Find out about– and charm– potential angel investors just like they do on television
You will be amazed at your own creativity when you need to use it to find extra cash. In the beginning, you will definitely be paying yourself last.
Small business debt
Every business needs money to sustain its growth. At first, money will be invested as equity, and perhaps debt, by the owners. In order to take on bank debt, the bank will require the owners to subordinate their claim to that of the bank. As the business expenses increase because sales are increasing and the business is growing, more money will be needed.
The business plan, including a detailed cash flow statement that is regularly updated, amended and followed, is crucial. The government encourages businesses that are growing to do so by way of debt. The income tax laws allow for the interest paid on debt to be deducted for tax purposes. The cost of debt is always cheaper than the cost of equity.
This is a good reason to take on debt. What the business owner has to be careful of is that the business is not taking on too much debt. What is not good is taking on more debt to make up for a history of losses and not fixing what is wrong with the business. Eventually, there will be no place to borrow from if the reason for the losses is not fixed.
A history of losses is one of the most common things I see with businesses in trouble that come to me for advice. Losses that have not been fixed, or at least stopped, is a danger signal of poor management. When your lenders determine management is poor, it is like a shark with blood. The lender will call in its loan. Your trade creditors will stop extending credit. This will lead to the demise of the business.
Summary
Is your small business in Ontario 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 dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.
We know that companies facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious 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.
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:
Basic details such as name, address and marital status.
A listing of all your assets and your debts.
Your employment.
Your household monthly cash flow/budget.
Questions whose answers are important to understanding who you are.
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:
Your assets that would not be exempt and therefore would be handed over to us as your Trustee.
Have you ever been bankrupt before?
Are your debts $250,000 or higher, not including any mortgages or other loans secured by your principal residence?
Do you owe $200,000 or more to Canada Revenue Agency (CRA) for unpaid income tax?
Are all your tax filings up to date?
Your income and do you have a surplus income?
If you do have surplus income, what would your monthly payment be and can you afford it in your budget?
Based on the information you gave us, can we determine the likelihood of any creditor opposing your discharge from bankruptcy?
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:
Identifies you.
Lists your assets with their respective estimated realizable value.
Indicates which assets are exempt from seizure, if any.
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.
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.
Small and medium-sized businesses play a vital role in all worldwide economies. Bankruptcy experts in the USA identified problems. The Chapter 11 bankruptcy protection process for these companies was not working. It is pricey, usually ineffective and impractical. So, many businesses in the USA in need of restructuring could not have access to the US insolvency system.
On July 23, 2019, the US Congress passed the Small Business Reorganization Act (SBRA). On August 1, 2019, the Senate passed the Bill. On August 23, 2019, President Donald Trump signed it to enact it.
The purpose of the SBRA is to make business bankruptcy protection much less troublesome for small and medium-size ventures. The result is Chapter 11, subchapter V of the US Bankruptcy Code (Titled: Small Business Debtor Reorganization). The aim is to make it more affordable and will serve to save otherwise viable owner-managed businesses.
The purpose of this Brandon’s Blog is to discuss the new US legislation. I will also comment on an approach for the Canadian insolvency system. Can we streamline restructuring under the Bankruptcy and Insolvency Act (Canada) (BIA) for small business?
Changes made by the SBRA
A small company is defined in the SBRA as a person or company whose non-contingent debts (leaving out financial obligations to affiliates or people not dealing at arms’-length) are $2,725,625 or less and which chooses to be dealt with under the SBRA. The Act includes a new subchapter V to Chapter 11 of the US Bankruptcy Code. The purpose of this new approach is to make it simpler and more economical for small companies to efficiently restructure.
The main thrust of the Act is:
A creditor cannot lodge a Chapter 11 restructuring plan that it is prepared to support. Just the business can. The company’s plan must be filed within 90 days of the day it filed its bankruptcy protection application, other than in specific conditions.
A trustee comparable to those selected in a personal restructuring (Chapter 13) situations will be selected to manage each case.
A creditors committee will not be developed.
The Chapter 11 plan can change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
The Court can approve a small business’ restructuring plan without the approval of any class of creditors. The Court must be satisfied that the restructuring plan treats all creditors fairly and does not prejudice any creditor class.
To be fair and equitable, the restructuring plan must offer that all earnings received throughout the term of the restructuring plan will available to fund the restructuring for a duration of 3 to 5 years.
So the onus is on the creditors to carefully review all cases filed under the SBRA. Creditors will need to retain bankruptcy experts to advise them. Their role will be to make certain that Courts appropriately examine restructuring cases for fairness and that they treat all creditors equitably. This will be especially true for those that do not have the support of the creditors.
It will be very interesting to see if this new legislation accomplishes its goal of making it simpler and less costly for small businesses to restructure and continue.
To qualify for restructuring under the CCAA, the insolvent corporation must owe at least $5 million. The CCAA is only for insolvent companies or income trusts to restructure. It is not for:
proprietors or partnerships
banks
telegraph companies (do people still send telegrams?)
insurance companies
companies to which the Trust and Loan Companies Act applies
Proceedings under the CCAA are a very heavily Court-driven process.
Restructurings under the Part III Division I proposal provisions of the BIA are available to both companies, proprietors and partnerships. It is also available to people who owe $250,000 or more, not including any mortgages or loans secured by the person’s principal residence.
For people who owe less than $250,000, a more streamlined restructuring process is available under Part III Division II of the BIA. These are called consumer proposals.
Restructuring under the proposal provisions of the BIA is not a heavily Court-driven process like the CCAA. Under consumer proposals, if all goes smoothly there is never a Court application.
So we have a simpler and streamlined version for people who have a smaller debt level but are still in need of restructuring their financial affairs. The same is also true for people with fewer or no assets that need to start over through the bankruptcy process. However, there is no equivalent streamlined version in Canada for small to medium-size businesses.
Could such a streamlined business restructuring model be developed? Not only do I think it could be, as one of the bankruptcy experts in Canada holding the designation of licensed insolvency trustee, I think it must be.
The statute for a streamlined Canadian business restructuring model
The CCAA is designed for large corporations. As I already stated, it is a heavily Court-driven process. Therefore, I think this eliminates the CCAA from developing a more streamlined version. It is not the case that it could not be done. It is just that a new section designed for simpler and more cost-effective CCAA proceedings goes somewhat against the purpose of the CCAA.
Therefore, I propose that CCAA legislation should remain available only to larger companies. Especially because the BIA, another federal statute, already includes restructuring provisions. It already has a streamlined version for bankruptcy and restructuring to avoid bankruptcy. So, why not a streamlined business restructuring section?
What would BIA streamlined business restructuring look like?
You might ask, why is this even necessary? Many small and medium-sized businesses are family-owned. There are even very large family-owned businesses. The Financial Post reports that “Family businesses own a bigger chunk of Canada’s economy than you think — way bigger”. They report it is a significant business sector contributing 35 percent of Canada’s real gross domestic product.
So with such an important business sector, it would make sense to allow those businesses on the smaller scale to qualify to have a simpler and more cost-effective way to restructure when they hit a financial bump in the road. If the viable parts of the business can be saved, it will continue to employ people, allow families to have a good quality of life and contribute to Canada’s GDP. It does not make sense to essentially kill off these smaller businesses because the cost of the restructuring will use up all the resources necessary to run the business.
I am not talking about family-owned businesses Bombardier Inc. and Loblaw Cos. Ltd. Rather, I am talking about the majority of Canadian entrepreneurial companies in the mid to small size range.
So here is what I propose for a streamlined restructuring process for small and medium-sized businesses. I will call it a new Part III Division III of the BIA. I will call it the General Scheme for Small Business Proposals (SBP) section of the BIA.
Size matters
The new SBP should be available to corporations, proprietorships and partnerships that are set up to conduct business. Their total debt should not be more than $1.5 million. There is nothing scientific about this number.
Statistics Canada could do an analysis as to the average debt load of Canadian businesses and an appropriate debt level could be picked based on it. For purposes of this Brandon’s Blog, I will use the $1.5 million amount.
I would not exclude loans from affiliates or people not dealing at arms’-length such as in the US legislation. In Canada, it is normal for the first funding of a company to come from the owners. Our chartered banks want to see a commitment from the owners before they will lend. Owners have sacrificed their own money to get the company off the ground. Just because that is how they had to finance the company, I would not preclude that debt from counting in the calculation.
The Canadian business landscape is different from that in the USA. Our numbers are generally smaller. In order to exclude non-arms’-length debt, you would probably have to lower the debt threshold I have mentioned. So, let us keep that debt threshold for discussion purposes and include all debt; secured or unsecured, arms’-length or related parties and owners.
If a person is not conducting business in his or her name, then this new SBP would not be for them. They would fall under either Division I or Divison II restructuring proposals.
Administration of restructurings under the SBP
Currently, only a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) can administer restructuring proposals. Under Division I Proposals, the LIT is called the Proposal Trustee. Under consumer proposals, Division II personal restructurings, the LIT is called the Administrator.
So, for the new SBP, I will call the LIT the Small Business Administrator. It makes it obvious that it is the restructuring of a business qualifying under the new Division III. The use of the word “administrator” ties nicely into the word chosen already by Parliament for consumer proposals. So again, it makes it obvious that the LIT is administering a small business streamlined restructuring.
Since we are not talking about personal restructuring that falls under the consumer proposal provisions in this Brandon’s Blog, my suggestions for a streamlined business restructuring applies only to Part III Division I of the BIA Proposal restructurings to avoid bankruptcy.
Time to restructure
Under a Division I Proposal restructuring, the company or person can begin the restructuring process by filing either a Notice of Intention To Make A Proposal (NOI) or the Proposal itself. Under either filing, the debtor then has 10 days to file its cash-flow statement reviewed and approved by both the company or person and the LIT. Under an NOI filing, the company or person then has an additional 20 days (30 days after the NOI filing date) to file a Proposal (unless the time is extended by Court Order).
Most times with small to medium-sized businesses, the debtor is not current in all of its filings with the Canada Revenue Agency (CRA). This includes payroll remittances, HST and perhaps even income tax returns. In any restructuring where CRA is a creditor, they need to have the most current information from the debtor’s business filings, to be able to know the full amount owing by the business. They will not be able to properly assess the Proposal until they know the proper amount owing to them.
Also in any Proposal restructuring, we want to have a provisional income tax return prepared by the external accountant for the business. The provisional return is to show if any further tax liability exists for the fiscal year up to and including the date of filing of the Proposal.
Books and records will first have to be brought up to date. Then the accountant will need time to prepare and file the income tax return. There is a reason for this. We want CRA to know if there is a further liability.
Although there is no statutory provision allowing for this, CRA so far on an administrative level will allow for a split tax year in a restructuring. The liability for the fiscal year up to and including the Proposal date will be included as a debt in the restructuring. This is to the company’s or person’s advantage in the business.
Once the Proposal is filed, the meeting of creditors has to take place within 21 days of the Proposal date. In my experience, there is never enough time for the business to do all the necessary filings for CRA that I just mentioned. So, CRA always requests an adjournment of the meeting until such time as all the filings are up to date.
So, in my proposed streamlined version, I would propose to extend the filing of a Proposal after the filing of an NOI from 30 days to 90 days, without the need for the expense of going to Court seeking an extension. This should give enough time for the business to get all of its filings up to date and hopefully avoid the need for an adjournment of the meeting of creditors.
Creditors
There really is nothing that needs to be changed on how creditors file their claims. The same is true for the rules of how the LIT must assess all claims. I do like the idea in the new Chapter 11 subchapter V. That is the ability to change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
In Canada, it is very rare, if not unheard of, for an entrepreneurial business to get a bank loan without the owner giving a personal guarantee. Many times the personal guarantee has to be backed by a hard asset, such as a pledge of the personal residence. If the secured debt can be restructured, shouldn’t the pledge agreement on a personal asset also be part of that restructuring?
So, I propose that in the new SBP, there should be the ability to change the legal rights of a lender registered against an individual’s primary home if the funds were used for the business or if the pledge was in support of a personal guarantee for funds borrowed by the business.
The types of changes to the security pledge will be unique to the individual restructuring. It has to make business sense and common sense. It is always up to the secured lender to vote against the plan if they don’t like it. In that case, the restructuring will fail. There will be great pressure on the business to bring forward the best possible restructuring plan and not go crazy on what changes the owner wants to make to the pledge of security.
Deemed acceptance and approval
Without going into all the rules, under the current consumer proposal legislation, there is the concept of deemed creditor approval and deemed Court approval. Unless creditors holding 25% in value of the proven claims request it, there is no need to hold a meeting of creditors. Creditors are asked to vote by way of voting letters when they file their proof of claim. If no obligation to call a meeting arises, then the consumer proposal is deemed accepted.
If a consumer proposal is either accepted or deemed accepted by the creditors, then there is probably never going to be a need for the LIT administrator to formally seek approval by the Court. The BIA reads that after the acceptance or deemed acceptance, the consumer proposal is deemed accepted by the Court unless the Official Receiver or “other interest party” requests it within 15 days after the date of (deemed) acceptance.
Currently, under a Division I Part III restructuring Proposal there are no deeming provisions for either creditor acceptance or Court approval. I would like to see in the new SBP section, that similar deeming provisions for both creditor acceptance and Court approval be implemented. This will save time and cost thereby being much more efficient.
No deemed bankruptcy
In a Division I Proposal, if the creditors do not accept the restructuring, or the Court does not approve it, then the debtor is automatically deemed to have filed an assignment in bankruptcy. There is not a similar provision for consumer proposals.
If the creditors do not accept a consumer proposal, then it just dies then and there and the debtor goes back to their normal unprotected state.
My proposal for the new SBP is that if the creditors do not accept or the Court will not approve the restructuring plan, that does not produce a corporate or personal bankruptcy. Rather, the debtor just goes back to their normal unprotected insolvent state and they have to fend off their creditors as best as possible.
It may lead to bankruptcy, but that will not be automatic. In some corporate situations, the cost of a bankruptcy proceeding just does not make sense. This is especially true if a chartered bank has security over all of the assets and will be enforcing its security through a receivership.
Directors/Owners
Right now a corporate restructuring Proposal allows for Directors to be released from debts that arise prior to the date of filing the Proposal. The kinds of debts that a Director can be released from are those solely resulting from their role as a Director. In other words, generally statutory claims they would be legally liable for.
As I already mentioned, more often than not, the only way a small or medium-sized company can get a bank loan is if the entrepreneur personally guarantees the debt. There are times where a corporate restructuring can be done, but the secured debt arrangements will have to be amended. If the lender is not willing to amend the personal guarantee security arrangements in place, then, the corporate restructuring does not make sense.
So in my dream of the SBP, if a secured lender agrees to a restructuring of their debt, then the Director(s) who may be personally liable will now be responsible for the revised secured lending arrangement. This would also go hand in hand with my proposed change to the ability to change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
Bankruptcy experts summary
So there you have it. The US government saw fit to add to its Chapter 11 bankruptcy protection statute to allow smaller companies to restructure. My vision for a Canadian version is the SBP section to form a new Part I Division III for the BIA.
To summarize, the changes to allow for a more efficient and less costly way to restructure smaller businesses would include:
The brand-new SBP will be offered to companies, proprietorships and partnerships that are established to run a business. It will be available to businesses with any kind of debt not greater than $1.5 million.
A LIT who will be called a Small Business Administrator, will oversee and be responsible for the business restructuring.
The time for the filing of a Proposal after the filing of an NOI will be extended from the current 30 days to 90 days. This will be without the need and cost of a Court application.
There ought to be the capability to transform the rights of a lending institution who has taken an entrepreneur’s home as security for a business loan or personal guarantee of such financing and the funds were put into the business.
Deeming provisions for both creditor acceptance and Court approval be implemented. It is already done in consumer proposals, so why not in streamlined business proposals? This will result in more efficient and less costly restructuring.
If the creditors’ decline or the Court will not approve the restructuring, that will not generate a corporate or personal bankruptcy. Instead, the debtor simply returns to their vulnerable financially troubled state and they will need to deal with their creditors as best as possible. In some cases it may lead to either bankruptcy or just a closing down of the business. Where there is a secured creditor, it will lead to the enforcement of their security. Either way, it won’t be an automatic bankruptcy.
A Director of a corporation can be released not only from statutory obligations arising from their office of Director. That person, or any other person, can have their guarantee of a debt to a lender be amended if the related business debt is amended in the restructuring.
There no doubt will be other areas that would need amending once all the relevant sections of the BIA were looked at. These are my ideas of the major amendments that could be made to the BIA, to allow for a more streamlined and cost-efficient restructuring for small and mid-sized businesses.
What about your business?
The financial restructuring process for either a large or small business 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 dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.
We know that companies facing financial problems need 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.
You may have read or heard about a recent survey. The headline was “Ipsos poll finds half of Canadians don’t trust professional help with debt”. The survey provided some interesting views but did not shed any light on why Canadians do not trust debt helpers.
I regularly speak with people who attend my office for a free initial consultation to try to solve their personal or company debt problems. From those experiences, I have compiled a list of the 10 most common reasons I believe why almost half of those surveyed do not trust debt professionals.
#1 What is a debt professional?
Confusion exists in the marketplace as to what you mean when you say the phrase “debt professional”. Depending on who is doing the talking, and the listening, you could mean:
Debt counsellor who has no real qualifications and just acts as an agent for bad credit personal loan companies or worse charges fees just to then take the person to a specifically licensed insolvency trustee (formerly known as a bankruptcy trustee) (Trustee)
Unfortunately, the survey does not define what the term “debt professional” really means.
#2 I don’t have a debt problem because I am making all my payments
People believe that if they can keep up all their minimum payments, then they are making all of their payments. So if the person says they are making all payments, they can’t have a debt problem. Therefore, they don’t trust anyone who tells them that they do.
However, especially with credit cards, there is a difference between making all the monthly minimum payments and paying the entire debt off every month. What they don’t recognize is that all they are doing is paying the credit card company interest and never actually paying down any debt. Eventually, it will catch up with them when they have no more credit.
#3 You will ruin my credit score
People with debt problems always tell me that they have a great credit score and either a consumer proposal or bankruptcy will ruin that. So with the belief that if they see a debt professional, all that person will do is ruin their credit score, distrust is born.
Even people who have recently been turned down for debt consolidation loans tell me that. What I tell them is that it is true that an insolvency filing will remain on their credit report for some time after they successfully complete their consumer proposal or get their bankruptcy discharge.
However, I also point out that in return, they will have their debt problems fixed. By fixing their debt problems, they will no longer suffer from pain, stress, anxiety, depression and sleepless nights. Some people then choose to take responsibility, fix their debt problems and rehabilitate themselves. Others choose discomfort, stress and anxiety, and sleep deprivation.
#4 Talking won’t do any good. What I need is a loan
Many people feel that talk is cheap. What they really need is money. The gambler with a gambling addiction thinks the next roll of the dice or the next hand of cards will produce all the winnings they need. In the same way, the debt addict believes that one more personal loan will solve all their debt problems. All it will really do is give them a bit more cash, which will never be enough to repay all of their debt.
Increasing debt is not a good strategy for getting out of debt. That extra bit of cash may feel good in the short term, but eventually, all it really is is more debt. What these people don’t realize is that by talking to a Trustee, when they find the right one for them, a relationship begins. The functioning partnership you create with your Trustee is a connection. As you create that connection, long-term modifications in your financial behaviour start to happen to produce good long term results.
#5 It would be weird speaking about such a personal thing with a stranger
In my experience, this may be an initial feeling but does not in fact happen. The majority of Trustees are competent at making you really feel comfy rapidly. They are neither impersonal nor judgmental.
As I mentioned above, once you find the right Trustee for you, a relationship begins. I have found that many of the people that I have helped, consider me a resource to call upon, even long after our professional relationship ends.
#6 I would rather speak to a friend or family member
I have heard this many times. This is really an excuse for not dealing with their debt problems. It is not a reason why people don’t trust debt professionals.
In fact, a recent Angus Reid poll titled The Awkward Silences Survey 2019 found that 17% of the Canadians surveyed do not like to talk about finances. Of those, the least favourite topics they like to talk about are:
Personal debt or bankruptcy – 34%
Assets, liabilities and net worth – 22%
Their income – 16%
How they spend their money – 12%
Savings and investments – 11%
Their mortgage – 5%
I get it. The topic is not pleasant. Speaking with a debt professional is an admission that you have a problem with debt. However, it is also the first positive step to take to solve your debt problems.
#7 Debt professionals do not truly respect you; they do it for the cash
Yes, there are unscrupulous people in the world who advertise themselves to be debt consultants. They make outlandish promises such as they will eliminate your debt without bankruptcy. I cannot speak for them, but I do know myself and many of my Trustee colleagues across Canada.
The Trustee and staff do earn money from helping people with their debt. Just like you earn money from your job or career. However, there is a common bond amongst all Trustees in Canada. That common bond is that they all enjoy helping people. They enjoy seeing your success from their assistance. If they did not, they would be doing something else.
#8 Everyone will know if I go to see a debt professional
This is a common feeling. Again I can only speak about Trustees. Although there is not the same confidentiality with a Trustee as there is with a lawyer, a Trustee does not blab. As big a country as Canada is and as big a city where I practice is, the Trustee community is small. If a Trustee broke confidences, word would get around quickly and that Trustee would not get any referrals.
Keep in mind that the word “trust” is found in “Trustee”. People trust us with some of their deepest problems and we help solve them. I don’t talk to others about your issues.
It is true that the Office of the Superintendent of Bankruptcy runs a database of all insolvency filings. This is a public database that anyone can search for $8. Also, the two Canadian credit reporting agencies, Equifax Canada and TransUnion Canada, purchase that information for their own databases. I have never had anyone tell me that their brother-in-law searched the government database and found out about their insolvency filing.
So at the end of the day, the only people who will know that you filed are yourself, your Trustee, your spouse and anyone that you have told.
#9 The professional fee is too expensive
That depends on who you go to see. If you go to a community credit counselling agency, it is probably no charge. If you go to a debt settlement company scammer, then every one cent is too expensive because they do not do anything useful for you. If you go to see a Trustee, the entire process may end up being free.
Let me explain. The initial consultation with any Trustee will be free. You should get that confirmed upfront when you make the appointment. Other than for situation where you have no assets and no income, a consumer proposal filing or a bankruptcy administration will probably end up not costing you any money specifically for professional fees. Here is why.
The Trustee will advise you what will happen to you and what your responsibilities are in a bankruptcy or consumer proposal. In a bankruptcy, other than for exempt assets, you have to turn over your assets to the Trustee. If you earn income, you may also have a surplus income obligation to pay. The Trustee, under the statute, will be entitled to a fee for services out of those proceeds. So, you will pay nothing for the Trustee’s approved fee.
In a consumer proposal, the Trustee has to first do the bankruptcy calculation. Under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), a consumer proposal must produce a better result for your creditors than your bankruptcy. The Trustee will discuss with you his or her best estimate of how much you need to offer to your creditors in your consumer proposal in order to be successful. That calculation has nothing to do with the fee the Trustee is entitled to under the BIA. The statute says that the Trustee is entitled to a statutory fee from the consumer proposal fund.
So, in this way, the Trustee’s fee for a bankruptcy or consumer proposal administration costs you nothing.
#10 I don’t have time
I believe this also is more of an excuse, not a real reason for not trusting a debt professional. It is uncomfortable to face your debt problems head-on. It is more comfortable to ignore them.
A Trustee will provide a 1-hour consultation for free. In that hour, you will gain better insight to your debt issues and the realistic options available to you to fix them. I always have people tell me at the end of the free consultation, that I have helped them feel much better than they did when they first walked in.
So think of all the things that you do in a day or week, and I am sure that you can find 1 hour to help yourself. If you have a job that makes it impossible to see a Trustee during normal business hours, a Trustee will accommodate you. I have held many early morning or evening appointments.
Debt helpers summary
I hope this debt helpers Brandon’s Blog helps you. As previously stated, there is a good reason not to trust certain debt helpers. You don’t need to feel that way about seeing a Trustee. Are you on the verge of bankruptcy? Do not let any misconceptions about being able to trust a Trustee stop you from understanding how you can restructure your financial affairs and avoid bankruptcy. You do not need to be one more person or company declaring bankruptcy in Canada.
As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only specialists certified, accredited and overseen by the federal government to provide insolvency guidance and to apply remedies under the BIA. We will certainly help you to choose what is best for you to release you from your debt problems.
Call the Ira Smith Team today so we can get rid you for you the stress, anxiety, pain and discomfort that your money issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now. Call the Ira Smith Team today.
Introduction
