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If you would prefer to listen to the audio version of the Canada insolvencies Brandon blog, please scroll to the bottom and click play on the podcast
Canada insolvencies introduction
Ideally, if the debt was free as well as limitless, most of us would certainly be able to spend for whatever we wanted with a couple of swipes on our credit card. Companies would be able to buy supplies and also pay salaries simply by borrowing a lot more from their lender. There would be no Canada insolvencies and I guess I would be out of work!
But when the credit crisis struck at the start of this century, it revealed simply how much complimentary and limitless credit there really was, and also the number of people who had been living beyond their means with massive huge debt loads for years.
In 2020, the coronavirus pandemic struck the globe. Every country’s health system has been exhausted to the max. Governments initiated widespread lockdowns and strove to maintain their respective economies afloat. Canadian workers lost their jobs or otherwise having their income considerably decreased because of stringent lockdown measures. This required the federal government to bring in several assistance programs for individuals as well as businesses under the banner of Canada’s COVID-19 Economic Response Plan. Household support measures were imperative.
Every pundit, economist and insolvency insider forecast that Canada insolvencies would jump in 2020. They didn’t. I discuss why and what it means.
What Canada insolvencies mean
As I have written many times in the past, the word insolvency refers to a financial condition in which a person or business is not able to pay its financial obligations. The sensation of being in debt can be an extremely frustrating scenario. The thought of being not able to settle your debts is impending darkness that can seem impossible to get rid of.
As I have promoted many times in my blogs about Canadian households and family budgets, your charge card must continue to be securely in your pocket most of the time. You only should utilize it to acquire things you’ve budgeted for. Nonetheless, if you find yourself not able to pay your credit card bill, you might run the risk of dealing with a scenario known as insolvency. If you have a large amount of debt or restricted earnings, the concern of insolvency needs to be a large motivator for you to do something about it. It causes strains in households.
Limited, lowered or no revenue, whether you are an individual or a company, has actually been the result for lots of Canadians due to the coronavirus pandemic. The provinces, including Ontario, implementing lockdowns of differing degrees has also been a cause. The federal government had no choice but to generate its economic response plan to make aid payments to individuals and companies. Pundits had actually been anticipating a rise in insolvency volumes since the 2nd quarter of 2020.
Global insolvency insider forecasts said there would be a rise in Canada insolvencies and elsewhere in 2020
Insolvencies in the UK were anticipated to leap to record levels by 27% in 2020. That was exposed in a financial study called the Atradius Insolvency Report. Atradius is a leading trade credit insurance firm. It also forecasted that every major economy in all countries, except for China, was anticipated to enter an economic downturn in 2020 with international GDP forecast to contract by 4.5%. This would make it a much more intense recession in magnitude than the Great Recession of 2009. Naturally, COVID-19 was the reason.
Euler Hermes, a trade insurance firm, reported that it predicted that governments around the globe are clambering to save companies battered by coronavirus lockdowns. They said the world is nonetheless encountering a huge rise in insolvencies by one-third in 2020 and also 2021.
In Canada, increased food prices, loss of income and a cost of living have many individuals struggling monetarily. Credit card debt is surging and that is what might push numerous people over the edge. Statistics Canada just released a preliminary estimate that 2020 GDP reduced by 5.1% over year-earlier levels which is the worst year in over 6 decades. The federal government will certainly be presenting a new budget to try to kickstart Canada into an economic recovery. Predictions for later in 2020 also had Canada insolvencies rising.
What really happened in 2020 Canada insolvencies
Nonetheless, as 2020 finished, Canada insolvencies including personal bankruptcies went to a 24-year low. The 2020 trend in insolvencies was a continuing descending pattern. There’s been no spike in personal and business bankruptcies notwithstanding lots of financial difficulty in our country. There was no surge in Canada insolvencies. The opposite was true.
I have previously written on the decrease in Canada insolvencies. In my view, the main factors for the record low Canadian personal insolvencies and corporate insolvencies, including bankruptcy filings in 2020 were:
- federal and provincial government support measures including the Canada Emergency Response Benefit (CERB), Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Business Account (CEBA), which had an increase from $40,000 to $60,000
- mortgage debt payment deferrals
- the courts having been closed for many months so nobody could get sued
So the predictions for 2020 regarding the level of insolvencies did not come true as there was a continuing decline in insolvencies. So now, each economist and all the pundits have just kicked their signs of increases in insolvencies predictions down the road and claim that 2021 will be the year for the big jump in corporate and Canadian consumer insolvencies. The main reason cited for these 2021 insolvency forecasts is that as far as we know now, the COVID-19 relief programs will wind down. Canada, like most other nations, is not expected to return to a pre-pandemic level for some time.
How do you prove insolvency?
Canada’s insolvency laws are fairly straightforward. The two main options for an individual who cannot pay all their debts are also straightforward under the Bankruptcy and Insolvency Act (Canada) (BIA). You either file for an individual consumer proposal or personal bankruptcy.
For insolvent corporations, there are options for them under the BIA too. They can restructure and reduce their debts through a Division I Proposal. Alternatively, a company can file for bankruptcy. For companies with debts greater than $5 million, they could choose to restructure by filing under the Companies’ Creditors Arrangement Act (CCAA).
I have also written before about the tests for Canada insolvencies. They are:
- the debtor has stopped paying debts as they generally become due
- your liabilities are greater than your assets
- if you liquidated all of your assets, there would not be enough money to pay off all your debts in full
Canada insolvencies: What happens during insolvency?
When a person or company finds themselves not able to pay their costs, they are insolvent. Insolvency is an economic problem. This typically indicates that they cannot pay their present expenses in a prompt way. There are a number of choices for dealing with your debt when you go into insolvency. What you need is the insolvency advice of a licensed insolvency trustee (Trustee). The Trustee will certainly examine your scenario, establish your insolvency level and discuss your sensible alternatives with you.
As an individual, you can try to use the proposal provisions of the BIA to keep your assets, while you negotiate with your creditors with the help of the Trustee. The objective is to come up with a plan to pay a portion of what you owe to eliminate all of your financial obligations. This allows you to attempt to reorganize your business or personal situation to avoid bankruptcy. It is important to understand your choices.
Lots of people are afraid of declaring bankruptcy or perhaps even owing money. Not many individuals understand what happens throughout insolvency. People assume bankruptcy is a quick fix to all of their financial problems. They think they will never ever need to fret about cash ever again. They are wrong. When you file for bankruptcy, you have simply taken a massive step in the direction of economic liberty.
Nonetheless, there are duties and responsibilities on the person that declares bankruptcy. The process is developed to work with you using counselling to ensure, as best as feasible, that your financial troubles will no longer rule your life. The ultimate objective is that when you have actually successfully completed your debt settlement proposal or have your bankruptcy discharge, you will not once more be tempted to have additional debt that is going to drag you back into insolvency.
It is very important to remember that just because you owe money does not imply that you ought to give up. Rather it suggests that you require to find among the realistic options that a Trustee can help you with to work you out of financial trouble.
Canada insolvencies: What happens when you file insolvency?
At some point in life, you may find yourself in an economic scenario that you do not recognize exactly how to get yourself out of. You’ll be stuck in a situation where you owe more money than you can ever pay back. Remember that insolvency is a financial situation. You can become insolvent, but you cannot file insolvency.
What you can do is search for an option to settle your financial debts, leave them behind as well as move forward with confidence and no tension in your life. It is not your fault that you cannot do it yourself. You have only been taught the old ways. A Trustee can help you using new ways. That is what we are trained to do.
The options, in order of seriousness and urgency, within the Canadian insolvency framework are:
- Devise a realistic family household budget to see where you can divert the money you are currently spending away from certain items to unpaid debt until it is all paid off. Household finances must be studied to make sure that there is a balanced budget.
- Reaching an informal arrangement with your few creditors to get deferrals from creditors and/or pay them less than the total amount owing on each in order for them to write off the balance.
- Reaching a formal debt settlement plan through a Trustee in order to extend the time you have on an interest-free basis and agreements with creditors that you will pay less than the total owing in order to wipe away all of your unsecured debt. This process is called either a consumer proposal or a Division I Proposal, depending on whether you owe more or less than $250,000. To read more about consumer proposals, please click to read my consumer proposal faq blog.
- Filing for bankruptcy in order to eliminate your debt and start again fresh, Starting Over, Starting Now.
This is what the BIA is designed for. For corporations owing less than $5 million, they too can take advantage of either debt settlement or bankruptcy using the BIA. If a corporation owes more than $5 million, they can also consider a debt settlement plan under the Companies’ Creditors Arrangement Act (CCAA).
You can deal with your own form of insolvency through the BIA if you can’t pay your bills and you can’t find a way to get out of your situation. You can do one of the consumer insolvency filings available to avoid being harassed by debt collectors. Consumer filings are available to individuals to get a fresh start. Your car breaks down and you can’t afford to fix it. Your debt through mortgages payments are too high. You can’t pay your rent. Why would you not want a no-cost consultation with a Trustee? You literally have nothing to lose.
Canada insolvencies summary
I hope you enjoyed this Canada insolvencies Brandon Blog post. Will there be an increase in insolvencies around the globe in 2021? What will the insolvency figures end up being? I don’t know. But rather than worrying about the whole world, what about you?
If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.
The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.
The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.
We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.
That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, Contact the Ira Smith Trustee & Receiver Inc. group today.
Call us now for a no-cost consultation.
We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.
We hope that you and your family are safe, healthy and secure during this Covid-19 pandemic.
Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.