Tag: licensed insolvency trustee

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

what is a consumer proposal
what is a consumer proposal

What is a consumer proposal introduction

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

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

What is a consumer proposal?

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

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

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

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

What is a consumer proposal: Is it worth it?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A consumer proposal will eliminate income tax owing

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

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

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

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

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

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

Is a Consumer Proposal Right for You?

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

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

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

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

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

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

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

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

What is a consumer proposal summary

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

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

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

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

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

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

what is a consumer proposal
what is a consumer proposal
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Brandon Blog Post

WILLS AND ESTATES: SELLING DECEASED ESTATE PROPERTY

wills and estates

If you would like to hear the audio version of this wills and estates Brandon’s Blog, please scroll to the bottom and click on the podcast

Introduction

Earlier this year, I wrote several blogs dealing with the administration of wills and estates. As I previously wrote, Ira Smith and I got very interested in this area. The reason was that we saw that the skill set required and the activities undertaken by an executor of a deceased estate, were quite similar. In Ontario, the executor of a deceased estate is called an estate trustee.

My series of blogs on the administration of a deceased estate in Ontario, in no particular order, were:

  1. DYING WITHOUT A WILL IN ONTARIO: DISTRIBUTION TO HEIRS NOT EASY
  2. TRUSTEE OF DECEASED ESTATE: WHAT A TORONTO BANKRUPTCY TRUSTEE KNOWS
  3. TRUSTEE OF PARENTS ESTATE: DO I REALLY HAVE TO?
  4. ESTATE TRUSTEE ONTARIO REMOVAL ISSUES
  5. SUCCESSION LAW REFORM ACT OPPORTUNITIES FROM A TORONTO BANKRUPTCY TRUSTEE
  6. TRUSTEE ACT ONTARIO BY A TORONTO BANKRUPTCY TRUSTEE
  7. ADMINISTRATION OF ESTATES ACT CANADA: EASY FOR TORONTO BANKRUPTCY TRUSTEE TO DO
  8. ESTATES ACT ONTARIO: TORONTO BANKRUPTCY TRUSTEE REVEALS HIDDEN SECRET
  9. PROBATE IN ONTARIO – SMITH ESTATE TRUSTEE ONTARIO BEGINS

The purpose of this Brandon’s Blog is to review a very interesting recent Court of Appeal for Ontario decision appealing a lower Court’s ruling in an estate matter. The appeal was launched by the Estate Trustee who felt the lower court judge erred in approving a sale of an estate asset for a lower price than the Estate Trustee thought was proper. The Court of Appeal for Ontario upheld the lower court’s decision.

This could very well happen to a receiver or trustee in an insolvency file. Again, another similarity between the role we take on in an insolvency file administration and the role Smith Estate Trustee Ontario takes on as Estate Trustee in the administration of a deceased estate.

Wills and estates definition

First some basics. An estate is the property that an individual owns or has a lawful controlling interest in. The term is usually made use of to define the assets and liabilities left by a person after death. A will is a document that states your final wishes. It is a document that becomes operative after your death. It will appoint one or more people to act as an estate trustee. It will also provide for how you want your assets to be divided up amongst your beneficiary or beneficiaries.

On December 6, 2019, the Court of Appeal for Ontario released its decision in the legal case Loran v. Weissmann, 2019 ONCA 962 (CanLII). As I mentioned, the Estate Trustee appealed the lower court’s decision released in January 2019. The issue was one that could easily come up in other wills and estates. Since the issue being appealed was the lower court’s decision on a sales price for an asset, this issue also can arise in insolvency files. Just a different context.

Wills and estates Ontario: What was the issue?

This appeal by the estate trustee occurred out of a disagreement regarding a provision in the will concerning the sale of the business owned by the deceased. Unfortunately, this happens all too frequently. The provision in dispute was regarding the sales price of the business.

The will stated that the respondent, a long-time employee of the business, could purchase the business. The purchase price stated in the will was “…the lesser of $1.75 million or “the price determined by multiplying the earnings of…(averaged over the last three fiscal periods) by a factor of 5.5”.

The will also stated that the price paid by the respondent will be provided by way of a promissory note, with interest payable at 5% per year. There will be an annual repayment to the estate of not less than $180,000, to be made in month-to-month payments. The promissory note was to be secured by a general security agreement against the assets of the business and by the registration of a mortgage against the respondent’s house.

So far it sounds pretty simple, or so you would think.

They couldn’t reach a deal

The long-time employee tried to purchase the business, but the estate trustee and the employee could not agree on the purchase price. That is how they ended up in court.

The lower court judge hearing the evidence ruled that the sales price will be $529,611. He calculated this as $716,921, using the formula in the will, minus $187,310. This latter amount was an amount the Judge ruled was improperly paid by the company to the estate. The Judge also ruled that the employee was not required to provide the collateral mortgage. The estate trustee felt that this went against the will.

The appeal by the estate trustee

The appellant submitted that the application judge made the following mistakes:

  • he treated the respondent as a beneficiary as opposed to a favoured buyer;
  • he ignored the need of a collateral mortgage;
  • he approved the respondent’s evidence about the amount to be attributed to the deceased owner’s wages for the purposes of computing the earnings of the company; as well as
  • he incorrectly subtracted from the sales price the $187,310 paid out of the company to the estate.

The Court of Appeal for Ontario did not agree with any of these grounds for appeal.

The reasons were given by the Court of Appeal for Ontario

Beneficiary vs favoured buyer – The appellate court did not find any error in the lower court ruling on this. The Court of Appeal for Ontario noted that the will did not try to maximize the value of the business. It did not state that the estate trustee had to run a marketing effort to obtain the best price under the circumstances.

You would expect this to be the case in any sale by either an estate trustee or a receiver or licensed insolvency trustee. The appeal court noted this absence of intention. Rather, they agreed with the lower court that the intention was for the long-time employee to buy the business under the formula in the will.

Collateral mortgage – The evidence before the lower court was that at the time the will was written, the long-time employee did not own a home. The will also did not have any language about what minimum amount of equity the long term employee’s home had to have to provide for the collateral mortgage security. There was no argument that the lower court judge had the right to apply commercially reasonable terms. So, since the will was so unclear on what wording and real value the collateral mortgage security had to have, the lower court judge ruled that it would be meaningless and was unnecessary in the circumstances. The Court of Appeal for Ontario agreed again with the lower court judge.

The owner’s salary adds back to normalize earnings – The evidence was that at trial, both the appellant and respondent provided expert witness reports on this issue. The lower court judge preferred the respondent’s expert evidence. The appellant took issue with this. The Court of Appeal found that the lower court judge had the right to rely on one or the other of the expert’s reports and made a judgment call. There was nothing in that decision to be overturned.

Payment of $187,310 – The appellant’s position was that this payment would one day be rectified by the company recording this payment as a dividend. The appellant stated that the company had the right to pay dividends, which it had in the past. The lower court judge agreed that, as long as the payment of dividends did not render the company insolvent, it could do so.

The lower court judge also found that in the past the company had paid a dividend. However, it did not characterize this payment as a dividend, but rather, just payment to the estate. The lower court judge ruled that the purchaser should get the benefit of those funds having been stripped out of the company by a reduction in the purchase price of that same amount.

It turned out that the estate trustee caused the company to make that payment to the estate so that the estate could then pay out those funds to support the deceased’s widow. The company did not record that payment as a dividend or as salary to the widow. The lower court drew a distinction between dividends and gratuitous payments from the company’s bank account. The appeal court found that decision was within his discretion and there is no basis to interfere with the lower court judge’s finding.

So, the appeal court dismissed the appeal entirely and ordered that the appellant pay the respondent’s costs fixed in the amount of $10,000.

Summary

As I stated at the beginning, there are a lot of similarities between acting as an estate trustee and administering an insolvency file. Disputes normally arise in insolvency files. As this case shows, disputes also arise regularly in the administration of a deceased estate.

As a result of the similarities, we started this year Smith Estate Trustee Ontario. We currently have several estate trustee administrations underway. Our mix of empathy, experience and impartiality provides us with a distinct viewpoint. We have the capability to appropriately administer a deceased estate. Through our efforts, we minimize problems and accomplish outcomes for all stakeholders in an economical way.

We provide a full range of services to provide solutions for the complex Estate issues to end the pain and frustration the stakeholders are experiencing. We apply our expertise and creative thinking to take care of all details to end your pain and achieve the goals of the beneficiaries and other stakeholders. Contact Smith Estate Trustee Ontario today for your free consultation. Get our no cost full-scale analysis of your issues and our recommended options to solve your problems allowing you to move forward confidently. Check out our website by clicking HERE.

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UNDISCHARGED BANKRUPT: WHAT YOU NEED TO KNOW ABOUT BANKRUPTCY DISCHARGE

undischarged bankrupt
undischarged bankrupt

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

Undischarged bankrupt introduction

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

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

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

How bankruptcies work in Canada

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

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

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

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

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

Can an undischarged bankrupt leave the country?

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

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

    undischarged bankrupt
    undischarged bankrupt

Undischarged bankrupt: What is an undischarged debt?

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

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

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

Undischarged bankrupt: Trustee opposed the discharge

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

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

Notice of opposition to discharge

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

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

undischarged bankrupt
undischarged bankrupt

The judgement creditor

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

undischarged bankrupt
undischarged bankrupt

Undischarged bankrupt summary

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

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. We know that we can help you the way we take the load off of your shoulders and devise a debt settlement plan.

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

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

undischarged bankrupt

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Brandon Blog Post

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

Introduction

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

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

Manulife Bank Canadian customer debt relief reviews

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

The 2019 survey results show:

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

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

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

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

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

The generational differences are:

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

How can I get relief from debt?

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

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

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

The 6 main benefits of a household budget

The 6 main benefits of a household budget are:

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

Is there a government debt relief program?

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

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

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

Canada debt help summary

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

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

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

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

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

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HOW DOES DEBT RELIEF WORK: APPARENTLY NOT GREAT 4 EVERYONE

NOTE: On January 13, 2022, three settlement agreements were approved by the Honourable Justice Mayer of the British Columbia Supreme Court on January 29, 2021, and November 15, 2021. As a compromise of disputed claims, these settlements are not an admission or finding of liability by the settling Defendants. You can read all about the Settlement Administration Plan and how to file a claim by CLICKING HERE to read our latest 4 Pillars blog.

how does debt relief work
how does debt relief work

If you would prefer to listen to the audio version of this how does debt relief work Brandon’s Blog, please scroll to the bottom and click on the podcast.

How does debt relief work Introduction

On October 29, 2019, The Supreme Court of British Columbia, certified a class-action lawsuit in Pearce v. 4 Pillars Consulting Group Inc., 2019 BCSC 1851. At the crux of the litigation, the question of how does debt relief work legally will be answered. In Brandon’s Blog, I describe the issues raised in this class-action lawsuit.

What is a class action?

In a class action, one or more individuals called Representative Plaintiffs sue on behalf of all other individuals with similar claims. With each other, the people included in the class action are called Class Members. One court settles the concerns for all Class Members, with the exception of those that exclude themselves from the Class.

The 4 Pillars lawsuit class-action

A class-action legal action has been begun in the B.C. Supreme Court against the 4 Pillars Consulting Group Inc. (4 Pillars). The claim is that the 4 Pillars debt consulting business has breached the B.C. Business Practices and Consumer Protection Act as well as the federal Bankruptcy and Insolvency Act (Canada) (BIA).

how does debt relief work
how does debt relief work

Plaintiff seeks to certify his action as class proceedings. The litigation looks to recoup damages for the costs billed by 4 Pillars as debt consultants to its clients. In the 4 Pillars litigation, Mr. Pearce is looking to recoup damages for the costs billed by 4 Pillars to all persons that paid fees to it in British Columbia in connection with: (i) a consumer proposal under the BIA; or (ii) an informal debt settlement proposal with the person’s creditors, all after April 1, 2016.

How does debt relief work: The allegations

In his litigation, Plaintiff claims that Defendant provided debt restructuring services in breach of both provincial legislation and the BIA.

Mr. Pearce alleges that:

  • The major, if not single, debt restructuring solution given by 4 Pillars is to prepare the consumer proposal documents to hand over to licensed insolvency trustees (formerly called licensed bankruptcy trustees or a bankruptcy trustee) (Trustee) and schedules a meeting with the Trustee so that the consumer proposal can be submitted;
  • 4 Pillars debt consultants represent that it might hold financial liability negotiations directly with a customer’s creditors, trying to get you an informal debt settlement, although that service is hardly ever really supplied;
  • Their standard form agreement, which clients need to enter into with them, allows 4 Pillars to speak to the client’s creditors on their behalf;
  • Under their standard procedures, 4 Pillars gets in touch with the debtor’s creditors to advise them that they are acting for the debtor and they will need time to make plans for the debtor; and
  • They meet the debtor numerous times, collect information from the borrower, prepare a consumer proposal to provide to a Trustee and afterward meets the Trustee to administer the consumer proposal process.

Mr. Pearce goes on to state the 4 Pillars:

  • acts only for its clients, the borrowers;
  • prepares a consumer proposal for its clients and afterward represents to the Trustee why the proposal terms are reasonable;
  • urges the Trustee to recommend that the creditors accept the proposal on the suggested terms;
  • meets the Trustee and helps in answering the Trustee’s concerns; and

will, ideally, create an alternate proposal and, once more, advocate the Trustee, if their first consumer proposal is rejected by the borrower’s creditors.

The alleged cause of action under the BIA: Are the activities of a debt consulting business in breach of the BIA?

Mr. Pearce claims that contrary to the provisions of the BIA:

  • none of the entities or individuals offering financial debt restructuring services are Trustees;
  • performed various regulated activities that only Trustees are authorized to carry out;
  • collected financial information from their customers and prepared consumer proposals for them; required borrowers to pay fees and costs which are not allowed; and
  • 4 Pillars has actively solicited people to file consumer proposals which is prohibited.

There are many more claims being made by Mr. Pearce, including that there is not any real debt settlement negotiation with creditors or any real debt relief management, other than the preparation of the consumer proposal. Defendant, of course, denies it all. After hearing all the evidence, the Court found that there were sufficient grounds for this litigation to go forward as a class-action lawsuit.

Are Debt Relief Programs a good idea?

Is debt settlement a good idea?

Debt relief programs are a good idea. However, as Mr. Pearce’s litigation shows, there are companies that charge high fees and really provide no value. Worse, they may actually do more harm than good.

I have previously blogged about the risks of debt settlement businesses. In 2017, I covered the study by the Office of the Superintendent of Bankruptcy (OSB) on debt negotiation companies.

The major findings of the OSB study were that in 2016:

  • In 17% of all consumer proposal filings, the client reported having spent initially for debt counselling from a debt settlement company before being guided to a Trustee.
  • 57% of the consumer proposal filings for which earlier financial debt settlement advice was obtained, the Trustees had strong ties with 2 large-volume financial debt settlement companies. These 2 companies represented 64% of the total for those Trustee fees reported in 2016 for financial advice before submitting to a proceeding with a Trustee.
  • Thirteen Trustee firms, that included one national-level firm, were uncovered to have countless Trustees running in routine partnership with large-volume financial debt settlement firms.
  • For about 50 Trustees within these 13 firms, much better than 40% of their consumer filings were sourced from these debt settlement companies. For about 20 of those Trustees, more than 90% of their consumer proposal work stems from these 2 organizations.
  • Financial debt negotiation companies have actually long utilized scare tactics with consumers to draw in business. They tell consumers that all a Trustee intends to do is put them into bankruptcy.

The OSB concluded that customers were paying financial debt settlement companies fees with cash they could not afford to pay. Only when they could no longer pay, then the debt settlement company referred the people to their favourite Trustees! The OSB was additionally concerned about the business arrangements being made between financial debt settlement outfits and those same Trustees. The OSB is very concerned with how does debt relief work in Canada since it supervises the insolvency process in Canada.

Ever since the OSB has actually introduced modifications to methods that Trustees have to comply with for the regulation of debt counsellors and business arrangements with a view to curb these practices. For the record, I as well as my Firm have no relationship with any type of debt negotiation company

how does debt relief work
how does debt relief work

Do Debt relief companies really work?

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

How does a debt relief program affect your credit?

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

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

So, the debt settlement credit score impact is real.

Is Debt Settlement Really Worth It?

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

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

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

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

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

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

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

4 Pillars lawsuit update May 24, 2021

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

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

How does debt relief work Summary

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

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

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

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

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

 

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Brandon Blog Post

CREDIT COUNSELLING CANADA: VERY BUSY WITH BANKRUPTCY ONLINE CHATTER

credit counselling canada
credit counselling canada

If you would prefer to listen to the audio version of this credit counselling Canada Brandon’s Blog, please scroll down to the bottom and click on the podcast

Introduction

Like many people, I have set up various Google News alerts. Mine are mostly on the topic of insolvency. I have done this so that whenever a news article is posted on the topic, I will be alerted. One of the alerts I have set up is for the term “credit counselling Canada”. Last week I have noticed that a fair bit of bankruptcy online chatter.

The posts being promoted include:

I have taken a look at the posts. Generally, they are very accurate.

Unscrupulous debt consultants

I was very happy to see some of the posts warning against going to the unscrupulous debt consultants that I have written about before. The Office of the Superintendent of Bankruptcy (OSB) has also warned against them.

The purpose of this Brandon’s Blog is to comment and shed light on several comments in their recent busy online articles that I think are slightly misleading.

Consumer Proposal Ontario

In the Ontario consumer proposal blog, it is stated that a consumer proposal can only be arranged and administered by a bankruptcy trustee (now called a licensed insolvency trustee) (Trustee) which is true. They then go on to state what the cost of a consumer proposal is, that you need to pay an initial setup fee. They also state that the Trustee will also keep 20% of all of your consumer proposal payments.

This is misleading. The way I read it, is they claim you will have to pay a Trustee a setup fee, their fee and an additional 20%. This is not correct. In reality, the Trustee’s fee is a fixed tariff set by the Bankruptcy and Insolvency Act (Canada) (BIA). The fee and disbursements of the Trustee are set in the statute. It is illegal, for the Trustee to collect anything above and beyond the statutory tariff.

The reality is that the Trustee’s fee and disbursements, set by a tariff, come out of the person’s consumer proposal payments. The consumer proposal payments are calculated off of what your creditors can expect in that person’s bankruptcy. Whatever that amount is, the bankruptcy law says that the amount offered in the consumer proposal must be higher. Therefore, the amount a person must offer to get creditor buy-in to accept the consumer proposal has zero relationships to the Trustee’s fee and disbursements.

As the Trustee is entitled to take its capped fee and disbursements from the consumer proposal fund, rather than costing the person, the Trustee’s fee and disbursements are actually free to the insolvent debtor!

Bankruptcy Trustee, Creditor & Debtor

The blog I read on this topic discussed is pretty accurate. The only issue I take is that when describing the role of the Trustee, they pull out the old scare tactic that although the Trustee makes sure that the rights of the debtor are not abused, the Trustee acts for your creditors. This is technically true but overlooks the role of the Trustee as a credit counsellor before the debtor decides whether or not to file either a consumer proposal or for bankruptcy.

In my professional practice, before I allow anyone to file for bankruptcy, I provide an exhaustive and detailed analysis of the person’s financial situation. I first ask the person to explain the issues and financial crisis they are facing which is upending their life. We then together look at their assets, liabilities and income so that I can come up with realistic options. We then discuss the options available and I explain the advantages and disadvantages of each. Then I provide my recommendation. All of this is done in an initial consultation and is no charge to the person.

If they wish to explore the options we discussed more seriously, I then have them complete our standard intake form called the Debt Relief Worksheet. That document when fully completed and provided to me with appropriate backup, allows me to confirm my initial diagnosis and recommendations. Then it is up to the debtor to make their choice as to how they wish to proceed.

After going through this process, with everything fully explained by me, there are no surprises. If the debtor follows my advice, they will have either a successful debt settlement consumer proposal or will discharge their debts through the bankruptcy process. During and after this entire process, the debtor does not feel that I am biased against them in favour of their creditors. Although I have acted formally on behalf of their creditors, the debtor thanks me for saving them and allowing them to restart their lives.

Personal bankruptcy Toronto

The blog I read on personal bankruptcy, part of a credit counselling Canada series, said that people will tell you that bankruptcy eliminated all of their debts. They then ask the question: Did they tell you that it is not possible for everyone? The obvious answer is no because someone who eliminated all of their debts isn’t worried about someone else’s situation and distinctions.

The three types of debts given as examples that cannot be eliminated by a discharge from bankruptcy are:

  • Secured debts, like mortgages and car loans
  • Student loans where you have ceased being a full-time or part-time student less than 7 years ago
  • Child and alimony support payments

This is all true. When I counsel debtors during the free consultation, we review issues like this. We discuss all of the person’s debts, which can be discharged and which cannot be. Just because a certain debt on its face cannot be discharged through bankruptcy, does not mean that the person cannot properly avail themselves of an insolvency process and improve their financial position in life.

Specifically, with secured debt, I attack it from the perspective of can you afford to keep paying that debt, or should you keep paying it. If the home is fully encumbered and there is no or little equity, perhaps renting is a cheaper alternative. We go through the same analysis for a car loan.

In some cases, it might make sense for the person to give up the asset to the mortgagee/lender and allow them to make a demand on the debtor for the shortfall. A shortfall happens when the lender sells the asset but the market will only pay less than the secured debt owing. The lender’s loss is the shortfall. They can pursue the debtor for the loss.

That lender loss, or shortfall, is now an unsecured debt. The person has hopefully found a car they can afford and home, condo or apartment to rent they can afford in their budget. They have now turned the secured debt into an unsecured shortfall claim. That unsecured debt can be discharged through either a consumer proposal or bankruptcy process.

So just because a secured debt cannot be discharged in bankruptcy, it doesn’t mean the person can afford or should keep that debt and continue making payments. They may have a better way to live while then being able to discharge their debts through an insolvency process.

Bankruptcy Discharge in Canada

The blog I read on bankruptcy discharge does not say too much about the bankruptcy discharge process. Rather, they do focus on the dangers of not getting a discharge and remaining undischarged bankrupt.

Everything they say on the topic is true. However, I believe it does leave out a lot of information. In my experience, if someone follows my advice and lives up to all of their obligations during the lifetime of their bankruptcy, then they are not going to have a problem with discharge. It really is only those who try to “game” the system, do not fully cooperate and refuse to make full and transparent disclosure who have problems.

That is how the BIA is designed to work. You are asking your creditors to forgo a lot of the debt you owe them. In return, you have to be fully cooperative and make full disclosure, so that every stakeholder in the bankruptcy process knows that it has been a fair process.

In all of the personal bankruptcies I have administered, it is a very small minority who have a problem with discharge. In all cases, it is their past behaviour or their lack of full disclosure in bankruptcy that has caused the problems, not the bankruptcy process itself.

Summary

I hope you enjoyed this Brandon’s Blog on credit counselling Canada. Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

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

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

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

 

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Brandon Blog Post

INSOLVENCY LAW CANADA AMENDMENTS FOR INTELLECTUAL PROPERTY RIGHTS

Insolvency Canada news

The Federal government published in the Canada Gazette, Part II, Volume 153, Number 18, its intention to amend Canadian insolvency law for intellectual property rights (IP). On November 1, 2019, those changes came into effect. This change was part of the Canadian 2019 Budget. In Brandon’s Blog, I will discuss what the changes are and why they were made.

Insolvency law amendments for IP in Canada

Amendments relating to how IP is treated under Canadian insolvency law were made to the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) and the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) was made. The BIA controls liquidations and restructurings for people and companies, and the CCAA covers large company restructurings.

The changes are meant to shield IP user rights in cases where the IP licensor becomes insolvent.

The BIA, as well as CCAA changes in the Budget Implementation Act, 2019, No. 1, are intended to improve retired life protection by making the insolvency procedure fairer and much more clear.

Previous Canadian IP insolvency law

Previously, Canadian insolvency law only explicitly dealt with IP in restructuring proceedings. Both the BIA and the CCAA allows for a debtor to disclaim or resiliate agreements. There are certain conditions that the debtor business must meet. This essentially boils down to being able to prove that the agreement in question is either so onerous and/or costly to the debtor business, that a successful restructuring is impossible if the debtor must continue honouring that agreement.

Specifically, as it relates to IP, the BIA, and CCAA if a debtor who is a licensor under an IP agreement disclaims the agreement, the licensee has rights. The licensee can continue to use the IP and gain all benefits it had bargained for, as long as the licensee continues to perform its responsibilities under the IP agreement concerning the use of that IP.

There was no such equivalent section for the receivership or bankruptcy of the debtor. So, if there was a liquidation, the licensee was not protected the same way they would be if the licensor debtor business disclaimed the agreement in financial restructuring.

Insolvency law reform

The amendments in Budget Implementation Act, 2018, No. 2 were done to protect copyright (IP) individual rights in situations where the IP licensor comes to be insolvent.

Effective for all filings beginning on November 1, 2019, or later, there are changes to the BIA and the CCAA, Canada’s main insolvency statutes. The November 1 amendments are done so that the rights of a licensee under an IP agreement where the licensor has disclaimed the agreement will be the same in a financial restructuring or a liquidation through either receivership or bankruptcy.

The following modifications accomplish the goal of safeguarding IP customer’s rights in instances where the IP licensor ends up being insolvent:

  1. Many times as part of a corporate restructuring, the Court authorizes the company that filed a Notice of Intention To Make a Proposal, or a Proposal, to sell assets. The new amendments now make it so that if the corporation being restructured is the licensor under an IP agreement and sells it, the licensee retains its rights to use the IP, as long as they are and stay current under the agreement.
  2. If a bankruptcy trustee (now called a licensed insolvency trustee) (Trustee) administering the bankruptcy (or receivership) of a licensor under an IP agreement sells the agreement, the licensee retains its rights under that agreement. Again, the licensee must be current in its obligations to continue enjoying the benefit of the IP agreement.
  3. The Trustee disclaims the debtor licensor’s interest in an IP agreement as part of a bankruptcy (or receivership) administration. The licensee will continue to enjoy the rights and benefits of the IP agreement as long as it is current in all of its responsibilities under that same agreement.
  4. If that IP is sold in a CCAA restructuring, the CCAA legislation has now been amended, for administrations that began after October 31, 2019, offers that an IP licensee in excellent standing can continue to utilize the IP.

Proposed BIA wording for IP insolvency proceedings

These are new amendments. There have not been any court decisions on these new amendments yet. The new legislation is not available yet as far as I know. However, my understanding is that the BIA will be amended, in part, to implement the changes concerning IP agreements as I have discussed, along the following lines:

“Intellectual property — sale or disposition

246.1 (1) If the insolvent person or the bankrupt is a party to an agreement that grants to another party a right to use intellectual property that is included in a sale or disposition by the receiver, that sale or disposition does not affect that other party’s right to use the intellectual property — including the other party’s right to enforce an exclusive use — during the term of the agreement, including any period for which the other party extends the agreement as of right, as long as the other party continues to perform its obligations under the agreement in relation to the use of the intellectual property.

Intellectual property — disclaimer or resiliation

(2) If the insolvent person or the bankrupt is a party to an agreement that grants to another party a right to use intellectual property, the disclaimer or resiliation of that agreement by the receiver does not affect that other party’s right to use the intellectual property — including the other party’s right to enforce an exclusive use — during the term of the agreement, including any period for which the other party extends the agreement as of right, as long as the other party continues to perform its obligations under the agreement in relation to the use of the intellectual property.”

Summary

I hope you enjoyed this Brandon’s Blog on the insolvency amendments effective November 1, 2019. Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

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

We know that companies facing financial problems need 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.

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BANKRUPTCY LAW, A SHOE STORE CHAIN AND GOLF: WHAT DO THEY HAVE IN COMMON?

bankruptcy law

If you would prefer to listen to the audio version of this BANKRUPTCY LAW, A SHOE STORE CHAIN AND GOLF: WHAT DO THEY HAVE IN COMMON? Brandon’s Blog, please scroll down to the bottom and click on the podcast.

Introduction

I am writing this Brandon’s Blog more as an interesting story for those that live in the GTA and enjoy golf. Although as you will see, bankruptcy law does play a major role in this tale, it really is a story about what is probably the most famous Canadian golf course.

Bankruptcy and Insolvency Canada

Before getting into the interesting Greater Toronto Area golf course story, by way of background to it, I will first describe the bankruptcy law aspect.

A bankrupt shoe store chain workers lost their jobs when a Receiving Order (as a Bankruptcy Order was then called) was made putting an Ontario shoe store chain, Rizzo & Rizzo Shoes Ltd., into bankruptcy. All salaries, wages, commissions and vacation pay were paid to the date of bankruptcy. The province’s Ministry of Labour audited the company’s payroll books and records.

The Ministry’s audit determined that although the employees were all paid up to date, liability for termination or severance pay was owing to former employees under the Employment Standards Act (ESA). The Ministry delivered a proof of claim to the bankruptcy trustee (now called a Licensed Insolvency Trustee) (Trustee).

The Trustee disallowed the claim under the provisions of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). The Trustee’s disallowance was based on the ground that the bankruptcy of an employer acts to terminate the employment of the workers. This does not constitute termination by an employer. Therefore, no such liability for severance or termination pay exists.

The appeal of the Trustee’s disallowance

The Ministry successfully appealed the Trustee’s disallowance to the Ontario Court (General Division). The Trustee appealed to the Ontario Court of Appeal. The appellate court restored the Trustee’s decision. The Ministry sought leave to appeal to the Supreme Court of Canada but ultimately terminated that application.

After the discontinuance of the appeal, the Trustee paid a dividend to Rizzo’s creditors, therefore leaving much fewer funds in the bankruptcy estate.

After that, five previous staff members of Rizzo applied to set aside the discontinuance, add themselves as applicants to the Supreme Court of Canada leave to appeal. An order was made approving them to continue the appeal.

The Supreme Court of Canada decision

In a 1998 decision, the Supreme Court of Canada ultimately decided that the bankruptcy of an employer does terminate the employment of the workers. However, the Court felt that it was necessary to take a wider view of the ESA. The Court felt that one of the objects of the ESA was to protect the rights of employees when they lost their job. A finding that the severance and termination pay sections of the ESA to not apply in bankruptcy circumstances is incompatible with both the object of the ESA.

The Court went on to find that the legislature does not intend to generate ridiculous results if employees dismissed before the bankruptcy of an employer would generate a completely different result than those employees who lost their job by the bankruptcy of an employer.

Therefore, the Supreme Court of Canada found that employee rights to severance pay or termination pay is a claim provable in bankruptcy even if the dismissal occurred by the bankruptcy of the employer. This claim is an ordinary unsecured claim and does not have any priority.

The broader effect of the Supreme Court of Canada Rizzo & Rizzo decision

The obvious effect of the Rizzo & Rizzo decision is the bankruptcy law decision. However, the decision also stands for the concept that a statue must be looked at in a broader context. The Supreme Court decision in paragraph 21 states that “…statutory interpretation cannot be founded on the wording of the legislation alone”.

It goes on to say that “Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.”. This codified what can be called a modern approach to the interpretation of legislation.

So what does this have to do with a golf course?

Looking at the title of this Brandon’s Blog, I think I have now covered off the first two parts, namely, bankruptcy law and shoe store. Now for golf! On October 23, 2019, the Court of Appeal for Ontario released its decision in Oakville (Town) v. Clublink Corporation ULC, 2019 ONCA 826.

All golfers in the GTA know that Clublink owns and operates a chain of golf clubs in Ontario and Quebec, as well as Florida. The most famous and iconic golf course in the Clublink family and all of Canada is Glen Abbey in Oakville, ON. Clublink purchased this golf course in 1999.

Glen Abbey was the initial golf course solely created by Jack Nicklaus, one of the greatest professional golfers of all-time. The style of the course shows a specific focus on the viewer experience. Along with this value, the Town of Oakville believes Glen Abbey has substantial historical value. Glen Abbey has held the Canadian Open 30 times – 3 times greater than any other course in Canada. It, therefore, is connected with some of the most memorable events in Canadian golf history.

The 18th hole is significant as a result of its connection to Tiger Woods. In the final round of the 2000 Canadian Open, he hit a six-iron shot 218 yards from a bunker on the right side of the fairway to about 18 feet from the hole. The shot had to fly over a huge pond protecting the green.

On October 22, 2015, Clublink told the Town that they plan to redevelop Glen Abbey into a residential and mixed-use neighbourhood. Clublink proposed to develop 3,000 to 3,200 residences and 140,000 to 170,000 square feet of office and retail space. If Clublink’s plan to build succeeds, the word “four” will no longer be yelled out on the property!

The Court case

In November 2016, Clublink submitted applications to change the Town’s Official Plan and zoning by-laws and looked for authorization of a plan of subdivision, in connection with its redevelopment plan of Glen Abbey. In 2017, the Town recognized Glen Abbey as a considerable cultural heritage property under s. 29 of the Ontario Heritage Act (OHA). This notification stated the property’s cultural heritage value according to the provincial requirements of the OHA.

Clublink did not object to the heritage designation. Rather, they made an application to the Town under section 34 of the OHA to demolish and remove Glen Abbey. The Town alerted Clublink that their s. 34 application was legally beyond the range of a section 34 OHA application but was correctly within the range of s. 33 of the OHA which permits an owner to relate to altering a designated property.

Clublink commenced its very own application in the Superior Court for an affirmation that they could make an application under s. 34 of the OHA “for the demolition and removal of buildings and structures on the lands municipally known as 1313 and 1333 Dorval Drive … including but not limited to the tees, greens, hazards, fairways and cart paths”. Clublink was successful in its application and the Town of Oakville appealed the decision to the Ontario Court of Appeal.

What is the difference?

A study of the OHA is not why I am writing this Brandon’s Blog. The important point to know is that under s. 33 of the OHA, the owner may appeal to the Conservation Review Board. The Conservation Review Board holds a hearing and produces a report, in which it is to recommend whether the application must or ought to not be authorized. The Conservation Review Board’s report is not binding on the metropolitan council.

Unlike s. 33, if the metropolitan council rejects the owner’s application under s. 34, the owner of the property can appeal to the Local Planning Appeal Tribunal (LPAT). The local council is bound by the LPAT decision.

So as you can see, Clublink needs the Court ruling to stand that its s. 34 application is the correct one.

Is a golf course a structure?

In order to be successful, Clublink needs to prove that a golf course is a structure. The application judge found that Glen Abbey is both composed of structures as well as the golf course itself is a structure for the objective of s. 34 of the OHA. Clublink had actually correctly mounted its application under s. 34.

The application judge reached this decision because of the uncontroverted evidence before him was that Glen Abbey was the product of substantial engineering, design and construction. Relying on judicial and also administrative decisions from other contexts, he decided up that a golf course fits within the meaning of a “structure” as being a “thing constructed”.

After a very lengthy analysis, the Ontario Court of Appeal, with one Judge dissenting, confirmed the lower court’s decision.

So what does this have to do with Canadian bankruptcies laws?

The majority decision relied upon the Rizzo & Rizzo case. The Ontario Court of Appeal followed the confirmation in the bankruptcy law case by the Supreme Court of Canada that a strict dictionary or common usage interpretation of the word “structure” was inappropriate. A “…statutory interpretation cannot be founded on the wording of the legislation alone”.

Rather, a wider modern law approach must be used. The “…words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention…”. Therefore, finding that a golf course has detailed engineering, design and construction, it is a structure and Clublink was correct.

This is how bankruptcy law ties into a bankrupt Ontario shoe store chain and a golf course. It took a bit of a journey to piece it all together, but I am so glad that you stuck with me.

Summary

As you can see, not everything necessarily is how it appears at first blush. When I look out onto a golf course, I would never say, “what a marvellous structure”, but it is.

In the same way, financial decisions that we make along the way do not always turn out as we once thought it would be. Sometimes these decisions are forced upon us by life getting in the way, and sometimes they are voluntary. Nevertheless, when financial hardships strike, you need to find a way to solve your financial problems.

Do you have way too much debt? Before you reach the phase where you can’t stay afloat and where financial restructuring is no longer a viable alternative, contact the Ira Smith Team. We know full well the discomfort and tension excessive debt can create. We can help you to eliminate that pain and address your financial issues supplying timely, realistic and easy to implement action steps in finding the optimal strategy created just for you.

Call Ira Smith Trustee & Receiver Inc. today. Make a free appointment to visit with one of the Ira Smith Team for a totally free, no-obligation assessment. You can be on your path to a carefree life Starting Over, Starting Now. Give us a call today so that we can help you return to an anxiety-free and pain-free life, Starting Over, Starting Now.

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

what is a division i proposal

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

Introduction

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

What is a division i proposal?

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

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

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

How do I start a restructuring plan for a person?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Paperwork and procedures

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

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

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

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

Executing on the Proposal promise

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

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

What happens if a Proposal is unsuccessful?

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

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

What is a division 1 consumer proposal?

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

Is consumer proposal worth it?

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

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

Summary

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

Do you or your company have way too much debt? Before you reach the phase where you can’t stay afloat and where financial restructuring is no longer a viable alternative, contact the Ira Smith Team.

We know full well the discomfort and tension excessive debt can create. We can help you to eliminate that pain and address your financial issues supplying timely, realistic and easy to implement action steps in finding the optimal strategy created just for you.

Call Ira Smith Trustee & Receiver Inc. today. Make a free appointment to visit with one of the Ira Smith Team for a totally free, no-obligation assessment. You can be on your path to a carefree life Starting Over, Starting Now. Give us a call today so that we can help you return to an anxiety-free and pain-free life, Starting Over, Starting Now.

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SINGLE SPOUSE BANKRUPTCY ON-DEMAND: LEGAL EFFECTS WHEN ONLY 1 SPOUSE FILES FOR BANKRUPTCY

Single Spouse Bankruptcy: Does Declaring Bankruptcy Affect Your Spouse?

You are in either a common-law relationship or are married. You are thinking about filing bankruptcy alone as a single spouse bankruptcy without your partner filing. You have actually possibly questioned just how will your bankruptcy affect your spouse. The bright side is that in the vast bulk of situations, your bankruptcy will have no influence on your spouse. In most cases, there will be no legal effects when only one spouse files for bankruptcy.

The purpose of this Brandon’s Blog is to discuss the financial and legal implications of a single spouse bankruptcy. No doubt the stress and strain of one spouse’s debt load will place a strain on the household and the partner. Providing marriage advice is not my specialty, but insolvency is.

How Will My Bankruptcy Filing Impact My Spouse’s Credit and a Non-Filing Spouse’s Income In Bankruptcy?

Each individual has a separate credit rating and a unique credit report. When married, people’s credit scores and credit reports are not blended. When both spouses are working, their respective employers do not blend or pool their combined monthly incomes.

There is no credit record or wage or salary aggregators that combine credit reports or incomes of married or common-law partners. That merely does not exist. So when people wed, their credit ratings are not combined or averaged in any way. They stay separate.

For example, if you open up a credit card in your own name and do not include your partner as a supplementary cardholder, the credit history and debt for that credit card will never appear on your partner’s credit history record. If you make your payments on that separate credit card and they’re on time, or even continually late, it does not aid or harm your partner’s credit rating. Different financial obligations are never ever reported on anybody else’s credit report and do not impact their credit score.

Marriage or a common-law relationship, does not alter the fact that credit scores and reports are not combined in any way. For that same reason if you file an assignment in bankruptcy on the separate debt it is also not recorded on your partner’s credit report and will certainly not influence their credit score.

Joint debt is where both you and your partner are responsible for that debt. If just one partner files for bankruptcy there is no impact on the non-filing partner’s credit rating. However, the non-bankrupt spouse remains responsible to pay that debt. If the non-filing spouse does not do so, then it will affect that spouse’s credit rating and score.

Not because their spouse filed an assignment in bankruptcy, but because they are fully responsible for a joint debt. That’s the trick. So in a single spouse bankruptcy, initially the filing for bankruptcy by one spouse does not impact the non-bankrupt spouse credit rating, it can affect their financial situation and possibly their credit rating if there are joint debts that go unpaid.

single spouse bankruptcy
single spouse bankruptcy

Single spouse bankruptcy: How Will Filing Bankruptcy Affect My Spouse’s Property Or Income?

The second reason why one spouse’s assignment in bankruptcy will generally not impact a non-bankrupt spouse is that spouses are allowed to own separate property in their separate names. Added to this, the vast majority of unsecured debts such as credit cards, or secured debts like car loans mortgages are created by contract.

This means that only the person who agreed to be liable for the debt can be affected by it. Except in rare instances, one spouse is not required to pay the debts that are solely those of when the other spouse files bankruptcy either through their wages or their assets.

If you have joint property, bankruptcy law does not allow your non-bankrupt spouse’s portion of that property cannot be taken to pay your debts. Your licensed insolvency trustee (formerly called a trustee in bankruptcy) (Trustee) only holds the bankrupt person’s interest in the property.

While joint property can sometimes be sold, the non-filing spouse’s portion of that property must be returned to the non-filing spouse. It is never used to pay the debts of the filing spouse. The non-bankrupt spouse would, of course, be the natural purchaser of the bankrupt spouse’s interest in such joint property.

If you are filing in Canadian bankruptcy proceedings and wonder how the bankruptcy process will affect your spouse’s income, you are most likely confused about how bankruptcy can affect your spouse’s income. Your spouse does not need to be a part of a bankruptcy. It is a common misconception that bankruptcy affects your spouse’s monthly income.

The truth is, the courts do not look into your spouse’s income at all in a single spouse bankruptcy. However, your spouse’s income may be included in the calculation of family income and household expenses to calculate if the bankrupt spouse has any obligation to make surplus income payments from the household monthly income to contribute to his or her bankruptcy estate.

The individual contributions to household income also affect the surplus income calculation. Most of the monthly living expenses have an effect on the surplus income calculation.

Does Single Spouse Bankruptcy Change the Nature of Joint or Co-Signed Debts?

So you open a new account with one of the credit card companies in your name and do not get a supplementary card for your spouse. In that situation, your partner does not get a card for your account. Therefore, your partner also did not consent to be collectively responsible with you on that credit card. If you fail to make a payment on that bank card, they cannot sue your spouse.

If they can’t sue your partner, they cannot get a judgment against him or her. If they can’t get a judgment, then they cannot garnish your partner’s wages. They can not take your partner’s different bank account or different assets. They can try to collect the credit card debt from the individual that consented to be liable for it. This does not change because of a marital or common-law relationship. Therefore, if you file a personal assignment in bankruptcy, your non-filing spouse’s separate property and income cannot be taken by either the Court or your Trustee.

If unsecured creditors report a joint debt in the single spouse bankruptcy estate on that person’s credit record, that does not influence the non-filing partner’s credit history. However, for any joint debt, or a debt of the filing spouse that is guaranteed by the non-filing spouse, that is a different story. The non-filing spouse must live up to his or her obligations, which includes the responsibility for that joint or guaranteed debt after the partner files for bankruptcy.

If not, then the unsecured creditor definitely has remedies against the non-filing spouse. Not because they are the non-filing spouse, but because they are equally liable for the unsecured debt. However, if a creditor incorrectly reports the joint debt as being included in personal bankruptcy on the non-filing partner’s credit report, I do suggest that the non-filing spouse writes to the credit reporting agencies to get it corrected. The reason for this is because the non-filing spouse is not involved in bankruptcy.

single spouse bankruptcy
single spouse bankruptcy

A Non-Filing Spouse’s Joint Debt: Can my spouse and I file for joint bankruptcy?

Section 155 (f) of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) states:

“in such circumstances as are specified in directives of the Superintendent, the estates of individuals who, because of their relationship, could reasonably be dealt with as one estate may be dealt with as one estate”.

Section 66.12(1.1) of the BIA states:

“Two or more consumer proposals may, in such circumstances as are specified in directives of the Superintendent, be dealt with as one consumer proposal where they could reasonably be dealt with together because of the financial relationship of the consumer debtors involved.”

So, it is possible for the individual debtors who are spouses to file a joint consumer proposal to avoid personal bankruptcies or if it is really the only solution, a joint assignment in bankruptcy. What is necessary is that there should be is that the majority of their debts are joint, even though they are individual debtors.

Each situation will be different. Many times I have advised couples that they should file jointly and not do a single spouse bankruptcy. This is most useful where if only one spouse files either a consumer proposal or bankruptcy, the other spouse will not be able on their own to pay the joint debts. A joint bankruptcy filing will be more streamlined and less costly than if each spouse filed separately.

When considering a joint filing vs. single filing, follow the financial advice the Trustee provides. I once had a situation where the husband came to see me. He needed to file, but so did his wife. The reason was because of the predominance of joint debts. I advised that it would be best for the husband and wife to come to see me together so that I could explain the benefits of a joint consumer proposal filing to both of them.

The husband, thinking that he was protecting his wife, was adamant that only he would file in a single spouse bankruptcy process. Against my recommendation, he insisted on filing alone. We filed his debt management plan consumer proposal. As expected, the creditors where the debts were joint, starting making demands on the wife. She was unable to pay up, so, she too had to file a consumer proposal with me.

The unfortunate part was that the sum of the amounts that needed to be paid for a successful consumer proposal was greater than if they had filed jointly. So, as a family household, it cost them more than it would have if they filed jointly.

Both the husband and wife each made all the payments required under their respective accepted consumer proposals. It is just too bad that the total paid was more than if they had filed jointly. As always, I gave my best recommendations upfront. Unfortunately, the advice was not followed.

Single spouse bankruptcy: Bankruptcy and the non-filing spouse – Say goodbye to debt stress

Now what we have discussed are simply generalities in a single spouse bankruptcy. There are situations that do not fit neatly within these rules but that’s why you need an experienced Trustee to help review your situation and provide you with information on legal effects when only one spouse files for bankruptcy.

Do you have way too much debt? Prior to you getting to the phase where you can’t make ends meet and your credit report looks awful, reach out to a licensed insolvency trustee (previously called a bankruptcy trustee). In fact, if you understand that you can’t pay your separate debts, contact us.

We understand the pain and stress excessive financial debt can trigger. We can aid you to get rid of that discomfort as well as address your financial affairs and problems by offering prompt action and the ideal plan. We will be able to advise you on the legal effects when only one spouse files for bankruptcy or a consumer proposal.

Call Ira Smith Trustee & Receiver Inc. today.

Make an appointment with one of the Ira Smith Team for a free, no-obligation consultation and you can be on your way to enjoying a carefree life Starting Over, Starting Now.

Give us a call today so that we can help you get back to a stress and pain-free life, Starting Over, Starting Now.

legal effects when single spouse bankruptcy
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