Tag: licensed insolvency trustee

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

canadian debt reliefIf you would prefer to listen to an audio version of this Canadian Debt Relief Brandon’s Blog, please scroll down to the bottom and click on the podcast.

Canadian debt relief: What is debt relief Canada?

Canadian debt relief is the reconstruction of debt in any kind of form so as to give the indebted person or company a measure of breathing space.

Canadian debt relief measures can take a number of forms. It can be through an informal process or formal process (discussed below).

I just read a recently issued Scotiabank Economics report that says Canadians are going deeper into debt. With that in mind, I believe it important to describe the Scotiabank findings and then discuss the options available for reliable Canadian debt relief.

Canadian debt relief: The Scotiabank findings

The main Scotiabank findings are:

  • Canadian home credit increased to a 2-year high in August 2019.
  • Residential mortgage growth posted a 2-year high, supported by a mid-July 2019 decrease in the mortgage rate used for qualification under the stress testing as well as a decline in posted home mortgage pricing.
  • Consumer credit growth struck a 10-month high on the whole but the year over year pattern was the same as July 2019.

The increase in overall household credit was boosted by a much easier borrowing environment. The main types of debt were fuelled by a strong acceleration in both mortgage loans as well as non-mortgage consumer liability growth. Right now Canadians’ household debt-service ratio is at an all-time high. According to the Scotiabank findings, that has not stopped Canadians from continuing their borrowing binge. It seems that super-low interest rates and a strong job market are providing Canadians with either confidence or blind ignorance, to continue to borrow.

With unpredictability staying at raised levels and worldwide demand weakening, business financial investment and exports are not going to be a force to keep the Canadian economy strong. Therefore, it is essentially up to people buying homes primarily in the Vancouver and Toronto housing markets and general consumer credit demand, with government spending, to keep the Canadian economy strong. So, it seems that for the foreseeable future, the Bank of Canada will keep interest rates low. It seems that interest rates will only increase in reaction to events from outside the Canadian economy.

How debt relief works in Canada

It is not that difficult to qualify for real Canadian debt relief services. You need to be insolvent, or at least, be unable to pay your financial obligations as they come due. I am not talking about a consolidation loan that you need to apply for. If you are trying for approval from one of the debt consolidation loans providers, you also need to be able to qualify for a new loan. If you are applying for a Canadian debt relief program that requires you to get a consolidation loan, and you don’t qualify for the loan, then you will not qualify for that type of debt management plan.

However, for financial relief that does not involve you borrowing money, the bar to qualify is set very low. All you need is to admit that you have a debt problem. Once you do that, you can certainly get help from one of the Canadian debt relief alternatives.

I will describe the various levels of Canadian debt relief programs, but first, I want to answer a question I am asked regularly. The question is: Can you get credit card debt forgiven?canadian debt relief

Canadian debt relief: Do credit card companies ever forgive debts?

I have never seen complete and full credit card forgiveness given by a credit card company (except for two situations described in this section). It is possible, to achieve partial credit card forgiveness, but it is not easy. Credit card companies generally will not give any form of forgiveness.

If you stop making your minimum payments, the credit card company will ultimately “ charge off ” a person’s credit card amount owing after giving them an R9 rating on their credit report. A charge-off takes place when an account is seriously overdue for credit card bills. That will be after 180 days of not making the minimum repayment.

Charging off the amount owing on the credit card is not writing it off or forgiving it. It is just a way for the credit card issuer to mark it as uncollectible and eliminate the debt from their active books. What is done when the debt is charged off, is that it is either given or sold to a collection agent. You may be able to make a deal with the collection agency to pay less than the full amount you owe. However, it will still be a substantial sum and has to be paid all at once.

There are only two exceptions to this I ever heard. One is a recent feel-good story. In August 2019, it was reported that Chase Bank announced that it was leaving Canada. Chase Bank issued and administered the Amazon.ca Rewards Visa and the Marriott Rewards Premier Visa in Canada. In order to exit Canada quickly, Chase Bank announced that it was forgiving all credit card amounts owed by clients of its two Canadian charge cards. Highly unusual.

The only other exception is not such a feel-good story. If a person dies and the deceased Estate has no cash available after the funeral and testamentary costs or worse, has no assets including cash, then the credit card company is going to have no choice but to write off the liability. The Estate Trustee will, of course, have to provide proof that there are no funds available.

Canadian debt relief: Informal options

There are various informal debt-relief options available in Canada. The most common options are:

Debt consolidation

When when we hear the words debt consolidation we understand that it is the process of qualifying for and taking on a brand-new loan, in order to repay many or numerous smaller debt obligations.

Consolidating debt involves borrowing money. The concept is that either:

  • your credit rating is good enough so that you can take on the new unsecured debt; or
  • you have decided to offer security for the loan.

The primary purpose of resolving your debt via this type of borrowing is to lower the overall interest costs you are currently paying across many credit cards and other debt.

Credit counselling

Credit counselling can solve debt problems and supplies you with the skills to live debt-free. Credit counselling solutions consist of teaching proper budgeting, how to use debt sensibly, rebuilding credit and debt management programs.

A word of caution. Please make sure that if you want a credit counselling program that has a qualified and licensed non-profit credit counsellor, you reach out to a real Canadian debt relief provider such as a credit counselling agency and not a debt settlement company.

The Financial Consumer Agency of Canada has provided a stern warning for consumers to be careful when considering using a debt settlement company. Do not be pulled into what looks like the cheapest Canadian debt relief company. The danger signals and warning signs that the Agency warns consumers about are:

  • High-pressure sales
  • Unrealistic assurances
  • High costs
  • Companies collecting monthly payments from you to pay to your creditors supposedly for an agreed-upon settlement amount but postponing repayments to the creditors and never coming up with a real Canadian debt relief plan.

Debt settlement

I have also written about the dangers of debt settlement companies. In 2017, I wrote about the study by the Office of the Superintendent of Bankruptcy (OSB) on debt settlement companies. The main findings of the OSB report were that in 2016:

The OSB record indicates that in 2016:

  • 17 % of all consumer proposal filings, the customer reported having spent first for debt counselling from a debt settlement firm before being directed to a Licensed Insolvency Trustee (LIT) (formerly called a bankruptcy trustee).
  • 57 % of the consumer proposal filings for which earlier debt settlement guidance was obtained, the LITs had connections with 2 large-volume debt settlement businesses. These 2 companies stood for 64 % of the total LIT fees reported in 2016 consumer insolvency filings for debt settlement advice before submitting to an insolvency proceeding with a LIT.
  • Thirteen LIT firms, that included one national-level business, were discovered to have numerous LITs operating in regular partnership with large-volume debt settlement firms.
  • For about 50 individual LITs within these 13 firms, better than 40% of their consumer proposal filings were sourced from these debt settlement organizations. For about 20 of those LITs, more than 90% of their consumer proposal work originates from these 2 businesses.

Debt settlement companies have long used scare tactics with consumers to attract business. They tell consumers that all a LIT wants to do is put them into bankruptcy. Nothing could be further from the truth. As seen by the OSB study results, consumers were paying debt settlement firms fees with money they could not afford to pay. When they could not pay any longer, the debt settlement company then referred the people to their favourite LITs! Now that is the pot calling the kettle black. The OSB was also concerned about the business arrangements being made between debt settlement outfits and LITs.

Since then, the OSB has introduced amendments to practices that LITs must follow concerning credit counsellors and business arrangements with a view to curb this behaviour. For the record, I and my Firm have no relationship with any debt settlement company.

Canadian debt relief: What about “Government Approved” debt programs?

There are only 2 Canadian government debt relief programs in our country: (i) consumer proposal; and (ii) bankruptcy, which is the most drastic one.

I have written about consumer proposals many times. A consumer proposal is the only structured formal procedure sanctioned by the Government of Canada under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). This process permits insolvent people to make an official offer with specific terms, to pay their creditors less than the full amount owing in full settlement of all debts. This federal government authorized debt settlement strategy is to pay back only a portion of what you owe and you can take as long as 5 years of routine monthly payments to do so.

To qualify, a person must be insolvent and owe $250,000 or less to all creditors, other than for any financial debts protected security against their principal home. The most common examples are either a home mortgage or home equity line of credit registered against the real estate. The consumer proposal process provides protection from creditors. It is aimed at compromising unsecured consumer debts, including income tax debt, while the debtor makes regular payments. The end result of a successfully completed consumer proposal is debt cancellation of your remaining outstanding debts.

A consumer proposal is a streamlined process meant to either reduce or totally eliminate the need to go to Court. A successful consumer proposal allows the person to avoid bankruptcy while ultimately discharging all of his or her debts for an amount much less than the total amount owed.

Canadian debt relief summary

Since the purpose of this Brandon’s Blog is about eliminating your burden of debt before having to consider bankruptcy, I won’t discuss the bankruptcy topic here. Of course, anyone wanting to find out more about either a consumer proposal or bankruptcy can always call me.

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

We understand the pain and stress excessive financial debt can trigger. We can aid you to get rid of that discomfort as well as address your financial problems by offering prompt action and the ideal plan to give you freedom from debt.

Call Ira Smith Trustee & Receiver Inc. today.

Make an appointment with one of the Ira Smith Team for a free, no-obligation consultation and you can be on your way to enjoying a carefree retirement Starting Over, Starting Now. Give us a call today so that we can help you get back to a stress and pain-free life, Starting Over, Starting Now.

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WHAT IS RECEIVERSHIP – CAN YOU UNDO A PROVEN RECEIVERSHIP ORDER?

what is receivership
what is receivership

If you would prefer to listen to an audio version of this what is receivership Brandon’s Blog, please scroll down to the bottom of this page and click on the podcast.

What is receivership: Introduction

Last spring I wrote about a Court of Appeal For Ontario decision. That decision confirmed that the time allowed to appeal a receivership Court order is 10 days under the Bankruptcy and Insolvency Act (Canada) (BIA).

This Brandon’s Blog on what is receivership discusses a decision of the Court of Appeal of Manitoba which further sets out a framework for anyone wishing to appeal an order made in this court-appointed receivership legal process. Prior to discussing this Manitoba case, I ought to go over some receiver 101 facts.

What is receivership?

What is receivership? A receivership is a solution for secured lenders, such as a chartered bank. The bank loans the company money and the company agrees in the loan agreement to pledge the business assets as security for the loan. If the business defaults on its lending arrangement, generally by non-payment, the secured lender can enforce its security against the assets in receivership.

This is the lender using its enforcement rights to recover its secured debt. Other than for a government trust claim, the secured creditor’s debt ranks on a priority basis above all other creditor claims. Enforcement action is definitely a form of legal action. So receivership is a remedy for secured creditors.

There are 2 types of receivers in Canada; 1) a privately appointed receiver or; 2) a court-appointed receivership. A receiver gets its authority and powers from either the security documents in a private appointment or the Court Order in a court appointment. Once appointed, regardless of the type of appointment, the receiver has the power to take possession of all the assets of the company, including sending notices to all customers to advise that the receiver is now collecting the accounts receivable.

The BIA specifies that only a licensed insolvency trustee (previously called a bankruptcy trustee or also can be called a licensed insolvency practitioner) (LIT) can serve as a receiver. A receiver in a private appointment acts on behalf of the appointing secured creditor. A court-appointed receivership creates a responsibility to all creditors upon the court’s receiver, not just the applicant in the court process. This would include any unsecured creditor also. The BIA also requires the receiver to do file notice of its appointment with the Official Receiver at the Office of the Superintendent of Bankruptcy and to send the required statutory notice to all known creditors.

What is a company receivership?

Normally, the procedure starts with the secured creditor, who lent money to a company under a security agreement, talking to the insolvency trustee. The security document tends to secure all company assets, including accounts receivable.

When it is decided that there ought to be a receiver designated, the secured lender needs to decide if it will be a private appointment, or if the assistance of the Court is required. Each situation will dictate what is the best method for receivership. They can either appoint the receiver under an appointment letter (private appointed) or apply to the Court for an Order selecting the receiver (court-appointed receivership). So when considering what is receivership, you must look at all the circumstances and decide what kind of appointment is needed.

what is receivership
what is receivership

As a former employee, what am I entitled to? The Wage Earner Protection Program

Upon a company going into receivership (or bankruptcy), the LIT is obliged to inform workers of the Wage Earner Protection Program (WEPP) as well as offer former employees information about amounts owing to them. From the day of bankruptcy or receivership, trustees and also receivers have 45 days to send out Trustee Information Forms showing the amounts owing to workers. WEPP is administered by Service Canada.

Employees have 56 days to send their Service Canada WEPP application to the WEPP. The Service Canada handling time for a WEPP payment is within 35 days of receipt of a completed WEPP Canada application and Trustee Information Form.

The WEPP gives funds to Canadian former staff members owed money when their employer becomes either bankrupt or goes into receivership. The amount of employee earnings covered is an amount equivalent to 7 times maximum regular insurable earnings under the Employment Insurance Act.

As of January 1, 2020, the max yearly insurable earnings amount is $54,200. This means that the max amount a previous worker can assert under WEPP is $7,296.17 in 2020. A certain portion is a trust claim and the balance is an ordinary claim. Normally, the receiver makes at least the trust claim payment to the former employees. Service Canada will pay the balance.

So in what is receivership, if the receiver does not pay the trust claim, Service Canada will and bill it back to the receiver. This all takes time and will increase the cost of administration. That is why the receiver normally pays the trust portion directly.

What is receivership: Receivers and receiverships

In a private receivership, the receiver needs to get the approval of the party that made the secured loan and appointed the receiver prior to implementing its recommended action steps. In a court-appointed receivership, the receiver needs the authorization of the court for its activities and actions.

The receiver’s very first responsibility is to take possession and control of the assets, properties and undertaking of the company in receivership. In a private appointment, the receiver takes possession of the assets covered by the secured creditor’s security agreement. In a court-appointed receivership, the receiver takes possession of whatever assets it has authority over from the Court Order.

The receiver has to make a decision whether it can obtain a better value for the business asses if it runs the business. Conversely, the receiver might determine that the danger of running the business negates any potential upside in value. In that case, the receiver would not operate the business and merely liquidate the assets.

The receiver after that establishes a strategy for the sale of assets. The receiver also has to make sure that the assets are physically secured and insured. The what is receivership process is fairly complex and all-encompassing.

The receiver, whether in a private appointment or a court appointment, has wide powers to perform its duties.

What is receivership: Challenging a receivership appointment Court Order

On September 19, 2019, the Court of Appeal of Manitoba released its decision in 7451190 Manitoba Ltd v CWB Maxium Financial Inc et al, 2019 MBCA 95. On December 20, 2018, the Court made an Order appointing a receiver (Receivership Order) over the assets of 7451190 Manitoba Ltd. (Company). The Order was made upon the application to Court by the lender who made the secured loan.

On January 14, 2019, the Company launched an appeal to the Receivership Order. The secured lender opposed the appeal on 2 main grounds, being:

  • the company did not have an appeal as of right, rather, it requires to seek leave to appeal first (which should be declined); and
  • the appeal was statute-barred as it was not submitted within 10 days of the Appointment Order appealed from.

The issues the Appeal Court needed to consider were::

  • whether the nature of the Company’s appeal of the Appointment Order in what is receivership requires an application for leave or if it is a right under Section 193 of the BIA;
  • if the leave to appeal is necessary, should such leave be provided;
  • whether the Company should be given more time to submit its notice of appeal.

    what is receivership
    what is receivership

What is receivership: Appealing a business receivership Court Order

So the first issue the Court had to consider in what is receivership was whether or not the Company had an appeal of the receivership Order as a right, or if it needed to first apply to the Court with leave to appeal motion. The Court determined that the Company’s appeal of the receivership Appointment Order is not of right. Rather, leave to appeal needed to be made.

The things that the Appeal Court considered in making its determination included that:

  • The security documents entered into by the Company clearly outlined the lender’s remedy to appoint a receiver when there was an event of default.
  • The company was represented and made submissions against the appointment of a receiver at the initial hearing where the Appointment Order was made.
  • The Appointment Order contained the necessary “comeback clause”. No party made an application under this clause to amend the powers of the receiver under the Appointment Order.
  • Since appointed, the receiver has actually filed two reports with the Court. The reports notified all stakeholders and the Court of the decisions taken and choices made. The receiver also sought approval of different activities. The Company has actually not filed any type of motion challenging the actions taken by the receiver.

Should leave to appeal the appointment of the receiver-manager be granted?

Section 193 of the BIA allows that an appeal lies to the Court of Appeal from any kind of order of a judge of the court in certain situations. The Court confirmed that the criteria to think about in making a decision whether to give leave to appeal under section 193(e) of the BIA are:

  • The suggested appeal raises an issue of general importance to the practice of bankruptcy/insolvency matters or to the administration of justice as a whole.
  • The issue raised is of relevance to the action itself.
  • The proposed appeal is prima facie meritorious.
  • Whether the suggested appeal will unduly hinder the progression of the bankruptcy/insolvency case.

The Court went on to say that, regardless of these criteria, the Court retains a residual discretion to grant leave to appeal in what is receivership where the refusal to do so would result in oppression.

When the Court considered these requirements, taking into consideration the whole context, the Court was not persuaded to grant the Company leave to appeal the receivership order.

The Court determined that in this case, the Company’s appeal should be denied. This Court of Appeal of Manitoba is consistent with the Court of Appeal for Ontario case that I mentioned at the top of this Brandon’s Blog and previously wrote about. It also provided additional detail and reasons as to why appealing a receivership order is not a right, but leave to appeal needs to be granted.

What is receivership: Summary

I hope you enjoyed this what is receivership Brandon’s Blog. Is 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 business owner entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides an income not only for your family. Many other families rely on you and your company for their well-being.

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

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

what is receivership

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WHAT HAPPENS TO MORTGAGE WHEN YOU DIE CANADA: AMAZING DEBT PHILOSOPHY EXPLAINED

what happens to mortgage when you die Canada

Check out our 2023 update “What happens to your mortgage when you die?”

What happens to debt if you die?

When discussions of debt come up, individuals frequently joke around and claim they’ll be rid of financial debt when they pass away. However, is that real? I have actually blogged about this before. One of our most-read ever Brandon’s Blog is WHAT HAPPENS TO DEBT WHEN YOU DIE CANADA: ARE YOU FREE OF DEBT.

Similarly, my Brandon’s Blog CREDIT CARD DEBT AFTER DEATH IN CANADA: WHO IS RESPONSIBLE is also about debt and death and is also popular.

So although I have written about what happens to debt if you die before, from my blog stats, I see it is a very popular topic. So, I thought this would be a great opportunity to drill down a bit more to write about what happens to mortgage when you die Canada?

what happens to mortgage debt when you die canada
what happens to mortgage debt when you die canada?

What happens to mortgage at death?

The short answer is, usually, nothing. A homeowner’s loan of this kind is a secured loan debt registered against the asset, the house. Except for one situation which I will talk about in a minute, the pledge and its related debt stay and must be dealt with.

Before being able to answer the question properly, there are several possible situations. Is the deceased:

  • The sole owner?
  • Owns the home jointly with his/her spouse or partner who is still alive?

Either way, the contract and its debt at the date of death does not go away. If the deceased is the sole owner of the home, then it is an asset that the Estate Trustee named in the person’s Will must deal with. The home will need to be cleaned up and perhaps some repairs are done to get it ready for sale. Either the existing furniture works or the home will need to be staged to show it off in its best light.

The Estate Trustee will also have made sure that there was proper insurance on the home, obtained one or more appraisals and made arrangements for the home to be checked on a regular basis to make sure no damage occurs. Then the home will be put up for sale and sold.

Upon the sale, the home debt will have to be paid off in order for a discharge of the homeowner’s loan contract to be registered. This will be a requirement of the purchaser and it will be impossible to convey title to the home without paying off the pledge and getting a discharge.

If there is a surviving spouse or partner, and the home was owned jointly, then the ownership of the home continues automatically in the name of the surviving spouse. The home also does not need to go through probate in Ontario. The surviving spouse’s lawyer will take care of getting the name of the deceased eliminated from the home loan and title.

If the surviving spouse or partner wants to remain in the home and can afford to keep up the payments, then that is what he or she will do. If not, then the spouse will need to sell the home and downsize. As discussed previously, to sell the home, the loan contract debt will have to be repaid in full and the mortgage discharged.

Is my mortgage paid off if I die?

There is only one way that the debt will be paid off when the owner dies. That is if the owner had taken out specific home loan insurance. Upon the death of the insured, the insurance company will pay the lender the amount needed to pay off the mortgage in full. The Estate Trustee or surviving spouse or partner will have to make sure that the lender discharges the mortgage.

In a similar way, if the deceased had a current life insurance policy, but not necessarily a specific mortgage insurance policy, that may also come into play. A surviving spouse or partner who is the designated beneficiary will receive the life insurance proceeds directly. The proceeds will not have to go through probate in Ontario. They could use all or a portion of the life insurance proceeds to pay off the mortgage and remain in the home.

This is how life insurance can be used to answer the question, what happens to mortgage when you die Canada.

what happens to mortgage debt when you die canada
what happens to mortgage when you die canada

Joint mortgage what happens if one dies?

Where both spouses or partners owned the home jointly, they will also be joint on the mortgage. As I mentioned above, when one of the spouses or partners dies, the family’s lawyer will notify the mortgagee lender.

What if the lender was relying upon the creditworthiness of the deceased spouse or partner and not that of the surviving spouse? If the mortgage payments are kept current, then in the interim, probably nothing. But what will happen when the mortgage comes up for renewal and the remaining spouse or partner cannot repay it and wishes to renew it?

Only time will tell. The lender can either just offer a renewal or can require the sole owner to requalify the mortgage. If the now sole owner cannot qualify, then the mortgagee will demand that the mortgage be repaid in full upon maturity. This might pose a hardship for the now sole owner spouse.

What happens to a mortgage when the lender dies?

If the mortgage lender is a Bank or corporation, then, of course, this question does not apply. What happens if the mortgagee is an individual who lent on what is called a private mortgage? In this case, the mortgage debt and the mortgage does not go away. The mortgage is an asset of the deceased lender’s Estate. The lender’s Estate Trustee will be responsible for collecting everything properly owing on that debt, subject to the terms of the mortgage document. If the mortgage does not mature for many years and is kept current, then the deceased lender’s Estate Trustee will have to keep the administration open.

what happens to mortgage debt when you die canada
what happens to mortgage when you die canada

What happens to a house with a reverse mortgage when the owner dies?

So far, I have written about what happens with a traditional mortgage. What if the mortgage is actually a reverse mortgage? What happens to a house with such a mortgage when the owner dies?

A Canadian reverse mortgage is financing that allows any person of the age of 55+ to get a mortgage loan relying upon their residence equity. The mortgage loan is secured using a mortgage registered against the house. This is typically called an “equity release”. You have the capacity to raise up to 55% of today’s worth of your home. The actual percentage and the dollar amount you will have the ability to obtain relies on your age, your residence’s appraised value and the lending terms of your reverse mortgage loan provider.

You do not need to make payments on a reverse mortgage up until it is due for repayment. This is usually when you sell your house or the last owner passes away. The loan interest accrues on a reverse mortgage. It must be paid on the payout of the mortgage, but no payments are required while you are living in your home.

The longer the funding is outstanding, the more time you go without paying. Consequently, the longer the interest accrues. This clearly reduces the equity in your house.

For a full discussion of how a reverse mortgage works, check out my Brandon’s Blog – CANADIAN REVERSE MORTGAGE: SENIORS MOVING FORWARD WITH INCREASED DEBT.

Summary: What happens to mortgage when you die Canada?

The death of a loved one is probably the most traumatic life event you will encounter. It is doubly so when you relied on the income of the deceased for your own well-being. I hope you have found this what happens to mortgage when you die Canada Brandon’s Blog informative.

Do you have way too much financial debt? Prior to you getting to the phase where you can’t make ends meet and you need to borrow against the equity in your house, reach out to a licensed insolvency trustee (previously called a bankruptcy trustee). In fact, if you understand that you can’t pay your financial debts heading into or in your retired life, contact us.

We understand the pain and stress excessive financial debt can trigger. We can aid you to get rid of that discomfort as well as address your financial problems by offering prompt action and the ideal plan.

Call Ira Smith Trustee & Receiver Inc. today. Make an appointment with one of the Ira Smith Team for a free, no-obligation consultation and you can be on your way to enjoying a carefree retirement Starting Over, Starting Now. Give us a call today so that we can help you get back to a stress and pain-free life, Starting Over, Starting Now.

what happens to mortgage when you die canada
what happens to mortgage when you die canada
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GST/HST CREDIT PAYMENTS IN BANKRUPTCY: DOES BANKRUPTCY HARM MY REFUND?

gst/hst credit payments in bankruptcy

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

Who is eligible for GST/HST credit?

The GST/HST credit payment is a tax-free quarterly distribution by the Federal government. It assists people and their family members with low or moderate earnings counter all or a component of the GST or HST that they pay in their everyday lives. The purpose of this Brandon’s Blog is to discuss GST/HST credit payments in bankruptcy.

The base year is the year of the income tax return used to determine eligibility for the credit payment amount. As an example, GST/HST credit payments calculated from the 2018 income tax return will start being released in July 2019, which is the start of the repayment year. The payment period ranges from July 1 of the year after the year of the income tax return being relied upon. The payments for that year run to June 30 of the following year. So if the 2018 tax return is being used to calculate eligibility, for those who qualify, the payment year runs from July 1, 2019, to June 30, 2020.

You qualify for this credit if you are a Canadian resident under the Income Tax Act (Canada) in the month prior to and at the start of the month in which the Canada Revenue Agency (CRA) makes a payment. You also need to satisfy one of that you::

  • are at least 19 years of age
  • have (or had) a spouse or common-law partner
  • are (or were) a parent and also live (or lived) with your son or daughter

What is the maximum income for GST HST credit?

The maximum income for GST HST credit, based on a 2018 income tax return, is a sliding scale as follows:

Family membersFamily net income $
Single person46,649
Single parent 1 child52,449
A single parent with 2 children55,509
A single parent with 3 children58,569
A single parent with 4 children61,629
Married or common-law with no children49,389
Married or common-law with 1 child52,449
Married or common-law with 2 children55,509
Married or common-law with 3 children58,569
Married or common-law with 4 children61,629

To see the GST/HST credit calculator, check out the CRA formula.

Can the bankruptcy trustee keep my tax refund?

It used to be the position of the Superintendent of Bankruptcy (OSB), that, a bankruptcy trustee (now called a licensed insolvency trustee) (LIT) that an insolvent person could assign their GST/HST credit payments in bankruptcy to the LIT for the period of time they are an undischarged bankrupt. The LIT could only keep those credit payments if those credit payments are necessary to cover the LIT’s fee and disbursements. The OSB also stated that it could not be kept in files where there would be a distribution to creditors from the realization of the assets of the bankrupt person.

A recent decision from the Court of Queen’s Bench of Alberta, following a decision from the Superior Court of Justice – Ontario (In Bankruptcy and Insolvency), rather than a prior Alberta Court decision, has changed all that for GST/HST credit payments in bankruptcy.

The GST/HST credit payments in bankruptcy case

The Alberta Court case decision released on September 17, 2019, is Rites-Miguens (Re), 2019 ABQB 721. The LIT applied for advice and direction as to whether LITs should follow the OSB position paper “GST/HST credit payments in bankruptcy” or, the prior Alberta Court decision.

The Court reviewed the prior Alberta case, the OSB position paper and the Ontario decision in Glasgow (Re), 2018 ONSC 4608. The OSB position paper follows the Glasgow decision. The Alberta Court sided with the OSB’s position arising from Glasgow (Re). Here is why.

Can the bankruptcy trustee keep my tax refund?

Let us first discuss the GST/HST credit payments in bankruptcy, which is not really a refund. It is an income tax credit paid to those residents of Canada with low or modest incomes who qualify. After that, I will broaden the discussion to include actual tax refunds.

Section 67(1) (b.1) of the Bankruptcy and Insolvency Act (Canada) (BIA) states that the GST/HST credit payments in bankruptcy that are made in prescribed circumstances to the bankrupt are not a property that falls to the LIT for division amongst the creditors. Rule 59 of the BIA defines what the “prescribed circumstances” are. It states that if no dividend would be paid to the creditors of the bankrupt, even when these credit payments are considered, then all such credit payments received by the LIT form property of the bankrupt.

In other words, the GST/HST credit payments in bankruptcy can go to help fund the LIT’s fee and disbursements, but not any distribution to creditors. In this way, Canadians of modest means could have access to the Canadian bankruptcy system using all or some of the credit payments to pay for the bankruptcy process.

The Ontario Court looked at that prior Alberta decision. The Ontario Court disagreed with the Alberta decision that in a properly worded assignment agreement, the LIT could keep the payments as long as the prescribed circumstances existed. So, the Ontario Court did not follow that decision. Rather, the Ontario Court looked at Section 67 of the Financial Administration Act which says that a Crown debt is not assignable without a specific Act of Parliament authorizing it. This credit is a Crown debt for which there is no Act of Parliament allowing its designation by way of assignment.

It was this Ontario decision that the Alberta Court followed in Rites-Miguens (Re), 2019 ABQB 721.

The OSB position

As a result, the OSB updated its position paper on the topic of GST/HST credit payments in bankruptcy. The OSB’s position is:

  1. Where there will not be a distribution to creditors, the credit payments comprise property of the bankrupt payable to the LIT through the operation of the BIA as described above.
  2. Where there will be a distribution to creditors, the credit payments are exempt from seizure, cannot be assigned to the LIT and must be paid to the individual.

The OSB goes on to give an example as to how a LIT may treat the GST/HST credit payments in bankruptcy that are otherwise exempt. It is a bit cumbersome, but, goes as follows:

  • The LIT gets a GST/HST credit cheque;
  • It must be excluded according to the BIA as there will be a dividend paid to the creditors.
  • The bankrupt consents to pay an amount matching that credit cheque to the LIT.
  • The LIT needs to give the credit cheque to the bankrupt, despite any kind of contract between them. Based on the Ontario Court decision described above, that contract is not enforceable anyway.
  • The bankrupt gets and cashes the cheque.
  • The bankrupt pays to the LIT an amount matching to the credit cheque they just cashed. That payment can be by cash, bank draft, money order or a cheque drawn on the bankrupt person’s own chequing account.

How does filing bankruptcy affect your tax refund?

Real income tax refunds are a result of an overpayment of income tax by the tax debtor. In the year of bankruptcy, the two income tax returns that must be prepared and filed are:

  1. A pre-bankruptcy income tax return covers your tax obligation from Jan. 1 to the day prior to your date of bankruptcy.
  2. The post-bankruptcy income tax return covers the tax obligations from the day of bankruptcy to Dec. 31 of that year.

If there are assets that are liquidated that have income tax attributes, an in-bankruptcy tax return will also have to be prepared and filed.

Any pre-bankruptcy income tax refund is a property of the bankrupt divisible amongst the creditors. So, the LIT is entitled to keep the pre-bankruptcy income tax refund. It is also possible for the post-bankruptcy income tax refund to be assigned to the LIT. Any amount owing by the bankrupt person from the post-bankruptcy tax return must be paid by the bankrupt person as it is a post-filing debt.

Any income tax refunds for years prior to the year of bankruptcy is also a property of the bankrupt payable to the LIT and forms part of the bankruptcy estate.

Summary

Financial problems can happen to anyone. Not just people who have low or moderate incomes. It happens to those that we might think are rich too. It can happen to a person, a business or a company.

Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do both a personal debt restructuring/debt settlement program as well as a complex corporate restructuring. However, more importantly, we understand the needs of people.

You are worried because you or your company faces significant financial challenges. The stress placed upon you due to your financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we deal with your problem and prepare and implement a restructuring plan, we know that we can help you.

We know that facing financial problems is scary and that you need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a 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

TRUSTEE COMPANY RESPONSIBILITY IN REVIEWING BANKRUPTCY PROOF OF CLAIM

Introduction

I recently read a case from the Court of Queen’s Bench of Manitoba. The decision deals with the responsibility of a trustee company in reviewing and disallowing bankruptcy proofs of claim.

The case

The case citation is Re 5274398 Manitoba Ltd. o/a Cross Country Manufacturing (Bankrupt) 2019 MBQB 89. This is an appeal of Bellhop Express Corp. (“Bellhop”) from the Notification of Disallowance of Claim by the licensed insolvency trustee (formerly called a trustee in bankruptcy) (Trustee). 5274398 Manitoba Ltd. operating as Cross Nation Production (the Company) filed a Proposal under Division I Part III of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).

On February 6, 2018, a creditors meeting was held in Winnipeg at which time the creditors of the Company, existing in person or by proxy, elected to approve the proposal. On February 5, 2018, the day prior to the meeting, Bellhop sent its Proof of Claim and also registered its ballot voting down the Proposal.

The Trustee disallowed the Bellhop Proof of Claim for voting. The Trustee also did not count Bellhop’s vote against in the calculation in whether the Proposal received the required majority of creditors.

The Court approved the Proposal. After Court approval, the Trustee again reviewed Bellhop’s Proof of Claim. On September 10, 2018, the Trustee sent a formal Form 77—Notice of Disallowance of Claim, Right to Priority or Security or Notice of Valuation of Claim to Bellman.

Bellhop appealed the Trustee’s decision to the Court. Their right to do so is found in Section 135 of the BIA.

The appeal

In the Canadian bankruptcy system, the obligation to prove a claim is that of the creditor. When a creditor files a Proof of Claim, the Trustee has the duty of examining it in order to identify whether the claim stands. If the Trustee is not pleased with the Proof of Claim, he or she might look for additional details from the creditor. The goal of the Trustee is to figure out whether the claim of the creditor is a claim provable under the BIA.

Once the Trustee has made its determination, the claim is either admitted or disallowed. If disallowed, in whole or in part, the Trustee must issue its disallowance using Form 77—Notice of Disallowance of Claim, Right to Priority or Security or Notice of Valuation of Claim. The creditor receiving such a Notice of Disallowance can appeal the Trustee’s decision to the Court.

In this case, before getting to the merits of the appeal, the Court had to decide if the creditor was allowed to present new evidence in support of its claim not previously provided to the Trustee. In this case, the Court decided that it would be appropriate for this new evidence to be presented.

The Trustee did not handle its investigation properly

The Court was prepared to approve additional Bellhop evidence. The Court said that the Trustee company got Bellhop’s Proof of Claim and made inquiries through the Company regarding it. It obtained specific information and made use of some or all of it. The Trustee then developed its Notice of Disallowance.

The Court was critical of the Trustee’s analysis of the Proof of Claim. The Court stated that the Trustee should have shared with Bellhop the information it obtained from the Company and the Company’s legal counsel which it relied upon to develop the Notice of Disallowance. The Trustee could have also shared a draft of its Notice of Disallowance to see if Bellhop had any other documents or information to refute the Trustee’s analysis. Unfortunately, no such transmittal of details was provided by the Trustee to Bellhop before the issuance of the Notice of Disallowance.

The Court went on to say that it was this failure to share such details, it denied Bellhop of the chance to comment on it. It also, therefore, created this situation where Bellhop had to seek leave of the Court for the chance to submit extra details.

The Court’s view was that a Trustee could prevent this situation by having telegraphed its decision to the plaintiff before the official Notice of Disallowance was issued. The Trustee should have asked for the Bellhop’s remarks of any type of, prior to providing its Notice. If the plaintiff failed to react, or react properly, after that it will certainly have a harder job in obtaining approval to provide more proof of its claim.

So under these circumstances, the Court allowed Bellhop to submit more evidence.

The review of the claim and the Trustee’s disallowance

It is a shame that the Trustee seemed to stop short of a fullsome review of all potential information before reaching its decision to disallow the Bellhop Proof of Claim. The reason being is that the Court spent a great deal of time having to determine the issue of presenting additional evidence. The Court was quite critical of the Trustee in its handling of the adjudication of the claim requiring the motion for leave to present more evidence.

In the end, the Court agreed with the Trustee’s decision to disallow the Bellhop claim. The Court held that the proof sent to the Trustee did not warrant a claim of $3,270,684, or anything near that. To reach a decision to allow the claim, part of which was for the loss of income, the Trustee would have to decide on an arbitrary basis. The role of the Trustee is to be neutral and rely upon evidence; not act arbitrarily.

The Court went on to say that there is a responsibility upon creditors in a BIA proceeding to equip a Trustee with sufficient proof that sustains the claim they are making. That did not happen in this case. The Court went on to say that additionally, there is no responsibility on a Trustee to sustain the cost of a substantial examination of a claim which on its face seems blatantly overvalued. Were that the situation, creditors would certainly be urged to submit extremely pumped up claims.

The far better strategy is to urge a circumstance where creditors file sensible claims with sufficient proof to sustain them. That way creditors ensure that the time, initiative, and expense of a Trustee to examine, analyze and value the claim is reasonable.

So in the end, the Court sided with the Trustee’s decision but admonished the Trustee for essentially wasting the Court’s time.

Trustee company summary

Do you or your business have creditors claiming against you? Are you in financial distress? Do you not have sufficient funds to pay your expenses as they come due?

Call the Ira Smith Team today so we can get rid of the tension, anxiousness, pain and discomfort from your life that your money issues have generated. With the unique roadmap, we establish simply for you, we will promptly return you right into a healthy and balanced problem-free life.

We have years as well as generations of experience helping people and businesses trying to find debt restructuring to avoid bankruptcy. You can have a no-cost evaluation so we can assist you to repair your financial difficulties.

As a Trustee company, we are the only experts recognized, approved and audited by the federal government to offer insolvency guidance and solutions. A proposal is a federal government accredited debt settlement strategy to remove your debt and let you avoid bankruptcy.

Call the Ira Smith Team today. This will definitely enable you to return to a brand-new healthy and balanced life, Starting Over, Starting Now.

trustee company

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Brandon Blog Post

CONSUMERS PROPOSAL COMPANIES IN TORONTO

consumers proposalIf you would prefer to listen to an audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast

What is a consumer proposal?

I have written Brandon’s Blogs before on the topic of consumer proposals. Recently, I have heard some people refer to them as “consumers proposal”. Placing the “s” on the wrong word. So, I thought it would be good for me to write a refresher blog on the most asked questions when it comes to a consumer proposal. A consumer proposal Canada faq Brandon’s Blog.

In summary, a consumer proposal is a structured process under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). This procedure allows insolvent individuals to make an official deal with the people and companies they owe money to. This government accepted debt negotiation plan allows you to pay back only a portion of what you owe. You can take as long as 5 years of regular month-to-month repayments to do so.

When is a consumer proposal appropriate?

To be able to take advantage of this government-sanctioned debt settlement plan, you need to be insolvent and owe $250,000 or less to all your creditors. This dollar limit is apart from any financial debts secured by registration against your personal residence.

It is appropriate for anyone who:

  • has full-time employment;
  • can make their household budget allow them to make the required monthly payment you promised to make towards your debts; and
  • wants to avoid bankruptcy

What happens when you file a consumer proposal?

Under the BIA, a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) administers the consumers’ proposal.

The LIT will submit the necessary documents with the Office of the Superintendent of Bankruptcy (OSB). As soon as it is filed, you stop paying your unsecured creditors as of the date of your filing. You also will have stopped paying any secured creditors where you decided that you couldn’t afford to keep the secured asset(s) that you already returned.

On top of that, if your creditors are suing you, then your filing stops those legal actions If certain creditors already have a judgment against you and are garnisheeing your assets or your income, those actions are also stopped. This is called a stay of proceedings.

The LIT will send the proposal to your creditors. The proposal will include a listing of your assets and liabilities. It will also tell the creditors the reasons for your money difficulties.

Creditors then have 45 days to either accept or decline the proposal. They can do this either before or at the meeting of creditors if one is held.

When is a meeting of creditors held?

In order for consumers proposal to be approved, a simple majority of your creditors by dollar value that has actually filed a proof of claim need to authorize it. If creditors that have actually filed a proof of claim pick not to vote, that is considered a vote in favour.

You may not require to have a meeting of creditors. Unless creditors holding 25% in the dollar amount of the claims submitted ask for one, or the OSB requests it, there is no requirement to hold one. If a meeting is not requested, the proposal is deemed to be accepted by the creditors.

There is not a whole lot to understand. As I mentioned, a simple majority by dollar value tells the tale. There is either a majority to accept or refuse your consumers proposal.

If your proposal is accepted, the OSB, or any other interested party, has 15 days to ask the LIT to put it on the Court list to have the proposal examined by the Court. If no such demand is made, the proposal will be considered to have been approved by the Court.

If your consumer proposal is accepted

An accepted proposal is a contract between you and your creditors. You have promised to make monthly payments to the LIT for a period of up to 60 months. You carry out your end of the deal by making all the required payments.

You also need to attend two mandatory credit counselling courses run by the LIT. If you complete all the payments and the two counselling sessions, you have discharged the balance of your debt. You have also been successful in avoiding bankruptcy.

If your consumer proposal is not accepted

If your consumer proposal is not accepted, you can:

  • make changes to it and resubmit;
  • consider various other choices for addressing your financial problems; or
  • file for personal bankruptcy

As mentioned above, if you complete all the payments and the two counselling sessions, you have discharged the balance of your debt. You have also been successful in avoiding bankruptcy.

How will a consumer proposal affect my credit rating?

Normally, a person who submits a consumer proposal is given the lowest credit rating.

Information that affects your credit report is typically removed from after a certain period of time. In Ontario, the notation of your consumer proposal insolvency proceeding stays on your credit record for 3 years after you complete all your payments and receive your certificate of full performance.

You will start rebuilding your credit. Through making a conscientious effort to show you can now handle credit, your credit score will start rising.

Is a consumer proposal worth it?

I think so. You had financial problems and maybe your assets and employment income were being garnisheed. You needed a solution. You chose the only government-sanctioned debt settlement plan in Canada. You successfully completed it. You shed a lot of debt. You also avoided bankruptcy.

I would say, that for sure, makes it worth it.

Is a consumer proposal bad?

A consumer proposal in itself is not bad. It has saved thousands of Canadians from their financial problems. It has made sure that the bankruptcy numbers in Canada are not as high as otherwise might have been.

The bad part was the financial trouble the person got into. Thankfully, in a country like Canada with a mature economy, there is a legal means to help the honest but unfortunate person shed their debt without going into bankruptcy.

What happens after a consumer proposal?

After you have successfully completed a consumer proposal, you have hopefully learned proper budgeting skills through credit counselling sessions. You are also now better equipped to make sure that you use credit more wisely. You also now know better that you cannot spend more than you earn, on an after-tax basis.

You can now start rebuilding your credit. Ways of doing that are:

  • Obtain a secured credit card. This is one where you put up a certain amount of money and you get a credit limit in line with your deposit. Every month that you pay your credit card balance in full, that is reported to the credit reporting agencies. When you show responsible use of the credit card, your credit score improves. If you do not handle that credit well, that is also reported. Hopefully, that will not be the case.
  • Take out a small RRSP loan your first year after getting your certificate of full performance. Pay that loan off within the next 12 month period. Making your loan payments on time is reported and helps increase your credit score.

Be careful with credit. You don’t want to fall back into the trap of taking on too much debt and having financial problems again.

Consumers proposal summary

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

As a Trustee, we are the only professionals acknowledged, accredited and also managed by the federal government to provide insolvency advice and services. A consumer proposal is a federal government licensed debt settlement approach to eliminate your debt. We will certainly help you to pick what is best for you to clear your own debt issues.

Call the Ira Smith Team today so we can eliminate the stress, anxiety, discomfort and pain from your life that your cash problems have produced. With the distinct roadmap, we develop just for you, we will swiftly return you right into a healthy and balanced problem-free life.

We have years and generations of experience assisting people and companies looking for debt restructuring to PREVENT bankruptcy. You can have a no-cost analysis so we can help you to fix your financial troubles. Call the Ira Smith Team today. This will certainly allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

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Brandon Blog Post

BANKRUPTCY EXPERTS WEIGH IN ON US & CDN SMALL BIZ RESTRUCTURING

Introduction

Small and medium-sized businesses play a vital role in all worldwide economies. Bankruptcy experts in the USA identified problems. The Chapter 11 bankruptcy protection process for these companies was not working. It is pricey, usually ineffective and impractical. So, many businesses in the USA in need of restructuring could not have access to the US insolvency system.

On July 23, 2019, the US Congress passed the Small Business Reorganization Act (SBRA). On August 1, 2019, the Senate passed the Bill. On August 23, 2019, President Donald Trump signed it to enact it.

The purpose of the SBRA is to make business bankruptcy protection much less troublesome for small and medium-size ventures. The result is Chapter 11, subchapter V of the US Bankruptcy Code (Titled: Small Business Debtor Reorganization). The aim is to make it more affordable and will serve to save otherwise viable owner-managed businesses.

The purpose of this Brandon’s Blog is to discuss the new US legislation. I will also comment on an approach for the Canadian insolvency system. Can we streamline restructuring under the Bankruptcy and Insolvency Act (Canada) (BIA) for small business?

Changes made by the SBRA

A small company is defined in the SBRA as a person or company whose non-contingent debts (leaving out financial obligations to affiliates or people not dealing at arms’-length) are $2,725,625 or less and which chooses to be dealt with under the SBRA. The Act includes a new subchapter V to Chapter 11 of the US Bankruptcy Code. The purpose of this new approach is to make it simpler and more economical for small companies to efficiently restructure.

The main thrust of the Act is:

  1. A creditor cannot lodge a Chapter 11 restructuring plan that it is prepared to support. Just the business can. The company’s plan must be filed within 90 days of the day it filed its bankruptcy protection application, other than in specific conditions.
  2. A trustee comparable to those selected in a personal restructuring (Chapter 13) situations will be selected to manage each case.
  3. A creditors committee will not be developed.
  4. The Chapter 11 plan can change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
  5. The Court can approve a small business’ restructuring plan without the approval of any class of creditors. The Court must be satisfied that the restructuring plan treats all creditors fairly and does not prejudice any creditor class.
  6. To be fair and equitable, the restructuring plan must offer that all earnings received throughout the term of the restructuring plan will available to fund the restructuring for a duration of 3 to 5 years.

So the onus is on the creditors to carefully review all cases filed under the SBRA. Creditors will need to retain bankruptcy experts to advise them. Their role will be to make certain that Courts appropriately examine restructuring cases for fairness and that they treat all creditors equitably. This will be especially true for those that do not have the support of the creditors.

It will be very interesting to see if this new legislation accomplishes its goal of making it simpler and less costly for small businesses to restructure and continue.

The Canadian business restructuring landscape

There are two federal statutes that legislate business restructuring in Canada. They are the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) and the Part III Division I of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).

To qualify for restructuring under the CCAA, the insolvent corporation must owe at least $5 million. The CCAA is only for insolvent companies or income trusts to restructure. It is not for:

  • proprietors or partnerships
  • banks
  • telegraph companies (do people still send telegrams?)
  • insurance companies
  • companies to which the Trust and Loan Companies Act applies

Proceedings under the CCAA are a very heavily Court-driven process.

Restructurings under the Part III Division I proposal provisions of the BIA are available to both companies, proprietors and partnerships. It is also available to people who owe $250,000 or more, not including any mortgages or loans secured by the person’s principal residence.

For people who owe less than $250,000, a more streamlined restructuring process is available under Part III Division II of the BIA. These are called consumer proposals.

Restructuring under the proposal provisions of the BIA is not a heavily Court-driven process like the CCAA. Under consumer proposals, if all goes smoothly there is never a Court application.

So we have a simpler and streamlined version for people who have a smaller debt level but are still in need of restructuring their financial affairs. The same is also true for people with fewer or no assets that need to start over through the bankruptcy process. However, there is no equivalent streamlined version in Canada for small to medium-size businesses.

Could such a streamlined business restructuring model be developed? Not only do I think it could be, as one of the bankruptcy experts in Canada holding the designation of licensed insolvency trustee, I think it must be.

The statute for a streamlined Canadian business restructuring model

The CCAA is designed for large corporations. As I already stated, it is a heavily Court-driven process. Therefore, I think this eliminates the CCAA from developing a more streamlined version. It is not the case that it could not be done. It is just that a new section designed for simpler and more cost-effective CCAA proceedings goes somewhat against the purpose of the CCAA.

Therefore, I propose that CCAA legislation should remain available only to larger companies. Especially because the BIA, another federal statute, already includes restructuring provisions. It already has a streamlined version for bankruptcy and restructuring to avoid bankruptcy. So, why not a streamlined business restructuring section?

What would BIA streamlined business restructuring look like?

You might ask, why is this even necessary? Many small and medium-sized businesses are family-owned. There are even very large family-owned businesses. The Financial Post reports that “Family businesses own a bigger chunk of Canada’s economy than you think — way bigger”. They report it is a significant business sector contributing 35 percent of Canada’s real gross domestic product.

So with such an important business sector, it would make sense to allow those businesses on the smaller scale to qualify to have a simpler and more cost-effective way to restructure when they hit a financial bump in the road. If the viable parts of the business can be saved, it will continue to employ people, allow families to have a good quality of life and contribute to Canada’s GDP. It does not make sense to essentially kill off these smaller businesses because the cost of the restructuring will use up all the resources necessary to run the business.

I am not talking about family-owned businesses Bombardier Inc. and Loblaw Cos. Ltd. Rather, I am talking about the majority of Canadian entrepreneurial companies in the mid to small size range.

So here is what I propose for a streamlined restructuring process for small and medium-sized businesses. I will call it a new Part III Division III of the BIA. I will call it the General Scheme for Small Business Proposals (SBP) section of the BIA.

Size matters

The new SBP should be available to corporations, proprietorships and partnerships that are set up to conduct business. Their total debt should not be more than $1.5 million. There is nothing scientific about this number.

Statistics Canada could do an analysis as to the average debt load of Canadian businesses and an appropriate debt level could be picked based on it. For purposes of this Brandon’s Blog, I will use the $1.5 million amount.

I would not exclude loans from affiliates or people not dealing at arms’-length such as in the US legislation. In Canada, it is normal for the first funding of a company to come from the owners. Our chartered banks want to see a commitment from the owners before they will lend. Owners have sacrificed their own money to get the company off the ground. Just because that is how they had to finance the company, I would not preclude that debt from counting in the calculation.

The Canadian business landscape is different from that in the USA. Our numbers are generally smaller. In order to exclude non-arms’-length debt, you would probably have to lower the debt threshold I have mentioned. So, let us keep that debt threshold for discussion purposes and include all debt; secured or unsecured, arms’-length or related parties and owners.

If a person is not conducting business in his or her name, then this new SBP would not be for them. They would fall under either Division I or Divison II restructuring proposals.

Administration of restructurings under the SBP

Currently, only a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) can administer restructuring proposals. Under Division I Proposals, the LIT is called the Proposal Trustee. Under consumer proposals, Division II personal restructurings, the LIT is called the Administrator.

So, for the new SBP, I will call the LIT the Small Business Administrator. It makes it obvious that it is the restructuring of a business qualifying under the new Division III. The use of the word “administrator” ties nicely into the word chosen already by Parliament for consumer proposals. So again, it makes it obvious that the LIT is administering a small business streamlined restructuring.

Since we are not talking about personal restructuring that falls under the consumer proposal provisions in this Brandon’s Blog, my suggestions for a streamlined business restructuring applies only to Part III Division I of the BIA Proposal restructurings to avoid bankruptcy.

Time to restructure

Under a Division I Proposal restructuring, the company or person can begin the restructuring process by filing either a Notice of Intention To Make A Proposal (NOI) or the Proposal itself. Under either filing, the debtor then has 10 days to file its cash-flow statement reviewed and approved by both the company or person and the LIT. Under an NOI filing, the company or person then has an additional 20 days (30 days after the NOI filing date) to file a Proposal (unless the time is extended by Court Order).

Most times with small to medium-sized businesses, the debtor is not current in all of its filings with the Canada Revenue Agency (CRA). This includes payroll remittances, HST and perhaps even income tax returns. In any restructuring where CRA is a creditor, they need to have the most current information from the debtor’s business filings, to be able to know the full amount owing by the business. They will not be able to properly assess the Proposal until they know the proper amount owing to them.

Also in any Proposal restructuring, we want to have a provisional income tax return prepared by the external accountant for the business. The provisional return is to show if any further tax liability exists for the fiscal year up to and including the date of filing of the Proposal.

Books and records will first have to be brought up to date. Then the accountant will need time to prepare and file the income tax return. There is a reason for this. We want CRA to know if there is a further liability.

Although there is no statutory provision allowing for this, CRA so far on an administrative level will allow for a split tax year in a restructuring. The liability for the fiscal year up to and including the Proposal date will be included as a debt in the restructuring. This is to the company’s or person’s advantage in the business.

Once the Proposal is filed, the meeting of creditors has to take place within 21 days of the Proposal date. In my experience, there is never enough time for the business to do all the necessary filings for CRA that I just mentioned. So, CRA always requests an adjournment of the meeting until such time as all the filings are up to date.

So, in my proposed streamlined version, I would propose to extend the filing of a Proposal after the filing of an NOI from 30 days to 90 days, without the need for the expense of going to Court seeking an extension. This should give enough time for the business to get all of its filings up to date and hopefully avoid the need for an adjournment of the meeting of creditors.

Creditors

There really is nothing that needs to be changed on how creditors file their claims. The same is true for the rules of how the LIT must assess all claims. I do like the idea in the new Chapter 11 subchapter V. That is the ability to change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.

In Canada, it is very rare, if not unheard of, for an entrepreneurial business to get a bank loan without the owner giving a personal guarantee. Many times the personal guarantee has to be backed by a hard asset, such as a pledge of the personal residence. If the secured debt can be restructured, shouldn’t the pledge agreement on a personal asset also be part of that restructuring?

So, I propose that in the new SBP, there should be the ability to change the legal rights of a lender registered against an individual’s primary home if the funds were used for the business or if the pledge was in support of a personal guarantee for funds borrowed by the business.

The types of changes to the security pledge will be unique to the individual restructuring. It has to make business sense and common sense. It is always up to the secured lender to vote against the plan if they don’t like it. In that case, the restructuring will fail. There will be great pressure on the business to bring forward the best possible restructuring plan and not go crazy on what changes the owner wants to make to the pledge of security.

Deemed acceptance and approval

Without going into all the rules, under the current consumer proposal legislation, there is the concept of deemed creditor approval and deemed Court approval. Unless creditors holding 25% in value of the proven claims request it, there is no need to hold a meeting of creditors. Creditors are asked to vote by way of voting letters when they file their proof of claim. If no obligation to call a meeting arises, then the consumer proposal is deemed accepted.

If a consumer proposal is either accepted or deemed accepted by the creditors, then there is probably never going to be a need for the LIT administrator to formally seek approval by the Court. The BIA reads that after the acceptance or deemed acceptance, the consumer proposal is deemed accepted by the Court unless the Official Receiver or “other interest party” requests it within 15 days after the date of (deemed) acceptance.

Currently, under a Division I Part III restructuring Proposal there are no deeming provisions for either creditor acceptance or Court approval. I would like to see in the new SBP section, that similar deeming provisions for both creditor acceptance and Court approval be implemented. This will save time and cost thereby being much more efficient.

No deemed bankruptcy

In a Division I Proposal, if the creditors do not accept the restructuring, or the Court does not approve it, then the debtor is automatically deemed to have filed an assignment in bankruptcy. There is not a similar provision for consumer proposals.

If the creditors do not accept a consumer proposal, then it just dies then and there and the debtor goes back to their normal unprotected state.

My proposal for the new SBP is that if the creditors do not accept or the Court will not approve the restructuring plan, that does not produce a corporate or personal bankruptcy. Rather, the debtor just goes back to their normal unprotected insolvent state and they have to fend off their creditors as best as possible.

It may lead to bankruptcy, but that will not be automatic. In some corporate situations, the cost of a bankruptcy proceeding just does not make sense. This is especially true if a chartered bank has security over all of the assets and will be enforcing its security through a receivership.

Directors/Owners

Right now a corporate restructuring Proposal allows for Directors to be released from debts that arise prior to the date of filing the Proposal. The kinds of debts that a Director can be released from are those solely resulting from their role as a Director. In other words, generally statutory claims they would be legally liable for.

As I already mentioned, more often than not, the only way a small or medium-sized company can get a bank loan is if the entrepreneur personally guarantees the debt. There are times where a corporate restructuring can be done, but the secured debt arrangements will have to be amended. If the lender is not willing to amend the personal guarantee security arrangements in place, then, the corporate restructuring does not make sense.

So in my dream of the SBP, if a secured lender agrees to a restructuring of their debt, then the Director(s) who may be personally liable will now be responsible for the revised secured lending arrangement. This would also go hand in hand with my proposed change to the ability to change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.

Bankruptcy experts summary

So there you have it. The US government saw fit to add to its Chapter 11 bankruptcy protection statute to allow smaller companies to restructure. My vision for a Canadian version is the SBP section to form a new Part I Division III for the BIA.

To summarize, the changes to allow for a more efficient and less costly way to restructure smaller businesses would include:

  1. The brand-new SBP will be offered to companies, proprietorships and partnerships that are established to run a business. It will be available to businesses with any kind of debt not greater than $1.5 million.
  2. A LIT who will be called a Small Business Administrator, will oversee and be responsible for the business restructuring.
  3. The time for the filing of a Proposal after the filing of an NOI will be extended from the current 30 days to 90 days. This will be without the need and cost of a Court application.
  4. There ought to be the capability to transform the rights of a lending institution who has taken an entrepreneur’s home as security for a business loan or personal guarantee of such financing and the funds were put into the business.
  5. Deeming provisions for both creditor acceptance and Court approval be implemented. It is already done in consumer proposals, so why not in streamlined business proposals? This will result in more efficient and less costly restructuring.
  6. If the creditors’ decline or the Court will not approve the restructuring, that will not generate a corporate or personal bankruptcy. Instead, the debtor simply returns to their vulnerable financially troubled state and they will need to deal with their creditors as best as possible. In some cases it may lead to either bankruptcy or just a closing down of the business. Where there is a secured creditor, it will lead to the enforcement of their security. Either way, it won’t be an automatic bankruptcy.
  7. A Director of a corporation can be released not only from statutory obligations arising from their office of Director. That person, or any other person, can have their guarantee of a debt to a lender be amended if the related business debt is amended in the restructuring.

There no doubt will be other areas that would need amending once all the relevant sections of the BIA were looked at. These are my ideas of the major amendments that could be made to the BIA, to allow for a more streamlined and cost-efficient restructuring for small and mid-sized businesses.

What about your business?

The financial restructuring process for either a large or small business is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

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

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

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

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CANADA STUDENT LOAN FORGIVENESS: BANKRUPTCY TREATS STUDENT LOANS FAIRLY

UPDATE OCTOBER 30, 2019: On September 27, 2019, the Court of Queen’s Bench of Alberta issued its decision on the appeal of this case. The decision described in this Brandon’s Blog was reversed. You can read about it in our new blog:

STUDENT LOAN BANKRUPTCY DISCHARGE CANADA: REGISTRAR DECISION REVERSED

“Forgiveness does not change the past, but it does enlarge the future.” Paul Boose

Introduction

In my last Brandon’s Blog, I talked about the balance between a debtor and the creditors the Canadian insolvency system strives for. I just read today a decision of the Registrar in Bankruptcy sitting in the Court of Queen’s Bench of Alberta in Edmonton. In this case, Morrison (Re), 2019 ABQB 521, highlights this balance in this case dealing with Canada student loan forgiveness.

Can Canada student loans be forgiven in bankruptcy?

This is an application according to s. 178( 1.1) of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). As I have previously written in several of my Brandon’s Blogs, in general, student loans cannot be discharged by a bankruptcy where the date of bankruptcy occurred within seven years after the date on which the bankrupt discontinued to be a full-time or part-time student.

Section 178(1.1) of the BIA, allows for after five years after the day on which a bankrupt with student loan debt ceases to be a full-time or part-time student, the Court may, on an application, order that the financial debt will be discharged. For such Canada student loan forgiveness, the Court has to be satisfied that:

  • the bankrupt person has actually acted in good faith about their obligations under the student loan debt; and also
  • the bankrupt has and will continue to experience economic trouble to such an extent that the bankrupt will certainly be not able to pay that financial debt.

So it is possible for student loans to be forgiven in bankruptcy. In this case, if the bankrupt’s application for student loan forgiveness succeeds, the student loan debt will not survive after her discharge. The application was opposed by both Canada Student Loans and the Ontario Student Assistance Program (the government).

Is the forgiveness all or none?

Before getting into the unusual details of this case, the Registrar’s decision dealt with one of the issues that came up over the course of the application. The issue was whether the choice to forgive student loans is all or none. That is, whether it is open to a Registrar hearing this application to find that only a part of the financial obligation needs to survive, in contrast to releasing all of it.

Based on the case law, the Registrar was satisfied that this was an all or none proposition. The Registrar stated that he was somewhat let down that it had to be that way. If the decision is that these financial debts are extinguished by the bankrupt’s discharge, the government could object to the bankrupt receiving an absolute discharge.

Like any other creditor, they could ask that a financial condition be enforced as a condition of discharge. In other words, the bankrupt would have to pay a portion of the student loan amount into the estate to be distributed by the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) as a condition of getting a discharge. This frequently occurs with high tax obligation debtors.

As it turns out, the government did not oppose the discharge application that was heard following this student loan application. They also did not ask that a monetary condition be applied to the terms of the conditional Order that was given.

So, it had to be all or none.

The vital facts

In 2015 Ms. Morrison was in financial hardship. At the time, she estimated her overall unsecured financial obligations were $71,501.00. Of that amount, about $50,000.00 was student loan debt. She sought the guidance of a Trustee and then assigned herself into bankruptcy. Ms. Morrison’s stated intent was to have all her unsecured debt on an equal footing to make sure that she can take care of everything via the insolvency process. She told her Trustee that she wanted her student loan debt to be included in her unsecured debt that would be eliminated by her discharge from bankruptcy. She clearly wanted Canada student loan forgiveness.

Ms. Morrison was last a full-time student in April 2008. Her last day of classes was on April 18, 2008. She had been a full-time student up until that day. So, arguably, she discontinued being either a full-time or part-time student on April 19, 2008. Unfortunately for her, she assigned herself to bankruptcy on February 27, 2015. Her personal bankruptcy in February 2015 was just a bit too early.

This somewhat defeated her stated reason for going bankrupt. So this is why she made this application to try to have her student loan debt forgiven by her discharge from bankruptcy. Depending on how you do the calculation, Ms. Morrison’s date of bankruptcy was about 60 days or so too soon.

If she had actually waited until April 19, 2015, to become bankrupt, rather than February 27, 2015, as she did, her student loan debt would be eliminated by her bankruptcy discharge.

The government tried to argue that under the student loan legislation, you calculate the time that she ceased being a full-time or part-time student begins on the 1st day of the month following the month she finished her studies. The Registrar was not having any of that.

He said that the student loan treatment he was asked to consider was based on the terms of the BIA. Therefore, he was going to use the more practical conclusion that for BIA purposes, the day you ceased being the student is the day after classes ended. I guess you could quibble that the day after you finish writing your last exam was really the date you ceased being a student, but nobody raised that issue.

The considerations

The Registrar considered cases from both Alberta and other provinces laying out the factors that relate to the discretion the Court had in such a forgiveness application. As I stated above, the Registrar had to determine if:

  • the bankrupt person has actually acted in good faith about their obligations under the student loan debt; and also
  • the bankrupt has and will continue to experience economic trouble to such an extent that the bankrupt will certainly be not able to pay that financial debt.

The Registrar laid out his understanding of the factors he needed to consider based on previous decisions. His list was:

  1. Whether the student loan funds were utilized for the purpose it was loaned for.
  2. If the person finished their education.
  3. Did the applicant obtain financial gain from education?
  4. Whether the applicant has actually made reasonable initiatives to repay the financial debts.
  5. If the applicant has made use of the option of applying for interest rate relief.
  6. The timing of the bankruptcy.
  7. Do the student loans form a significant percentage of the total debt?
  8. Whether the applicant had an adequate job and therefore income to be expected to make payments against the student debt.
  9. The applicant’s lifestyle.
  10. Did the applicant had sufficient earnings for there to be surplus income in bankruptcy under the Superintendent’s Directive.
  11. What approaches the applicant made to the government for debt relief and what the government’s response was.
  12. Whether the applicant went to at any time was unable to work due to medical issues or disability.

The Registrar’s findings

Registrar’s findings reveal the following:

  1. The student loans were used for the purpose the funds were loaned.
  2. Ms. Morrison completed her education.
  3. She acquired a financial advantage from her education as she currently works in the area she studied for, or a related one.
  4. She made some effort to settle the student loan debt. She entered into a contract with the government but her financial condition prevented her from making good on that plan. She apparently made some repayment.
  5. The bankrupt’s initiatives at getting to a practical arrangement were not trivial. However, it appears that she required the framework of an insolvency process for her to come to terms with all her debts.
  6. The applicant got interest-free standing for a period of time.
  7. The student loans developed by far and away made up the best part of the bankrupt’s general indebtedness.
  8. The applicant is (and was) for the most part a single parent of one. She committed a significant percentage of her income to her child (now a teen).
  9. She lived a modest way of life.
  10. She now has full-time employment and surplus income.

The decision

The Registrar found that the timing in connection with the seven-year cut-off was extremely close. The bankrupt’s primary interest and her shared intent at the time of meeting with the Trustee were to deal with all of her creditors on equal ground. Ms. Morrison did not look for bankruptcy to avoid her student loan debt but rather to deal with all of her financial problems.

There was obviously miscommunication between Ms. Morrison and her Trustee. The trouble was that the miscommunication aggravated her stated goal, which was the entire point of her insolvency proceeding.

When the matter was heard, it was approximately eleven years after her education was finished. The Registrar stated that in these extremely uncommon conditions he is completely satisfied that it remains in the interest of justice that an order goes pursuant to s. 178(1.1).

The government did not otherwise oppose the discharge. The Registrar made a conditional order of discharge taking all circumstances, including her surplus income, into consideration.

In this way, the Registrar balanced the right of this honest but unfortunate debtor to get her fresh start, with the rights of her creditors.

“True forgiveness is when you can say Thank You for that experience.” Oprah Winfrey

Canada student loan forgiveness summary

Are you or your company in need of debt forgiveness. Have you tried your best to balance your financial survival with those of your creditors but you just cannot keep up?

The stress you are under because of your money challenges is huge. I understand your pain. At no cost to you, I will look at your whole set of circumstances and develop a plan that is as special as your issues. I know that I can help you through this.

There is no “one solution fits all” approach with the Ira Smith Team. That is why I can develop a debt settlement plan for you as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get 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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CANADA BANKRUPTCY AND INSOLVENCY ACT GRANTS STAY OF EXECUTION

canada bankruptcy and insolvency act

Canada bankruptcy and insolvency act introduction

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

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

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

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

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

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

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

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

Is insolvency a criminal offence?

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

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

So becoming insolvent is not a criminal offence.

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

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

canada bankruptcy and insolvency act

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

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

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

Mr. Robert brought this motion for:

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

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

The honest but unfortunate debtor

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

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

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

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

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

Seizure of an RRSP – in bankruptcy and no bankruptcy

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

This is important for 2 reasons:

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

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

canada bankruptcy and insolvency act

Mr. Brennan’s defence

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

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

Certainly not the most compelling defence in the circumstances.

The Court agrees with Mr. Robert

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

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

The moral to Mr. Brennan’s story

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

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

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

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

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

Canada Bankruptcy and Insolvency Act summary

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

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

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

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FINANCIAL LITERACY: FINANCIAL LITERACY FOR HIGH SCHOOL STUDENTS IN ONTARIO

financial literacyIf you would prefer to listen to the audio version of this financial literacy Brandon’s Blog, please scroll to the bottom and click on the podcast

Introduction

When I was in high school, I was very fortunate. I thankfully took two accounting courses, in addition to the normal reading, writing and arithmetic. It was in accounting, that I received some financial literacy education. Anyone who did not take accounting did not get any exposure to basic financial education.

When Ontario grade 10 students go back to school next week, their course curriculum is now amended so that a financial literacy course is mandatory. The purpose of this Brandon’s Blog is to discuss why financial literacy is important and what the new course will offer these students.

What is financial literacy and why is it important?

Financial literacy is the education, learning and understanding of different financial subjects related to handling personal money, budgeting and investing. This topic focuses on the capability to manage individual finance matters in a reliable way.

With such education, people gain an understanding of making suitable decisions about their personal money. Without a basic financial understanding, how can people develop their financial skills? Where will you learn about things such as investing, insurance, budgeting, saving, retired life and income tax concepts?

Why is financial literacy important for students?

The typical high school curriculum of education and learning is extremely important. People generally do not get specialist education until they are in a career program. To become a medical professional, an auto mechanic or a web developer requires specialist education for career success. The one area of education that is generally missing to equip our youth to be able to make smart economic decisions in their lives is proper financial education.

Our society values money and entrepreneurship, yet for some reason, our institutions appear to assume you will somehow just know or pick up the proper financial skills to succeed. Perhaps if there was a mandatory financial education system in place we would see the gap between the rich and poor lessen. Teaching basic financial concepts and skills can go a long way to make sure that people can learn good financial habits and keep their heads above water.

How do you get financial literacy?

The Ontario curriculum for Grade 10 career studies for the first time this school year will include a section on financial literacy. The provincial government believes that it is important for students to understand budgeting and financial management. I applaud this effort.

The education system’s overall expectation is that students will get an understanding of responsible monitoring of financial resources and of services readily available to support their financial proficiency as they prepare for post-secondary life. This is an excellent thing.

I remember my first day at university. Day one all the banks have tables to entice students to sign up for a new credit card. Young adults who have student loans and have never been exposed to financial management courses will now have the ability to take on more debt. Not a good thing.

The specific expectations are that students will:

  • Learn the principles of financial responsibility
  • Evaluate the advantages of a variety of financial savings options
  • Explore financial planning tools available with banks and other sources

What are the three main components of financial literacy?

The three main components that the new financial literacy piece to career studies program will cover are:

  • Financial responsibility
    • setup and follow a budget
    • sensibly handling bill payments and using credit wisely understanding the difference between
    • knowing the difference between a bank and a credit union
    • managing their very own bank accounts
    • defending themselves against monetary scams and fraud
  • Financial savings choices
    • types of interest-bearing accounts and their associated rate of interest
    • tax-free savings accounts (TFSAs)
    • registered retirement savings plans (RRSPs)
  • Different kinds of borrowing and their advantages and disadvantages
    • federal government student loans
    • provincial government student financings, such as those available with the Ontario Student Assistance Program (OSAP)
    • loans or bursaries from their local cities and towns
    • personal (unsecured) loans from a financial institution, be it a chartered bank or a credit union
    • lines of credit, credit card and overdraft products
    • recognizing the benefits and disadvantages of the numerous kinds of credit products
    • how the responsible use of a credit card can boost an individual’s credit score ranking
    • how improper use of the same credit card can hamper a person’s credit score ranking
    • that the proper use of bank loans can allow a person to pay for a costly item, such as a car or home
    • how the improper use of loans and excessive debt can lead to a poor credit rating, money troubles and even insolvency and bankruptcy
    • How borrowing from family or close friends can be advantageous, but how defaulting on repayment can negatively impact personal relationships

The teacher’s role

The teacher’s role will be to provide illustrations to drive home these points. In the context of spending and personal finance, the students will learn the difference between “needs” and “wants”. Teachers will ask the students to reflect on exactly how a person’s values will influence their wants or the ways in which they satisfy their needs. Students will learn what “living within your means” really means.

The teacher will lead a discussion on exactly how a person can do this successfully. Students will consider what the impact on a person will be from not paying expenses promptly and from using numerous credit cards.

Students will learn the benefits of beginning to save at a young age. They will be exposed to the advantages of then having a formal financial savings plan. All this will naturally lead to a realization that budgeting for both short-term objectives, such as purchasing clothes, differs from budgeting for long-term goals, such as buying and maintaining a car. Students will also learn about the different types of savings vehicles as well as debt products. They will also learn the proper use of debt.

In my view, the students will learn about the three most important parts of any financial literacy program: 1. proper budgeting techniques; 2. the importance of saving from an early age and the various savings vehicles available; and 3. debt and how to use it properly.

Summary

Hopefully, by exposing grade 10 students to these concepts, they will be motivated to keep learning and using proper financial management techniques. My hope is that more students will come out of high school and begin their post-secondary career, whatever that may be, by having better financial management skills and therefore fewer people will be able to stay clear of insolvency.

Prior to the new mandatory curriculum, the first exposure many people had to financial literacy education was as part of insolvency counselling, which means they already made mistakes before having a chance to learn the basics.

Are you on the edge of insolvency? Are bill collectors hounding you? Are you ducking all your phone calls to the point where your voicemail box is always full?

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

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

Call a Trustee Now!