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GM CANADA HEADQUARTERS OSHAWA: TOP 5 THINGS EACH EMPLOYEE MUST DO NOW!

gm canada headquarters oshawa

IF YOU WOULD RATHER LISTEN TO THE GM CANADA HEADQUARTERS OSHAWA AUDIO OF THIS BLOG, YOU WILL FIND IT AT THE BOTTOM OF THIS PAGE.

GM Canada headquarters Oshawa: Introduction

Execs with General Motors advised on November 26, 2018, that GM Canada headquarters Oshawa and the General Motors Oshawa Assembly Plant are closing down by the end of 2019. No trucks or cars are assigned to the plant for production past December 2019. This will affect about 2,800 people who will be unemployed; 2,500 union employees as well as 300 salaried employees.

The purpose of this blog is to discuss the issue, review what each affected GM employee should have done all along, and the top 5 things they need to do right now.

GM Canada headquarters Oshawa: What everyone should have done

I constantly suggest to everyone that they always do two things about their income and expenses:

  1. Save a part of your earnings to that you have a reserve of 3 to 6 months of living costs. Work loss or an unanticipated expenditure can place you in a financially risky area if you’re not prepared.
  2. Create a realistic budget that details your income, variable and fixed expenses that are your true necessities. Your savings emergency fund also has to be accounted for. Only if you then have money left over each month, should you even start to think about your expenditures that are really wanting, not needs?

I always advise this to anyone looking for financial tips. In my September 2017 blog, DEBT ELIMINATION: ARE YOU SABOTAGING YOUR WEALTH BY SAVING AND REDUCING DEBT?, I include a discussion of both of these recommendations. Back in 2013, I wrote about the scary statistic on Canadians living paycheque to paycheque in my blog ARE YOU LIVING PAYCHEQUE TO PAYCHEQUE?.

Over the years I have written several articles about the looming dangers of Canadians not having a savings emergency fund while their debt is rising and income is relatively stagnant. I always have written about the need to have an emergency fund if you are faced with an unplanned nasty surprise that you could not have controlled or anticipated. The examples I always give are unexpected expenditures such as from a medical emergency, or loss of income due to job loss. Well, the GM Canada workers are there now. Unless there is a magical reversal of policy, the GM Oshawa plant closing is happening.

GM Canada headquarters Oshawa: Just lost my job – what’s next?

It’s a tough situation. I can’t just leave off this blog having said what all working Canadians should have done. Job loss is a major stress not only for the individual but for the entire family. You start stressing over exactly how are you going to make the next rent or home mortgage payment and the car payment. Exactly how are you most likely to maintain food on the table and the lights on? These are all regular concerns.

So, below are my leading 5 points the GM employees ought to do both previously as well as after they quit working at GM offered the news of the Oshawa GM plant closing.

GM Canada headquarters Oshawa: The top 5 things to do

  1. Collect yourself for a few days. Don’t make any rash decisions. For the next two to three days, just don’t do anything. Your emotions are high. You’re probably talking under your breath thinking about how your revenge will be swift and just and cold as the blackest winter’s night. People don’t make rational, mathematics-based decisions when that type of emotion is involved. Take a walk around a park. Catch up on your favourite shows. Spend some time with the family.
  2. After things have settled down, now it is time to form a plan before you are actually laid off. If you are a union worker, the union will have resources available for both counselling and to advise of what arrangements GM is making for workers about notice periods and other financial issues relating to being laid off. If you are on salary, presumably GM will make a third party resource available for you to provide this information. Otherwise, the GM HR department will take care of it. So what are some of the elements of a plan?
  3. Once you are laid off, consider filing for employment Insurance benefits. Right now you might be thinking that such a government subsidy is for losers. I have skills, diplomas, degrees, experience – I am not a loser. I am not going to stand in line for a government handout. But, what have you been paying into the employment insurance fund all these years for? Exactly this situation. You earned the right to get paid something back from this fund. This is literally what this is for. With all the government paperwork and red tape, it could take a while for the first cheque to get to you. In the meantime, your car still requires gas and your body still requires food. You will be laying out money, or going into credit card debt. You need to know that there is at least some money soon to come. If you have already started making phone calls to try to line something up for the next phase of your working life, it may take longer than you think. At least know that you have taken a positive step to start bringing in some money while you are searching for that next work opportunity. You may be getting working notice instead of a severance package. You may need the employment insurance payments to live on, especially if there isn’t a cheque beyond your normal pay when you leave GM.
  4. Get professional advice on rolling over your pension entitlement to your RRSP. If you are a member of a GM pension plan and assuming you are not entitled to receive benefits immediately, you will have some choices to make. You certainly aren’t going to leave the money with the existing pension fund manager once you are laid off. You want to make sure that the transfer is done properly. Properly is both from an income tax perspective as well as what is the right investment vehicle for you given your age and future work expectations. If you are a union member, I am sure your union rep will be provided with information to provide to you on the best way to do the transfer. For a salaried worker, the GM HR department should be helpful at least about what your rollover choices are.
  5. Create a realistic household budget. There are many benefits to having a proper budget. A spending plan offers you control over your life. It forces you to check your new family income level and make decisions about how you will spend that income. Budgeting will certainly permit you to fulfill your financial goals — paying your expenses while also focussing on savings for your retirement. It might be tough in the beginning on a reduced income. However, a realistic budget will let you control the lower income properly until you are back on your feet. Once you are earning what you should be in a new position, then the budget can be reworked. You will now be able to spend some money on things your family needs that you had to stop buying.

GM Canada headquarters Oshawa: Don’t wait until you are laid off

By now, hopefully, you realize that you should not wait until you are laid off to do proper basic financial planning. The time to have a proper household budget, keeping an emergency savings fund of 6 to 12 months in case of an unexpected life event and save for retirement, is not when you are let go. The time to start doing it is right at the beginning.

The Oshawa GM plant closing 2018 announcement made me think about in a perfect world, how each about to be laid off person should have planned for a day like this. I realize that probably very few did. However, how much better do you think the GM employee who has a 12-month emergency fund saved up feels compared to all those who don’t? The GM announcement inspired me to write this blog.

I hope that this blog gets you to think about your situation and perhaps fine-tune a few things. The best time to do it is when there isn’t an emergency.

GM Canada headquarters Oshawa: Do you have too much debt?

Do you have too much debt? Do you not have any money to fall back on if you were laid off from your work?

Licensed Insolvency Trustees (previously called bankruptcy trustees) are the only professionals recognized, accredited and accountable to the federal government and the Court to manage debt restructuring cases in Canada. As a licensed insolvency trustee, our individualized approach will certainly help you recognize all your options. The choice you select based upon our suggestions will remove the stress, anxiety and pain you are feeling as a result of your debt troubles. We know your pain, and we know we can end that pain for you.

The Ira Smith Team has years and generations of experience helping people and companies in financial difficulty. Whether it is a consumer proposal debt negotiation strategy, a bigger individual or business restructuring proposal debt negotiation strategy, or as a last resource, bankruptcy, we have the experience.

Our technique for every case is to produce an outcome where Starting Over, Starting Now occurs. This begins the minute you come through our front door. You’re just one telephone call from taking the essential actions to return to leading a healthy and balanced, problem-free life. Call us today for your totally free appointment.

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INSOLVENT DEFINITION: A NEW FOCUS FOR TORONTO BANKRUPTCY TRUSTEE

JUNE 17, 2019 UPDATE: The Court of Appeal for Ontario reversed this lower court decision. You can read all about it in our blog update – INSOLVENT DEFINITION RESTORED IN COURT OF APPEAL FOR ONTARIO

Insolvent definition: Introduction

The basis of the Canadian insolvency system is to assist the honest but unfortunate person or company shed their debt (with certain limitations) and start over fresh. There are many terms defined in the Canadian insolvency legislation. The most basic one is the insolvent definition.

Last week I reviewed a decision of the Ontario bankruptcy Court that really did give me a new focus. It doesn’t change the bottom line of the advice I would give an insolvent debtor, but it did change my focus. That is one of the things I love about being a licensed insolvency trustee (formerly called a bankruptcy trustee). I never stop learning.

Insolvent definition: Two examples

The Oxford dictionary definition is:

“insolvent

ADJECTIVE

Unable to pay debts owed.

‘the company became insolvent’”

Section 2 of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) defines an insolvent person as:

“insolvent person means a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors provable as claims under this Act amount to one thousand dollars, and

(a) who is for any reason unable to meet his obligations as they generally become due,

(b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or

(c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due;”

Insolvent definition: The concept of net worth

Insolvent person refers to both people and companies. The BIA definition incorporates the common English definition. The BIA definition also incorporates the accounting concept of net worth. Net worth = Assets – Liabilities. If the difference is positive, you have a positive net worth. If the difference is negative, you have negative or no net worth.

For those that want to read more about the concept of net worth, look at the Addendum I wrote which is at the bottom of this blog. Since many of you already have an advanced understanding of net, I don’t want to insert it in here.

When giving our free first consultation, my advice to anyone with lots of debt but positive net worth is that in bankruptcy, they will lose their non-exempt assets. If the major asset providing the positive net worth value is their home, I advise the person that they will lose their equity in their home which is not a good outcome. So, my first advice is always to see if the person can either refinance the home or sell it. Then they can use the funds to pay off their debts. In a sale, any balance can be used as a down payment on a smaller home or can set them up nicely to rent.

I normally don’t think of part (c) of the BIA insolvent definition as being mutually exclusive. However, after reading the Court decision and looking again at the BIA definition, I am reminded that it really is. Let me describe the Court’s decision to explain.

Insolvent definition: Kormos v. Fast, 2018 ONSC 6044 (CanLII)

Mr. and Mrs. Kormos got a judgment against their neighbours, Mr. and Mrs. Fast. The Small Claims Court at St. Catherines issued the judgment for $25,565.64. This judgment comes about from problems arising from flooding in their home which was triggered by the Fasts.

After the judgment was given, the Fasts were contacted by Mr. Kormos’ licensed insolvency trustee (Trustee). The Trustee advised that Mr. Fast had submitted a consumer proposal under the BIA many months previously, on August 24, 2016. Mr. Fast did not previously mention anything about his consumer proposal or his later filing of an assignment in bankruptcy.

Fifteen days after the Kormos plaintiffs started enforcement of the judgment by serving a notice of examination on Mrs. Fast, she made an assignment in bankruptcy under the BIA on April 25, 2017.

In their different bankruptcy filings, each of the Fasts attested in their respective sworn Statement of Affairs, that their home in Queenston, Ontario (Home) was worth $630,000.

Mr. and Mrs. Kormos provided evidence by way of an expert witness appraisal who also testified in Court, showing that the Home was considerably underestimated in the BIA filings by Mr. Fast on August 24, 2016, and Mrs. Fast on April 25, 2017, when she made an assignment in bankruptcy.

The Kormos’ lawyer stated that when a reasonable value is designated to the Home, neither Mr. Fast nor Mrs. Fast was insolvent when their corresponding filings were made under the BIA. They were obviously relying on the fact that each of Mr. and Mrs. Fast really had a positive net worth.

Mr. and Mrs. Kormos were looking for an Order under the BIA (i) annulling Mr. Fast’s consumer proposal as well as, if required, his 2014 bankruptcy; as well as (ii) annulling Mrs. Fast’s bankruptcy.

Insolvent definition: The Court’s analysis

Mr. and Mrs. Kormos wanted:

  1. An Order according to s. 66.3(1) of the BIA annulling the consumer proposal submitted by Mr. Fast.
  2. Since an outcome of such an annulment would be that Mr. Fast is considered to make an assignment in bankruptcy under s. 66.3(5) of the BIA, they also were looking for an annulment of his bankruptcy on the ground that Mr. Fast is not presently insolvent.
  3. An order according to ss. 181(1) as well as 187(5) of the BIA annulling the bankruptcy of Mrs. Fast.
  4. An Order according to Rule 60.07 of the Rules of Civil Procedure issuing a writ of seizure and sale of the Home.

The Fasts did not challenge the expert appraisal opinion. The Court accepted the expert’s appraisal as being the value of the Home on the relevant dates of Mr. and Mrs. Fast’s respective filings under the BIA.

The Court looked at the insolvent definition in the BIA, which again is:

“insolvent person means a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors provable as claims under this Act amount to one thousand dollars, and

(a) who is for any reason unable to meet his obligations as they generally become due,

(b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or

(c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due;”

In her bankruptcy filing, Mrs. Fast filed her statement of monthly income and expenses. According to the statement, her monthly expenses exceed her monthly income by $2,010. When looking at the definition of an insolvent, the Court concluded that Mrs. Fast was unable to meet her obligations and had stopped paying her current obligations. Notwithstanding that the Court found that Mrs. Fast probably understated the value of her interest in the Home, the Court was not persuaded to annul her bankruptcy as she met the definition of an insolvent person.

As for Mr. Fast, the Court decided it would not annul his consumer proposal. The Judge went on to say that even if he was persuaded to do so, Mr. Fast was still a bankrupt and the Judge had no evidence for the proposition that his bankruptcy should also be annulled.

So, the Judge did not grant the application, the Fasts are under their respective BIA proceedings and Mr. and Mrs. Kormos can file their claim with the Fasts’ Trustee.

Insolvent definition: The Trustee

Now the Trustee has an interesting situation. The Trustee is now aware of the expert valuation of the Home. The Trustee will have to use that information to decide if the Fasts have equity in their home. If yes, then as far as Mrs. Fast, her equity will have to be realized upon because she is bankrupt. Her equity in the Home devolves to the Trustee as an asset (if it is more than the minuscule provincial exemption).

Is Mr. Fast’s consumer proposal has already been (deemed) accepted by the creditors and (deemed) approved by the Court. If yes, then he will just have to keep making the agreed payments to fully complete his consumer proposal and get out of bankruptcy. If not, the Trustee will now have to take his real equity in the Home into account. The Trustee will have to decide if the consumer proposal can still be recommended to the creditors, or if it must be improved because of the increased total asset value.

Insolvent definition: Are you insolvent?

Are you unable to pay your debts as they come due? Are your bills past due and you don’t know how you are going to pay them? If so, then you are insolvent, and we can help end your pain.

Licensed Insolvency Trustees (formerly called bankruptcy trustees) are the only experts accredited, licensed and supervised by the federal government to handle debt restructuring. As a licensed insolvency trustee, our personalized strategy will assist you to know all your alternatives. The alternative you choose based on our recommendations will take away the stress and pain you are feeling because of your debt problems.

The Ira Smith Team has decades and generations of experience people and companies in financial trouble. Whether it is a consumer proposal debt settlement plan, a larger personal or corporate restructuring proposal debt settlement plan, or as a last resort, bankruptcy, we have the experience.

Our approach for each file is to create a result where Starting Over, Starting Now takes place. This starts the minute you are at our front door. You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life. Call us today for your free consultation.

Insolvent definition: NET WORTH ADDENDUM

Regularly monitoring your finances reveals invaluable lessons. A most important aspect of building wealth is to find it. People that constantly increase their net worth track it to direct it. So, the starting point is understanding what the net worth definition for a person is.

Seeing the measurable results of your spending and investing decisions is the first step to take control of them. Contrarily, people in the worst monetary shape have no concept where their money is spent and are too afraid to know what their net worth might be since it will not be pretty.

Which extreme more closely matches your mindset? You can’t handle what you don’t measure. Consider it: if you were seriously rich, you’d invest a long time weekly handling some element of your finances.

A beginner variation of a financial tracking approach is needed to begin improving your financial condition.. In addition, the more money you build up, the more financial assets and liabilities to keep an eye on. I ‘d wager that you won’t own them for long if you don’t have your financial tracking system set up before you acquire them. If you don’t see and feel the gains and losses of your monetary choices–you are playing the complex money-game of life without any scorecard.

This is how so many people with good income still find their way into financial trouble. You need to have navigation reference points to know if you are going toward developing wealth or ruining wealth. It is by monitoring your net worth that you’ll begin to discover the monetary impact and effects of your decisions.

The beginning point for financial measuring is a simple statement of net worth (or balance sheet). It is a list of the current market price of whatever you own and what you owe to others. Your net worth is the difference between these 2 numbers. This is the number that you want to measure and increase every month. As with a business, as soon as you start determining the monetary repercussions of your habits you can begin making your own individual financial guidance. Basic insights and rules like these will help increase your net worth. This will lead to bigger insights and develop into bigger gains.

If you find that you have a lot of debt that is reducing your net worth, or possibly a negative net worth, then what guidance about debt are you going to develop for yourself? Think about including a guideline to read a new personal finance book each year. Your money rules and net worth statements can be as advanced or as basic as you wish to make them.

When you have computed your calculation of net worth, you begin having the ability to plan for purchases and payments. As an easy example, if your auto insurance coverage costs get paid annually, you can calculate just how much cash that you must to set aside monthly to easily pay it when the bill arrives. Or if you are getting a new car, you’ll be a lot better prepared for the first costs before you get squeezed at the end of the month and wind up paying a couple of bills late.

After you get comfortable with a net worth statement, you can move on to an income & expense sheet. How much net worth will you need by when? The answer is based upon the financial routines, tools and education you will establish. However, it can all start with your very first net worth statement.

JUNE 17, 2019 UPDATE: The Court of Appeal for Ontario reversed this lower court decision. You can read all about it in our blog update – INSOLVENT DEFINITION RESTORED IN COURT OF APPEAL FOR ONTARIO insolvent definition

 

 

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HOLIDAY SPENDING IN CANADA: 5 HOLIDAY SPENDING TIPS TO STOP HOLIDAY DEBT

holiday spending in canada

We are trying something new. At the bottom of this holiday spending in Canada tips blog is an audiogram of this Brandon’s blog. If you would prefer to listen to it, and not read it, scroll down to the bottom and press on the play button. Let us know what you think by sending us a message in the Question box below.

Holiday spending in Canada: Introduction

Black Friday and Cyber Monday are over. You may feel you have a tendency to go overboard on your holiday spending and that will put you in a bad place going into 2019. So we have put together our holiday spending in Canada list to try to help with your budgeting for the holidays. Hopefully, by following our tips, you won’t enter the new year with even more debt. You will have avoided the most common holiday spending mistakes.

Holiday spending in Canada: Budgeting for the holidays

So, the first hint already is when I said budgeting for the holidays. It is so important that you actually think out your holiday budget before you start spending. I believe there are three main categories to your Christmas holiday budget: (i) gifts; (ii) food and beverage in your home when hosting; and (iii) tree and decorations.

To start setting your holiday budget, you need to set three separate mini-budgets; one for each group. For gifts, the first thing is to list out everyone you feel you want to buy a gift for. Then figure out who on the list you need to buy a gift for. You may not be able to afford your “wants”, but only your “needs”. The other categories will be easier to set.

Now, look at your monthly income and expenses and any savings you may have allocated for holiday spending to understand how much you can afford to spend in total without going into holiday debt. Just figure out the total amount you can safely spend. With that total, you should then estimate the spend on the food and beverage and tree and decorations categories. What you have left over in total will be your gifts budget. Nothing is set in stone. If you feel you need to adjust the allocations among the three categories, go right ahead. Eventually, you will be left with your gift total budget.

Now spread the total gift budget among the people. Your individual amounts have to add up to a number not greater than the total you already set up as your total gift spending amount. So you should now have actually three different worksheets, adding up to the total amount of money you can safely spend. With the budgeting worksheets finished, it is now time to go shopping!

Holiday spending in Canada: A new kind of shopping

You will now be able to do a new kind of shopping. In the past, you may have just gone to the mall or local stores and then just wander around until something that reminds me of the person that you are shopping for pops up.

The new shopping method will have you shopping for each group already knowing how much you can spend. Do not overspend!!

Holiday spending in Canada: Here are our 5-holiday spending tips

  1. Purchase with purpose – You have already determined how much you can safely spend on each person. Find the right gift that meets your spending goal. You don’t have to think about cost any more, because you will stick to your individual gift limits. You can now concentrate only on appropriateness within your budget limits. Although the Farberware cookware may be wonderful, you can only buy gifts that fit within your budget.
  2. Only buy with cash – You will be tempted to buy with your credit cards. Using plastic will cause you to overspend because you won’t feel the purchase. To really feel the purchase, only use cash. When you feel it, you don’t overspend. You will also avoid the nasty surprise in January because you won’t receive an out of control credit card statement that you won’t be able to repay. You will not only feel great in December but in January too.
  3. Think of a family gift to save money – If you feel you won’t be able to afford individual gifts, think of members of the same family and look for a family gift. A gift card for the family to go see a movie or a family pass for admission to an upcoming event or tourist site may prove cheaper than the total of the individual gifts. Don’t forget to check out that option. Or perhaps one item for the house that you know all family members will enjoy. There are many possibilities for a group gift.
  4. Give of yourself, not just your money – Don’t think that the only gift that counts is one that costs money. You have many skills and talents. Perhaps one or more would make a great gift. If you can’t think of anything unique you can provide that would make a great gift, how about your time. Think to babysit for nieces or nephews, taking out for an afternoon an ageing relative who can’t get out much but has appointments or errands to get to or doing someone’s grocery shopping (with their money). These can all count as valuable gifts that won’t cost you anything or much at all. Your time and theirs are much more valuable than any gift you would purchase in a store.
  5. Think outside of the decoration box – If you don’t already have a box of ornaments from years past to use, think creatively. The ornaments purchased at a Dollar Store will look just as nice on your tree as ones purchased at a more expensive store. Or, use your own creativity to make your own decorations. If you aren’t sure where to start, I am sure that there are many videos online to show you how to make great looking decorations that don’t cost too much for materials. Your labour, of course, is free.

2 BONUS TIPS to help with your holiday money management:

HOLIDAY SPENDING TIPS BONUS #1 Save all year for your holiday spending budget – Now that you have your spending budget, start saving for next Christmas in January. Take the total budgeted amount that you spent this year and divide it by 12. Starting in January, set up a separate savings account and deposit into it every month the monthly amount needed that will add up to your total budget by next December. Avoid the temptation to dip into that fund during the year. By the time you get to next Christmas, you will already have all of your holiday spending cash.

HOLIDAY SPENDING TIPS BONUS #2 Do you have reward points you either don’t see using or will soon expire? You have been collecting the points. You obviously thought they would give you something extra you might not otherwise be able to afford. Now you might lose them or even if not, you don’t see yourself able to take advantage of what the points can provide. So, why not buy a proper gift or gifts for those you need to buy for using some points. You will feel good about giving this way because you will be using the points for someone valuable in your life. You will also feel good about not allowing them to either expire or lay dormant. The people you buy the gifts for will hopefully cherish your gift, never knowing that you didn’t have to lay out any cash for them. It is a win-win all the way around.

I wish all of our readers a very Merry Christmas, Happy Chanukah and a healthy, happy and prosperous New Year.

Holiday spending in Canada: What if you already have too much debt?

Licensed Insolvency Trustees (previously called bankruptcy trustees) are the only specialists approved, certified and monitored by the federal government to deal with debt restructuring. As a licensed insolvency trustee, our individualized method will certainly help you learn every one of your bankruptcy alternative options. The choice you choose based upon our suggestions will certainly end the stress, anxiety and discomfort you are really feeling due to your debt troubles.

The Ira Smith Team has years and generations of experience assisting people and companies in a financial problem. Whether it is a consumer proposal debt negotiation strategy, a bigger individual or business restructuring proposal debt negotiation, or as a last resource, bankruptcy, we have the experience.

Our method for every case is to produce an outcome where Starting Over, Starting Now occurs. This begins the moment you come through our front door. You’re just one telephone call from taking the essential actions to return to leading a healthy, well-balanced life. Call us today for your free consultation.

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DEBT CONSOLIDATION: DEBT CONSOLIDATION LOAN MAY START PLAYING HARD TO GET

 

Debt consolidation

Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. This commonly refers to a personal finance process

Introduction

On November 16, 2018, the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) issued a press release on the state of consumer insolvencies in Canada. Hidden in the information was data which leads me to believe that debt consolidation may be tougher in 2019 and certainly in 2020.

A perfect storm is brewing

A historically low rate of interest and accessibility to credit have enabled some Canadians to stay up to date with debt and debt payments that would otherwise have gone into default. Interest rates are now rising and it is expected that the Bank of Canada will continue to raise its benchmark rate into 2019. Canadian household debt is on average at its highest level ever and is forecast to continue to rise. Rising household debt combined with rising interest rates is not a good combination.

Until now, Canadian real estate values have continued to rise, so consumers have been able to combine unsecured credit card and other debt into new mortgage or home equity line of credit debt secured by Canadian real estate. However, times have changed. Effective January 1, 2018, a new mortgage stress test came into effect. We described it in our blog “CANADA MORTGAGE STRESS TEST: WE EXPOSE THE SECRET TO TURN YOU FROM ZERO TO HERO”.

The mortgage stress test has resulted in one of its prime goals; a noticeable downturn in new mortgage loans. The second result is a slowing down of the runaway real estate markets in Vancouver and Toronto. If Canadian household debt continues to rise, interest rates keep rising making debt payments tougher and Canadians can no longer combine their unsecured debts by taking out a new loan by borrowing against their homes, debt defaults are going to rise.

That is why I say that debt consolidation loans may start playing hard to get.

The important relationships to consider

Below is a chart displayed in the CAIRP press release which I have reproduced here.debt consolidation 3

 

CAIRP came to some interesting conclusions about interest rates and consumer insolvencies, based on the trends shown in these charts. However, I believe they overlooked what I think is the central issue.

In the top chart, it shows that insolvency filings increased in the 2009-2010 years. CAIRP surmised that there was a lag between the time interest rates rose in the years 2006 through 2008 and the increased filings. This is true. However, the increase in filings mirrors the increase in unemployment in the 2009-2010 period. My personal view is that the more important finding is that the unemployment rate lagged the interest rate increase and it is the increase in the unemployment rate that produced a higher level of insolvencies.

With higher interest rates, corporations are paying more on their debt. Corporations want to show a steady increase in their profits year over year. If debt costs rise, companies have to find other costs to save. One cost that can be reduced in the short-term is labour costs. The forecast shows that as employees are terminated, the unemployment rate rises. Not everyone can find new work in the same time frame. This leads to increased consumer insolvency filings. In my view, the unemployment rate is a more important relationship to consumer insolvency filings.

Looking at 2019 and 2020

The bottom chart shows the relationship between household debt to income and the inflation rate. As you can see, the household debt to income ratio has kept a steady climb in 1996 through 2017 years. This steady climb has continued in 2018 and is forecast to rise even more in 2019 and 2020. The forecast also shows that inflation will nudge up to the 3% rate in 2020. So prices are expected to rise with inflation, and the household debt to income ratio is expected to rise also. This will put more pressure on Canadians trying to keep up with their debt payments.

The upper chart shows us that in 2019-2020, the forecast is that GDP stays flat, while interest rates continue to rise. In the same time frame, the downward trend in the unemployment rate bottoms out and begins to rise. Again, more unemployment and higher interest rates lead to problems for people trying to pay off debts. If you agree with my hypothesis that Canadians won’t be able to merge debt by borrowing more against their homes, this will lead to more financial problems and presumably an increase in consumer insolvency filings.

What you can do now

All is not doom and gloom. There are many things a person with a lot of debt can do now before things get out of control. There are many things that you can do right now to avoid a disaster down the road. My 5 steps for anyone who wants to resolve debt issues now are:

  1. Review your household budget now and cut spending on “wants” vs. “needs”. If you don’t have a household budget, develop a realistic one NOW!
  2. Rework the budget so that you spend less each month than you are currently spending. Look for ways to economize. Use that extra cash to paying down debt.
  3. Start paying more than the minimum monthly payment on your credit card and other unsecured debt. The more you can pay, the faster you can pay it off.
  4. Pay down the debt with the highest interest rate first. The less you pay in interest the better. That means more is going to pay down the principal debt.
  5. Perhaps you need to consider taking on a part-time extra gig to bring in more income.ira smith trustee

What if I can’t pay off my debts?

For Canadians that discover themselves not able to handle their debt on their own, there is a range of alternatives to take into consideration:

  • striking a deal with each of your major unsecured creditors through an informal debt settlement negotiation;
  • don’t give up on trying to combine all unsecured financial debts into one regular monthly payment;
  • a more formal debt settlement strategy with a consumer proposal; or
  • bankruptcy.

Identifying which choice is most appropriate depends upon a person’s scenarios as well as their unique asset and liability structure.

Debt consolidation: How we can help you

Licensed Insolvency Trustees (formerly called bankruptcy trustees) are the only experts accredited, licensed and supervised by the federal government to handle debt restructuring. As a licensed insolvency trustee, our personalized strategy will assist you to recognize all of your alternatives. The alternative you pick based on our recommendations will take away the stress and pain you are feeling because of your debt problems.

The Ira Smith Team has decades and generations of experience people and companies in financial trouble. Whether it is a consumer proposal debt settlement plan, a larger personal or corporate restructuring proposal debt settlement plan, or as a last resort, bankruptcy, we have the experience.

Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our front door. You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life. Call us today for your free consultation.

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BANKRUPTCY TRUSTEE NEAR ME IS NOW A LICENSED INSOLVENCY TRUSTEE NEAR ME

Bankruptcy trustee near me: Introduction

This Brandon’s Blog is about picking a licensed insolvency trustee. As the title suggests, performing an online search for bankruptcy trustee “near me”, based solely on geography, is one way. Being around the corner is certainly convenient, but it may have no place in making a life-altering decision. This isn’t a coffee place you are looking for. If you required life-saving surgery, would you base your decision only upon which surgeon operates out of the hospital closest to your home? I don’t think so.

Bankruptcy trustee near me: Don’t fall into the debt consultant/debt settlement company trap

I am talking about people who actually hold a license issued by the Canadian Superintendent of Bankruptcy to administer the insolvency system in Canada. I am not talking about debt consultants or others who claim to be able to help you avoid bankruptcy and end debt.

There is no government licensing or supervision of debt consultants. They merely charge you for a first intake consultation, that a bankruptcy trustee would do for free. Once they have your information, you have paid them for the visit, and perhaps they have signed you up for more expensive “credit score improvement tools”, they hand you over to the licensed insolvency trustee who now will perform the actual work.

Using this type of arrangement costs you more money than you need to spend. The money you can’t afford to pay! The Superintendent of Bankruptcy is putting new controls in place over licensed insolvency trustees to stop bankruptcy trustees from allowing debt consultants to associate shoddy practices and perhaps even profit based on their relationships with licensed insolvency trustees.

Bankruptcy trustee near me: There are different types

I am not referring to good or bad when I say there are different types of bankruptcy trustees. I am talking about the type of practice they run. Generally, there are 4 groups; bankruptcy trustees who run:

  1. Only a personal bankruptcy practice out of one site;
  2. A corporate bankruptcy firm out of one or a few strategically placed locations around the greater metropolitan area of your city;
  3. Both a corporate and personal bankruptcy practice out of one or a limited number of locations; or
  4. The personal bankruptcy practice being operated out of many locations following a coffee or fast food restaurant model of being near every street corner.

So obviously you first need to recognize whether your financial issues are those for your company, you personally or both. As I said at the beginning, geography is nice, but it is not the most important criteria. One simple reason is that multi-location bankruptcy trustees do not make every office of theirs a full-time office. In contrast, you will see that they are operating out of either office for daily rent locations, a lawyer’s or accountant’s office, or the worst, a debt consultant’s office.

You cannot stretch yourself too thin over many offices. So, more often than not, even if your first free consultation is with a member of the Trustee’s staff, you may be meeting with an experienced clerk, but not the actual bankruptcy trustee.

My 5 point checklist to find a licensed insolvency trustee

  1. Quality and professionalism.

    Someone around the corner from you may not have the experience you need to solve your financial problems. To begin in selecting the very best bankruptcy trustee for you, look at the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) website. Membership in this professional organization shows a Trustee committed to the industry and staying on top of all the current advancements. Also check the website of the Office of the Superintendent of Bankruptcy, to make sure the bankruptcy trustees you are thinking about are not under suspension or supervision by the regulator.

  2. You need to be able to interact with them on lots of levels.

    In the beginning, you’ll need them to be able to quickly comprehend your needs and desires and they need to offer you a realistic plan that you can follow through on. They also need to be available for you if you have issues or concerns show up. Search for their interest. Are they enthusiastic about their industry? Do you really feel the compassion they have for you? Can you form a bond with this person? This is exactly how you assess enthusiasm. An enthusiastic licensed insolvency trustee will make certain that you are offered the most effective suggestions and solutions. This type of person may not exist within walking distance of your home or workplace.

  3. Can you agree on the same concepts?

    Professional Trustees are not totally free. The price can differ based on how complicated your circumstance is. If you feel that the bankruptcy trustee is simply attempting to make money, you are less likely to trust them. Spend the time to discover those who seem to be on the same page as you for a realistic value for service. That type of licensed insolvency trustee may not be the closest drive from your home.

  4. Bankruptcy trustee websites.

    Today you can type in search terms like “bankruptcy trustee near me” and get various websites to go to. What sort of feel do you get from the website? Do they answer some of your more general questions through a bankruptcy FAQ page? Can you see pictures of people you would deal with? Do they show that they have a deep knowledge base from their blog page? You may not get the best feeling from the website of the licensed insolvency trustee whose place is closest to your home.

  5. Meet with several Trustees.

    You won’t know which one is the best fit for you until you are sitting across the table from him or her. Speak to at least two bankruptcy trustees to compare. The one you feel best about, may or may not be on the next street corner!

Bankruptcy trustee near me: The choice is up to you

Our best relationships are with our clients who were referred to us by someone they know, like or trust. If the referral source is trusted by you, we have already received the highest compliment possible. I am proud to say that we have helped family members of lawyers and accountants who know us. They felt safest referring a loved one to us. That is the best feeling in the world for everyone!

The Ira Smith Team has decades and generations of experience people and companies in financial trouble. Whether it is a consumer proposal debt settlement plan or a larger personal or corporate restructuring proposal debt settlement plan, we have the experience.

Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our front door. You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life. Call us today for your free consultation.bankruptcy trustee near me

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CANADIAN DEBT SOLUTIONS: AVOIDING THE BANKRUPTCY PROCESS

Canadian debt solutions: Introduction

This blog discusses a very interesting recent decision in the British Columbia bankruptcy case of Hervias (Re), 2018 BCSC 1579 (CanLII). A licensed insolvency trustee (LIT or Trustee) (formerly known as a bankruptcy trustee) is trained to develop Canadian debt solutions. Sometimes the best debt solution does not involve a formal insolvency process; either a consumer proposal or personal bankruptcy. The purpose of this blog is to describe the case of Mr. Hervias and why sometimes the best advice is that you don’t need to go bankrupt. This is a story of Canadian debt help – the good, bad & ugly.

Canadian debt solutions: The position of the stakeholders

Mr. Hervias made a Court application to annul his bankruptcy. He says that the bankruptcy assignment ought not to have been submitted because his only creditor of any significance was the Canada Revenue Agency (CRA). The evidence showed that CRA would have accepted a voluntary proposal to settle his tax liability in regular monthly payments affordable to him. He claims that the Trustee never asked such questions of CRA prior to recommending that he file for bankruptcy.

CRA does not challenge an annulment. It is encouraging his proposal to repay the debt. They likewise intend to file a memorial on the title to his home in which he has equity higher than the debt owed to CRA!

The Trustee is the only party to oppose the annulment application. The LIT insists that when Mr. Hervias sought his help, Mr. Hervias was insolvent because CRA was garnishing his pension and had frozen his bank account. Mr. Hervias had a previous bankruptcy and a couple of other minor creditors. Mr. Hervias had significant equity in buildings he owned with his son and his wife.

Canadian debt solutions: How could this even happen?

Mr. Hervias owed CRA, his major creditor, unpaid income tax of $23,820.50, including penalty and interest. In April 2017, CRA froze his only bank account. He sought help from a debt consultant, Canada Debt Helpline. He required CRA debt forgiveness. On the second meeting with an agent of Canada Debt Helpline, they introduced him to a LIT.

The Trustee met Mr. Hervias at the offices of Canada Debt Helpline. The LIT argues that Mr. Hervias sought bankruptcy guidance when he initially met with him. The Court determined that Mr. Hervias was presented to the Trustee by the debt counselor. The evidence showed that Mr. Hervias looked for the help of a debt consultant; not for a bankruptcy trustee!

The Court found that at the date of bankruptcy, Mr. Hervias had net equity in real estate of $95,000 – far more than the total of his debts! I question whether Mr. Hervias was even insolvent at the date of bankruptcy.

His bankruptcy happened because a debt consultant, who had a cozy relationship with a LIT, recommended a bankruptcy trustee with whom no doubt a financial relationship existed.

Canadian debt solutions: Debt consultants cause harm

I have written before on the evils of the debt consulting/debt settlement industry:

  1. DEBT SETTLEMENT COMPANIES FINALLY TAKEN TO TASK IN ONTARIO – December 17, 2013
  2. HOW ADVANTAGES OF CONSUMER PROPOSALS SAVES YOU FROM DEBT SETTLEMENT COMPANIES – June 30, 2015
  3. CONSUMER PROPOSAL VS DEBT SETTLEMENT – October 1, 2015
  4. DEBT SETTLEMENT OR CONSUMER PROPOSAL CANADA: NEW CANADIAN GOVERNMENT REPORT EXPOSES DEBT SETTLEMENT COMPANIES HARMING CONSUMERS – May 3, 2017
  5. DIFFERENCE BETWEEN DEBT SETTLEMENT AND CONSUMER PROPOSAL: DEBT SETTLEMENT COMPANIES ARE PROS WHEN IT COMES TO CONS ON INSOLVENT CONSUMERS – May 10, 2017

Canadian debt solutions: Technically or temporarily insolvent?

At the time of the bankruptcy, Mr. Hervias declared some other little financial obligations including:

  • a possible debt of roughly $900 to a Recreational Vehicle park chain;
  • $213 owed to Telus Mobility from an old phone agreement; and
  • a $186 debt to Best Buy for a laptop computer that he had not repaid in full.

Mr. Hervias had assets that well surpassed his obligations. Notwithstanding, he met the technical interpretation of a bankrupt person under s. 2 of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). Since the CRA had frozen his only bank account, he had no access to his income to fulfill his commitments as they came to be due.

Because he had a poor credit score, he was not able to arrange to finance on the real property he owned jointly. His wife was also not ready to consent to the financing because she was back in her homeland of the Philippines looking after her elderly mother. She asked her husband to wait until she returned to Canada.

Canadian debt solutions: Was there a realistic option for an insolvency process?

Definitely. The evidence showed that CRA would have agreed to an informal proposal, allowing Mr. Hervias time to repay his debt to CRA. As stated above, his other debts were minor. His bankruptcy was unnecessary.

This is a prime example of the dangers of debt consultants and the Trustees who are in bed with them. For the record, my Firm does not have a relationship with any debt consulting or debt settlement firm.

Canadian debt solutions: The Court’s concerns

The main concerns for the Court were:

  • did the Court have jurisdiction to annul a bankruptcy in circumstances where the bankrupt was insolvent when the bankruptcy occurred and there is no finding that the bankrupt abused the Court’s process or committed fraud on his creditors in filing an assignment in bankruptcy;
  • if the court has jurisdiction, whether it should exercise its discretion to annul the bankruptcy in this case; and
  • in granting the application to annul, whether it should be subject to payment of the trustee’s fees.

The Court determined that it was absurd that someone with considerable assets which created income would assign himself into bankruptcy. This is especially so when the main creditor is prepared to accept payment over a longer time span in amounts that the debtor can afford. The Court concluded that these circumstances were both special as well as uncommon.

Canadian debt solutions: The Court’s decision

However, just because bankruptcy ought not to have taken place, an annulment does not instantly follow. The law is clear that the bankrupt must additionally satisfy the Court that in all the conditions of the case, thinking about all the different stakeholder interests, the discretion needs to be worked out in favour of annulment. Furthermore, the jurisprudence guides the Court to think about the legal rights of the insolvent, the creditors and the public policy issues.

The Court was critical of the LIT. The Court found that prior to the assignment in bankruptcy, the Trustee should have consulted with CRA. Certainly, had he done so, he would have found out that an informal proposal was possible and there would have been no need for any insolvency process, especially a bankruptcy.

In the Court’s view, Mr. Hervias and his creditors are not harmed by an annulment, while the public interest in the integrity of the bankruptcy process is not undermined by annulling this bankruptcy under these unique conditions. Mr. Hervias’ bankruptcy was annulled according to s. 181 of the BIA. Mr. Hervias was ordered to pay the Trustee’s fee and disbursements immediately, subject to taxation.

Canadian debt solutions: Our approach

If you or your company are experiencing financial difficulties, you need a professional trustee. If yes, call the Ira Smith Team. Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our front door.

First of all, we always offer a free consultation. We listen to your issues and offer you a full range of realistic options to help you get out of debt. There have been many times where thinking about all the solutions available, we have advised debtors that they do not need an insolvency process. Rather, maybe they can avoid it by implementing an informal process. As a result, we do not earn any fees from such advice; it is just the right thing to advise and do in those circumstances to help you make total debt freedom.

The earlier you contact us, the more options we will have to carry out. Whether it is a corporate restructuring or personal debt settlement through a consumer proposal, the goal is to avoid bankruptcy. However, if bankruptcy turns out to be the best option, we can assist there too.

You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life, ending the pain and stress you are feeling forever. Call Ira Smith Trustee & Receiver Inc. today for your free consultation.

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CANADIAN INSOLVENCY LAWS: ALIENATION OF ASSETS

 

Canadian insolvency laws: Introduction

In today’s commercial world, our economy focuses on and requires Canadian insolvency laws. Insolvency is the financial condition where you cannot pay your debts as they come due and if you liquidated all of your assets, there would not be enough cash to pay off all of your debts.

Insolvency laws are required in a mature economy. It reassures investors that there is a way to “recycle” assets. Asset recycling makes them once again valuable and revenue producing, should insolvency set in on a person or company.

Canadian insolvency laws: My goal with this blog

An insolvency process is used as a means of liquidating one’s whole legacy (i.e. the totality of one’s assets) in order to attempt to please all of the creditors that have grown way beyond the ability of the person or company to repay. Emotions always run high in insolvency procedures. We are dealing with the lives of real people that may be losing their jobs, income, homes and other assets.

The purpose of this vlog is not to teach you about insolvency laws. I want to caution anyone considering going into business how important it is to structure things properly. Your aim is to make sure that you are protecting yourself, your business and your family. If your business falters and becomes insolvent you will be glad that you did.

Canadian insolvency laws: Believe it or not, it may be good for you to meet a licensed insolvency trustee

So naturally, as a licensed insolvency trustee (formerly called a bankruptcy trustee) the first focus is on restructuring. Sometimes bad things happen to good people and companies. Bad judgement, bad luck and bad management all contribute to personal and corporate insolvency. Our primary focus is to use various ways to help people and companies recover from insolvency.

The potential ramifications of insolvency procedures can be minimized. A person can no longer afford to keep their assets. A company has too many problems to continue its business. However, those same assets can be used very successfully in a new business or by someone else. So insolvency laws and procedures help to avoid a total loss of asset values.

In many of our cases, this can involve particular minor legal procedures which could eventually conserve a fortune. For financial institutions, this can be especially good news.

Canadian insolvency laws: Why you need to “alienate” your assets


If you are running a company, or are likely to do so in your career, you must minimize your exposure by safeguarding your assets. By doing so, you are protecting yourself and your family for the future, especially if something in business goes wrong. The time to protect yourself is when you are starting out and there are no problems. If you do so when the problems have already arisen, it is too late. Any asset protection steps you take knowing yourself to be insolvent, will not stand up to attack.

By running a company, you will probably become a Director. If your business needs to borrow money from the Bank to operate, you will probably be required to guarantee the bank debt. So, if you anticipate yourself collecting considerable unsecured financial obligations in the coming years, you need to act. Starting out properly protecting yourself, allows you to either avoid or successfully defend, any challenges on the sequestration of your assets.

Canadian insolvency laws: Why you want to be an “alien”

You will make sure that the properties you have “alienated” no longer form part of your estate. The alienation ensures that the possessions from which you will still benefit cannot be gotten by your financial institutions if the business is unsuccessful and they are looking for any assets you may have to honour the financial obligations you accumulate.what does a court appointed receiver do

Canadian insolvency laws: Use your lawyer


When setting up a company, you need a lawyer. Make sure that you choose a lawyer that can also counsel you on how to protect your assets in the event your business venture fails. We are not lawyers, and the general advice I am going to give you is not meant to replace the advice of a lawyer.

Canadian insolvency laws: You may need more than one company to conduct your business

The first thing to think about is incorporating a limited liability company. Depending on the type of business, you may need to incorporate several, within which to house your operations, the leased or owned premises you operate out of and your shareholdings. Conducting your business through a company will require more documentation and therefore cost.

However, it is well worth it. It removes and protects you personally to the greatest extent possible from personal liability. The goal is to minimize or eliminate the destruction of you and your family. If you choose not to go through a corporate body, for whatever reason, protecting your personal assets becomes even more important. There will not be one or more corporate entities to serve as the first line of protection.

Canadian insolvency laws: Examples of multiple corporations in running a business

Examples of how multiple corporations will better insulate you and your business assets are:

Operating company. Your operating company is the one you conduct business through. It is the vehicle which will attract the most liability. There is always a risk in running any business. However, there is no law that requires you to hold all your business assets in your operating company.

Single purpose corporation. You may want to incorporate a second single purpose company to hold valuable assets used to conduct the business of your operating company. Tangible assets such as machinery and equipment are obvious. You are operating out of premises; either leased or owned.

You may wish to have a corporation that holds the tangible assets. Another company that is simply the real estate company. If you also have valuable intangible assets such as copyrights, licenses, trademarks, you may wish a separate company to hold all of the intangible assets.

These single-purpose corporations will then lease the assets to your operating company to conduct its business. Your operating company will pay rental charges, lease payments and licensing fees to the respective sole purpose companies. You need your lawyer to carefully document in writing everything. By now you can probably see the value in separating out the various important and valuable assets from your normal business operations.

Canadian insolvency laws: Alienating your most valuable asset

The most significant and most important property most of us will own is our house. The time to transfer your ownership interest to your partner ideally is before the first day of your going into business. Waiting until there are business problems and you are insolvent, any transfer will be successfully attacked. Obviously, you have to believe that you and your partner have a solid loving relationship before making the transfer as you will no longer have your ownership interest in the house.

Canadian insolvency laws: Does your company have too much debt?

To set up your company and structure your affairs properly, we urge you to use the best lawyer for your needs. This blog cannot replace the advice of your lawyer. However, if your company is experiencing financial difficulties, you need a professional trustee. If yes, call the Ira Smith Team. Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our front door.

The earlier you contact us, the more options we will have to implement. Whether it is a corporate restructuring or personal debt settlement through a consumer proposal, the goal is to avoid bankruptcy. However, if bankruptcy turns out to be the best option, we can assist there too.

You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life, ending the pain and stress you are feeling forever. Call Ira Smith Trustee & Receiver Inc. today for your free consultation.canadian insolvency laws 1

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CORPORATE BANKRUPTCY IN CANADA: SADLY IN E-COMMERCE TAXLAND

corporate bankruptcy in canadaCorporate bankruptcy in Canada: Introduction

A brand-new report from PwC Canada discloses that in 2018, Canadians anticipate spending an average of $1,563, up 6.7% over last year. Men are expected outspend women by almost $400. That got me to start thinking about what the most complex issue for corporate bankruptcy in Canada is when an online business fails?

The report finds that the majority of Canadians still prefer the in-store experience. Nearly two-thirds consider brick-and-mortar retail for their primary holiday season shopping. The rest is online shopping. Unsurprisingly, most millennials (51%) think of online purchasing first, which is in line with United States consumers overall (50%).

E-commerce, like any other industry, has its startups and more mature companies. There will be winners and losers. The fulfilment of online digital products is done online. The fulfilment of physical goods orders bought online more often than not will be done by a third party. That third party may not necessarily be fulfilling orders from Canada.

Corporate bankruptcy in Canada: The most complex issue for an e-commerce business, IMO

With that said, the retail vendor’s inventory, computer hardware and software value are relatively easy to determine. But to my way of thinking, the #1 issue for corporate online vendors, both solvent and viable or insolvent and not viable, is the area of sales tax.

In attempting to abide by tax laws for your e-business, you might find yourself falling down the rabbit-hole, going through the looking glass, and attending a Mad Tea-Party.

Sound judgment, logic, and fairness never did apply totally to the field of taxation, however, this is specifically true of e-commerce deals.

Corporate bankruptcy in Canada: Canada Customs Welcomes You to Canada!

Considering that I’m situated in Canada, let’s start here. To keep things simpler, but certainly not simple, I will review this issue strictly from a Federal tax collection perspective, i.e. Harmonized Sales Tax (HST).

Canada has what you may call a nationwide sales tax or a value included tax (VAT). This Goods and Services Tax (GST) of seven percent is applicable to lots of Canadian transactions.

Not just is it critical to identify whether a taxable sale was made in Canada or not, but also where in Canada. If it was made (or deemed to be made) in any of the HST provinces, a higher rate applies. This is due to the fact that those provinces have allowed Canada to gather their provincial sales taxes for them, as follows:

 

ProvinceHST % rate
New Brunswick15
Newfoundland and Labrador15
Nova Scotia15
Ontario13
Prince Edward Island15


Each province and territory has its own guidelines. Ontario charges 8 percent retail sales tax on numerous common internet deals whereas Alberta has no provincial sales tax.

Obviously, this is just scratching the surface. This entire blog by necessity is an oversimplification of an extremely complicated topic. As a licensed insolvency trustee (formerly called a bankruptcy trustee), I would certainly require the advice of a professional tax advisor to help me through e-commerce Taxland.

Since I am not a tax professional, you should also seek the advice of a tax professional. This is merely one bankruptcy trustee’s view of the issues in the insolvency of an e-commerce business.what does a court appointed receiver doCorporate bankruptcy in Canada: When Exports Aren’t Exports!

In Canada, exports are “zero-rated” sales for GST purposes. This means that when you ship a product to someone outside Canada, you don’t charge GST. Yet, you get to claim (or subtract from the GST collected by you) all the “input tax credits” (GST that you spent for business functions) to make that export.

However, if you export items aside from physical products, beware! There are lots of mistakes to look out for.

As one example, think about digitized products that you may offer from Canadian sites, such as e-books, downloadable software application, or subscriptions to a material. You would be considered to be selling “intangible personal property”. Unless your item is also thought about “copyright” (such as software or e-books that you produced or have gotten the rights for), you will need to charge GST. The reason, according to the Canada Revenue Agency, is that it could be utilized inside Canada, even if it isn’t.

Say you sold a subscription for accessing digitized content (from various sources) on your Canadian site to a client in the United States. Given that there are no restrictions regarding where the intangible personal property might be used, and the property is not considered copyright (nor the provision of a service), the American client goes through GST, even if he never comes to Canada.

Strangely, the same logic doesn’t apply when an American buys a routine book (or an automobile) which he could bring into Canada with him and utilize here. It holds true that it is much easier for Canada to assess such products at the border than in the online world. However, I have not heard of any cases of Americans being taxed on the cars and trucks or books they bring with them when they come to reside in Canada for a part of the year.

As a Canadian registrant, one way you might legally avoid this ridiculous March Hare is to clearly mention on your website and invoice that utilize of such intangible personal effects in Canada is restricted (or requires an extra charge and the payment of GST).

Corporate bankruptcy in Canada: When imports Aren’t imports

Goods shipped to Canada are subject to GST on importation. Such tax is often assessed at the border. What if you are a Canadian registered for GST, selling to a Canadian customer but your provider is in a foreign country?

Pretend that your Canadian consumer has bought a book from you from your Canadian website. Your dropship supplier is located in the United States and is signed up for GST. You send your order to the American business, and they, in turn, ship the book for you (total with Customs Declaration and their GST Business Number).

Since they paid the GST, you wouldn’t think you would need to charge it again, would you? “Wrong!”, smiles the Cheshire cat. Since you are a registrant located in Canada, you need to charge and remit the GST. But you are entitled to input tax credits, aren’t you? In many cases, the answer is “No”.

It might be very tough for you to satisfy the documentary and other technical requirements. As an example, it is not uncommon for American providers to absolutely refuse to provide an invoice breaking down the GST or to enable you to be the importer of record. This complicates their life unnecessarily and they just don’t require the aggravation.

There are easing tax provisions covering drop shipping, sales agencies, and other situations. In most cases, sadly, the most practical option is to permit the tax to be paid twice.

Corporate bankruptcy in Canada: When you are subject to tax where you’re not subject to tax

It makes sense that countries impose a tax on sales and earnings made in their own jurisdiction. Does it make sense for Germany to tax sales made in the United States?

Starting July 1, 2003, the European Union actually did just that by enforcing an online sales tax.

This implies that if somebody from England buys an e-book from somebody in the United States, the American should submit this tax. Naturally, If the sale was to someone in Germany, the tax rate would be more complicated.

The reasoning behind this is as follows: Since countries can’t gather sales tax on internet deals at their borders, the only method they can collect it (other than a self-assessment system) is with an online sales tax. Even more, it is claimed that companies in the European Union suffer a significant competitive disadvantage due to the fact that they need to gather Value Added Tax but others don’t.

Corporate bankruptcy in Canada: But that isn’t all


So that is just a “scratching of the surface” description of the issue for Canadian companies selling online when it comes to HST. But if the company is insolvent, and will go into either receivership or bankruptcy, the story gets worse.

For every insolvent company in receivership, an HST liability is a trust claim against the assets of the company. So in a liquidation, the HST liability would have to be paid before a secured creditor, normally a chartered bank, recovers any money. What this means for the owner(s) who guaranteed the bank debt, is that they have additional exposure for any shortfall of the bank debt by the amount of the HST liability.

In a bankruptcy though, the HST liability is not a trust claim, but rather an unsecured claim. So, the good news is that it does not come ahead of the bank debt the owners have probably guaranteed payment for. However, the bad news is that the HST liability is always a Director liability. So in a bankruptcy, there are always insufficient funds to pay off the unsecured creditors 100%. So, the Directors of the bankrupt company will be on the hook for any unremitted HST.

Corporate bankruptcy in Canada: Does your company have too much debt?

Is your company, either a traditional retailer, online retailer or both, experiencing financial difficulties? If yes, call the Ira Smith Team. Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our front door.

The earlier you contact us, the more options we will have to implement. Whether it is a corporate restructuring or personal debt settlement through a consumer proposal, the goal is to avoid bankruptcy. However, if bankruptcy turns out to be the best option, we can assist there too.

You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life, ending the pain and stress you are feeling forever. Call Ira Smith Trustee & Receiver Inc. today for your free consultation.

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CANADIAN BANKRUPTCY DISCHARGE: CRITICAL ILLNESS INSURANCE IN A BANKRUPTCY

Canadian bankruptcy discharge: Introduction

Many times during the administration of a Canadian bankruptcy, the licensed insolvency Trustee (formerly called a bankruptcy trustee) (Trustee) comes across a novel issue. The decision of A.R. Robertson, a Registrar in Bankruptcy in Calgary, Alberta in the bankruptcy discharge application of Shirley Rose Cooke has such an issue within it.

The case is Cooke (Re), 2018 ABQB 628 (CanLII). The issue that came before the Court was, what happens to a critical illness benefit payment for the undischarged bankrupt? Does it go to the Trustee or is the undischarged bankrupt debtor able to keep it? This topic should be of interest to accountants, lawyers, insurance agents and financial planners, in addition to Trustees.

Canadian bankruptcy discharge: The issue

Registrar Robertson described this case as an “interesting application” for bankruptcy discharge. The matter was heard on July 9, 2018. Ms. Cooke is 62 years old. She filed for bankruptcy on April 12, 2016. The issue to be decided is whether a critical illness benefit payment she obtained in the amount of $25,000, forms part of her assets which fall to the Trustee. The Trustee’s position was that it is an asset of the bankruptcy Estate and Ms. Cooke’s creditors are entitled to it.

Canadian bankruptcy discharge: The facts

In March 2016, Ms. Cooke was diagnosed with breast cancer. She went through surgery and had radiation treatments until July 2016. Prior to her medical diagnosis, she worked full time as a healthcare worker. She stopped working in March 2016 as a result of her diagnosis and need to undergo surgery and radiation. She returned to part-time work at her former employer, in about August 2016.


Her evidence was that at the time that she left her full-time work, her employer informed her she had the critical illness benefit policy and that she should apply under it. Apparently, she was unaware of this policy as being part of her benefits package. She applied for the benefit payment.

When she made her assignment in bankruptcy, she did not divulge the critical illness benefit application to the Trustee. She advised the Court that she did not have any type of certainty that she would receive the benefit. Eventually, she did, in January 2017. When she did, she advised her Trustee.

Canadian bankruptcy discharge: The Trustee’s position


The Trustee took the view that the critical illness benefit payment was a component of the insolvent person’s income under s. 67 of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). S. 67 of the BIA deals with property of the bankrupt, while s. 68 of the BIA deals with surplus income. However, s. 67 of the BIA does cover certain exclusions of types of payments a bankrupt may receive. The kinds of payments carved out are normally government type payments that have an overarching social aim, such as GST/HST tax credit payments.

It was very clear from the evidence that had she known she was going to get a $25,000 insurance payment from the insurance company, she would likely not have entered bankruptcy. Had she divulged the benefit application to the Trustee, the Trustee may very well have recommended she not go bankrupt.

The Trustee desires that Ms. Cooke pay the amount of $20,000 as a condition of her discharge. The Trustee states that in dealing with this critical illness benefit issue, including research, its fee now approximates that amount. I find it interesting that the Trustee is requesting the majority of her critical illness benefit payment as a discharge condition.

If the Trustee truly believes that the benefit payment should be considered as income under s. 67 of the BIA, then the correct treatment would be for the Trustee to redo its surplus income calculation under s. 68 of the BIA for Ms. Cooke. Then see what her surplus income obligation would be. If the Trustee is really trying to say the benefit payment is an asset that should come to the Trustee, then they should be asking for the entire $25,000. From my reading of the Registrar’s decision, it appears that the Trustee did neither but merely is asking for an amount to cover its costs!

Canadian bankruptcy discharge: The Registrar’s analysis


The Registrar indicated that in order to determine what is the appropriate condition if anything, he would have to assess the fees charged by the Trustee. If the Registrar really meant that he would have to tax the Trustee’s fee and costs, that makes sense. Otherwise, I am not sure what the connection is between the Trustee’s fee and costs, and whether a conditional discharge should be granted.

Ms. Cooke’s legal counsel referred to the Registrar the facts under s.173 of the BIA that could lead to an absolute discharge from bankruptcy not being granted. Her legal counsel indicated that none of the factors that would allow for a conditional, suspended or refused discharge apply in this matter.

The Registrar encouraged both parties to provide him with whatever additional information or authorities they thought appropriate by Tuesday, August 7, 2018.

The Trustee provided the Court with additional material. One such item was a copy of a letter sent by the Trustee to Ms. Cooke advising that, in the Trustee’s view, the critical illness benefit is a survivor benefit and not a wage or wage substitute. So much for it being part of surplus income!

The Registrar correctly pointed out that none of the exemptions in s. 67 of the BIA mention a critical illness benefit payment. The Registrar could also not find a precedent exactly on point.


The closest cases the Registrar could find were those of when the undischarged bankrupt suffered an injury in a motor vehicle accident and had a claim for pain and suffering. In that case, the action is personal to the injured person, and therefore that claim does not fall under the definition of property of the bankrupt available to the Trustee.

The Registrar stated that he sees no sensible distinction why a tort-based damages insurance claim for pain and suffering would be dealt with in a different way than a contract-based insurance policy for the pain and suffering Ms. Cooke had from her illness.

Accordingly, the Registrar decided that the critical illness benefit payment did not create a component of property designated to the Trustee. He also stated that Ms. Cooke did not have to pay any amount, to the Trustee. The Registrar went on to say that the Trustee should have brought on an application to have this matter determined much earlier in the bankruptcy proceedings so that the Trustee would not have incurred as many costs as it had.

The Registrar directed that:

  1. Although the Registrar did not explicitly state it in his judgment, the implication certainly is that Ms. Cooke received an absolute discharge from bankruptcy.
  2. Moreover, the Trustee should bring on the application for the Trustee’s discharge.
  3. Similarly, the Trustee should keep the Registrar’s comments as to the Trustee should have brought on a motion on the critical illness benefit issue earlier when submitting its dockets to have its fee and costs taxed by the Court.

Canadian bankruptcy discharge: Do you have too much debt?

I hope that none of us ever suffer from such a critical illness. However, it is good that Ms. Cooke had that insurance coverage. Do you have too much debt, or debt that you can’t repay because life got in your way? Illness and job loss are two prime factors in reducing someone’s income and increasing their expenses. It could force people to have to live off of credit cards until there is no credit room left, and no ability to ever repay the debt.

If you have too much debt, contact the Ira Smith Team. We have years of experience in helping those people and companies where life got in the way. Perhaps you need a debt settlement plan. Alternatively, if bankruptcy is the only real answer, we can help ease the stress and pain of bankruptcy for you.

Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our door. You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life. Call us today for your free consultation.canadian bankruptcy

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FORM 31 PROOF OF CLAIM: HOW TO PROPERLY COMPLETE THE PROOF OF CLAIM

Form 31 proof of claim: Introduction

In last week’s vlog, I reviewed why it is important to complete a form 31 proof of claim truthfully, and the penalties for filing a false claim. For both personal and corporate insolvency files, creditors call asking how to complete the document. I discuss in this vlog why it needs to be completed properly. I also provide a link in this blog that you can click on to see how to properly complete the form step by step.

The reference to “form 31” is merely the number of the form given to the form 31 proof of claim form under the Canadian Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (“BIA”).

What is the form 31 proof of claim form?

Completing and returning form 31 is the second phase in the bankruptcy process. They are included with the notice of bankruptcy documents mailed out by the licensed insolvency trustee (formerly known as a bankruptcy trustee) (the “Trustee”) to formally notify the creditors of the bankruptcy.

When properly completed and filed by each creditor, they are what a Trustee uses to compare the debt as listed on the debtor’s bankruptcy sworn Statement of Affairs. The amount claimed by a creditor is normally different than the amount of the debt listed on the bankruptcy schedules. The reason for this is normally because the creditor’s records are accurate to the penny, while the bankrupt’s records are usually not up to date.

The process is the same whether you are filing a secured claim, an ordinary unsecured claim or a priority claim, which is also unsecured, under s.138 of the BIA. What is important is that you need to have a provable claim.

If the Trustee determines that you have either an unliquidated claim or a contingent claim, there will be additional steps you will need to take for the Trustee to be able to ascribe a value and for you to have a properly proved claim.

Form 31 proof of claim: Form 31

In every:

the Trustee will supply to all creditors form 31 document. If the debtor who intends to restructure first files a Notice of Intention To Make a Proposal, a claim form is not sent out at that stage. It will be sent with the actual restructuring proposal and other related documents.

The same document contains both where you can make your claim as well as complete the proxy form, if applicable. Creditors may experience difficulty completing the document. So, the Trustee provides instructions on how to complete the claim form and proxy. That is also why I have provided a step-by-step instruction sheet from the link below so you can follow exactly how to complete the form.

form 31 proof of claim
form 31 proof of claim

Form 31 proof of claim: Acceptability of proof of claim

It is important to properly complete the document. It must be completed fully and properly. The claim must include all necessary details called for under the BIA. Below is a link to an example on how to properly complete the form 31 proof of claim. A Trustee is required to review all proofs of claim received.

The purpose of this is to know what claims are acceptable to be admitted for voting at the First Meeting of Creditors. Also, all proofs received either before or after the creditors’ meeting must also be reviewed carefully to make sure that they are acceptable if there is a dividend to be paid on the claims in the insolvency proceeding.

The Chair of the creditors meeting has the power to admit or disallow claims for the purpose of voting at the meeting. The Trustee has the same power for the proofs of claim for dividend purposes. Most times the Trustee will also be the Chair at the meeting of creditors.

It is incumbent on the Trustee to communicate with creditors whose claims the Trustee believes to be deficient. The purpose is to obtain additional information to make a final determination. The Trustee has to decide whether to admit or disallow a specific claim.

As you can see, completing the document properly is essential.

Does a creditor have to file a claim?

Nobody will force a creditor to file a claim in a bankruptcy estate. A creditor’s claim becomes valid when the creditor files it and the Trustee accepts it. . When a creditor files a claim against a bankruptcy estate, the creditor is making a claim that the Trustee should record and count their claim so that the creditor will be entitled to receive their pro-rata share of any dividend payments that may be made.

The Trustee will issue the maximum payment each creditor is entitled to when the bankruptcy estate is liquidated. When a creditor files a claim, the creditor also becomes an interested party in the bankruptcy case. An interested party is a person who has a vested interest in the bankruptcy case. If the claim is filed before the First Meeting of Creditors in bankruptcy, then the creditor has the right to participate in and vote at the meeting.

Form 31 proof of claim: My example

CLICK HERE TO SEE AND DOWNLOAD PROPERLY COMPLETED

FORM 31 PROOF OF CLAIM

form 31 proof of claim
form 31 proof of claim

Can I file a proof of claim after the deadline?

There are really only two important deadlines when it comes to filing a claim. The first is before the First Meeting of Creditors. As mentioned above, if you wish to participate in that meeting, then you need to have filed a properly completed valid claim before the start of the meeting. However, if you don’t file it by then, although you won’t be able to vote at the meeting, you have not lost out on anything else.

Once all the realization of assets of the bankrupt has been completed, being both the current assets, fixed assets, and possibly even intangible assets, if the Trustee has sufficient funds to issue a dividend payment, then the Trustee has to review all the claims filed. The Trustee also has to compare the claims register containing all of the creditor claims filed against the names and amounts listed in the bankrupt’s sworn Statement of Affairs.

If any creditors have not yet filed, and there will be a payment made to the unsecured creditors, the Trustee has to send a specific notice pursuant to the requirements of the BIA to each such creditor. The notice in writing says that a dividend will be paid, and if you don’t file your claim by a specific date, then you will be barred from receiving any payment.

How do I object to a form 31 proof of claim?

First, you have to be a creditor with a proven claim accepted by the Trustee. The BIA states that any creditor can inspect the claims filed. So if you have personal knowledge that a party listed on the sworn Statement of Affairs is really not a creditor, then you would be assisting the Trustee by reviewing the claims filed and pointing out any claims you believe are invalid, and why. However, it is very unusual for a creditor to take the time to do so.

The next opportunity and really the only time it matters, for a creditor to object to a claim filed by a creditor is if a dividend distribution is going to be made and the Trustee sends out the Final Dividend Sheet. If you think there are errors, then you can object to the approval of the Trustee’s Final Statement of Receipts and Disbursements and the Dividend Sheet.

Reasons that you may feel one or more claims are incorrect could be:

  • You do not believe that someone that has filed as a secured creditor can provide adequate proof of security with their claim.
  • You feel that the compromise of claims being proposed is improper.
  • There may be details of payments received by a creditor are missing and therefore their claim is overvalued.
  • The priority of claims listed is improper.
  • The priority of payment as listed in the Trustee’s Final Statement is incorrect.
  • Some of the more complicated claims, such as the claim of lessor, a claim by wage earner, claim by farmer or another claim for employees have been incorrectly calculated by the Trustee.

If you have any concern that there is an error with the amounts being claimed, or if you believe that there are circumstances where one or more claims are not valid, you should immediately communicate this to the Trustee.

Keep in mind that once the Trustee issues the Final Statement with Dividend Sheet and has the intention of making a payment to all creditors with valid claims, you have to file your own objection within 30 days of the date on which the notice was issued.

Form 31 proof of claim: Do you need help?

Do you or your company have too much debt? Is a financial restructuring or debt settlement plan necessary but you just don’t know where to start? If so, then you need the help of a professional trustee.

The Ira Smith Team has years of experience of helping individuals and companies successfully complete their restructuring proposal debt settlement plans. Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our door.

form 31 proof of claim
form 31 proof of claim

You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life, recover your money and move on to the next investment opportunity. Call us today for your free consultation.

Call a Trustee Now!