I regularly write articles about debt help. Trends over the past few years about the increase in Canadian average household debt has gotten me thinking. We can get vaccinated for measles, mumps, rubella, influenza and a host of other diseases. Now it seems that without even getting a shot, Canadians have developed immunity to the dangers of debt.
How could this happen to what was traditionally a nation of savers? Did we just throw caution to the wind? Why did we stop heeding the warnings from the Bank of Canada, financial institutions, the Parliamentary Budget Office (PBO) and the credit reporting agencies?
Articles about debt help: Immunity to debt
Everyday there are headlines about the alarming levels of personal debt and how many Canadians are teetering on the brink of financial disaster. Have we stopped hearing the message or heeding the warnings? It seems that as we borrow more and take on more debt that our attitude to debt changes.
“People who don’t have any debts tend to be strongly opposed to debt… but if you put them into a situation where they are forced to acquire it, their attitudes change in the direction of toleration,” said Stephen Lea, an emeritus professor of psychology at the University of Exeter in the U.K. who has decades of experience studying the psychology of debt. As people acquire debt, Lea has found they also change their attitudes towards indebtedness. That’s an example of what psychologists call dissonance reduction. According to Mr. Lea, we really have developed immunity to debt.
Articles about debt help: Home prices and feeling immune to debt
There are more reasons why Canadians seem to feel immune to the dangers of debt. With house prices skyrocketing, home owners feel rich. And it seems that if Canadians are working and making their payments promptly, they feel in control of their finances. If interest rates continue to stay low, Canadians will continue to borrow more and more without realizing the dangers of accumulating debt.
Articles about debt help: Is there a solution to our immunity to the dangers of debt?
Saul Schwartz, who has studied personal debt as a professor of public policy at Carleton University believes that government should focus on policy actions that would rein in the lenders who are enabling all our borrowing because all the warnings are being ignored. I don’t know if that’s the answer but as a professional licensed insolvency trustee I can tell you that many Canadians felt immune to the dangers of debt until they faced a financial crisis.
Articles about debt help: What should you do if you are not immune to your debt load?
Take action before you find yourself in the throes of a financial crisis. Ira Smith Trustee & Receiver Inc. has helped many Canadian companies and people throughout the Greater Toronto Area (GTA) facing financial crisis or bankruptcy that need a plan for Starting Over, Starting Now. Don’t delay. Give us a call today. Financial problems can be solved with immediate action and the right plan.
“I will certainly not invest one red cent in your shop … no severance, no sale,”
A (typical comment) posted on the Sears Canada Facebook page before the company blocked new comments and made old ones vanish.
Well there has been a lot of Sears Canada News today and in the last month. The company sought bankruptcy protection only last June 22, 2017. It has been only a little over 1 month, but there has been so much media attention it seems a lot longer.
Sears Canada news today: Social media backlash
We’ve seen on social media that Sears Canada is facing a backlash when it comes to how they’re handling this liquidation. Notice that I am using the word liquidation, as opposed to restructuring. This is in spite of they are currently operating under the Companies’ Creditors Arrangement Act (Canada) (CCAA). This statute is designed as a restructuring statute.
Sears Canada news today: Why KVETCH about a KERP?
It comes just as the company began its liquidation sales at those fifty-nine stores they’re looking to close. There is a boycott in Canada that is gaining some traction on social media. People are upset with Sears Canada’s senior management. They obtained on the first Court application, approval from the Court on their plan to pay themselves retention bonuses. These bonuses would be paid under the terms of what is commonly called in complex corporate restructurings a “Key Employee Retention Plan” (KERP).
The retailer introduced that, as part of a Court-supervised restructuring procedure. It is shutting 59 of its 255 shops and letting go 2,900 workers. None of them will get severance pay. Sears also will stop payments to the employees’ defined benefit pension plan. The retailer recently accepted to delay that pension plan payment issue till September 30th.
Sears also accepted the compromise with the former employees to maintain paying health benefits for an extra 3 months until the end of September. This is so the people could have that time to get alternate coverage. It is still not great though. The employee pension plan will remain underfunded. The employees will have to look for a new health plan. To date, there is no provision for former staff to receive any sort of package.
Sears Canada news today: What exactly is a KERP?
It is normal in complex corporate restructurings to set up a KERP. The concept of a KERP began in US corporate restructurings in the 1990’s. The theory is that to have a successful restructuring, senior management have specific knowledge and ability. If they walked away from the company in bankruptcy protection, such as to accept a senior position elsewhere, the company would have a much more difficult and costly time in restructuring. Hence the idea was born that those essential managers should be promised a bonus to create the most value possible in the restructuring for the stakeholders. This is in addition to their normal compensation.
Often KERPs are now viewed as either:
a standard item that senior management expects to receive; or,
a greedy money grab negatively affecting other stakeholders.
I have not yet read any material to show why the Sears Canada bankruptcy protection case is so complex. I have not read how Sears Canada could not liquidate without existing senior management. It is earlier and current senior management who have not created a retail vision niche for Sears Canada for years.
Sears Canada news today: Time to “come back”
Thankfully, all CCAA protection orders have a standard “come back” clause. The reason for this is that not every stakeholder receives notice of the company applying for the bankruptcy protection order. Any stakeholder can come back to Court to oppose any part of the original order they did not receive notice of. They could not tell the Court of their position, and now want to come to Court with their complaints.
The Court appointed a law firm to represent the interests of the employees and former employees. As part of their motion material filed with the Court, they are asking the Court to amend the Sears Canada KERP. They state:
the amounts are excessive under the circumstances; and
the KERP does not incentivize senior management to enhance the value of Sears Canada.
It will be very interesting to follow this.
Sears Canada news today: It didn’t have to be this way
You may recall that Target Canada took a slightly different route towards its former employees when it decided to liquidate and leave Canada. It also liquidated under the CCAA. In our blog “TARGET CANADA CLOSING: $5.4 BILLION AND COUNTING”, we told you about the liquidation and that Target US established a trust fund for payment of the Target Canada obligations to its employees. For sure personal hardships occurred. At least they tried to soften the blow.
So now, while Sears Canada wants customers to come and buy at the liquidation sale, they have a PR nightmare on their hands.
Sears Canada news today: No comments please
It is so bad, that Sears Canada is not permitting public messages on its Facebook page. Most the messages from the public so far are negative against the company. CBC News recently noted that Sears Canada’s Facebook page was riddled with remarks from Canadians objecting exactly to what was happening to the company’s employees. Sears Canada has removed those comments from its Facebook page as well as blocking new comments.
Picture courtesy of CBC News
Sears Canada news today: Certainly a funny way to stay in business
You must wonder if Sears Canada really wants to restructure, or if they are just liquidating their inventory. They are also trying to sell whatever other assets they can. If it was a true restructuring, you would think that senior management would want to see more customers who would be loyal to (the new) Sears Canada when it would exit bankruptcy protection.
So instead of growing a loyal customer base, Sears Canada’s actions have spawned a strong and growing “Boycott Sears” momentum. They’re going to have to deal with that. It’s going to be interesting to see exactly how this plays out while Sears Canada currently is shopping for a buyer.
According to Sears Canada, the unhappy remarks did not motivate it to close the public articles or to remove many of the bitter statements. Regardless, the former employees are still faced with now with the question “how do you collect salary owed to you from an employer that goes out of business”.
Sears Canada news today: What to do if you or your company have too much debt
If your company or you are experiencing financial problems, contact Ira Smith Trustee & Receiver Inc. We’re here to tell you on your restructuring and other options to avoid bankruptcy. If necessary, we can also talk to you about your bankruptcy options.
We can help you put your financial house back in order and set you on a path to debt free-living. You’ll be amazed at the difference one phone call to Ira Smith Trustee & Receiver Inc. can make.
Contact us today. We are a licensed insolvency trustee and will listen to your issues and offer compassionate, professional assistance to aid you to avoid bankruptcy.
With our help, you can regain control of your life, Starting Over, Starting Now.
Consumer proposal Ontario process: Livan Hernandez now
Livan Hernandez made a lot of money as a pitcher in major league baseball. Yet, according to court documents, in July 2017 he applied for Chapter 13 bankruptcy in Florida. He filed in federal court at Fort Lauderdale. The purpose of this blog is twofold: 1. to show that even if you have made millions in your career, you can still get into debt trouble; and 2. the consumer proposal Ontario process (Proposal, Plan or CP) which are similar to Chapter 13 US bankruptcy filings.
Hernandez, according to Baseball Reference, made more than $53 million in his job. He states that he owes up to 49 lenders between $500,000 and $1 million and he has $50,000 or less in assets.
The court documents show that most of the creditors he owes are banks and credit cards. He also owes the IRS.
Hernandez pitched for 17 years in the majors, on 9 teams. He played in 2 World Series, winning and making Series MVP honours with the Florida Marlins in 1997 and losing with the San Francisco Giants in 2002.
Mr. Hernandez would have attended at the Chapter 13 trustee office to file under the US Bankruptcy Code. A chapter 13 bankruptcy is also called a wage earner’s plan. It enables people with regular income to develop a plan to repay all or part of their debts. The Canadian equivalent is our CP.
Consumer proposal Ontario process: The rich and famous have problems too
We have written about the rich and famous having debt problems before. Our previous blogs on this topic include:
Consumer proposal Ontario process: Just what is a consumer proposal?
This vlog offers the answer to one of the most asked Plan questions. A CP is available to people under the Bankruptcy and Insolvency Act (BIA). Teaming up with a licensed insolvency trustee (LIT) offering to administer your Plan you make an offer to:
pay your creditors part of what you owe them over a period not greater than 60 months;
lengthen the time you have to pay back your debts; as well as
stay free from bankruptcy
Payments are made to the LIT. The LIT uses that cash to pay each of your creditors. The CP must be finished within 5 years.
Consumer proposal Ontario process: Who qualifies?
To meet the BIA requirements for a CP, you need to be an individual, not a company. Your overall financial debts need to not exceed $250,000 (not consisting of debts from a home mortgage, home equity line of credit or line of credit, secured by your principal residence).
You should also meet the insolvency requirements. This implies that:
your debts are greater than the value of your assets;
if you sold your assets you would not have appropriate funds to repay your monetary commitments totally;
you are unable to pay your debts as they come due
Making simply the minimum monthly payment as disclosed on your credit card statements do not count as repaying your debts.
Consumer proposal Ontario process: What is the cost of a consumer proposal?
Your Plan repayments cover the expense for the consumer proposal. There are no different prices either for doing a consumer proposal or fees paid to the LIT to administer your Plan. The fee the LIT earns is calculated per the BIA.
Consumer proposal Ontario process: How long will my consumer proposal take?
A CP can last for no more than 5 years. Nonetheless, you can reduce the term either by 1. increasing the amount of your month-to-month repayment agreed to with your creditors in your Plan or; 2. by giving a round figure settlement all at once (if you could get an adequate amount from either a financial institution or family).
Consumer proposal Ontario process: What are the actions involved in a consumer proposal?
A CP allows you to pay all or part of your unsecured debt in regular monthly payments over an established period (again, not exceeding 60 months).
In composing your Plan, the LIT has to make sure that your CP provides a better outcome for your creditors compared to what they could expect to receive in your personal bankruptcy.
The typical actions of a LIT assisting you in your CP are:
learn from you about your assets and liabilities;
work with you to create a strategy that you both believe will serve the requirements of both you and those you owe;
draft the Plan;
send the Plan to the Office of the Superintendent of Bankruptcy;
mail out the CP to your creditors who will have 45 days to accept or reject it.
The creditors can accept or reject your consumer proposal at a meeting of creditors if such a meeting was held. Usually, under a Plan, there is no need to hold a meeting.
Consumer proposal Ontario process: Can a consumer proposal stop debt collection agencies as well as prevent my wages from being seized?
Yes. As soon as the filing of a CP happens, all creditors must stop all legal action against you, including seizure activities (aside from any family law responsibilities under a proper settlement arrangement or court order).
Consumer proposal Ontario process: In a consumer proposal, will I turn over my residence as well as my auto?
Typically lending institutions who register a mortgage or various other security for financing are outside the CP procedure. It is the equity you have in your residence or auto that must be considered when you initially work out a budget and what type of Plan strategy you are going to make with your LIT.
If you have enough earnings to keep paying the mortgage against your home and/or your car loan as well as you wish to maintain the properties, you can do so. Again, your equity needs to be taken into consideration in the offer you make to your creditor. Also, your income, as well as costs, need to be evaluated to make certain you can pay for all these expenditures plus the regular monthly payment under your CP.
KEEP IN MIND: If you were to surrender your home or auto after declaring your Plan, you will not be spared the responsibility for any shortfall on your mortgage or auto loan given that the surrender took place after the filing of your CP.
Make certain that if you are giving back your home or auto to your lender, you await the bank to acknowledge that you have turned them over. Additionally, wait till they have begun their enforcement BEFORE you file your CP. That way any shortfall they experience will be a debt caught in your Plan
Consumer proposal Ontario process: Will I need to surrender my charge cards?
Typically, you must be prepared to give each of your charge cards to the LIT and you will not be able to ask for a brand-new credit card till after your Plan is completed. You can take advantage of a guaranteed/secured charge card.
If my creditors reject my CP or I fail to fully do it, will I automatically become bankrupt?
We highly recommend you to put your best foot forward when submitting your CP. We also recommend that you make your payments constantly on time. If your Plan is rejected by your creditors or you drop 3 payments behind, your CP will go into default. If that were to happen, you will no more have protection from your creditors and their collection initiatives.
Consumer proposal Ontario process: What should I do if I have too much debt?
If you’re thinking of a debt settlement program or are seeking methods to solve your debt problems and avoid bankruptcy, call Ira Smith Trustee & Receiver Inc. Our method is for every single person is to create an outcome where Starting Over, Starting Now comes true, starting the minute you walk in the door. You’re simply one call away from getting back on the road to leading a healthy, balanced and tension free life.
Below is our list of 5 stupid credit check failed reasons stopping you from getting that loan you can repay. You likely recognize that not paying your credit card on schedule or missing out on a settlement could harm your credit score. That is probably the most common credit check fail. So, those reasons are not on our list of credit check failed reasons. There are much less clear methods to sink your rating. You could be doing some without understanding the influence you’re triggering.
Below are 5 unexpected methods you could be damaging your credit score:
Credit check failed reasons: Decreasing your credit line
You might assume that you’re increasing your credit score by reducing your credit line on your credit card. However that could be having the other impact. Credit score use is the second-most vital credit score aspect, after history of credit card repayments.
Your credit use is your compared with just how much you’re using. When you lower that proportion, that is a good thing. Many professionals suggest maintaining it around 30 to 35 percent.
By reducing your authorized credit amount, you’re really increasing your credit use proportion.
Toronto financial advisor Seun Adeyemi says that most people are not aware that cancelled credit lines, even after making full repayment, can hurt your credit score.
Here is an example. Say you have 2 credit cards:
a Visa with a $1,500 balance as well as a $4,000 credit limit;
as well as a MasterCard with $1,500 outstanding and a $6,000 credit authorization.
Your credit usage is just 30 percent since you’re making use of $3,000 of your readily available $10,000.
If you reduced your credit limit to $4,000 on that MasterCard, you’re currently utilizing $3,000 of a readily available $8,000. This presses your credit usage to over 35%.
credit check failed reasons
Credit check failed reasons: Leasing an automobile with a debit card as opposed to a credit card
When you’re leasing, it’s a great deal less complicated when you make use of a credit card.
Utilizing your debit card will lead to a pull on your credit report. While it could be a soft pull– implying it does not harm your debt– there’s a chance it might be a hard check. A hard check does affect your credit rating.
The procedure changes slightly in the auto rental business. Making use of a debit card will certainly result in a soft credit inquiry. However, when using a debit card to rent a car, there will probably be a hard pull on your credit rating at the first time (when you check-in and get the car).
There would not be a credit check if you use of a credit card for renting a car.
An included incentive of renting your car with a credit card as opposed to debit: Many credit cards offer vehicle rental insurance coverage. This saves you even thinking about taking the car rental company’s costly insurance package.
Credit check failed reasons: Not paying your library fines (yes, libraries still exist!)
Not paying your penalties might lead the library to withdraw your privileges, as well sending your past due account to a collection company. When a collection agency obtains your overdue account, if you don’t pay, it will be noted on your credit report that you are in collection and have not paid. This will adversely influence your credit score.
credit check failed reasons
Normally, you need to owe around $40 or more before the account being sent to collections. To prevent all this, check your public library’s plan on fines, as well as, obviously, paying your late charges in a prompt fashion.
Credit check failed reasons: Not paying your parking tickets
When it concerns vehicle parking tickets, you have 2 choices:
you could pay them; or
go to Court and fight them.
Just what you do not want to do is disregard your parking tickets.
If you do choose to or forget to pay them, after a specific duration, your account will certainly go to collections. The policies on vehicle parking penalties differ by city. For instance, in Toronto, the use of debt collectors starts when your vehicle remains in plate rejection. This is when you could not restore your plate sticker label or acquire brand-new plates– for 2 years. Also, your tickets outstanding balance is more than $300.
Credit check failed reasons: Owing the taxman
If you have an outstanding amount payable on your income tax return, it’s important to settle that financial obligation to the Canada Revenue Agency (CRA). Overdue tax obligations could cost you in penalties and interest. It will also make it more challenging to get loans.
When submitting your tax return, any amount owing is due on April 30th, or the next Monday if April 30 falls on a weekend.
Credit check failed reasons: Not paying CRA is a self-inflicted indirect hit
Not paying your taxes does not directly hit your credit rating. However, two standard questions on any loan application are:
what is the last year you filed your income tax return for; and
how much do you owe to CRA for personal tax.
Not being current in your filing, or having an amount owing to CRA, will limit your chances to get that loan you are applying for.
When applying for a mortgage or home equity line of credit, most lenders ask for a duplicate of your Notice of Assessment from the previous 2 years. If the potential lender sees that you owe the CRA a great deal of money, they might offer you a higher rate of interest than the posted rate or worse, refuse your application.
Credit check failed reasons: What to do if you can’t repay your debts – even if you still have an OK credit score
Maintaining a good credit score is more than just paying your credit card on schedule, yet it does not need to be made complex. You should always aim to pay any type of arrears in a prompt style, as well as understand how every activity or transaction can affect your credit score.
If you are having problems repaying your debt, don’t be afraid to seek professional help. Don’t be enticed by the commercials for debt settlement. A recent study by the federal government shows that people who first go to a debt settlement company, end up paying more to settle their debts than if they just went to see a . That same study shows that ultimately, the debt settlement program alone does not work and the person ends up filing a consumer proposal with a licensed insolvency trustee.
credit check failed reasons
The Ira Smith Team has helped many people in debt get back on track and living debt free lives Starting Over, Starting Now. Take the first step and give us a call today.
Difference between debt settlement and consumer proposal: Forced to pay money they can least afford
Cases handled by a Licensed Insolvency Trustee (LIT) that were referred by these types of settlement companies generally wound up paying much more for their insolvency case.
The debt consolidation companies called for a debtor to authorize a costly contract for speaking with the debt management company before being presented to a “picked LIT”. The people normally comprehended that the only function of the LIT as being restricted to the filing of the consumer proposal created by the settlement company!
In cases evaluated by the OSB, the consulting charge section of the contract contained a large amount for the debt consolidation company’s “help”. It was in the range of $2,400 to $4,200. For smaller consumer proposals, the OSB found that the consulting charge typically varied from 20% to 40% of the amount of the proposal.
Therefore, my read of this leads me to believe that certain LITs cooperated with such settlement companies to force insolvent debtors to pay thousands of dollars more than they otherwise needed to. These people could not afford this and did not deserve to be treated this way.
Debt specialist charges were purported to cover the expense of advising, conferences, recommendations as well as prep work of the consumer proposal. In all situations, the costs paid to the debt management company were IN ADDITION to the fees established under the Bankruptcy and Insolvency Act (Canada) charged by those LITs.
Difference between debt settlement and consumer proposal: If that isn’t horrendous enough, the debt management company sold them a larger bill of goods!
OSB’s study discovered that debtors were often marketed more products by the debt settlement companies. As a result, there were billings for extra recurring costs throughout the life of their consumer proposal!
The products the debt management companies pushed on these vulnerable people included:
loans charging a high rate of interest;
brand-new credit score tools;
a proposal insurance policy; and
“credit score restoring” loans.
All products carried either high-interest rates or high price tags.
Difference between debt settlement and consumer proposal: Forced to pay more than they should have
A technique identified throughout the OSB’s review entailed advertising and marketing “proposal insurance coverage”. This was normally billed as a month-to-month expenditure at a price of around 10% of the worth of the consumer proposal. This financing had recurring repayments supposedly for “credit rating fixing”.
In one instance, a debtor with a $31,900 consumer proposal signed up for proposal insurance coverage, structured as a loan. That base cost was about $6,300. Various extra fees, the month-to-month management cost as well as a 15% interest rate, the insurance coverage priced out at $9,150.
So, with the debt management company’s management fee of $2,300, the consumer proposal that the creditors voted to accept in the amount of $31,900 cost the insolvent individual $43,350!!! In my view, being merely associated with this type of behaviour is against the BIA, OSB Directives and the Canadian Association of Insolvency and Restructuring Professionals code of conduct for its members. As a LIT, I would never be associated with such disgraceful behaviour.
Difference between debt settlement and consumer proposal: Consumer proposals are like a 5-year interest-free loan, so why would you borrow to pay it off early?
An additional pattern observed in consumer proposals submitted by LITs dealing with debt management companies was the intro of “price cut terms”. This arrangement is for enticing the debtors to borrow money under arrangements made by the debt settlement company.
Incorporation of a discount rate provision provokes a debtor to become part of a brand-new as well as expensive loan scheme. To capitalize on a 25% discount rate condition in a $10,000 proposal, a debtor would finance $7,500. With paying $1,400 in compulsory charges, this brought the lending overall to $8,900. At a promoted rate of interest of 22.99 %, with a payment timetable of $214 over 84 months, the borrower would certainly pay $10,475 in charges as well as a rate of interest, for an overall of $17,975.
A consumer proposal is like an interest-free loan. The same debtor with the same beginning consumer proposal of $10,000, would only pay that amount if they went directly to the LIT first. The debtor would have had a maximum of 60 months to complete making the payments with no interest charges at all. A savings of $7,975 and lower monthly payments.
As you can see, involving the debt settlement company increased the cost for an insolvent person dramatically for no value.
Difference between debt settlement and consumer proposal: Other findings
Other findings by the OSB include:
the LIT files did not contain any obvious evidence of debt settlement company certification or experience in credit counselling or the counselling of insolvent debtors;
consumers who filed with a LIT through the debt settlement company did not have a good understanding of the insolvency process, the options that were available to them or the other charges they were paying to the debt settlement company
the consumers were not aware that they could have avoided charges such as paying a debt consultant to prepare the consumer proposal
that the documentation made ready for the consumer proposal filing by the debt settlement company and used by the LITs contained many errors
Statements of Affairs, as well as Income and Expense Forms submitted, were incorrect in different ways
Debt settlement company fees were not disclosed
Real estate was always undervalued compared to LIT files where there was no involvement of a debt settlement company
Difference between debt settlement and consumer proposal: What you can do
The OSB is considering its next steps. The OSB is requesting comments. We have already provided ours. Our recommendation was that all LITs who cooperated with debt settlement companies as we have described here should be brought up on disciplinary charges by the OSB. If you agree that this way of doing business on vulnerable and unsuspecting consumers who are truly looking for professional help must stop, please click here to offer your own comments to the OSB.
In the meantime, if you have too much debt, please DO NOT be fooled by the debt settlement companies. Stay far away from them. Instead, contact a LIT directly.
We are debt professionals who will evaluate your situation and recommend which debt relief options are right for you. We will do so in a free consultation. A consumer proposal is one option; there are others as well.
Contact Ira Smith Trustee & Receiver Inc. today for a free consultation. There is no need for you to pay fees to a debt settlement company when you can get the same information from us for free.
You’ll be in good hands and Starting Over, Starting Now you can be well on your way to living a debt free life.
Debt settlement or consumer proposal Canada: Introduction
In this Brandon’s Blog on debt settlement or consumer proposal Canada, I want to tell you about a recent Government of Canada study. On April 28, 2017, the Office of the Superintendent of Bankruptcy (OSB), released its report of its investigation. The investigation began in May 2016, of Licensed Insolvency Trustee (LIT) business practices in administering consumer insolvencies. The report is titled: “Review of Licensed Insolvency Trustee business practices in relation to administration of consumer insolvencies”. The OSB was becoming increasingly concerned about debt settlement vs consumer proposal Canada and the influence debt settlement companies may have had over certain LITs. I must say that after reviewing the report, I found it shocking.
The purpose of the investigation arose out of concerns over the relationship between debt settlement companies and certain LITs. The OSB wished to decide if LITs were practising per the Bankruptcy and Insolvency Act (BIA), associated policies and OSB Directives. In 2016 they made up over half of all consumer insolvency cases filed.
The aim of the OSB’s evaluation was to recognize as well as analyze possible threats related to the honesty of some elements of the consumer bankruptcy procedure. Specifically in situations where LITs have become part of companies’ connections (or, other inappropriate business relationships) with fee-charging debt management companies.
Prior blogs
We have warned you for years about the dangers of using these types of companies, including:
We, however, had no idea the harm caused to those most vulnerable consumers by a debt management company.
What relationships did the OSB investigation find?
The OSB report indicates that in 2016:
17 % (9,660) of all consumer proposal filings, the borrower reported having spent first for liability counselling advice from a debt settlement company before being guided to a LIT.
57 % (5,500 of 9,660) of the consumer proposal filings for which earlier settlement advice was obtained from LITs that had connections with 2 large-volume debt management companies. These 2 companies represented 64 % of the overall LIT fees reported in 2016 consumer insolvencies filings for debt settlement advice before filing an insolvency proceeding with a LIT.
Thirteen LIT companies, which included one national-level company, were discovered to have several LITs running in a constant and continual partnership with large-volume liability management companies.
For roughly 50 individual LITs within these 13 companies, greater than 40% of their consumer proposal filings were sourced from these settlement companies. For roughly 20 of those LITs, greater than 90% of their consumer proposal work comes from with these 2 companies.
Insolvent debtors sourced through these third parties
Insolvent debtors sourced via these settlement companies had the tendency to go after consumer proposals instead of bankruptcy. On the surface, this is a good thing. As you will read further and in next week’s vlog, you will see the reason was so that these companies could charge in many ways the unwary consumers more money than they should be paying.
The OSB’s investigation showed that the debt settlement companies wrote up the necessary documents. The LITs never met the debtors beforehand.
The OSB investigation determined that:
Before the LIT meeting, consumer borrowers connected and had 2 to 4 conferences with the management companies.
The LIT relied upon the settlement companies’ staff to do all the work relative to the gathering, evaluating as well as confirming the borrower’s information and reviewing and recommending on the bankruptcy alternatives.
In situations where the LIT had a regular relationship with the settlement companies, all facets of the procedure before declaring were normally executed at the offices of the management companies.
Information needed for the filing was typically sent straight from the settlement companies’ management team to the LIT’s management team, usually soon before the meeting at which the consumer proposal filing was to occur.
Debtor conferences with the LIT (a variety of which included the settlement company) varied in the period from 5 to 30 minutes. In some circumstances, the meeting took place just after submitting the proposal with the OSB.
LITs normally met the borrower to file at the settlement companies’ premises.
Sometimes, the authorizing of legal papers likewise happened in many casual areas as well as cities where the LIT did not have an authorized workplace.
Interaction with borrowers on legal obligations, creditor meetings, evaluations by an Official Receiver, proposal changes and voting by creditors, was practically solely performed by the settlement companies’ management staff, that communicate with the debtor.
The debtors reported that succeeding interaction throughout the management of their consumer proposal was additionally with the debt settlement company as opposed to with the LIT.
It appears that these LITs who had these close relationships with the debt settlement companies may have shirked some of their responsibilities under the BIA. These LITs had to sign off confirming to the OSB that they had done the necessary work. By relying upon the work done by unlicensed debt settlement companies, did the LIT really do the work that they are signing off for?
Debt settlement or consumer proposal Canada: So what does this mean?
In next week’s vlog, we will go into detail about what the effect was of all this. For now, you should know that a summary of the results for the consumer included:
Consumers paid thousands of dollars more than they needed to.
Unscrupulous debt management companies (and their cooperating LIT firms) talked consumers into high rate loans under the guise of shortening the time they were under an insolvency administration and improving their credit score.
The debt settlement companies had no certification or experience to give the type of insolvency guidance they were providing.
Legal documents contained countless errors and false attestations.
Creditors received less than they were otherwise entitled to.
Debtors had no idea of either their responsibilities under the process they were undertaking. They were not given the opportunity to experience one of the most important aspects of the Canadian insolvency system, financial rehabilitation.
Debt settlement or consumer proposal Canada: What should you do if you have too much debt?
Consult a LIT first and don’t go to one of the debt settlement companies. There is no federal government approved debt settlement companies. The only government approved debt settlement program is a consumer proposal.
We are debt professionals who will evaluate your situation and recommend which debt relief options are right for you. A consumer proposal is one option; there are others as well.
Contact Ira Smith Trustee & Receiver Inc. today for a free consultation. There is no need for you to pay fees to a debt settlement company when you can get the same information from us for free.
You’ll be in good hands and Starting Over, Starting Now you can be well on your way to living a debt free life.
One of our current insolvency assignments teaches creditors a valuable lesson if they wish to take part in a debtor’s restructuring proposal. Every licensed insolvency trustee maintains a website listing their current insolvency assignments that are noteworthy or of public interest. Today I want to tell you about a recent case of ours. It is not of public interest, but it is noteworthy, especially for trustees and lawyers practicing in the insolvency area. Notwithstanding the large volume of receivership and bankruptcy case-law, the issue we came across was novel and never decided in Court before.
Mr. R was the sole shareholder of a company that serviced the construction industry. Both Mr. and Mrs. R were both Officers and Directors of the company. The company became insolvent, could not continue and ceased operating. Mr. and Mrs. R., in addition to their personal debts, which were significant, were now also faced with extensive claims against them in their capacity as Directors.
Mr. and Mrs. R’s litigation lawyer referred them to us. We advised them that they should not declare bankruptcy, but rather attempt to avoid bankruptcy and restructure by filing a joint proposal under Part III Division I of the Bankruptcy and Insolvency Act (Canada) (BIA). Their had a complicated situation and they required an immediate stay of proceedings to deal with all the lawsuits against them.
Therefore, we first filed a joint Notice of Intention to Make a Proposal (NOI) on June 8, 2016. This first step provided Mr. and Mrs. R with a first 30-day grace period, where no creditor could begin or continue legal proceedings or enforcement against them while we were working with them to finish developing their restructuring proposal.
As Trustee, we served the NOI on all known creditors by ordinary mail, as we are required to under the BIA. We served one creditor, Royal Bank of Canada (RBC) at two addresses: i) legal counsel for RBC; and ii) BH, an agent for RBC that we regularly deal with. At the time of mailing out the NOI, we did not know if this agent would be on the file, but we provided them with notice out of to be extra cautious. We mailed the NOI on June 9, 2016.
The NOI sent to the creditors, including RBC, did not contain any proposal whatsoever, because it had not been written yet! This is standard for the filing of an NOI before the proposal.
In response to the NOI, by letter dated June 20, 2016, we received, from another agent for RBC that we had never dealt with before and who was not on our original mailing list, two proofs of claim, each in the amount of $438,434.31; one proof for each of Mr. and Mrs. R, individually.
This agent also sent a voting letter. It asked the Trustee to count RBC’s vote “with respect to the proposal” of Mr. and Mrs. R “against acceptance of the proposal made as of the 08th day of June, 2016.”
On June 22, we wrote to the agent advising that the Trustee’s position was that because no proposal was yet in existence, the RBC “vote” was invalid and that RBC would have to offer a proper voting letter once it received the proposal. This was also sent to RBC’s counsel. The Trustee received no response to this communication.
The debtors, Mr. and Mrs. R, filed a proposal July 7. We served the proposal on all creditors. The Trustee served RBC three ways to: i) RBC’s counsel; ii) RBC’s agent BH; and iii) the agent who wrote us the June 22 letter with enclosures. Our package included not only the proposal but notice of the first meeting of creditors and forms for proof of claim and a voting letter.
We received nothing further from RBC. The meeting proceeded on July 27. RBC did not attend. One creditor, with a claim of $278,561.29, attended and voted for the joint proposal. The joint proposal was deemed to have been accepted. Consistent with our position, as Trustee, we did not count the RBC June 22 “vote”.
After the acceptance of a proposal by the requisite majority of the creditors, a licensed insolvency trustee must make application to Court, for approval of the proposal. The proposal is not binding until there is a valid and subsisting approval order of the Court.
Our motion for approval of the joint restructuring proposal of the debtors, Mr. and Mrs. R, was heard on August 9, 2016. RBC opposed. RBC opposed on the basis that its vote against the joint proposal was not counted. RBC’s vote, if counted, would have defeated the proposal and Mr. and Mrs. R would be bankrupt.
Our lawyer made various submissions, including, that the “vote” of RBC:
was not valid;
that RBC was advised of this and did nothing to file a valid vote; and
RBC failed to attend the meeting of creditors.
As indicated above, only one creditor voted; it voted in favour of the joint proposal.
RBC claimed its vote was valid and ought to have been counted. The Court did not go so far as to say a creditor could never lodge a valid vote against a proposal before receiving it. In this case, the Court agreed with us and found the vote was not valid. The Court went on to say that the Trustee was correct in not counting it.
The threshold question was whether the Trustee was right to reject RBC’s purported “vote.” Section 53 of the BIA permits a creditor to assent or dissent “from a proposal” before a meeting. Section 54 says the creditors may accept or refuse “the proposal” at the meeting. However, the statutory scheme for creditor voting assumes there is a proposal.
The Court found that:
the agent’s purported “vote” was on its face defective;
there was no proposal of June 8;
RBC or its agent had never seen the joint proposal when it voted;
the Trustee was right to reject an obviously defective “vote”;
the Trustee made its position abundantly clear to RBC’s agents; and
RBC had every opportunity to cure the defect and it failed to do so.
What this means is very simple. Make sure that in anything you do, you understand what the rules are, don’t take your eye off the ball and never fall asleep at the switch. If this creditor’s agent and legal counsel had merely reacted to the mailing of the joint proposal and cast a proper vote, we never would have ended up in this situation.
There was nothing wrong with the proof of claim (although it was filed unnecessarily in duplicate). All RBC’s agent or lawyer had to do when it received the joint proposal mailing, was take 2 minutes to complete a new voting letter and send it in to the Trustee. If they had done this simple step, assuming they voted against the joint proposal, Mr. and Mrs. R would now be bankrupts. Instead, they are making their proposal payments to the Trustee to restructure themselves and avoided bankruptcy.
Mr. and Mrs. R have each secured full-time employment, and are making more money than in the last few years of running their company.
Being a Director of a corporation can be risky business. If the corporation is insolvent and continues to carry on business, and you continue to act as a Director, it can land you in a personal financial mess.
Are you experiencing financial distress because of acting as a Director or otherwise? Is your business struggling and you can’t seem to find a way out?
How to improve credit score: The Financial Consumer Agency of Canada alert
The Financial Consumer Agency of Canada (FCAC) is alerting people who could no longer stay current with their debt payments to be mindful when looking how to improve credit score.
Some businesses are misleading consumers by guaranteeing quick and easy solutions to help settle their financial debt or improve credit score. In many cases, consumers could wind up in a worse economic scenario compared to before they got aid.
How to improve credit score: Beware of credit repair firms
It’s crucial to understand that these firms:
cannot make sure they will solve your debt problems
could not swiftly and quickly repair your credit rating
need to not motivate you to get a high-interest loan as a service until other loan alternatives are available
How to improve credit score: What you should do before starting to repair your credit
Before registering for help to repay debt or repair or improve credit score, customers need to:
get suggestions from various reputable sources such as an accredited financial consultant, an approved credit counsellor or a licensed insolvency trustee
do inquiries and compare options
never be pressured to register right away
check out the small print and recognize the conditions before authorizing a contract or an arrangement
How to improve credit score: What the FCAC financial literacy leader warns
Jane Rooney, Financial Literacy Leader, FCAC warns:
“It’s important for consumers to understand what companies can and can’t do when offering services to help with debt repayment or credit repair. The Financial Consumer Agency of Canada has information to help consumers better understand the types of services available to them and where to get help. Having the necessary information is the first step to empowering consumers to make informed decisions and meet their financial challenges head on.”
How to improve credit score: Beware of credit repair firm tricks of the trade
Some firms or agencies declare that they can swiftly fix your credit report. It’s difficult to change or erase info that’s part of your credit rating, unless a detail is incorrect. Improving your credit history will take some time. You need to prove that your credit practices have enhanced by repaying your financial obligations on time.
Some firms could likewise offer you a loan suggesting it will certainly aid in fixing your credit history. The firm could assert that making timely payments on this loan will repair your credit report. When you sign up for this type of loan, you never in fact receive any cash because the company will tell you the financing will cover its services or programs. Rather, you make normal payments to the company to pay off the loan.
Be aware; this type of loan generally has a high rate of interest. This solution does not help cut any of your other financial obligations. You are required to keep making your payments on any other financial debts you owe. You could only be left with even more debt and no change to your credit rating.
How to improve credit score: What the Canadian government advises you to do
The Canadian government recommends that you speak to a licensed insolvency trustee. Although the challenges are enormous, they are not insurmountable. If you and your spouse have too much debt because of financial infidelity or for any other reason, you need to contact a licensed insolvency trustee (LIT) now. Through financial counselling, a LIT can aid in getting the resources you need to fix the root causes of the financial infidelity and to deal with the debt that you and your spouse cannot repay.
You need the Ira Smith Team. We’re experts in dealing with debt. No matter how you got into difficulty we can help return you to financial well-being. Contact us today and free yourself of debt Starting Over, Starting Now
Advantages and disadvantages of consumer proposals: Introduction
In this vlog, we answer the question “What are the advantages and disadvantages of consumer proposals?”.
Advantages and disadvantages of consumer proposals: Who is it for?
A Consumer proposal is a part of the Bankruptcy and Insolvency Act (BIA) found in Part III Division 2 of the BIA. It is available for people who do not owe more than $250,000 to their creditors, NOT including any mortgages or other loans registered against a principal residence.
The first test is being insolvent? What I mean by that is:
are your financial obligations greater than the worth of your property?
if you sold your assets you would not have enough funds to settle your financial commitments totally
you are having problems making the total required payments to pay off in full each of your financial commitments monthly
Advantages and disadvantages of consumer proposals: The Advantages
Pay your creditors part of what you owe them over a period not greater than 60 months.
Broaden the time you can use to pay off your financial debts.
Stop the interest clock.
Make monthly payments to the LIT for the benefit of your creditors that you can afford within your budget.
If successful, you get to keep your assets.
If successful, the cost of your consumer proposal can be thought of as being free. The BIA sets the fee of the LIT. The amount of payments you must promise to make to get your creditors to vote in favour ignores the fee of the LIT in performing that calculation.
You should think of a consumer proposal as obtaining an interest-free loan to combine your debts, pay only a part to get rid of them all. Your interest-free loan can have a term of no longer than 5 years.
Advantages and disadvantages of consumer proposals: The Disadvantages
There are not many disadvantages to a consumer proposal. The only one I can think of is that it is an insolvency proceeding under the BIA, so it will be and stay on your credit record for some time. But if you have so much debt you don’t know where to turn and you can’t pay it off, then your credit score has probably already taken a hit.
Our method is to set up an outcome for you where Starting Over, Starting Now becomes a reality, beginning the minute you walk through our door. You’re simply one telephone call away from leading a healthy, balanced and stress-free life again.
According to Psychology Today, one of the causes of marital breakdown is dishonesty and betrayal. Dishonesty and betrayal can take many forms. It can include financial dishonesty in marriage. The purpose of this vlog is to look at this issue and how to get financial infidelity recovery in a marriage.
Financial infidelity recovery: Financial dishonesty in marriage
The first step is recognizing what financial infidelity meaning is. In its simplest form, financial infidelity is withholding from our partners about what we are doing with money that ultimately negatively affects the couple’s relationship. Examples of financial infidelity could be:
secret spending; perhaps as a result of an addiction;
incurring secret debt; again could be a result of an addiction
cashing in a life insurance policy to raise needed funds secretly; and
letting a life insurance policy lapse due either to lack of funds or wishing to divert those funds without telling our partner
It is a lack of transparency with our partners about money in the relationship.
Financial infidelity recovery: Signs of financial infidelity
Some of the more common signs of financial infidelity are that your spouse or partner:
wants to control all the finances and they don’t want any comments from you;
they also don’t want to share financial information with you;
you notice that there is a withdrawal from an investment account with no given explanation;
a lot of resistance to talking about money;
discovering the opening of new lines of credit or credit cards in your partner’s name, in your name or even jointly that you didn’t open yourself and had no knowledge of;
you find bills for items that you didn’t know about; and
your partner makes a big purchase without talking with you first
Such behaviour will most certainly erode trust in a relationship. This will create a huge blockage in every other aspect of the marriage, including intimacy.
In order to even attempt financial infidelity recovery, there has to be willingness by either spouses or partners. Both will have to overcome the shame, humiliation and rage that the financial infidelity causes. The couple needs to understand what the real reason for the financial infidelity is and be dedicated to fixing that. Is it the result of an addiction such as shopping, gambling, drugs or alcohol abuse? Is it a result of a business loss or failure in the spouse’s business?
The next step is to have a team approach. Spouses or partners need to have complete access jointly to all accounts. One spouse should not be allowed to withdraw funds without the other one’s cooperation. The team has to set a realistic budget together, follow it and watch the cash flow plan. One of the cornerstones of the budget has to be to work towards being debt free. Finally, constant and open communication is key.
It may be that you will need a financial counselor for credit counselling to increase the couple’s financial knowledge. The counselor can also make sure that the recovery plan is realistic and implemented. Financial infidelity recovery is neither simple nor easy, but, it is possible if both partners are willing and committed.
Financial infidelity recovery: What to do if you cannot overcome your debts
The debt created by financial infidelity is more emotionally troubling than normal debt. The reason is one of the spouses had nothing to do with incurring that debt, yet they may be just as liable for its repayment. This creates extra challenges in attempting to resolve that debt.
Although the challenges are enormous, they are not insurmountable. If you and your spouse have too much debt because of financial infidelity or for any other reason, you need to contact a licensed insolvency trustee (LIT) now. Through financial counselling, a LIT can aid in getting the resources you need to fix the root causes of the financial infidelity and to deal with the debt that you and your spouse cannot repay.
You need the Ira Smith Team. We’re experts in dealing with debt. No matter how you got into difficulty we can help return you to financial well-being. Contact us today and free yourself of debt Starting Over, Starting Now.
Articles about debt help: Introduction
