We keep hearing commercials about debt relief and their scare tactics of portraying the safety of a debt relief program vs bankruptcy. But, what is debt relief? And can some of these so-called debt relief companies actually put you deeper into debt?
Debt Relief Program vs Bankruptcy: Are They Legit?
As consumer debt continues to soar many Canadians are easy marks for unscrupulous companies who make false claims which are quite frankly just scams. The Financial Consumer Agency of Canada (FCAC) is warning Canadians to be very cautious about companies that claim they can negotiate a deal to cut the amount of debt you must repay to your creditors. This process is often called “debt reduction,” “debt settlement,” “debt relief” or “debt negotiation.” The truth is that there is no easy way out of debt. And, if you need help dealing with debt problems, run away from these companies and work only with a licensed insolvency trustee (the new name for a trustee in bankruptcy).
Heed the warning of FCAC Commissioner Ursula Menke. “Unfortunately, people do not always see the benefits that debt reduction companies lead them to expect—and some people wind up even deeper in debt than they were before,” says FCAC Commissioner Ursula Menke. “If an offer to reduce your debts seems too good to be true, it probably is.”
Debt Relief Program vs Bankruptcy: Debt relief tactics to beware of:
Government approved: Companies will try to win your confidence by stating that they are government approved. Not true. A company’s business license or registration doesn’t mean that the government has approved or endorsed them.
We can reduce your debt by 60% or more: Not true.Your creditors are under no obligation to reduce your debts.
High pressure sales tactics: Don’t ever be victimized by high pressure sales tactics. Always take your time. Do your due diligence. Check out the company thoroughly. Check with the government office that handles consumer affairs in your province or territory, as well as the Better Business Bureau.
Upfront fees: These companies usually charge you hefty upfront fees and then don’t reduce your debt. Good luck getting a refund.
Debt Relief Program vs Bankruptcy: How Can You Get Debt Relief Safely And Reliably?
Contact a licensed insolvency trustee. We’re federally regulated, our fees are federally regulated, we’re subject to a strict code of ethics and we complete ongoing mandatory professional development each year.
Don’t take chances with your financial future. Contact Ira Smith Trustee & Receiver Inc. We’ll evaluate your situation and help you to arrive at the best possible solution for your problems. Let us help restore you to financial health and give you back peace of mind Starting Over, Starting Now. Give us a call today. You’ll be happy you did.
9 out of 10 Canadians do not have a debt to CRA because they pay their taxes on time. Beginning in February every year, people who not only have too much debt on their credit cards right after the Holidays, but they also owe income taxes, consult us.
Do you have a debt to tax authorities? Do you owe taxes or other government amounts like overdue student loans, or EI and CPP overpayments? If so, the Canada Revenue Agency says it wants to help you get back on track. They tell you that paying what you owe to them is easier than ever with a variety of online payment alternatives. And if you can’t offer the full amount right off, they tell you that they can work with you to set up a payment plan that would allow you to make payments over a term.
Michael’s nice story
The tax collectors then tell you a nice story. Take Michael for instance. He has an indebtedness with and he can’t pay the full amount right now. On their website, he was able to set up a monthly pay plan to pay his debt to them. Michael was also happy to pay interest on his debt to CRA until it’s paid off.
This is such a nice sounding story. However, based on the people who consult with us over their debt to CRA, it ignores the fact that people with too much debt do not have the money to pay off their debt to CRA and their other debts. The people who consult with us want to pay off their debt to CRA, but can’t. Life has gotten in their way!
The real story
If you owe money to the CRA and you’ve been contacted by the CRA about it, collection acts could be underway. Shunning your indebtedness will not make it easier for you. By working together with the CRA as early as possible, you can hopefully avoid legal and monetary penalties.
However, there are issues in dealing with CRA directly and pitfalls to avoid. Here is our top list of things to be aware of:
The CRA collector does not have the authority to agree to accept a lesser amount than what you owe. The collector can only agree to you’re paying off 100% of the tax, penalty and interest you owe.
The CRA collector will be looking for you to pay off the full amount in a relatively short period of time; say, 6 months.
The CRA collector has a lot of information t his or her fingertips. After all, you have provided CRA with very personal information for many years!
The CRA collector will try to get updated financial information from you such as the identification of your bank accounts, current employment, do you own or rent, if you own, what mortgages are against your property. The reason for this is so that if you fail to reach a payment plan, or default on your payment plan, then they will try to garnish and seize your cash, wages and other assets. It is a lot easier for them to do so when you have already told them where to look!
What should you do if you have too much debt?
So if you can’t get some peace of mind by joining the 9 out of 10 Canadians who sleep easy knowing that their taxes are in order and their tax indebtedness has been paid – contact us. The Ira Smith Team has helped many individuals and corporations avoid bankruptcy and settle their debt to CRA for less than the full amount owing. Here is a little known secret – the only way CRA will accept less than 100% is if you are working with a professional licensed insolvency trustee in a debt restructuring proposal.
Starting Over, Starting Now, we can help you get squared away with CRA and return you to living a productive stress-free life. Call us today for our free consultation.
The holiday shopping season is upon us and the first sign that you are in financial trouble is if you truly need to learn about consumer proposal vs bankruptcy BEFORE you begin your holiday shopping! If you have already recognized that you need to know your options in dealing with your debt before you start putting holiday gift purchases on your credit card, I suspect that the New Year will become the time when you begin taking positive action to reduce your debt and gain back control over your life.
A consumer proposal is an alternative to bankruptcy. Although similar in many respects, there are some major differences. Consumer proposals are available to people only whose total debts do not exceed $250,000, not including debts secured by their principal residence. Division 1 proposals are available to both businesses and people whose debts exceed $250,000 (excluding the mortgage on their principal residence). The focus of this vlog is on the differences between a consumer proposal vs bankruptcy.
Consumer proposal vs. bankruptcy: What are consumer proposals?
Consumer proposals are formal ways governed by the Bankruptcy and Insolvency Act (BIA) available only to people. Working with a licensed insolvency trustee (Trustee) acting as the consumer proposal administrator, you make a proposal to:
Pay your creditors a percentage of what you owe them over a specific period not exceeding 60 months
Extend the time you have to pay off the debt
Or a mix of both
Payments are made through the trustee, and the trustee uses that money to pay each of your creditors. The consumer proposal must be completed within 5 years from the date of filing.
Below I will highlight more differences between a consumer proposal vs. bankruptcy.
Consumer proposal vs bankruptcy: What are the advantages of a consumer proposal?
The advantages of a consumer proposal vs. bankruptcy are:
You keep all of your assets
Actions against you by unsecured creditors, such as wage garnishments will stop.
Unlike informal debt settlement, the consumer proposal is a forum where all of your creditors must deal with your restructuring
You don’t have to declare the “B” word
What are the differences in credit history score?
The individual that declares bankruptcy will certainly get R9 status. This is the lowest credit score as well as it will continue to be on their report for 7 to 14 years. A person that submits a consumer proposal will have an R7 ranking which is less extreme. It will certainly continue to be on their record for approximately 8 years in total, from the moment of declaring.
For the most part, you will certainly pay less than you owe with a consumer proposal. Often as much as 70% less. Your several financial obligations will also be consolidated right into a simple regular monthly settlement. This number will be based upon what you can pay for.
Your ability to improve your credit score later is much different in a consumer proposal vs bankruptcy
What are the costs and fees of a consumer proposal versus filing for bankruptcy?
When doing a consumer proposal, the Trustee’s charges are included in the payment you bargain with your creditors. For instance, if your consumer proposal has you paying $400 monthly for 60 months, the Trustee’s fee and disbursements are taken from those funds.
Nevertheless, if you were to file for bankruptcy, the cost is established by any kind of excess earnings you could have (based on the criterion that includes earnings as well as family size), any assets that you may intend to try to keep, and also the monthly contribution for surplus income if any.
If there is no excess earnings or assets, the insolvency cost will be around $2,000. This is another difference between a consumer proposal vs bankruptcy.
Are assets treated differently between a consumer proposal vs bankruptcy?
If you do a consumer proposal, you can retain your assets whereas in bankruptcy your properties might be impacted. This consists of the equity in your home if higher than $10,000, a car or truck worth more than $6,000 (with no liens against it), financial investments, tax refunds, and also RRSP payments made in the last 1 year. In bankruptcy, you transfer your possessions (except those that are exempt by regulation) to the Trustee, and they are then sold or transferred to repay your creditors.
This difference between a consumer proposal vs bankruptcy is huge.
What if I default on my consumer proposal vs bankruptcy payments?
If you do not maintain your payments on a consumer proposal, it defaults and is void. You also are unable to submit an additional one. Collection action by your credits will begin again. If you do not complete all your duties in bankruptcy, you will certainly not be discharged and eventually, your creditors will resume collection activities as well.
This is another consumer proposal vs bankruptcy difference.
When is a meeting of creditors held in a consumer proposal?
A meeting of creditors in a consumer proposal is held if one is requested by one or more creditors who are owed at least 25% of the total value of the proven claims.
A request for a meeting has to be made by the creditors within 45 days of the filing of the consumer proposal. The OSB can also request the Trustee to call a meeting of creditors any time within that exact same duration.
The meeting of creditors should be held within 21 days after being called. At the meeting of creditors, they vote to either approve or decline the proposal.
If no meeting of creditors is asked for within 45 days of the filing of the proposal, the proposal will be deemed to have been accepted by the creditors no matter any objections received later.
A consumer proposal is finished once the individual has actually made the required payments for the needed period of time. In a bankruptcy, the discharge depends on a variety of different aspects, consisting of whether it was the first time the debtor filed for bankruptcy and if they need to make surplus income payments.
If the debtor has actually never ever declared bankruptcy before and they do not have to make surplus income payments, most bankrupts are discharged 9 months after declaring bankruptcy. However, if the bankrupt has surplus income, they will need to make payments for 21 months prior to when they can be released.
This is another difference between a consumer proposal vs bankruptcy.
What do consumer proposals and bankruptcy have in common?
Both a consumer proposal and filing for bankruptcy are lawfully binding procedures that are provided by a Trustee. If you are thinking about bankruptcy, it is essential that you consult with a Trustee so that you can totally understand the procedure, what’s involved, and also any charges. You can speak with friends or family that may have filed for one or the other before, yet it is necessary that you get professional recommendations concerning your unique situation.
Filing for bankruptcy or doing a consumer proposal are both matters of public record. That means there will certainly be an irreversible public document regarding your insolvency that can be accessed by anyone. If the debts are joint or co-signed, the other individual is accountable for the financial debt in both a consumer proposal and personal bankruptcy as well, unless it is a joint filing.
Even these similarities still point out differences between a consumer proposal vs bankruptcy.
Consumer proposal vs bankruptcy: How to Figure Out Which Option is Best for You?
As you can see, when you look at a consumer proposal vs bankruptcy, there are definitely differences between the two, but they also have a lot in common too. What’s most important, though, is that you find the best way to get your finances back on track in a way that will help you achieve your long-term goals.
Consumer proposals and bankruptcy aren’t the only ways of obtaining debt relief and consolidating debt. There are also other ways of resolving debt problems that don’t involve an official program or paying anyone. If you honestly want to carefully and objectively look at all your options, contact a local Trustee, and speak to him or her. They’ll listen to your situation and issues and advise you on what will work best for you even if you do not need to file for either a consumer proposal or bankruptcy.
Their help is usually free and non-judgmental.
At our Firm, declaring bankruptcy is only encouraged until all other settlement solutions have been exhausted. A consumer proposal in Ontario is shaping up to be one of the better bankruptcy alternatives, primarily because of the reasons I describe in this Brandon’s Blog.
Consumer proposal vs bankruptcy: Who qualifies for a consumer proposal?
A consumer proposal is available to people whose total debts do not exceed $250,000, not including debts secured by their principal residence.
Before you decide what to declare, contact a professional to discuss all of your options. A trustee is a highly-skilled, professionally licensed by the federal government that can evaluate your situation and presents all the options available to you. Whatever process ends up being the best and the most helpful for your particular circumstance, we can administer the insolvency process.
Consumer proposal vs bankruptcy: How to file for bankruptcy?
In order to file, you must engage a Trustee. This is an individual or company licensed by Industry Canada to administer the insolvency process. The 10 steps below are a guide to the bankruptcy process.
Contact a licensed insolvency trustee and attend a meeting with him or her to talk about your personal situation and your options including if it is possible for you to avoid bankruptcy.
Work with the trustee to complete the required forms. The trustee will then file the bankruptcy with the Office of the Superintendent of Bankruptcy (OSB).
The trustee notifies your creditors of the bankruptcy.
You attend a meeting of creditors if one is called.
You attend two counselling sessions.
Subject to your provincial exemptions, the trustee sells your assets; you may also have to make surplus income payments to the trustee.
In certain circumstances, you may have to attend an examination by an officer at the OSB.
The Trustee prepares a report to the OSB describing your actions during the bankruptcy.
You attend the discharge hearing if required.
You get your discharge from your bankruptcy and then the trustee completes the administration, including paying a dividend to your creditors, if available.
Consumer proposal vs bankruptcy: Move on with your life
I hope you have enjoyed this consumer proposal vs bankruptcy Brandon’s Blog. Both a successfully completed consumer proposal or obtaining your discharge from bankruptcy lets you get back on the road to financial health, relieve the stress you face and bring you:
The ability to live better than just hanging on one payday to the next;
Improved credit ratings; and
Improved health and well-being.
Ira Smith Trustee & Receiver Inc. offers a full range of insolvency services to people facing a financial crisis. Whether you need help with a proposal to your creditors to avoid the worst case, financial counselling or advice about insolvency options, our goal is to make sure that you understand the process, your choices, and what steps will get your life back on track.
Call us for your free first consultation. We will inform you about all the choices readily available so you can make a proper decision about the very best plan to deal with your financial obligations. ContactIra Smith Trustee & Receiver Inc. today. All you have to lose is your debt!
Are bankruptcy fees tax deductible: If you would like a free copy of our eBook: “Cost of Claiming Bankruptcy in Canada” – please CLICK HERE
Are bankruptcy fees tax deductible: Introduction
We are often asked the question “are bankruptcy fees tax deductible?”. This vlog attempts to answer that question for the various types of Canadian insolvency proceedings.
I caution that we are not income tax advisors; I am a licensed insolvency trustee. This vlog does not attempt to and does not replace expert income tax advice. If you have a specific situation, you should get advice from your professional income tax advisor.
Are bankruptcy fees tax deductible: What does Canada Revenue Agency say?
Costs incurred in a bankruptcy filing can be categorized as either: (i) incurred for the purpose of gaining or producing income from a business or property or; (ii) incurred for capital or non-income earning reasons. Another way of saying it is a taxpayer cannot deduct personal expenses but can deduct those categorized as business expenses. So are bankruptcy fees tax deductible? It depends on who you are.
Are bankruptcy fees tax deductible: Personal bankruptcy and (consumer) proposal restructuring
If you are the individual person who has too much debt and either restructures under one of the proposal provisions to avoid bankruptcy, or goes bankrupt, then your real obligation is not to pay professional fees. Rather, you are making payments to the licensed insolvency trustee in a restructuring to settle all of your debts or you have given up your non-exempt assets and may also be paying part of your monthly income as surplus income to your licensed insolvency trustee.
Under either scenario, the licensed insolvency trustee obtains their fee under the Bankruptcy and Insolvency Act (BIA). You as the individual debtor are not paying bankruptcy expenses to earn income. Therefore you are not entitled to any tax deduction for the amounts and property given to the licensed insolvency trustee.
Corporations attempt to restructure under either the proposal provisions of the BIA or the restructuring provisions of the Companies’ Creditors Arrangement Act (CCAA) for the purpose of avoiding bankruptcy and the end of its business. The purpose of the restructuring attempt is to stay an active corporation, preserving jobs, continuing to earn income and pay income tax. In this case, professional fees paid to legal and financial advisors would be tax deductible for the company restructuring.
As this vlog is only to answer the questions are professional fees tax deductible, I am not addressing the issue of the income tax treatment of the corporate debt forgiven in a successful restructuring. That is where I turn to professional tax advisors for the answer.
Are bankruptcy fees tax deductible: Corporate bankruptcy
In a corporate bankruptcy, the bankruptcy corporation’s assets would be taken over by the licensed insolvency trustee handling the bankruptcy, subject to the interests of the secured creditor(s) and trust claimants, if any. Therefore, there are no fees paid by the bankrupt corporation for the purpose of earning income. Hence, there is no tax deduction for professional fees to be taken on the bankrupt corporation’s final income tax return.
Are bankruptcy fees tax deductible: Receivership and secured creditors
Receivership is a remedy for secured creditors to enforce security. The secured creditor whose loan is in default, when in a place to enforce its security, appoints a receiver to take possession of the assets, formulate a plan to maximize the sale value, sell the assets and remit the proceeds to the appointing secured creditor, up to the amount outstanding under the security. The company in receivership does not incur professional fees, but the secured creditor does; to both legal counsel and to the receiver. Those professional fees incurred in the normal business of the lender are therefore tax deductible.
I will leave the topic of the income tax consequences for a secured creditor who suffers a shortfall when realizing upon assets covered by its security to the professional tax advisors.
are bankruptcy fees tax deductible
Are bankruptcy fees tax deductible: Purchaser of assets
Many times in corporate restructuring, the restructuring plan calls for the sale of assets. In both bankruptcy and receivership, the assets will be sold. The purchaser of assets will in such cases be a corporation. That purchaser corporation will need insolvency and income tax professional advisors in structuring and paying for the asset purchase. Those professional fees are tax deductible to the purchaser.
Are bankruptcy fees tax deductible: Unsecured creditors
In any of the insolvency processes discussed in this vlog, there will certainly be many unsecured creditors. The major unsecured creditors, especially in corporate insolvency proceedings will want to consult with professional advisors as to their rights and remedies when faced with an insolvent debtor.
Sometimes unsecured creditors make an application to Court to have a Bankruptcy Order made against a debtor. Both legal and trustee advice is necessary.
In either case, the professional fees are paid in the normal course of business and will be tax-deductible.
Are bankruptcy fees tax deductible: Do you need insolvency advice?
If you need insolvency advice, either because you or your company have too much debt, or one of your major customers are experiencing financial problems, the professional fees may very well be tax deductible. The Ira Smith Team acts on behalf of both debtors and creditors. We have successfully restructured many people and corporations, thereby allowing them to avoid bankruptcy. We have also acted on behalf of both secured and unsecured creditors both in an advisory role and an enforcement role.
If you enjoyed this cost of filing for bankruptcy video and would like a copy of our free e-Book “Cost of Claiming Bankruptcy in Canada” please subscribe to Brandon’s blog by clicking on this link – CLICK HERE
Introduction
The cost of filing for bankruptcy is something you will need to consider when you are considering filing. How much you will have to pay to go bankrupt depends on a number of factors, including:
your monthly income;
what assets you own;
the size of your family; and
whether you have been bankrupt before.
We strongly recommend that you contact a Licensed Insolvency Trustee to arrange for a free first consultation; they will check your situation and calculate the cost for you in your situation.
Your base cost
In most cases, you will have to make payments to the Trustee to contribute to your estate each month to cover various filing fees and other administrative costs. The minimum period for bankruptcy is nine months, so you will be making these payments for at least a nine-month period. This is the base cost of filing.
Surplus income
You are required to pay part of your surplus income into your estate each month. Surplus income is defined by the government, and if you and your family earn over a certain amount each month, you pay part of your earnings over that limit. The limit is essentially the poverty line.
The surplus income calculation is reasonably complicated, so we suggest you bring your recent pay stubs to your meeting with your trustee so that they can estimate the number of surplus income payments you will make while bankrupt. If you have surplus income, your bankruptcy will be extended for an extra year.
Another cost of filing for bankruptcy is that you will lose all of your non-exempt assets.
Tax refunds
You will lose any tax refunds and HST credits you would otherwise receive during the bankruptcy period. This is a further cost of filing for bankruptcy.
Windfalls
Finally, you will lose any windfalls you receive or become entitled to during the bankruptcy period. For example, if you inherit money while bankrupt, or win the lottery, that money must be surrendered to the trustee.
The minimum bankruptcy period in Canada is nine months, but if you have surplus income, or if you were before bankrupt, your bankruptcy will last longer before you are able to apply for your discharge from bankruptcy.
What should you do with too much debt?
The amount you will pay while bankrupt will depend on your monthly take-home pay, your family size, and your assets. Given this information, you may first wish to attempt to avoid bankruptcy by looking at one of the bankruptcy alternatives.
To show how much it will cost to go bankrupt in Ontario, and to look at ways of avoiding bankruptcy, contact Ira Smith Trustee & Receiver Inc. today. Our team of professional trustees can help you manage your financial crisis and get you back on your feet Starting Over, Starting Now.
I want to talk to you today about the required division one proposal Ontario documents and division 1 proposal restructuring proceedings under the Bankruptcy and Insolvency Act (Canada) (BIA). You may have heard about this section of the BIA also called Chapter 11 bankruptcy proceedings. The reason is that the corporate restructuring provisions under the BIA are in Canada under Division I of Part III of the BIA, while the corporate restructuring provisions in the United States is under Chapter 11 of the US Bankruptcy Code. We are going to focus today on the restructuring provisions under Division 1 Proposal proceedings of the BIA.
First steps
The first thing the insolvent debtor must do is hire the services of a licensed insolvency trustee (formerly known as a trustee in bankruptcy). The division 1 proposal proceedings apply to corporate restructuring or the restructuring of debt of an individual with a complex debt situation and a debt level of $250,000 or more. We are going to talk today about corporate restructuring and the Division One Proposal Ontario documents required for this process.
The first step in any corporate restructuring is for the board of directors to understand and resolve that the corporation is insolvent, that it needs to restructure under the Division 1 Proposal section of the BIA and that it needs to retain a licensed insolvency trustee to do that. The corporation working with the trustee then has a choice. It can first file what is called a Notice of Intention To Make A Proposal, which is a notice to its creditors that it will be shortly making a restructuring proposal. Or it can just file the real division one proposal itself with the licensed insolvency trustee.
Documents and process
The licensed insolvency trustee has to be satisfied that: (i) all the relevant information has been obtained; (ii) the company has a good chance of actually implementing this proposal; and (iii) the company’s cash flow is enough that it can run the business successfully and pay its ongoing debts in full through the ongoing restructuring proceedings, then the licensed insolvency trustee continues the restructuring process.
The licensed insolvency trustee will mail to all the known creditors a copy of:
the proposal
a statement of the company’s assets and liabilities
The meeting of creditors is then held and if the proposal is accepted by the required majority then the proposal trustee takes the proposal documentation to Court for approval. Once the proposal is accepted by the creditors and approved by the court there is now a contract between the company and its creditors about how the company is going to restructure and what amount of money is ultimately going to be paid to the creditors through the licensed insolvency trustee.
Implementation
The company then carries its proposal as it continues its operations. It carries out its restructuring business plan and hopefully is successful in turning the corner and generating profits. The company would then be saving a certain amount of its profits in cash and pays the amounts required under the corporate restructuring plan over to the licensed insolvency trustee to create the restructuring fund. The licensed insolvency trustee then makes the distribution to the creditors as called for in the proposal itself. Once all the payments have been made, the company has successfully restructured and carried on its business free from the proposal proceedings.
What if your company has too much debt – division one proposal?
Consumer proposals Ontario: Make a federal case out of it!
Consumer proposals Ontario are governed by federal legislation; the Bankruptcy and Insolvency Act (Canada) (BIA). The proposal provisions used by companies and creatively used for people with extremely large debts is commonly referred to be “restructuring” or “reorganization”. In the United States, it is what is commonly called “Chapter 13 proceedings”.
Consumer proposals Ontario: Debt solutions for the smaller debtor
However, there was no similar provision available to small individual debtors in the BIA. Parliament wished to find a way to offer these smaller consumer debtors to have a restructuring alternative. So, after consultation with the stakeholders in the Canadian insolvency world, in the 1990s, the consumer proposal process legislation was enacted. It benefits people who owe $250,000 or less (not including mortgages against your principal residence).
Consumer proposals Ontario: Avoiding personal bankruptcy in Canada
Now, the consumer proposal process provisions for consumer debtors are used more than the consumer bankruptcy provisions of the BIA. So Canadians are now avoiding personal bankruptcy more while still obtaining the help and counselling of a Licensed Insolvency Trustee.
The main use of the (consumer) proposal provisions of the BIA is to allow you as a debtor to keep your assets if you can afford to in your budget, it is a great way for how to avoid bankruptcy in Canada, and give a better alternative to your creditors than a bankruptcy would. In this way, you are allowed to be relieved of your debts, for an amount less than the total face value of all of your debts.
It is best used when you have extra income and can afford to pay back some debts if the рауmеnt plan is structured properly, but not enough income to pay back all of your debts, especially with penalties and interest! The consumer proposal legislation allows you to pay back less than you owe, but what you can afford. Interest and penalties stop and in most cases, you are able to settle your debt for less than 50 cents on the dollar.
You can structure your repayment plan in monthly payments for up to 60 months. Again, no interest or penalties. So, it is very much like an interest-free loan for less than half of your debt to settle all of your debts.
Consumer proposals Ontario: What should I do if I have too much debt?
So if you’rе ѕtіll dеtеrmіnеd to рау your debts in full but you can’t see a way to ассоmрlіѕh that goal, this may be just the ѕесrеt you need to know! If you’re a Canadian with financial concerns seek the counsel of a professional trustee.
We can help you deal with how to solve your financial problems while you still have options available to you so that Starting Over, Starting Now you can be on your way to enjoying financial health. Make an appointment with us for a free, no obligation with the Ira Smith Team today. You’ll be happy you did.
When it comes to insolvent estates Canada, among the various questions asked of us, these three questions are always asked:
What are the duties of an executor/personal representative when the estate has more liabilities than assets?
Can the executor(s) pay bills before the creditors actually file a claim?
Do executors or beneficiaries have to pay creditors out of their own pocket if the estate is insolvent?
We prepared the above video to answer these 3 questions. Below is a more detailed discussion of the last 2 questions.
Insolvent estates Canada: The loss of life of a debtor occurs; who’s responsible for the money owed?
Although some creditors may try to collect from the spouse or other relatives, money owed doesn’t transfer because of marriage or death. If the debt is “joint”, the survivor has taken on the obligation directly and is liable on the account.
Debts are normally paid out of the assets of the property of the deceased before distributions to heirs (before paying heirs, the deceased’s debts must be paid). If the estate is insolvent (the assets of the estate are not enough to pay the amounts owed), then the order of charge is commonly prescribed by way of provincial rules.
If warranted, the executors could apply to Court for an order letting them assign the deceased’s estate into bankruptcy. In that situation, then the Bankruptcy and Insolvency Act (Canada) (“BIA”), the federal legislation, will prescribe the order of payment.
If insurance was bought to pay off a specific debt such as a bank issued mortgage or loan, then upon the death of the individual the insurance company will repay the bank and the debt will not exist in the deceased’s estate.
What are your alternatives and your responsibilities, as an executor upon the death of a debtor?
If the estate is insolvent, before or after paying the testamentary costs, you have alternatives:
Pay the money owed out of your personal resources.
Emotionally you may wish to pay the money owed because you believe in your heart that it is the proper thing to do and you don’t wish to dishonour the memory of your loved one with a string of bad debts and bankruptcy. But before you decide, you need to know that there is no liability for an executor or heir to take on the debts of the deceased.
Even though there may be a stigma connected to bankruptcy, the reality is that you are not responsible for the money owed, so why should you assume this burden and in all likelihood put your family in financial jeopardy?
Bankrupting the estate makes economic sense. An executor can sidestep the minefield of issues involved in administering the deceased’s insolvent estate by bankrupting it.
What should executors and heirs be aware of?
If you and/or another family member is the executor, be aware:
The executors have a legal responsibility for all acts completed, and for all acts not accomplished that they should have.
Notwithstanding everyone’s best efforts, they may unknowingly be inviting proceedings from lenders or heirs for difficult issues. This happens when family members, who are well-intentioned but not skilled at monetary, insolvency or legal issues, are executors because she or he is named, however actually has no know-how in this region.
By putting the property into bankruptcy, which requires the previous approval of the bankruptcy court, the executors are relieving themselves of personal legal responsibility because the estate will now be administered under the BIA and all creditors by the Licensed Insolvency Trustee.
The executor will relieve him or herself of coping with collection calls.
As long as there are sufficient funds in the estate to pay the funeral costs, that can be paid out first in the case of a bankruptcy of the deceased’s estate because of S.136. (1)(a) of the BIA states:
Priority of claims
“136 (1) Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:
(a) in the case of a deceased bankrupt, the reasonable funeral and testamentary expenses incurred by the legal representative or, in the Province of Quebec, the successors or heirs of the deceased bankrupt;”
It is the first debt with a preferred status that can be paid.
What should I do if I am an executor and I find that the liabilities are greater than the assets?
If you are an executor of a will and you find out that the estate is insolvent, after speaking with the estate lawyer, contactIra Smith Trustee & Receiver Inc. as soon as possible. We will evaluate the situation and give you sound financial advice on how best protect yourself as executor and the heirs, so that you will be able to go ahead Starting Over, Starting Now.
THIS VLOG WAS INSPIRED IN PART BY OUR eBOOK – PERSONAL BANKRUPTCY CANADA: Not because you are a dummy, because you need to get your life back on track
Consumer proposal FAQs: What is a consumer proposal?
Last week we discussed Consumer Proposal Vs Debt Settlement. Consumer proposals remain a hot topic and today we’d like to share with you some of our consumer proposal faqs.
A Consumer Proposal (Plan or CP) is a formal way governed by the Bankruptcy and Insolvency Act (BIA) available only to people. Working with a licensed insolvency trustee acting as your Plan administrator you make a proposal to:
Pay your creditors a percentage of what you owe them over a specific period
Extend the time you have to pay off the debt
Avoid bankruptcy
Payments are made through the trustee, and the trustee uses that money to pay each of your creditors. The debt must be paid off within five years.
Consumer proposal FAQs: How do I qualify for a consumer proposal?
As discussed in our last blog, you must be an individual and your total debts must not exceed $250,000 (not including debts from a mortgage or line of credit secured by your principal residence).
You must also meet the insolvency test. This means that:
your debts are greater than your assets;
if you liquidated all of your assets you would not have enough money to pay off your debts in full; and
you are having trouble making the full payment on all of your debts every month.
Making only minimum monthly payments don’t count as paying off your debts.
Consumer proposal FAQs: What does a consumer proposal cost?
There are no upfront fees associated with CPs. Your Plan payments cover the cost of filing a Plan. There are no separate charges either for filing a Plan or fees paid to the trustee to act as your CP administrator. To calculate the professional fee the trustee uses a formula in the BIA and it comes out of the amount you are paying in your Plan.
Consumer proposal FAQs: How does a consumer proposal work?
A CP allows you to make arrangements to pay all or part of your unsecured debt in monthly payments over a predetermined time period.
A licensed insolvency trustee will meet with you and work out a payment plan that they believe will work for you and be acceptable by your creditors.
The trustee acting as your Plan administrator will file the CP with the Office of the Superintendent of Bankruptcy.
The trustee will send the Plan to your creditors who then have 45 days to accept or reject your CP. The creditors can also accept or reject your CP before a meeting of creditors if such a meeting was held. Normally in a Plan, there is no need to hold a meeting of creditors.
Consumer proposal FAQs: How long will my consumer proposal last?
A CP can last a maximum of five years but you can shorten the proposal term either by increasing the amount of your monthly payment or by offering a lump sum payment (if you are able to borrow a sufficient lump sum from either a bank or family).
Consumer proposal FAQs: Can a consumer proposal get rid of collections agencies and prevent my wages from being garnished?
Yes, a CP immediately stops almost all creditor actions (garnishments for family law support payments cannot be stopped by a consumer proposal) including tax debts.
Consumer proposal FAQs: If I agree to a consumer proposal will I lose my house and my car?
Typically secured creditors are not affected by a Plan and in most cases, you will continue to make your payments as usual. This assumes that your budget, which you prepare as part of filing your consumer proposal, shows that you can afford to do so.
If you have a mortgage against your house or a car loan registered against your car, you can opt for surrendering your house and/or car (secured assets) and stop making those payments before filing the CP. In this case, the lender will sell the secured asset and any resulting shortfall becomes an unsecured debt in your Plan.
NOTE: If you were to give up your secured assets after the filing of your Plan, you won’t be released from any shortfall debt because it occurred after the filing of your Proposal. So make sure that if you are giving up secured assets, you wait for the secured creditors to recognize that you have given them up and they have begun their enforcement proceedings, including selling the home or car, BEFORE you file your CP.
Consumer proposal FAQs: Will I have to give up my credit cards?
Typically, you will have to give all of your credit cards to the trustee and you won’t be able to apply for a new credit card until the term of your CP is over. You will, however, be able to use a prepaid or secured credit card during this period.
Consumer proposal FAQs: If I miss a payment will I be bankrupt?
We strongly recommend you to make your payments faithfully. You can defer up to two payments but if you fall three payments behind, your Plan will end. This means that you will no longer have protection from creditors and they can again start their collection efforts against you.
Consumer proposal FAQs: What is my next step if I have too much debt?
More Canadian workers living paycheque to paycheque introduction
A new survey finds that there are more Canadian workers living paycheque to paycheque representing about half of employed Canadians. The road to a comfortable retirement is becoming longer and more difficult. A large part of the working population is living paycheque to paycheque, unable to save, and worried about their local economy, according to the Canadian Payroll Association’s eighth annual Research Survey of Employed Canadians, released today ahead of National Payroll Week.
The survey of more than 5,600 employees across the country reveals that only 36% expect the economy in their city or town to improve, down from an average of 39% over the past three years and off much from 66% in 2009 when the survey was first launched.
More Canadian workers living paycheque to paycheque still
Many working Canadians are barely making ends meet. Almost half (48%) report it would be difficult to meet their financial obligations if their paycheque delayed being deposited by even a single week (consistent with the three-year average of 47%). Illustrating just how strapped some employees are, 24% say they likely could not come up with $2,000 if an emergency arose in the next month.
“A significant percentage of working Canadians carry debt, have a gloomy view of their local economy and are fearful of rising interest rates, inflation, and costs of living,” says Patrick Culhane, the Canadian Payroll Association’s President and CEO. “In this time of uncertainty, people need to take control of their finances by saving more. ‘Paying Yourself First’ (by automatically directing at least 10% of net pay into a separate savings account or retirement plan) enables employees to exercise some control over their financial future.”
More Canadian workers living paycheque to paycheque: Incomes flat, saving capacity drained by spending and debt
“Survey data suggests that household income growth has stalled, as respondents reporting household income above $100K has hardly increased in five years,” says Alex Milne, principal research provider at Xero North Sydney. “In fact, real incomes have actually declined when inflation is taken into account.” While pay has remained largely unchanged, employees’ spending and debt levels have affected their ability to save. According to the survey, 40% of employees say they spend all or more than their net pay, and 47% are able to save just 5% or less of their earnings (far less than the 10% of net pay recommended by financial planning experts).
Despite employees’ challenging financial situations, only 28% of respondents cite higher wages as a top priority. This is down from the average of 34% over the past three years. Instead, an overwhelming 48% are most interested in better work-life balance and a healthy work environment.
“Clearly, many Canadians are concerned about their financial situation,” says Lucy Zambon, the Canadian Payroll Association’s Board Chair. “But better work-life balance does not have to mean reduced financial security if you spend within your means and ‘Pay Yourself First’ as a step towards financial well-being.”
More Canadian workers living paycheque to paycheque: More Canadians feeling overwhelmed by debt
Over one-third (39%) of working Canadians feel overwhelmed by their level of debt, up from the three-year average of 36%. Debt levels have risen over the past year for 31% of respondents. And 11% do not think they will ever be debt-free.
Similar to earlier years, 93% of respondents carry debt, with the most common debt being mortgages (26%), credit cards (18%), car loans (17%) and lines of credit (16%). Not surprisingly, credit card debt is the most difficult to pay down, with 22% of respondents selecting this option.
Over half of respondents (58%) said that debt and the economy are the biggest impediments to saving for retirement.
More Canadian workers living paycheque to paycheque: Retirement savings fall short, retirement pushed back
Half of Canadians think they will need a retirement nest-egg of at least $1 million, and 75% project that they can’t able to retire until at least age 60.
Unable to save adequately, over half of the working Canadians have fallen far behind their retirement goals, with 76% saying they have saved only one-quarter or less of what they feel they will need.
Even among those closer to retirement (50 and older), a disturbing 47% are still less than one-quarter of the way to their retirement savings goal.
Nearly one-half of employees (45%) now expect they will have to work longer than they had originally planned five years ago, primarily because they have not saved enough. Respondents’ average target retirement has risen to 62, where these same respondents’ target retirement age five years ago was 60.
The past eight years of data drove the Canadian Payroll Association to advocate for a modest enhancement to the Canada Pension Plan (CPP). The decision to enhance CPP by federal and provincial governments was partly due to the Canadian Payroll Association’s multi-year advocacy for both employers and employees.
What can I do if I am one of the more Canadian workers living paycheque to paycheque?
We are debt professionals who will evaluate your situation and recommend which debt relief options are right for you. Consumer proposal is one option; there are others as well.
