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CONSUMER PROPOSAL STORY 4 – TRUE STORIES

Introduction

This consumer proposal story 4 Brandon’s Blog is about how four of our clients were able to enter into a government approved debt settlement program, shed their debt and restart their lives.

As I have written in previous blogs, a consumer proposal is the only government approved debt settlement plan. It is designed for people who have $250,000 or less in total debt, other than for any debts secured against their home such as a mortgage or secured home equity line of credit.

If the consumer proposal receives the (deemed) acceptance by the required majority of creditors and it also receives (deemed) court approval, then the consumer proposal is approved. The insolvent person must now make the payments to the licensed insolvency trustee who is the consumer proposal administrator.

The following four real client consumer proposal story situations of mine I believe are representative of the kind of person we help end the pain and anxiety their debts are causing them. I have changed the names of the people for this Brandon’s Blog.

Buzz

This client is a 56-year-old married male. I will call him Buzz. He has annual income, net of income tax of $100,000. He has assets with a net realizable value of $1,000. His consumer debt totalled $71,000.

In reviewing his budget and affairs, we calculated that in personal bankruptcy, he would be required to contribute surplus income for 36 months as he was previously bankrupt. His surplus income obligation in bankruptcy was just over $34,000 in equal monthly instalments of $944.44.

We advised him that since his budget had room for him to make monthly payments, he should consider a consumer proposal. We drafted and filed his consumer proposal requiring him to pay $40,000 in total over 5 years. This resulted in equal monthly payments each of $667.

Buzz’s creditors accepted his consumer proposal and he is making the payments. This way he avoided bankruptcy and ended up with an approved debt settlement plan with monthly payments he can afford.

Woody

This client is a 65-year-old single male. I will call him Woody. He has annual income, net of income tax of $27,600. He has assets with a net realizable value of $500. His consumer debt totalled $108,000.

In reviewing his budget and affairs, we calculated that in personal bankruptcy, he would be required to contribute surplus income for 9 months as he was never previously bankrupt. His surplus income obligation in bankruptcy was just over $1,880 in equal monthly instalments of $208.89.

We advised him that since his budget had room for him to make monthly payments, he should consider a consumer proposal. We drafted and filed his consumer proposal requiring him to pay $24,000 in total over 5 years. This resulted in equal monthly payments each of $400.

Woody’s creditors accepted his consumer proposal and he is making his payments. This way he avoided bankruptcy and ended up with an approved debt settlement plan with monthly payments he can afford.

Mr. & Mrs. Potato Head

Our 3rd client is a 47-year-old married man and his 43-year-old wife. I will call them Mr. & Mrs. Potato Head. Their yearly income, net of tax obligations was $51,996. Their assets had a realizable value of $953. They are collectively responsible for the exact same consumer financial debts amounting to $31,820.

In assessing their budget, we computed that in a bankruptcy, they would need to pay surplus income for 9 months as neither were bankrupt before. Their surplus income responsibility in a joint bankruptcy was $5,271 in regular monthly instalments of $585.67.

We encouraged them that given their budget plan had room to make month-to-month payments, they must take into consideration the possibility of making a consumer proposal. We prepared and filed their consumer proposal needing them to pay $7,020 over 3 years. This led to regular monthly payments each of $195.

Mr. & Mrs. Potato Head’s creditors approved the consumer proposal and they are making their payments. In this manner, they will not go bankrupt and wound up with an accepted debt negotiation strategy with month-to-month payments they can manage.

Jessie

This client is a 67-year-old married female. I will call her Jessie. She has annual income, net of income tax of $58,416. She has assets with a net realizable value of $250. Her consumer debt totalled $67,000.

In examining her budget plan, we determined that in bankruptcy, she would be called for surplus income payments for 36 months as she was once a bankrupt. Her surplus income commitment in a bankruptcy would be $17,465 in regular monthly instalments of $485.13.

Considering that her spending plan had space to make month-to-month repayments, we encouraged her to seriously think about making a consumer proposal. We composed and submitted her consumer proposal needing her to pay $21,500 over a 40 month period. This would be regular monthly payments each of $537.50.

Jessie’s creditors approved her consumer proposal and she is making her repayments. By doing this she stayed clear of bankruptcy and wound up with an approved debt negotiation strategy with regular monthly repayments she can manage.

Consumer proposal story summary

I hope these real-life consumer proposal story 4 examples gives you a better idea of the kind of people this debt settlement program strategy is meant to help. It is a way for people to shed their debt and get back on a proper footing.

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

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only professionals accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

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IF I FILE FOR BANKRUPTCY ONTARIO WILL I LOSE MY ADORABLE HOME?

file for bankruptcy ontario
file for bankruptcy ontario

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

File for bankruptcy Ontario: Introduction

Many individuals experience financial difficulty eventually in their lives. There are times you require to rely upon credit lines and credit cards to make ends meet. Frequently these bank cards and credit lines can come to be a prop. It helps you to avoid preparing a family budget plan and taking a difficult look at your expenses and lifestyle. Eventually, you realize that you are beneath a heap of debt you can not climb up out of. In this Brandon’s Blog, we respond to a concern we are often asked – file for bankruptcy Ontario will I lose my house?

An additional usual concern is can I keep my car if I file for bankruptcy Ontario. Today I will concentrate on the far more valuable possession, the house. However, I will give a hint below the answer to the vehicle question.

File for bankruptcy Ontario: Bankruptcy and your home

I will first give the answer to this specific question about bankruptcy and your home. After that, I will discuss all the things that you should be thinking of before considering bankruptcy. Whether you know it or not, you do have various options that are alternatives to bankruptcy in Ontario. The short answer is that if you go bankrupt, there are various ways and conditions in bankruptcy that you will NOT lose your home. Let me explain why.

Everyone who owns a home and experiences financial problems is concerned about losing their home. Losing your home is probably one of the more traumatic fears people facing a large debt load that is crushing them is losing the home. This is how it works if you file for bankruptcy Ontario.

Just to make sure that we are all starting off with the same basic knowledge, I will quickly go over what bankruptcy is. Bankruptcy is the legal state of assigning all of your assets, with certain exceptions discussed below, to a licensed insolvency trustee (formerly called a bankruptcy trustee). Insolvency is the financial state of not being able to pay your debts as they come due. Bankruptcy is one available legal process to deal with your insolvency.

In Ontario, the provincial legislation that outlines what is exempt from seizure is called the Execution Act, R.S.O. 1990, c. E.24. For a complete list of all bankruptcy Ontario exemptions, please read my Brandon’s Blog, BANKRUPTCY IN ONTARIO CANADA SECRETS REVEALED. For the purpose of this blog, the exemption in Ontario for your home is $10,000 of equity. The current thinking is that if your equity is $10,000 or less, if you go bankrupt, then your entire equity is exempt from seizure by a licensed insolvency trustee. However, if your equity is $10,001 or higher, then your entire equity in your home is NOT exempt and is available to your licensed insolvency trustee for your creditors.

HERE IS THE HINT I PROMISED: The exemption in Ontario for one car or truck is one that is worth not more than $6,600.

File for bankruptcy Ontario: Bankruptcy factors and your home

So the first important detail for you to remember is that in bankruptcy, the Trustee is only interested in your equity in the home. To calculate the equity in your home, you would:

  1. Find your home’s current market value. The price you paid for your home may not be the current value of your home.
  2. Subtract your mortgage balance. Once you have the current market value of your home, subtract the amount you still owe on your home mortgage and any other loans registered against the title of your home from the estimate.
  3. Apply the proper percentage representing your share of the ownership of the home against the number you came up with from point 2 above. So if you are the sole owner of the home, the right percentage to apply is 100%. If you own the home jointly with your spouse or partner, then the correct percentage to apply is 50%.

Now the question becomes, can you afford to keep your home? Can you afford to keep up all the mortgage payments, any other loan payments where security registered against your home has been granted (just like a mortgage) and the other costs of homeownership? There are various factors to consider to answer this question. Some of the factors are:

  1. You need to have a good handle on what all the real costs of owning the home are. It is more than just mortgage payments. Insurance, repairs and maintenance and property tax come to mind as obvious additional costs of homeownership.
  2. Now that you know all the annual costs of owning your home, could you rent suitable accommodations for less or more money? If less, then it may not be worth hanging onto the home, especially if you cannot afford all the required costs of owning that home. If more, then you are not saving any money by selling the home. In fact, you would be worse off, because you would also incur moving costs.
  3. If renting is roughly equal to the cost of owning, or only slightly less, will there be disruption to the family that is not worth it? For example, if the children can walk to a very good school in your neighbourhood, but to move, you would have to drive them to and from school every day because of the distance, or the local school in the new area is not as good, that could tip the scales.

If you decide as a family that you cannot keep the home, then the only options are to either sell it yourself or abandon it to the first mortgagee. A lived-in home will always sell for more than a vacant one. Perhaps your mortgagee(s) would allow you to stay in the home without making any further mortgage payments while it is listed for sale because it helps them. This is especially true if there are more loans registered after the first mortgage.

By “playing ball” with you in this way, the first mortgagee is showing the lenders behind the first that it is doing everything possible to maximize the sale price. The later lenders will be pleased because you are cooperating. So, in return for this win-win situation, your offer is to save the cash by not paying those loans in return. Keep in mind that if any mortgagee/lender registered against the home suffers a shortfall on the sale, they have the right to sue the borrower(s) and any guarantor(s) of the loan for the shortfall.

file for bankruptcy ontario
file for bankruptcy ontario

File for bankruptcy Ontario: How to keep your home in bankruptcy

If you decide that your family can afford the cost of owning this home, then in bankruptcy, the Trustee will need to recover the bankrupt person’s equity in the home. There are various ways this can be accomplished. The most common ones are:

  1. Refinancing the home when one or more of the owners are bankrupt will prove impossible. However, if only one of the owners is bankrupt, perhaps the other owner can purchase the Trustee’s interest in the equity of the bankrupt owner. If the non-bankrupt owner has good enough credit to borrow enough money to pay the bankrupt’s equity to the Trustee. If this can be accomplished, and the non-bankrupt person can afford the new loan payments, then the Trustee has realized the value of the bankrupt’s equity in the home and your family can keep the home.
  2. If this cannot be done, then maybe there is a relative or very good friend who is willing to purchase the bankrupt owner’s equity in the home. Again, once the value of the equity has been paid to the Trustee, the Trustee no longer has any interest and the family can keep the home.
  3. If neither of the first two options is realistic for your situation, there is a third way. As long as you could afford the payments, the non-bankrupt owner could offer to purchase the bankrupt owner’s equity from the Trustee by giving the Trustee a mortgage against the home for the full value of the equity. This is all a matter of negotiation.

The mortgage could either be interest-bearing or have zero interest. That is to be negotiated. The only caution is that the Trustee’s role is to administer the bankruptcy estate as efficiently as possible. This means that the Trustee is not going to want to keep the file open for 5 years. However, there is nothing unreasonable about requesting the Trustee take back a mortgage for a 2 or 3 year period.

Keep in mind that the bankrupt’s discharge is different from the Trustee’s discharge. So, by doing this, it does not mean that the bankrupt’s discharge is held up for this reason. If this can be accomplished, then again, the family can keep the home.

That is the analysis anyone who owns a home and believes they need to go bankrupt must go through. There are other options that affect the decision of whether or not to go bankrupt. I always discuss all the issues with everyone who comes to my office for their free consultation. Some other issues affecting the bankruptcy decision are:

  • Would this be the person’s second time (or more) file for bankruptcy Ontario?
  • How long does bankruptcy last in Ontario? This depends on whether this is your first bankruptcy or not. I would also need to assess if your file for bankruptcy Ontario would produce surplus income.

File for bankruptcy Ontario: Keep your home and avoid bankruptcy

There are various options that you should consider before going bankrupt. There may be alternatives to bankruptcy and you need to consider them all carefully.

If there is equity in the home, before jumping straight to the conclusion that you need to go bankrupt, here is the advice I have given many people:

  1. Go through the analysis of calculating the equity and does it make sense to stay in that home that I discussed above.
  2. Once you have those answers, you will know if you are selling the home and downsizing both your home and living costs or if you are trying to stay in the home.
  3. If you are trying to keep the home, can you refinance it to pay off your debts, either in whole or in part?
  4. We have worked with many people and mortgage brokers to get the home refinanced.
  5. If the refinancing provides enough cash to pay off all or enough of the debts to get you back on the road to financial stability, then do so and there is no need to discuss the bankruptcy option.
  6. If that is not possible, it may be that the refinancing produces enough cash for the non-insolvent owner to fund a successful government-approved Debt Consolidation Canada Program (DCP). We have administered many DCP’s.

This is how it works. We review with you all the issues, including, what sort of DCP we believe your creditors would accept. You then enter into the formal DCP and we tell your creditors. Your creditors then vote on the DCP. If accepted, then if required, we get Court approval for it also and it is now binding on all your creditors. The DCP stops all garnishee actions, collection calls, and lawsuits.

If the refinancing provides sufficient cash to pay out the DCP in full, then you will be in and out of it very quickly. If there is not enough cash from the refinancing, then we need to find room in your household budget to make up the difference with regular monthly payments. You would have up to 5 years to complete paying off the balance. The balance under the DCP does not cost you any interest. The balance is fixed and that is it.

Why would your creditors go for this type of DCP? Getting a lot of cash today is a huge incentive for your creditors to agree to receive a reasonable amount of money, but less than what you owe them in total.

With a successful DCP, you get to keep all of your assets. The DCP must offer your creditors a better alternative than what they would get in your bankruptcy. If successful, losing your home is never an issue.

File for bankruptcy Ontario: Conclusion

I hope you enjoyed this file for bankruptcy Ontario Brandon Blog. Do you have excessive debt? Are you having trouble making your month-to-month payments? Is your business not taking care of financial challenges that you simply cannot figure out how to escape from?

If so, call the Ira Smith Team today. We have years and generations of experience assisting people and companies trying to find a financial restructuring or a debt negotiation strategy. As a licensed insolvency trustee, we are the only professionals identified, accredited and monitored by the Federal government to give insolvency help and services to assist you to avoid bankruptcy.

Call the Ira Smith Team today so you can finish with the tension and anxiousness debt issues produce. With the unique roadmap, we establish special to you, we will quickly return you right into a healthy and balanced worry-free life.

You can have a no-cost assessment to help you so we can fix your debt issues. Call the Ira Smith Team today. This will certainly allow you to return to being productive and healthy, Starting Over Starting Now.


file for bankruptcy ontario

 

 

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WILL BANKRUPTCY VS CONSUMER PROPOSAL EVER GO TO THE DOGS?

Bankruptcy vs consumer proposal: Introduction

In this Brandon’s Blog, we discuss the issues about bankruptcy vs consumer proposal. We will use a real-life case study involving a woman and her pet, to show the reasons why consumer proposals are better than bankruptcies.

First, I should provide a very brief outline of how a dog or cat pet medical insurance works. A pet medical insurance policy runs just like those for humans. They typically have a yearly insurance deductible, need you to pay regular monthly costs and include you filing a claim for benefits after paying your vet for pet care.

When a family pet isn’t acting normal, the last thing you need is to be fretting over is just how you’re most likely be spending a lot of money for their emergency treatment. That’s why pet medical insurance coverage intends to exist. They cover your pet’s treatment when it comes to an unforeseen illness. This way you do not need to select between your pet’s health and wellbeing and your savings.

With pet medical insurance, you are financially in charge of paying your vet for all services and treatments. Like human medical insurance coverage, you then file a claim with the insurance company. They pay your claim for all eligible expenses, subject to any deductible in your policy.

Bankruptcy vs consumer proposal: Case study dog facts

When our potential client came to our office for a free first consultation, she provided us with a list of all of her assets, including her pet dog. Her dog was not a “Best in Show” winner of any prestigious dog shows. Therefore, the dog’s value was emotional to the owner but had no real financial value. Therefore, under Ontario law, technically speaking, the dog, along with her other personal property, was exempt from seizure by a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) in a bankruptcy!

She also listed as an asset, a health benefit claim. In our discussion, she advised that this was a pet medical insurance claim she filed for vet services for her dog and she was awaiting payment. The amount was significant to this woman and it got me thinking.

If the woman was insolvent, how did she pay the vet? Did she use a credit card that had room on it that will never be repaid? The woman told me that she is single. Did a friend or relative pay the vet on her behalf and when the insurance claim comes in, she will give them the money?

Bankruptcy vs consumer proposal: Case study issues

These seemingly innocuous facts contain various issues in bankruptcy versus a consumer proposal. Here are the various issues that I was pawing around with.

Paid by credit card and DID RECEIVE insurance claim proceeds before filing

If she paid by credit card and received the insurance claim payment before filing for bankruptcy, that is not a problem. This was actually the case. Any amount received not used to live on would presumably be a balance in her bank account. That cash balance would have to be accounted for in her bankruptcy.

In her case, based on the information she told me, there was a very small amount of cash on hand and no other non-exempt assets for a Trustee to seize. The surplus income calculation also showed that she had none. Therefore, in that case, there would not be any dividend paid from her bankruptcy estate to the unsecured creditors.

As you will recall from earlier Brandon’s Blogs, other than for exempt assets, upon bankruptcy, the assets of the insolvent person vest in the Trustee. The Trustee then sells the assets and distributes the money in the order established by the Bankruptcy and Insolvency Act (Canada) (BIA). Surplus income, is a calculation set by the Superintendent of Bankruptcy that a Trustee must do, to decide what amount of an insolvent person’s income they must contribute to their bankruptcy estate if any.

You may have a moral issue with the fact that she was repaid for the vet cost she put on her credit card and the credit card company will not receive a payment. However, in bankruptcy, there is no legal issue. The credit card company may choose to oppose her discharge from bankruptcy for this or other reasons. If they did, she could not receive an automatic discharge from bankruptcy. The matter would go to Court for a discharge hearing.

In a consumer proposal, it is a non-issue. The creditors must vote either in favour of or oppose the consumer proposal. The consumer proposal, by definition, has to be a better offer to the creditors than what they would receive in bankruptcy. In this case, in bankruptcy, they would receive nothing. In a consumer proposal, the creditors would receive a payment. If the required majority of creditors voted or were deemed to have voted in favour of the consumer proposal, the Court (was deemed to have) approved it and the insolvent person fully paid the entire amount promised, the creditors are better off with their choice.

Paid by credit card and DID NOT receive insurance claim proceeds before filing

If this was the situation, and the woman filed for bankruptcy, then it is really simple. The amount receivable from the insurance company under her claim would be an asset of the bankruptcy estate, payable to the Trustee. The Trustee would have to put the insurance company on notice of the bankruptcy, and demand that the insurance company pay the claim to the Trustee. When paid, those funds become part of the Bankruptcy Estate.

In a consumer proposal, the value of this asset must be taken into account when formulating the offer to creditors. As previously mentioned, a consumer proposal must offer a better alternative for the creditors.

A friend or relative pay the vet on her behalf and she DID NOT REPAY the person before filing

In this situation, the person who paid the vet bill is an unsecured creditor of the woman. In either a bankruptcy or a consumer proposal, the person would have the right to file a proof of claim in the insolvency proceeding. If the claim was approved by the Trustee, which it would be if submitted with proper proof of payment, the person would be entitled to any dividend to be paid. This is a very simple situation.

A friend or relative pay the vet on her behalf and she DID REPAY the person before filing

In the bankruptcy of the woman, this is a big problem for the friend or relative. The reason the repayment would have been made prior to filing is simple. The money was owed, and the insolvent woman did not want to see her friend or relative go unpaid before filing. The issue is that there are other creditors too, and they are being treated differently than this friend or relative.

Section 141 of the BIA states “…all claims proved in bankruptcy shall be paid rateably”. The corollary is that all ordinary unsecured creditors should be treated equally. The friend or relative who made the payment to the vet on behalf of the insolvent woman, who is an ordinary unsecured creditor, must be treated the same as the rest of them. So how is this to be done?

Sections 95 and 96 of the BIA are the sections which deal with how to enforce this principle of the BIA. Section 95 deals with Preferences. Section 96 deals with any transfer of property by the insolvent person at undervalue (Transfer at undervalue). In this example, the preference section comes into play.

A preference is defined as the transfer of any property, including a cash payment, made by the insolvent person to any creditor who is dealing either at arms’ length or non-arms’ length with the insolvent person. The transaction must be one that has the intention of preferring that creditor over the others. In this example, the definition certainly fits.

Such transactions, limited only in time, are attackable by the Trustee in bankruptcy. If the friend or relative is dealing at arms’ length with the insolvent person, then the Trustee can challenge any transactions which occurred within the 3 months before the date of the first bankruptcy event and ending on the date of the bankruptcy. If the friend or relative was deemed to not be dealing at arms’ length with the woman, then the time period is extended from 3 months to 12 months.

An initial bankruptcy event for a person is essentially the first day an insolvency proceeding started. For a person, the most likely initial bankruptcy events would be the date on which one of the following filings occurred:

How would the Trustee challenge it? The challenge starts with a letter to and a conversation with the bankrupt person and the friend or relative. The Trustee would outline the powers of the Trustee to get a Court order against the friend or relative for the repayment to the Trustee of the insurance repayment in question. The Trustee would make a demand for payment on the friend or relative. There should be evidence of the payment being demanded in the Trustee’s files. We wouldn’t want the Trustee to be barking up the wrong tree.

If the friend or relative pays the amount over to the Trustee, then it is over. The Trustee has recovered the funds intended to prefer the friend or relative over the other unsecured creditors. The Trustee now has the funds so that all ordinary unsecured creditors can be treated equally.

Should the Trustee’s demand goes unpaid, the Trustee could then make application to Court for an order against the friend or relative declaring that a preference was given and that the funds must be paid over to the Trustee. The evidentiary bar for the Trustee is not set high at all. As long as the transaction has the effect of giving the friend or relative a preference, it is assumed to have been a preference. It is up to the friend or relative to have to prove by way of evidence to the contrary, that it was not a preference.

As I mentioned previously, a consumer proposal must offer the creditors a better alternative than in the case of the person’s bankruptcy. So, the preference payment must be taken into account in assessing what type of consumer proposal to offer. This includes the total payment to be made by the insolvent woman to the Trustee to pay a dividend to the unsecured creditors.

For best practices in the consumer proposal administration, the Trustee should add a clause in the consumer proposal that states that the provisions of the preference section of the BIA do not come into play. The reason for doing so is to make it clear that the Trustee, acting as Administrator in the consumer proposal, has no right to demand payment from the friend or relative. The reason is that the amount was already taken into account in formulating the total amount paid under the consumer proposal.

It also acts as a signal to the unsecured creditors, to highlight the issue of the preference. The Trustee should explain the issues to the creditors and show how the amount of the preference has already been taken into account. In this way, full disclosure has been accomplished.

Bankruptcy vs consumer proposal: Is a consumer proposal a good idea

A successful consumer proposal is one of the bankruptcy alternatives. It is always a good idea to avoid bankruptcy if you can. There are many reasons why consumer proposals are better than bankruptcies. By having a successful consumer proposal, you will avoid:

  • having to file monthly income and expense statements;
  • being subject to a surplus income recalculation;
  • a bankruptcy on your credit record;
  • bankruptcy negatively affecting your credit score;
  • having a discharge process that could be opposed; and
  • a court discharge hearing

Bankruptcy vs consumer proposal: What about you?

Do you have excessive debt? Are you having trouble making your month-to-month payments? Is your business not taking care of financial challenges that you simply cannot figure out how to escape from?

If so, call the Ira Smith Team today. We have years and generations of experience assisting people and companies trying to find a financial restructuring or a debt negotiation strategy. As a licensed insolvency trustee, we are the only professionals identified, accredited and monitored by the Federal government to give insolvency help and services to assist you to avoid bankruptcy.

Call the Ira Smith Team today so you can finish with the tension and anxiousness debt issues produce. With the unique roadmap, we establish special to you, we will quickly return you right into a healthy and balanced worry-free life.

You can have a no-cost assessment to help you so we can fix your debt issues. Call the Ira Smith Team today. This will certainly allow you to return to being productive and healthy, Starting Over Starting Now.bankruptcy vs consumer proposal

 

 

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BANKRUPTCY IN ONTARIO CANADA SECRETS REVEALED

Bankruptcy in Ontario Canada: Introduction

Most people are afraid of filing for bankruptcy in Ontario Canada and rightly so. It should be a last resort. There are many options available to people in financial trouble. All of them should be canvassed before deciding to declare bankruptcy.

In my professional practice, during the first free consultation appointment, we look at all options with the person to avoid bankruptcy. We naturally have a discussion about what it is and how it will affect the person. That way, the potential client is aware of all the options and can make an educated decision.

In this Brandon’s Blog, I discuss the questions that I am most often asked about the process. Hopefully, by the end of this blog, I will have demystified the process for you and helped in aiding your understanding.

The secrets we will show

Bankruptcy in Ontario Canada is definitely something nobody wants to talk about. So, therefore, it makes it seem very mysterious and secretive. It is also very scary. Therefore, from now on in this blog, so as not to scare you unnecessarily, I will try to refer to it only as “the B word”. I will only use the B word if the context requires it. This Brandon’s Blog will hopefully pull back the curtain in answering the most often asked questions thereby reducing the mystique and hopefully, your anxiety about this topic.

Where do I begin?

The first step is recognizing that you have financial problems and that bankruptcy in Ontario Canada might be your new reality. If you are having difficulty meeting all of your financial responsibilities or have actually quit paying all of your bills on time, you have a financial problem. As a licensed insolvency trustee (Trustee) we are the only professional licensed and supervised by the Federal government – Industry Canada (OSB).

If you are having financial problems, you must contact a Trustee as soon as possible, to have a free consultation to check your situation and to understand all the options available to you, including the B word. In that free appointment, you will learn that the B word may not be your only alternative to leave your debt behind. There are a number of choices that include, however, are not restricted to:

Should I declare the B word and what happens immediately if I do?

Declaring the B word is obviously a very serious step and a difficult personal choice. If the Trustee has properly explained all the realistic options available to you, it will make your choice much less scary. The first question is do you even qualify to file for the B word. You must be insolvent, owe more than $1,000 in unsecured debt to qualify for it in Canada.

As far as filing for the B word in Premier Doug Ford’s province, you must have:

  1. carried on business in the province during the year immediately preceding your B word; or
  2. lived in the province during the year before your B word; or
  3. where 1 or 2 above don’t apply, the majority of your property is in the province.

Note that the first test is that you are actually insolvent. Insolvent or insolvency is a financial condition. It means that you are:

  1. Unable to meet your obligations generally as they become due.
  2. You have ceased paying your current debts as they come due.
  3. The fair value of all of your assets is less than the total amount of your debts.

The B word is a legal state. Insolvency is a financial condition.

If I go for the B word, will I lose everything?

If you declare the B word, no, you will certainly not lose everything. There is a listing of things that are excluded from seizure in Ontario. The list is:

  • Necessary clothing for you and your dependants.
  • Home furnishings and appliances that are of a worth not more than $13,150.
  • Tools and various other personal effects not worth more than $11,300, made use to earn revenue from your business. If you are an Ontario farmer, this amount increases to $29,100 for everything, including your livestock.
  • One car or truck that is worth not more than $6,600.
  • The cash surrender value of life insurance if your beneficiary is what is called a “Designated Beneficiary”.
  • Your Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF) or Deferred Profit Sharing Plan (DPSP) other than for any amounts contributed in the 12 months immediately preceding your date of bankruptcy.
  • $10,000 of equity in your home but only if your share of the equity is less than $10,000 in total.

So if you go the way of the B word, based on this listing, you won’t lose everything. However, as you can see, if your share of the equity in your home is significant, the B word very likely is not for you. One of the other options is probably more suitable and you should pursue one of them.

What happens to the money I owe?

Once you go with the B word, all of your unsecured debts are frozen. Creditors cannot begin or continue any legal action against you. Any garnishee on either your wages or your bank account must come off. Normally if you owe money to Canada Revenue Agency (CRA) and have not kept up with a payment plan to them, they will garnishee your bank account which stops you from using it. The B word stops a CRA garnishee against your bank account or salary or wages also.

Similarly, a creditor who sues you and gets a judgement against you cannot continue any execution against your assets.

Once you are in the B word, the Trustee sends a notice to all of your creditors, along with a proof of claim form and instructions. With certain limited exceptions, the only remedy your unsecured creditors have is to file a proof of claim with the Trustee.

This does not apply to any of your debts owed to lenders who hold valid security against a specific asset. Examples would be a bank holding a mortgage against your home in return for the mortgage money or a lender who has security against your car for an auto loan.

What takes place to my salary or wages once I file?

Your income is not impacted by the B word process. You will continue to receive your normal salary or wages as you always have. You will need to complete Income and Expense Forms throughout detailing your and your spouse’s earnings and expenses. This is part of your budgeting procedure to meet one of the aims of the B word process; financial rehabilitation.

If your family income goes beyond specific requirements developed by the OSB, you will need to pay a part to the Trustee. This is called a surplus income payment requirement. In the first free consultation, I always tell potential clients whether they will have such a requirement. We also then look at that requirement, if any, to see if a consumer proposal would be more beneficial to the person than the B word.

Will the B word process get rid of my student loans?

If the B word date is within 7 years of when you stopped being a full-time or part-time student, your student loan debt will not be released by the B word process. Nevertheless, in particular situations, you might have the ability to make an application to the court for a discharge of your student loan financial obligations under the “hardship provision.” It is almost impossible to get that court-ordered discharge, but the slim possibility is there.

Will I still owe money after I file?

Only for a limited amount of debts. A discharge from the B word process does not cover:

  • secured loans – home mortgage or vehicle loan;
  • certain student loans (remember the 7-year rule I just mentioned?);
  • penalties or fines enforced by the court;
  • spousal support and alimony you have to make in your separation agreement or divorce proceedings; and
  • any debts from a fraud.

What length of time will I be in the B word system?

The length of time you will be in the B word system depends on whether this is an initial or 2nd time and whether you have surplus income. The minimum length of time is 9 months. That is if you don’t have any surplus income, none of your creditors oppose your discharge and it is your first time.

If it is your first time, none of your creditors oppose your discharge and you do have surplus income, then the 9 months increases to 21 months.

If it will not be your first time, the length of time before you can get a discharge will depend on many factors. We certainly discuss it during your first free consultation.

Who will find out that I have filed?

As soon as you declare the B word your Trustee will tell your creditors, the CRA, the credit bureaus and the OSB. The filing is public information and it will show up in your credit history.

Where your non-exempt assets given to the Trustee are worth more than $15,000, there must be a legal notice of your B word filing in the local paper.

Exactly how will it impact my credit score?

A person who files drops down to the least favourable credit rating (R9) immediately. After you declare the B word, you must start to work on improving your credit score. Once you are discharged, you will have more options to improve on your credit score and rebuild your credit.

Notice of the B word process will stay on your credit record for 7 years after you get your discharge.

How is my partner or spouse affected by my filing?

Your spouse or partner is not directly impacted by your filing. Your spouse or partner will have to show his or her income as part of your surplus income calculation. The partner or spouse will be liable to repay any loan they have co-signed or guaranteed for you. They will also have to repay any credit card balance on your account for which they have and used a supplementary card to make purchases.

Will my bankruptcy impact my ongoing divorce case?

In Canada, the B word rules do not conflict with most of the family law system and process. So the Trustee will not get involved in your family law proceedings, with two main exceptions.

There is an aspect of your divorce in Ontario that will be affected because Ontario is an equalization province. There are generally only 2 parts of your divorce proceedings your Trustee will certainly get involved in. One is when it pertains to the person who filed legal rights to entitlement to an equalization payment. Second is when the debtor owns property (either jointly with the spouse or alone) and such property has not already been dealt with in the family law proceedings.

How do I choose the right Trustee for me?

Sometimes people just say that “I want to go to the closest Trustee near me”. If travelling or time is an issue for you then that approach is quite legitimate.

The better way is making an appointment for a cost-free no commitment first consultation with a Trustee. If you can, it is best to get a referral from someone you trust. Otherwise, perform an online search and see which Trustee’s website resonates best with you. Ask any kind of questions you might have about your particular situation and the options you may have.

If after that appointment you feel comfortable with the knowledge and demeanour of the Trustee, and you felt confident that you received proper answers to your questions, then great. If not, make an appointment for a free first consultation with a different Trustee. Use that experience to compare both to see who you would like to put your trust in. At the end of the day, you have to know who you will be dealing with and feel comfortable with them. You have to know that your Trustee gets you!

Do you have too much debt? Are you having a problem making your month-to-month bill payments? Is your company dealing with financial obstacles that you just can’t figure the way out of?

If so, call the Ira Smith Team today. We have years and generations of experience aiding individuals and businesses looking for financial restructuring or a debt settlement plan. As a licensed insolvency trustee, we are the only experts recognized, licensed and supervised by the Federal government (the OSB) to provide insolvency recommendations and solutions to help you prevent the B word.

Call the Ira Smith Team today so you can end the stress and anxiety financial problems create. With the special roadmap, we develop unique to you, we will promptly return you right into a healthy and balanced stress-free life.

You can have a no-cost consultation to aid you so we can repair your debt problems. Call the Ira Smith Team today. This will definitely enable you to make a fresh start, Starting Over Starting Now.

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CONSUMER PROPOSAL CANADA PART OF BANKRUPTCIES LAWS IN ONTARIO?

Introduction

I prepared this vlog to explain the differences between a consumer proposal (CP), one of the bankruptcies laws in Ontario and bankruptcy. This discussion is based on the inquiries that we are asked often. Hopefully, this information will help you understand better specifically what a CP debt settlement strategy is and how it will certainly assist you to remove all your financial obligations. All this while AVOIDING personal bankruptcy.

Main benefits of a CP

Take into consideration several of the benefits of the CP vs. bankruptcy:

    • Unlike informal debt negotiation, the CP creates a forum where every one of your unsecured creditors must take part in for your debt restructuring.
    • You keep your property.
    • Legal actions against you on your property and debts, such as wage garnishments, cannot continue.
    • You do not require to file an assignment in bankruptcy

CP vs. bankruptcy

How do I recognize if I have a financial problem?

If you are having difficulty satisfying your debts or have actually quit paying them, you are probably insolvent. Another sign of insolvency is that if your assets if liquidated, will not bring in enough money to pay off your debts. When you are all stressed out over the money you owe, for sure you will know that you have financial problems.

How do I know if I qualify for either a CP or bankruptcy?

Any person that is insolvent and owes greater than $1,000 is qualified to file either a CP or an assignment in bankruptcy in Canada.

Will I have to give up my assets?

As soon as you file for bankruptcy you will certainly have to give up your non-exempt property to the Trustee. These possessions will be marketed and sold. The cash from the sale of your property will be used to pay for the cost of the bankruptcy administration. The balance will be dispersed among your creditors.

In CP, you will not be giving up your assets. You are making an offer to your creditors less than the total amount you owe. According to the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), your CP has to be a better result for your unsecured creditors than they would receive in your bankruptcy.

What occurs to my wages or salary?

Nothing. You receive it as normal.

In a CP that has been (deemed) accepted by your creditors and approved by the Court, you begin to make your payments. There are no other requirements for your income in CP.

In bankruptcy, nothing happens to your income either. However, in a bankruptcy, unlike a CP, your Trustee at the outset has to decide if you are required to make voluntary contributions to your bankruptcy case based off of your income. If so, this is called a surplus income requirement. Also, you will have to file monthly statements of income and expense with the Trustee. Your surplus income requirement can change, depending on if your income goes up or down. There is no such requirement in CP.

Canada Revenue Agency (CRA) has frozen my bank account and has garnished my earnings. Exactly how can I deal with that?

As stated above, once you file a CP, there is a stay of proceedings. Upon receiving notice from the Trustee, CRA stops the garnishee process and lifts the freeze on your account(s). The same is true in bankruptcy.

Will I still owe money after I declare bankruptcy or file a CP?

Perhaps, because of neither a CP nor bankruptcy covers:

How much time will I be under the insolvency proceeding?

The duration of time in bankruptcy will depend on whether this is an initial or 2nd (or more) bankruptcy, whether you have to pay surplus income and if your discharge is opposed or not. Depending on your circumstances, it can be anywhere from 9 months to many years.

In a CP, you can take up to 60 months to pay the total amount you promised to pay. Payments in a CP are required monthly.

Will anyone find out that I have filed either a CP or for bankruptcy?

As soon as you file for bankruptcy or a CP, your Trustee must file a notification with the Office of the Superintendent of Bankruptcy Canada (OSB) to start either process. The OSB does run a public database showing the status of all files.

In either a CP or bankruptcy, your Trustee must send a notice to all of your creditors. So they will know.

In a CP or a shortened summary administration bankruptcy, the Trustee does not place a legal notice in the local newspaper advertising that you filed. In an ordinary administration bankruptcy, the Trustee must publish a notice.

Generally, it is only the OSB, your Trustee and your creditors who are aware of your filing.

Is my partner or spouse impacted by my CP or bankruptcy?

Your partner/spouse will not be impacted by your CP or bankruptcy unless he/she co-signed as a borrower or has guaranteed payment for any of your debts. If they have guaranteed some or all of your debts, then those specific creditors can ask your spouse for payment in full.

NOTE: There is a body of case-law to suggest that if your CP is fully performed, then there is no debt left for your guarantor to make good on. That type of discussion is too technical for this general blog. If you are in this situation, your spouse should get legal advice before agreeing to pay anything. No such argument could even be considered in a bankruptcy situation.

Just how will my CP or bankruptcy impact my existing divorce case?

In Canada, CP and bankruptcy filings do not conflict with the majority of the divorce procedures. In a bankruptcy, the Trustee will stand in the shoes of the bankrupt spouse. Ontario is an equalization Province; not a division of assets Province. If the bankrupt spouse is entitled to an equalization payment, that will come to the Trustee.

In a CP, the Trustee does not get involved at all in any way. The BIA does not interfere at all with non-financial divorce issues such as custody. It also does not have any effect on support or alimony.

Consumer Proposal Canada or bankruptcy: Conclusion

I hope this consumer proposal discussion about the differences between a Consumer Proposal Canada and bankruptcy has been helpful to you.

Do you have severe debt and don’t know where to begin to fix it? Are your debt issues causing you to lose sleep? Is too much debt triggering stress and anxiety, discomfort and pain? We know that discomfort better than anyone and we can get it out of your life.

If so, call the Ira Smith Team today. We have years and generations of experience helping people and companies seeking financial restructuring or a debt settlement strategy. As a licensed insolvency trustee, we are the only specialists recognized, accredited and supervised by the Federal government to give insolvency advice and remedies to assist you and to prevent bankruptcy.

Call the Ira Smith Team today so you can end the stress and anxiety financial problems create. With the special roadmap, we will develop with and special to you, we will promptly return you right into a healthy, balanced hassle-free life.

You can have a no-cost appointment to assist you so we can fix your debt troubles. Call the Ira Smith Team today. This will certainly allow you to make a fresh start, Starting Over Starting Now.

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DEBT RELIEF IN CANADA: BANKRUPTCY COURT SALUTES CANADIAN MILITARY VETERAN

automatic discharge

Debt relief in Canada: Introduction

I recently read a decision of the Bankruptcy Registrar of the Supreme Court of Nova Scotia in Bankruptcy and Insolvency that really inspired me. It got me thinking about the sacrifices our men and women in the military make for all Canadians. This particular Court decision, also made me think of sometimes they need our help for debt relief in Canada.

Debt relief in Canada: The case

The case I refer to is Durdle (re), 2018 NSSC 206, released August 31, 2018. The first two paragraphs of the Registrar’s decision, I found especially poignant:

“[1] This Court routinely considers situations in which the Bankrupt is indebted to the people of Canada, through tax or other liabilities to the State. As a matter of general policy, these obligations have a higher moral and sometimes legal priority than to private creditors as they are borne by all of us, as citizens and fellows of Society; and because the public generally must bear the share not paid by someone else. The collective public is an involuntary creditor in the result.

[2] What, then, is the situation when that is reversed – when it is the people of Canada who are indebted to the individual? Should compensation paid out as a consequence be considered divisible among creditors in an insolvency?”

Debt relief in Canada: The facts

Master Corporal Durdle was a career soldier. He spent 24 years in the military, retiring at the age of 45 years old. Master Corporal is now 49 years old and suffers from military service induced post-traumatic stress disorder (PTSD). He remains under professional care. He is in need of debt relief.

On November 13, 2013, Master Corporal Durdle filed an assignment in bankruptcy. This was his second bankruptcy and therefore, he was not entitled to an automatic discharge from bankruptcy. The purpose of the Court hearing was for the Court to consider what form of bankruptcy discharge he should be entitled to. In this second bankruptcy, there were minimal non-exempt assets and unsecured creditors totaling $73,476.76.

In 2014 while an undischarged bankrupt, Master Corporal Durdle received taxable income, including:

  1. $16,778 from a wage loss replacement plan;
  2. A rehiring allowance of $28,107.04, including $19,675 in severance pay;
  3. Pension income of $23,594.10;
  4. Disability income of $49,289; and
  5. $3,624 in employment income.

The decision the Court had to make was, as the guidelines existed in 2014, how much if any of this 2014 taxable income should be considered “surplus income”?ira smith bankruptcy trustee vaughan

Debt relief in Canada: The Court’s thinking

The Registrar made a point of saying:

“…I wish to be clear that nothing should be taken as putting military debtors on a different footing than a civilian. The rule of law, including that of civil contract, is one of the core values we hold as Canadians, and which is protected by our men and women in uniform. What is, however, on a different footing is the debt we owe those men And women when they are injured or ill in the discharge of those Duties.”

Debt relief in Canada: The Registrar’s analysis

The Registrar went through a very thoughtful analysis of the law. He considered it in connection with the various types of 2014 taxable income:

  1. Wage loss replacement plan – Wrongful termination awards would normally be included in total income, as would pay in lieu of notice. The Registrar, however, went on to comment that in this case, the wage loss replacement plan was not termination pay or pay in lieu of notice but rather, pay because Master Corporal Durdle’s PTSD prevented him to continue serving. The Registrar concluded that this amount should not be considered as income in accordance with Section 68 of the Bankruptcy and Insolvency Act (BIA). Therefore, the Registrar also concluded that this amount should not be included in the calculation of surplus income.
  1. Rehiring allowance – The Registrar applied the same logic for this payment. He decided that it should not be included in the calculation of surplus income. He decided that this payment was a result of Master Corporal Durdle’s PTSD preventing him from continuing to serve in the military.
  1. Pension income – The Registrar could not determine whether this income was solely a benefit due to Master Corporal Durdle’s PTSD or not. However, it did factor into the Registrar’s ruling.
  1. Disability income – The Registrar considered this income in light of previous Court decisions involving lump sum awards. This included under a Workers’ Compensation Plan. The Registrar went on to review the actual Federal statute under which the payment was made to him, the Veterans Well-being Act (S.C. 2005, c. 21). The Registrar concluded that this amount would not be included in the calculation of surplus income.
  1. Employment income – The Registrar concluded that this amount is included in the surplus income calculation.

Debt relief in Canada: The Court’s decision

The Registrar concluded that if he includes the pension income ($23,594.10) and of course the employment income ($3,624) (less statutory deductions), Accordingly, Master Corporal Durdle’s income falls under the Superintendent of Bankruptcy threshold for 2014. Accordingly, Master Corporal Durdle had no surplus income to pay when considering Section 68 of the BIA.

Since this was Master Corporal Durdle’s second bankruptcy, he was not entitled to an absolute discharge. Therefore, the Registrar did not impose any conditions on his discharge, but rather, suspended his discharge for one day.

Debt relief in Canada: Sometimes understanding and kindness is required

The Registrar was obviously moved by Master Corporal Durdle’s service to Canada. He also considered his current plight brought on by service-related PTSD. The Registrar followed the law and also showed his understanding and kindness of this sad situation.

If you have financial difficulties, whether brought on by a medical cause or for any other reason, you need to seek professional advice from a Firm that will show you the understanding and kindness you deserve. The Ira Smith Trustee Team has seen many cases of personal and corporate financial distress. We understand your pain and we know how to alleviate it; with understanding and kindness.

Our strategy for every single business and person is to develop a result where Starting Over, Starting Now comes true, starting the minute you walk through our door. You’re just one call away from taking the necessary actions to get your debt settlement and back on the road to leading a healthy and stress-free life. Contact the Ira Smith Team today.debt relief in canada

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CLAIM BANKRUPTCY IN ONTARIO CASE STUDY: SHE REALLY WANTED TO BUT WE STOPPED HER AND SOLVED HER PROBLEMS

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Claim bankruptcy in Ontario: Case study introduction

For today, and the next few weeks, I want to give you some interesting case studies direct from our files. I will not mention any real names of course. Hopefully from these case studies, you will see that we do a lot more than just allow people or companies to claim bankruptcy in Ontario.

Claim bankruptcy in Ontario: A variety of problems

Today’s case study deals with our client who is a specialist medical doctor and surgeon. We will call her Dr. X. She had an ongoing successful career and then opened up a specialty high-end clinic to offer services not paid for by OHIP, the provincial medical plan. Unfortunately, Dr. X did not get the best advice from her professional advisers when she established the new business venture.

She set up her clinic in a separate building that she purchased. Dr. X then had it renovated extensively to meet the business’ needs, leased or purchased equipment and hired staff.

This new venture was financed entirely by debt:

  • personal debt such as mortgage financing against the matrimonial home;

  • equipment loans or leases in her personal name; and

  • Equipment and mortgage debt in the new business venture corporation for which Dr. X personally guaranteed it.

Therefore one way or the other, her personal responsibility was for 100% of the debt to get the business started. Her husband was responsible jointly with her for the mortgage raised against the matrimonial home.

The cash flow of the business was insufficient to pay the operating costs and debt financing. She had to keep borrowing money personally to keep the new business alive. The stress this caused affected her previously stellar activities as a surgeon and hurt her marriage. By the time Dr. X was came to us, she and her husband were separated and divorce proceedings were underway.

Claim bankruptcy in Ontario: And then it got even worse

To make matters worse, she could not attempt to liquidate assets to pay down debt and ease the burden. Like most equipment, the clinic’s equipment was not worth more than its original cost. There was no excess equipment either.

The building could not be sold and leased back for a very bad reason. There was a large environmental problem associated with the building which was not discovered through due diligence prior to purchasing it. The issue arose when she tried to refinance.

The potential lender performed a Phase 1 Environmental Study, which indicated that a earlier use in the building produced contaminants which were buried in the ground. The contaminants were leaching into the neighbours’ respective properties. So now there was further personal liability exposure as the sole Director of the company that owned the real estate!

Claim bankruptcy in Ontario: Filing bankruptcy in Canada would give Dr. X more headaches

Dr. X came to us convinced that she had to go bankrupt. The stress of her failing business was taking a huge toll on her normal duties as a surgeon and her marriage was over. She had previously seen a different licensed insolvency trustee and was convinced from that meeting that bankruptcy was her only answer.

Dr. X considered herself a total failure, in spite of she was still a sought after as a brilliant medical doctor and surgeon. We considered her assets and liabilities, income and expenses and her overall situation.

Claim bankruptcy in Ontario: More complications

To further complicate matters:

  1. The matrimonial home was listed at the amount required to clear all mortgages which was well above market value.

  2. Once Dr. X inevitably stopped making the first mortgage payments on the matrimonial home, the Bank holding the mortgage would begin power of sale proceedings. The first mortgagee would probably suffer a shortfall on the sale and Dr. X and her estranged spouse would be responsible for the shortfall on the first mortgage and the entire balance of the second mortgage.

  3. Dr. X had a life insurance policy with a cash surrender value (“CSV”). The CSV was not exempt from seizure by a bankruptcy trustee because the beneficiary was her Estate. In a bankruptcy, the CSV would go to the Trustee for the benefit of her creditors.

  4. Dr. X did not know if she could get replacement insurance coverage at all and if so, at a reasonable cost.

  5. There were many creditors who currently had a contingent claim against Dr. X with a very high dollar volume. These claims would ultimately be crystallized. In a bankruptcy, we anticipated that a lot of angry ordinary unsecured creditors, many of whom were sophisticated, such as banks and equipment lenders/lessors, would oppose her discharge from bankruptcy.

  6. In a bankruptcy, Dr. X would have to pay about $82,000 in surplus income payments to us as her bankruptcy trustee over a 21 month period for a monthly payment of $3,905. Dr. X could not afford to pay that much each month and keep her normal medical practice afloat.

Bankruptcy was not a good answer for Dr. X. Notwithstanding she earned a high income, the irony was that she could not afford to claim bankruptcy in Ontario!

Claim bankruptcy in Ontario: Our assessment

We had to deal with two problems; one financial and one emotional. Dr. X was an emotional wreck as a result of the failed business venture with all of its problems. We actually had to deal with that first. It is normal for a licensed insolvency trustee to take a holistic approach. The debtor facing financial problems always needs two outcomes: (i) a solution that will allow them to shed their debts and get piece of mind; and (ii) become rehabilitated.

We advised Dr. X that a personal bankruptcy was not the answer for her. We told her that she first had to shut down her clinic. She had to deal with the employees to make sure that they were paid up to the last date work their normal wages and vacation pay. They also needed to get their Record of Employment and T4 Statements as quickly as possible. Unfortunately there was no money for pay in lieu of notice.

Claim bankruptcy in Ontario: How to deal with the failed business venture

We then advised Dr. X that she should not bankrupt the corporation carrying on this new business. Rather, she should call up the first mortgagee and tell that she is abandoning the business premises and is sending the keys over. Then call up the equipment lessors and the lender that did some equipment financing to tell them the business has shut down and they should contact the first mortgagee to gain access to retrieve their property.

Next we advised Dr. X to safeguard the business books and records, so that she could have her accountant file final tax returns. She would also have the records for when Canada Revenue Agency wished to do an audit on the business activities.

The final piece of advice for Dr. X with respect to her new business venture was this. After performing the above steps, walk away. This would end the stress of operating a failing business.

Claim bankruptcy in Ontario: Our assessment and his personal financial fix

All of the contingent debts from the failed business venture had not yet crystallized. They were still contingent. We worked out a cash flow plan with Dr. X that she could keep current with, now that she had abandoned and stopped funding the debt incurred because of the failed business. She also stopped paying the first mortgage on the matrimonial home as the value of the home was now less than the total of the mortgage debt against it.. We worked with Dr. X on a plan to avoid bankruptcy, by filing a formal restructuring proposal under the Bankruptcy and Insolvency Act (Canada) (“BIA”).

Claim bankruptcy in Ontario: The advantages of our strategy

The advantages of this strategy, if the restructuring proposal could be fully performed, are:

  • Dr. X would not give up her assets to a bankruptcy trustee;

  • She would not lose her life insurance coverage or CSV;

  • All of her debts could be eliminated through the restructuring proposal;

  • Although the total of her restructuring proposal payments had to be more than her creditors would get in her bankruptcy, we could term those payments out to a maximum of 5 years;

  • Her estimated monthly payment would be less than the monthly surplus income payment in a bankruptcy; and

  • Dr. X would avoid bankruptcy and an opposed discharge process entirely.

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    claim bankruptcy in ontario

Claim bankruptcy in Ontario: The result

Dr. X followed our advice. Her restructuring proposal was accepted by her creditors qualified to vote at the meeting of creditors held 21 days after the filing of the restructuring proposal. The contingent claims had not yet crystallized. Although eventually those creditors were allowed to file their proper respective claims and take part in the dividends paid out to the unsecured creditors, we made it successfully through the voting process. The proposal was then approved by the Court.

Dr. X not only maintained her regular monthly proposal payments to us, she was able to pay off the proposal early. The reason for this was that now that she had a clear head and no longer felt she was a failure, she could focus on her medical practice and surgery, which once again flourished. Her income and savings rose. These are some of the benefits that financial rehabilitation brings. Dr. X also avoided going bankrupt.

Claim bankruptcy in Ontario: Does Dr. X’s financial problems sound familiar to you?

I present this case study to show how, as a licensed insolvency trustee in the GTA, we look at the entire story of each person or company that comes to us for help. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we stopped Dr. X from going bankrupt and devised an alternate plan for her, allowed her to solve her financial problems and get her life back.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Team today.

Call us now for a free consultation. We will get you back on the road to a healthy stress free life and your recovery will be as pain-free as possible. We may be able to stop you to claim bankruptcy in Ontario!

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ARE BANKRUPTCY FEES TAX DEDUCTIBLE? IT DEPENDS WHO YOU ARE!#

are bankruptcy fees tax deductible
are bankruptcy fees tax deductible

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.

are bankruptcy fees tax deductible
are bankruptcy fees tax deductible

Are bankruptcy fees tax deductible: Corporate restructuring

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

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.

Contact a debt expert – a professional trustee – who can help get you on solid financial footing Starting Over, Starting Now. Ira Smith Trustee & Receiver Inc. can help keep you from financial ruin with immediate action and the right plan. Call us today for a free, no-obligation consultation.

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Brandon Blog Post

#VIDEO – COST OF FILING FOR BANKRUPTCY: WHAT IS THE TRUE COST?#

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:

  1. your monthly income;
  2. what assets you own;
  3. the size of your family; and
  4. 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.

If you would like a preliminary idea of what your surplus income payments would be, review our blog What Can I Deduct For Surplus Income In Bankruptcy?

Non-exempt assets

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.

cost of filing for bankruptcy

 

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Brandon Blog Post

#VIDEO-DEBT MANAGEMENT PROGRAMS REVIEW#

Not all debt management programs are created equal

I have written previous blogs and made vlogs in the past about debt management programs, including:

Non-profit credit counselors are the good guys in the debt relief industry, which is otherwise full of players that are bursting with lies, scams and sketchy practices.

We have done the consumer proposal or bankruptcy of many people who first paid upwards of $2,500 to for profit “counselors” who ultimately did no more than pass the people on to a licensed insolvency trustee. They could have received a better service just going straight to a trustee for a free consultation.

Contrary to popular belief, a licensed insolvency trustee by law must first evaluate to see if the person can AVOID bankruptcy. So as you can see, not all debt management programs and companies are equal.

Do debt management programs work for everyone?

Debt management credit counselors need to acknowledge that their signature offering — the debt management plan — doesn’t work for everyone.

Debt management programs are promoted as the best bankruptcy alternative and an affordable way to pay back credit card debt. Borrowers make payments to the counseling agency, which then pays the creditors. Thanks to standing agreements that counselors have with credit card companies, the plans typically cut the interest rates, fees and payments that borrowers need to make. Full repayment of the debt often takes four to five years.

If borrowers make all the payments and repay the principal completely, debt management programs have much less impact on their credit scores than other types of debt relief.

Debt management programs were rampant in the United States

During the financial crisis in 2007-2009, debt management programs could be found on infomercials day and night. There were so many shady characters in the industry, the States ultimately had to enact laws to reign the shady operators in.

Needless to say, the shady operators did not give any worthwhile service for the fees they charged. But even the legitimate and well-meaning credit counselors mistakenly believed that their debt management programs were good for everyone. What I have found in my experience as a licensed insolvency trustee, is that no two people’s situations are the same, and one size does not fit all.

The story of Francine Bostick

Francine Bostick, a woman who lives in Kansas and paid off more than $120,000 in credit card debt in 2012, says she emerged with credit scores good enough to buy her first-ever new car. “It was exciting and made me a little nervous when they did the credit check,” says Mrs. Bostick, 66. “We got 0 percent interest for the life of the loan.”

This sounds great, but, yet Mrs. Bostick is also an example of what may be wrong with credit counseling because:

  1. Her husband Jim Bostick had Alzheimer’s disease and she was his caregiver
  2. Francine worked 12-hour days to earn the money to make debt payments while also caring for her increasingly incapacitated husband, who died in May
  3. She had to do this when others her age were retiring
  4. She never got to spend quality time with Jim before his death

If she lived in Toronto or Vaughan, what would I have advised?

Francine had never been bankrupt before and she did not have any significant assets. She and Jim rented – they did not own a home. In Francine’s case, she would not have had to make any surplus income payments in a bankruptcy. Although a consumer proposal is a great alternative to bankruptcy, Francine could not afford to complete one by only working one job in an 8-hour day, but she and Jim would be able to live on those earnings and their pensions.

In this case, I would have advised Francine that bankruptcy was a better alternative because:

  1. Francine could have spent more time with her dying husband – that she can never get back now
  2. She would received an automatic discharge after 9 months, and not worked so hard for several years
  3. Just like in bankruptcy, she had no access to credit while in her debt repayment program
  4. She could have begun rebuilding her credit faster after the bankruptcy
  5. There is little leeway for missing a payment in debt management programs – many times if you miss 1 payment the entire program ends
  6. Some people find that they simply can’t afford the payments on debt management programs, while others drop out because of setbacks such as job loss, unexpected expenses or illness
  7. If you cannot fully complete the debt management programs, creditors can resume collection efforts, and borrowers also have flushed thousands of dollars down the drain and might not have enough money left to live on

What should you do if you have too much debt and are considering one of the debt management programs?

So, those thinking about debt management programs should book an appointment with an experienced licensed insolvency trustee first. (The first consultation is free.) That way, they will be able to understand the choice they make.

Ira Smith Trustee & Receiver Inc. brings a cumulative 50+ years of experience dealing with diverse issues and complex files and we deliver the highest quality of professional service. Contact us today and Starting Over, Starting Now you’ll be well on your way to overcoming your financial difficulties.

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

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