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TO DEBT DO US PART BUT I CAN’T PART WITH MY LIFE-CHANGING COVID-19 ECONOMIC RESPONSE PLAN

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

To debt do us part introduction

To debt do us part many times is confused with Til Debt Do Us Part. That of course was the Canadian television series created by Frantic Films for Slice in Canada, Zone Reality in the UK as well as CNBC in the United States. It was hosted by Gail Vaz-Oxlade, who weekly advised a couple that is in debt and also having troubles in their marriage or relationship.

Over the last couple of days, I read two crazy articles involving what people have done with federal coronavirus relief money. One from the United States and the other from Canada:

The title catchphrase to debt do us part seems particularly apt to me in the context of the Canadian federal government COVID-19 Economic Response Plan to assist Canadians and their companies. Especially if people are going to do crazy things with money they desperately need to live on.

With that as the backdrop, I thought it would be a good time in this Brandon’s Blog to review where we are at this stage of the pandemic and why no matter how much good information about money management there may be available to people, some will insist on to debt do us part.

This 2020 to debt do us part is something brand new

The economic pain and worry Canadians and businesses are experiencing this time around is something brand-new. It is hitting people and companies that have always made their repayments on time. To debt do us part was never part of their vocabulary or lifestyle. They’ve never needed to get a deferral. It is very unpleasant and unsettling. To debt do us part is a very real worry for every Canadian today.

Now that the majority of us have remained in quarantine, we’ve had a lot of time to look at our money behaviours. Have they transformed since we’ve been able to take a look at our cash? Are we most likely to be taking a look at it differently now moving forward? I say yes. I don’t assume any person is going to exit this COVID-19 pandemic unscathed financially.

I have been blogging for years about the need for every Canadian to have in their monthly budget a line item for putting savings into an emergency fund in case of an unforeseen crunch. Before the lockdown, many Canadians were in trouble already. In the 3rd quarter of 2019, we saw household debt to income numbers at around 176%. So that statistic means that for every single dollar we brought in, we owed $1.76. Typically, for an emergency reserve, you should have 3 to 6 months of liquid funds readily available to you. Most Canadians did not.

An emergency fund doesn’t have to be in a very low interest-bearing savings account that you can go to an ATM for. Certainly, it also didn’t need to be cash stuffed in your mattress in the house. It could have been in the form of financial investments that could be liquidated fairly quickly without suffering a loss, should an emergency arise and you needed to get your hands on some money quickly.

By an emergency situation I mean something like a major medical expense, being laid off of work or something like this coronavirus pandemic causing you a loss of earnings such as now being experienced by lots of people as our economy shut down.

The government had no choice for to debt do us part

As a result of so many people being so scared and facing to debt do us part in the face, the federal government had no choice but to come up with a support package for Canadians and Canadian companies. The combination of support programs is wrapped up in the omnibus title of the COVID-19 economic response plan. I have written before on many of the support programs. The federal assistance programs for Canadian business include:

When government support ends to debt do us part

The Canadian federal government had no choice but to provide an aid bundle for Canadians. This point highlights the truth that maybe most Canadians were not prepared with an emergency fund. To debt do us part was part of their everyday life. Unlike the two people in the articles I mentioned in the introduction to this Brandon’s Blog, I think this has been a big wake up call for a lot of people about their to debt do us part.

This is not the moment to be talking to your lender for new credit when you have too much debt. However, it is a perfect time to start thinking about your monthly after-tax income and your monthly spending. You want to get that under control so that you are not spending more than you earn and that your monthly budget has a line for your emergency fund savings. You need to first get on the solid monetary ground while the government’s support programs are still in force.

But what happens to debt do us part when the support programs and the various deferral programs offered by the banks end? In several previous blogs, I hypothesized that the Canadian government cannot end the programs on the original end dates of September 1, 2020. My feeling was that Canadian people and companies would not be ready to go from support to no support so drastically and would have to extend the programs potentially until the end of the 2020 calendar year. Some of these blogs were:

Since then, the federal government has announced several extensions to certain programs:

  • Canada Revenue Agency (CRA) is expanding the payment due day for existing year personal, company, and trust tax returns, including instalment payments, from September 1, 2020, to September 30, 2020.
  • The federal government will give eight added weeks of benefits for people whose jobs or income have actually disappeared as a result of the COVID-19 pandemic, however, only if they look for a job and take one when it’s reasonable to do so.
  • A CEWS extension that will prolong the program up until November 21, 2020, with the intent to supply additional support up until December 19, 2020.

So with these extensions providing extra support, now is the time for everyone to try to get their financial house in order.

How do people avoid to debt do us part in the first place?

I was asked recently in a Facebook business group I belong to:

How do people better put themselves in better financial health in the first place?

My answer was:

That is a great question. It all has to start with understanding clearly your monthly after-tax income, monthly expenses and having a budget that you follow. Each month the budget must include putting something away to an emergency fund and making sure that your income tax is being paid regularly. So that what you are spending is truly after-tax money. All of that can be summed up as living within your means. That goes for your business too.

So while there are still government support programs, now is the time to take a hard critical look at your financial situation and make concrete plans to try to avoid the realities of to debt do us part.

People were already teetering on solid ground. It’s most likely to underscore the value of actually meeting with an expert if you do not know how you get out of this debt on your own. Sitting down with someone like a qualified financial advisor, a community-based credit counsellor or a licensed insolvency trustee is what you need to do.

If the debt is howling at you, you need to really have a strategy to get out of it. When you intend to drop weight, you seek a weight reduction program to educate you. You may additionally choose a personal trainer to help you with an exercise program. So, why not locate somebody to assist you and educate you to shed your debt as well as keep it in control?

You do not need to do that all on your own. It’s going to take some imagination, maybe some cost-cutting, maybe some increased revenue or a combination of all of these. We’re not out of this yet, and eventually, the deferrals and support programs will end. Take action now so that you can have a clear path going forward. Nobody says it will be easy, but to debt do us part does not have to be part of your life forever.

Payday loans and credit card advances are not the answer to debt do us part

Something individuals in the red can refrain from doing is trying to go deeper into debt by raising money on a brand-new debt to repay an old one. When you already have too much debt, the only likely source for this kind of cash that I see is either cash advance on an existing charge card or a payday loan. Regardless, you will be paying a lot more interest than on the original financial obligation you are attempting to refinance.

Payday loans are extremely easy to get. You can go shopping online. You can have cash in your account within a couple of hours. The issue is, depending on the province that you’re in, these are astronomical interest rates as high as 600 percent. It might fix that short-term issue, but what you’re mosting likely to have to handle in the future normally winds up being more payday advances rolling right into a really negative situation. Very same with the cash advance from your credit card. Not as bad as payday loans, however still 20% to 29% rate of interest doing that.

The courts are shut now. Financial institutions are not chasing anybody. People are still obtaining those deferrals. You are not having to pay tax obligations. You can defer paying your tax obligations until the end of September.

So as quickly as we get back to a “new normal”, creditors will certainly begin to call. You will certainly have to pay your mortgage, your taxes and your various other costs. Will that be something people will have the ability to afford? While we still have this “break”, it is actually the very best time to look at your overall picture, your revenue and also expenditures, your month-to-month spending plan. It is additionally the best time to get the expert help you need if you can not do it on your own. This is the ideal time to map out a strong strategy.

To debt do us part summary

I hope you have found this to debt do us part Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID-19, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

to debt do us part
to debt do us part

 

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Brandon Blog Post

CANADIAN BUSINESS: WHAT WILL BE THE ULTIMATE BUSINESS IN ONTARIO RECOVERY PROGRAM?

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Canadian business introduction

In April 2020, a survey of entrepreneurs who own what could be called a small Canadian business across the GTA was conducted. It found that almost two-thirds of them might have to shut down for good as they struggle to stay on top of rent and other bills throughout the COVID-19 pandemic.

In this Brandon’s Blog, I look at entrepreneurs in Canadian business, both small and large, and talk about the one essential ingredient that will determine Canadian business success or failure. This one necessary item may turn out to be the only Canadian business recovery program that will ultimately work.

Canadian business opening-up again

Many are progressively opening up under local, provincial and federal government guidance. They need to navigate a host of constraints, including restrictions on the number of customers at any one time. I have read that many say the restrictions with their added layer of costs may stop them from being profitable. Even though COVID-19 cases appear to be under control in Ontario, companies have actually reopened to dramatically smaller sized groups, imperilling their survival.

To save local Canadian businesses, and the millions they employ, the federal government developed Canada’s COVID-19 Economic Response Plan. The federal assistance programs for Canadian business include:

I have already written about most of these support programs. I have attached relevant links above so that you can read up on the various support programs for Canadian business.

Provincial governments have also stepped up. For example, in Ontario, the Doug Ford Conservative government has implemented:

  1. Interest/penalty relief – Canadian business in Ontario will get five months of interest and fine relief to make payments for taxes administered by the Province. From April 1, 2020 – August 31, 2020, Ontario will not apply any penalty interest on any late-filed returns or incomplete or late tax obligation payments under the Employer Health Tax, Tobacco Tax and Gas Tax obligations. This enhances relief from the federal government on interest and other charges from not remitting the amount owing for corporate income tax.
  2. WSIB payment deferments – Employers can delay WSIB payments for 6 months.
  3. Rent support for local Canadian business – Ontario has partnered with the Government of Canada on the Ontario-Canada emergency commercial rent assistance for small businesses and landlords experiencing financial problems throughout the COVID-19 pandemic.

But there are still Canadian business problems

Despite all these support programs, the Canadian business world still has to figure out how to pay the balance of their rent, utility, insurance as well as a host of various other recurring expenses. While some have had the ability to delay these expenses, they can’t do so for life. Companies will become required to take care of their unmet commitments. They will also have to figure out how they are going to go back to paying all their expenses in full once the support programs end and business has not yet come back to the pre-coronavirus pandemic level.

Some companies may have enough cash savings to ride out the pandemic or can access fresh cash resources from owners. That is both good and bad. Entrepreneurs will take from their retirement savings, and in some cases deplete them, in the hopes of keeping their business alive long enough to survive and once again be profitable. It is highly doubtful that Canadian business will be able to borrow from the Banks as a source of fresh capital under these circumstances.

For a lot of others, the crush of past-due costs will certainly limit and maybe even end their business.

What happens when the government support programs end?

That is a big question that I get asked always. The answer is somewhat obvious: Everyone will have to stand on their own two feet just like they had to before the COVID-19 pandemic. Right now all the Canadian business support programs are all scheduled to end August 31. What will happen then?

My personal belief is that the federal and provincial governments will not be able to end the economic response support programs that soon. Rather, I think they will have to extend all the programs again. They may tweak them to begin the process of weaning Canadian business off of government support. Nevertheless, I feel they will have to be extended.

I think the extension will come with stark warnings. I believe the government would not want to extend for more than 90 days, but Christmas will still come in December. Pandemic or no pandemic. Nobody will want to shut off the tap before Christmas. So, that means an extension until the end of the calendar year 2020. With it, the governments will have to warn everyone to get their houses in order now because for certain there will be no more support programs after December 31.

I don’t have any inside information. I am just guessing. But to me, that seems the most realistic to still help Canadian business because entrepreneurs and workers are still all scared. At the same time, the governments’ exit strategy time clock begins ticking. Everyone will have a fair warning.

There is one precious commodity Canadian business will need when the support programs stop

Please humour me. Let us just say you find my prediction to be a reasonable one. On January 1, 2021, Canadian business is not all of a sudden flush with cash. They have survived. Entrepreneurs will still be scared. They certainly will not hire everyone back with an uncertain economic climate. All of the creditors of the businesses will start demanding payment in full. They have been patient and understanding. But now, all business debts will be demanded.

What is the one commodity Canadian business will desperately need? Cash is an obvious one but, no more is coming. Not from the government, the Banks or investors. Entrepreneurs are already tapped out having used personal savings to keep their businesses afloat. The most precious commodity Canadian business will need is TIME. Time to gear up again. Time to get back on their feet and bring in some cash. The Courts will have reopened. Creditors will begin to sue. There will be no more “time-outs” built into our Canadian economic system.

How will businesses get the time they need?

Bankruptcy protection will very likely be the answer

Breathing time that briefly ices up the need to pay off old debt while letting Canadian business function and have the time to find a strategy to keep going. In most cases, that will only be able to happen with a bankruptcy protection insolvency filing.

While bankruptcy is only thought of with going out of business, there are two Canadian federal statutes that allow viable businesses to develop a restructuring plan to lead them back to success. The trouble is that bankruptcy laws don’t give sufficient time to do this while there is still a pandemic. Ongoing COVID-19 health problems will likely suppress the Canadian economy in 2021.

Some out-of-the-box thinking and creativity are going to have to go into bankruptcy restructuring. It will be incumbent on licensed insolvency trustees (formerly called bankruptcy trustees), insolvency lawyers and the courts to recognize viable businesses that deserve to survive. This will be the case even if the processes being recommended are a bit unorthodox. These times are unorthodox and the solutions will have to fit the realities of our time.

I have previously written many blogs on how the two Canadian insolvency statutes can be used to allow Canadian business to restructure. The two statutes are:

For the purpose of this blog, I won’t repeat what I have previously written about corporate restructuring under either the BIA or CCAA. For this blog, what you need to know is that CCAA proceedings are for companies with $5 million or more of debt. BIA proceedings are for those companies with $4,999,999 of debt or less. Both statutes allow for bankruptcy protection filing. They are the Canadian equivalent to Chapter 11 bankruptcy protection in the United States.

How will bankruptcy protections help Canadian business?

For numerous companies battling the consequences of COVID-19, the main issue will not be a massive backlog of debt. It will be the inability to pay off the debt fast due to an absence of immediate profits. Cash will be needed to carry on business and make commitments on a go-forward basis. Given enough time, Canadian business will be able to repay its debts which accrued during the coronavirus shutdown. Unfortunately, the time Canadian business will need will be much longer than how much longer creditors will be willing to wait.

This is where bankruptcy protection filing, under either the BIA or CCAA comes in. First, under a bankruptcy protection filing, there is an automatic stay of proceedings. Creditors will not be able to start or continue collection efforts. This includes repossession by secured creditors or beginning or continuing legal proceedings.

Other benefits of a bankruptcy protection filing for Canadian business will be:

  1. Buying some time to come up with a restructuring plan to keep viable businesses in operation.
  2. Saving jobs through restructuring rather than liquidating the assets of many companies.
  3. Allowing for the sale of entire business units to be integrated into other healthier companies in order for businesses to survive, albeit in a different legal format.
  4. To allow for the sale of redundant assets to raise much-needed cash.
  5. Get out of onerous equipment, IP or premises leases/contracts that need to be jettisoned or else a restructuring is not possible.
  6. Stopping secured lenders from calling a default on loan facilities due to either cash or non-cash impairment charges leading to going concern worries.
  7. Obtain operating capital by way of a new debtor-in-possession loan credit facility for restructuring. Most companies outside of a formal restructuring will be unable to borrow any more money as I have already mentioned. However, in a BIA or CCAA Canadian business restructuring, the court can approve emergency funding and raise that operating loan to the top of the pile by giving it a priority secured loan position.
  8. Stopping Canada Revenue Agency (CRA) from starting or continuing garnishee tactics, general collection efforts and especially placing liens on business property for unpaid taxes.
  9. To allow companies to restructure their debt and clean up their balance sheets in a post lockdown economy.

The biggest resource Canadian business will need is also going to be its largest enemy

So as you can see, I believe that the most important resource that Canadian business will need to survive will not be cash. It will be time. Creditors will no longer want to give businesses more time to repay. Companies will need more time to get back on their feet when the COVID-19 Economic Response Plan support programs end.

The only way I can see that truly happening while allowing for proper restructuring of viable businesses will be under bankruptcy protection filings. Those businesses that are not viable, by definition, will fall by the wayside causing more harm to many good people.

So this why I say formal bankruptcy protection proceedings to allow viable businesses to restructure will be the ultimate business recovery program in a post-lockdown Canada.

Canadian business summary

I hope you have found this Canadian business Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID-19, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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canadian business
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