Bankruptcy Kitchener Blog

This past Saturday, Ted Michalos and I spent an hour on the Ask the Expert show on 570 News in Kitchener-Waterloo answering questions regarding consumer proposals. At Hoyes, Michalos & Associates Inc., Trustees in Bankruptcy, we currently file about 1 consumer proposal for every 2 bankruptcies. But what surprises us, is that a consumer proposal is an option that most people have not heard of, even though they have been around for over 15 years.

The Bankruptcy and Insolvency Act provides two options – bankruptcies and proposals and therefore, a consumer proposal provides the same protection from creditors as a personal bankruptcy. A consumer proposal is a consolidation of an individual’s debts into one monthly payment to all of the unsecured creditors (ie not including mortgages or car loans). A consumer proposal is presented to the creditors generally, but the voting is based on one vote for every dollar of debts. If the majority of creditors accept the consumer proposal, then in it is a locked-in deal. The creditors have 45 days to vote and if they choose not to accept the proposal as filed, they tend to provide a counter offer that they would accept. At that point, the debtor has the option of accepting this counter offer.

Some further details with respect to consumer proposals:

• A consumer proposal is filed by someone who is unable to deal with their debt load;
• The fundamental concept of a consumer proposal is that it must provide for more than what would be realized in a personal bankruptcy;
• A consumer proposal is for situations where the non-mortgage debt is less than $75,000 (or $150,000 if consumer proposal is filed jointly for 2 people with common debts);
• A Consumer proposal can be made for a lump-sum amount or consist of a payment plan for up to 60 months;
• A consumer proposal stays on the debtor’s credit rating for 3 years after the proposal is paid off;

For example, let’s consider a consumer proposal that I helped a couple file last week in our Kitchener office. The family of 4 makes $4,500/month - take home pay. They own a home in Kitchener, with $10,000 of equity. They have 73,000 of combined credit card and line of credit debt. They have 2 vehicles, one that is leased and one that is financed – both which they want to keep. Most of their debts accumulated over the past several years while they fixed up the house that they had purchased as well as reduced family income during the periods following the birth of their two children. The wife is now working full time but as a result, has an increase in child care costs. The final part that has made their situation increasingly more difficult is that the husband has lost his overtime income due to cut backs at work. This overtime money was paying the debt load in the past.

We filed a consumer proposal to the creditors offering $450/month for 60 months = $27,000. This consumer proposal allows the couple to pay part of the debt back, but more importantly gave them a plan to deal with the debts and maintain their house and cars with a balanced budget.

To discuss a consumer proposal in more detail call me at 519-747-0660 or 310-PLAN or e-mail me.

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It is my belief that our education system fails us in properly training us on cash control and personal finances. We are taught a lot of good subjects by many great teachers through our schooling, but I feel there are some significant shortfalls when it comes to teaching personal budgeting, credit management, understanding contracts and interest, etc. I feel we should be forced to take a real life course on this subject in high school.

I spent the morning today at St. Jerome’s University (part of the University of Waterloo) as a guest speaker in Dr. Tracy Penny Light’s course on “Sexuality, Marriage and Family“. I was asked to speak on the topic of “Family Work and Family Money”. In this 80-minute class of approximately 150 students, we discussed the impact of personal finances on family and individuals. In my everyday role as a personal trustee in bankruptcy, I meet with real people, having real money problems, needing a real plan. During my talk, I tried to keep the lesson open and allow students to add input to the conversation. While these students are very smart, some of them appear to be naive and untrained when it comes to formulating their thoughts on personal finances. Their text book was called “Choices and Constraints in Family Life” by Maureen Baker. Well, when it comes to finances and budgets, there are no two better words – choices and constraints.

We are all constrained by how much income we have available each month and when you compare it to actual demands for income we are left with choices. In today’s society, we are spenders and the economy is based on these spending habits. The difficult part is that the cash outs can exceed the cash ins on a regular basis. This is when we tend to fall back to credit cards to cover the shortage. For example, Canadian household debt as a percentage of personal disposable income per household is a staggering 131%.

This morning’s class allowed for the students to consider a situation - they were a married couple with 2 kids and due to an event (such as illness, lay-offs, reduced hours, change in employment, etc) their family income had dropped by $10,000 per year. They worked in teams to brainstorm how they would deal with this change. The students provided some good and practical solutions. The hard part is, these are real situations couples face every day and it is the use of credit that is sometimes what gets them by. When the debt levels are too large to manage, often couples consider personal bankruptcy or consumer proposals as an option. These are good people who did not plan for this to happen; it was the combination of many life events leading to that point in time.

In closing, I think individuals and couples would be better prepared to deal with changes though their lives if they were better equipped with personal financing courses included in their education. If you would like to discuss your situation, e-mail me or call me at 310-PLAN (no area code required).

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When do we feel that we need a second option? Personally, I feel I need a second opinion when:

• I still have questions and I am not being provided answers
• The explanation I have been given is confusing or not related to my situation
• I feel like I am being given a quick answer
• I feel like the person did not listen to me

The reason I raise this point in my blog today, is that I meet with people every week who have been to another place and they are unsure about the explanation they have been given about personal bankruptcy or consumer proposals. As a Licensed Trustee in Canada, I am responsible for adhering to the same standards as all other trustees. The difference in our firm is our people. We focus only on personal solutions for individuals facing financial hardship. In our Kitchener-Waterloo office, individuals only meet with experienced members of our Team. Two of my most experienced members are Jane Merling and Lynn Strouth, each with over 25 years experience in helping people with personal financial solutions. One of the ways we stay current is by supporting aspiring team members in their efforts to obtain a Trustee license (a rigorous 5 year program). Through this we attempt to provide clear information and help individuals and families make a PLAN for the future.

In Kitchener-Waterloo, we answer the phone, treat people with respect, and strive to answer all their questions. After meeting with an individual, we encourage them to call us back at anytime to answer any follow-up questions or to explain something if the person is unclear. It is never a bother or an interruption; we work as a team to be available when the person calls.

If you would like to discuss your situation or arrange a free consultation with us, please call us at 519-747-0660 or e-mail us. We are located on the second floor of the plaza at 607 King Street West in Kitchener which is near Zeke’s restaurant and Tim Hortons.

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Child support payment issues are something several readers understand all too well. This blog is in response to several individuals I have met with from Kitchener-Waterloo who have raised FRO as an issue. It will consider the position of the person who is required to make the payments. Generally we understand child support and we appreciate the theory behind it. The issue I hear the most about is the ability to pay it and deal with all other expenses and debt payments. If someone is behind in their debt payments, this compounds the problem for the payer.

Separation is a very trying and stressful time and it involves a major change in life style. Given that money is the central part to one’s life style, the change to one’s income and the requirement to pay child support significantly affects the budget.

Let’s focus on child support responsibility and a personal bankruptcy or a consumer proposal.

Does Child support go away in a personal bankruptcy or a consumer proposal?

• NO, child support obligations pursuant to the Family Law Act, are not discharged in a bankruptcy or a consumer proposal (section 178 (1)(b)(c))
• But there are special rights for the recipient if arrears exist in the past 12 months – the recipient has a priority claim over other unsecured creditors (section 136 (1)(d.1))

Child support payments during a bankruptcy

• The costs of bankruptcy are based on the individual’s net income, which is calculated after payment of child support. Therefore, there is an incentive during a bankruptcy to remain current on payments of child support as it reduces the amount that one pays in a bankruptcy.

The Family Responsibility Office (aka FRO) is involved in a personal bankruptcy or a consumer proposal in many cases, especially once arrears in payments occur. The FRO uses garnishments as a method to collect for the payers’ pay cheque. The garnishment can be large enough to seriously affect the amount that someone has available for rent, cars, living expenses and debts.

Many individuals I have met with in our Kitchener office are making payments to child support, but they can no long keep up with their debts and living expenses. Several of them have chosen a personal bankruptcy or a consumer proposal to deal with their unsecured debts to help get them back on their feet financially.

If you are struggling with your debt level due to a requirement with respect to child support, call us 310-PLAN (no area code required) or e-mail me. We can discuss an appropriate plan for you.

Related Links

Family Responsibility Office

Bankruptcy and Insolvency Act

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Last week, the Federal Government brought some long awaited changes to the Bankruptcy and Insolvency Act. These changes dealt specifically with student loans and Registered Retirement Savings Plans (RRSP).

STUDENT LOANS

The new rules state that if the student loans are seven years old by the time someone files a consumer proposal or personal bankruptcy, then they are now dischargeable. That is, they will be eliminated after the consumer proposal or personal bankruptcy is completed. The age of the student loan begins when the student ceases to be a full or part-time student (referred to as the “end of study” date) and ends on the date that a consumer proposal or personal bankruptcy is filed. This is a change from the old rules which defined the dischargeable age of a student loan as 10 years.

To confirm the end of study date, here are the numbers:

Canada Student Loans: 1-888-815-4514

Ontario Student Loans: 1-807-343-7260

Further, if someone has completed a consumer proposal or a personal bankruptcy and the student loans are greater than 5 years old, a court application can be made to now have them discharged. After some court motions are made under this new law, there will likely be precedents set on the requirements to have the loans discharges. For this section of the law, we recommend that a lawyer be consulted.

REGISTERED RETIREMENT SAVINGS PLAN (RRSP)

In the past, some RRSP investments were cashed by the trustee in a personal bankruptcy. Pursuant to the new laws, all types of RRSPs are protected from the creditors in a bankruptcy, the only exception, is being those contributions made within the last 12 months prior to filing for personal bankruptcy.

If you would like to discuss these new rules or your situation, please call us at 519-747-0660 or e-mail us.

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I had a meeting today with a lady that had filed for bankruptcy with me nine months ago. As she had fulfilled all duties she was receiving her automatic discharge. We will refer to this person as Mary. Although she was disappointed that she had to file for personal bankruptcy, she was satisfied that she was able to obtain a financial fresh start and was moving forward in life.

We reflected on her situation and the changes that she has made. Some details on Mary’s situation were:

• Mary is 32 years old
• Single mother of one child
• Rents an apartment in Kitchener
• Works full-time in a retail store and nets about $2,000 per month
• Receives $250 in child support (which was sporadic, but now is steady as it is being received through the Family Responsibility Office)
• She owed $34,000 in credit cards and a bank line of credit

When she first came to see me, the collectors were calling and the pressure was starting to get to her. We reviewed the options as she wanted to focus on dealing with the debts and obtain financial control again. Personal bankruptcy was the solution she selected.

The bankruptcy process required that she comply with some duties, which included:

1. Completing monthly income and expense statements
2. Attended two credit counseling sessions (one on one)
3. Providing income tax information
4. Paying a minimum contribution of $160 per month
5. If her income increased, then the amount she would have pay could increase as well (referred to surplus income)

If you are experiencing stress due to your debt load and want to discuss ways of dealing with it, e-mail me or call me at 310-PLAN and we can arrange a free consultation.

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Today’s blog is to pass on an e-mail that we received from someone who has just completed a consumer proposal through our Kitchener office.

E-mail received:

“This is not a question but a thank you. The service and advice I received was way more than I expected, Any question was answered, and in a very timely manner. You handled every detail with utmost professionalism. From the moment we started to work together right up to now, my mind was at ease and I am so happy to have reached the end of one road and the start of another. I have recommended you to others I have encountered in my position and want to once again thank you for helping me get my life (and finances) back in shape.”

At Hoyes, Michalos & Associates Inc. we take pride in helping individuals obtain a fresh financial start. We understand that financial strain can have a significant impact on personal and family life. A consumer proposal or personal bankruptcy are some of the options that individuals have available to ease their stress and obtain a fresh start.

Our approach is to answer questions and provide facts so that individuals can make an informed decision for themselves. When they file a consumer proposal or personal bankruptcy with us, we attempt to provide assistance when they need it.

If you’re experiencing financial hardship and want to discuss your options in detail, e-mail us or call us at 310-PLAN. There is no cost in calling us or having a meeting to review the options and we are located at 607 King Street, Kitchener – between uptown Waterloo and downtown Kitchener.

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On Saturday Ted Michalos and I were guests on the 570 News Ask the Experts show, where we spent the hour discussing taxes and personal bankruptcy in Kitchener. The topic of taxes always draws a lot of attention as we are all affected by taxes and there are many rumors around how they work. There are several reasons that individuals owe taxes to Canada Revenue Agency (formally Revenue Canada), including but not limited to:

1. Self-employment,
2. Working more than one job,
3. Receiving pension income,
4. Reassessments of prior years returns, and
5. Cashing out RSP’s

The options in dealing with tax debts are:

1. Pay them – in a lump sum or over a CRA payment plan;
2. Apply to relief under the CRA fairness provisions;
3. File a consumer proposal,
4. File for personal bankruptcy in Kitchener, or
5. Let Canada Revenue Agency (CRA) garnishee pay cheques, freeze bank accounts, place liens on assets, etc.

It is true that the Canada Revenue Agency has more collection powers than any other creditor.  Some of the difficulties individuals face when they have a tax debt is

a) they have various other debts and do not have the funds available to pay the tax debt and

b) CRA tends not to be too aggressive with the collection calls compared to other creditors.

One of the common misconceptions with respect to tax debts, is that they never go away.   This is not true.  A tax debt is a dischargeable debt in a bankruptcy or consumer proposal pursuant to the Federal law called the Bankruptcy and Insolvency Act.  Therefore, if someone does file for bankruptcy and has a tax debt, then that will be included and discharged as part of the bankruptcy.

Further into the radio show we discussed consumer proposals. In a consumer proposal, a CRA liability is a debt that does go away. 

The main difference is that the creditors vote on a consumer proposal and therefore if taxes are the majority creditor a consumer proposal acceptance will depend on whether Canada Revenue Agency wants to accept it.

There are proposed new rules around bankruptcy that will impact tax debts.  Doug Hoyes and Ted Michalos (founders of Hoyes, Michalos & Associates) were in Ottawa last month and presented the Senators with their opinions on these new bankruptcy laws. 

If you are finding yourself with a tax debt that you are not able to handle and want to discuss your options, e-mail or call me in Kitchener at (519) 747-0660 or 310-PLAN (7526).  As a Chartered Accountant and a Trustee, I will understand your situation and will be able to explain to you how to make a plan to deal with your tax debts.

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A good friend of mine, Dr. Tracy Penny Light, asked that I be a guest speaker in one of her courses on the campus of University of Waterloo. Dr. Penny Light is a professor in the program “Sexuality, Marriage and Family Studies” from St. Jeromes University. The course she’s teaching this semester is “Couples, Marriage, and Family”. Specifically, she asked me to speak about “Family Work and Family Money”.

The class was an hour and twenty minutes, during which we discussed:

• Today’s working families
• Financial constraints
• Budget/Cash-flow
• How to manage credit
• What can go wrong
• How financial troubles impact marriages
• How to resolve tough situations

We explored how family employment has changed over the years resulting in an increase in the number of relationships that have both spouses working. One of the reasons for this is the financial constraints we have in today’s society which has added great stress to couples and families.

When you factor in the increase in credit use, the average family is now carrying more balances on credit cards and loans then they make in a year’s income. Thus, costs of living have increased over the years and we are spending more and saving less.

During my talk, I had the class work on a family budget for a year’s period. I wanted them to assume they were a family of 4, bringing home $60,000 per year. It is interesting to see the amount of difficulty that the students had with this project. I have always believed that our education system has not properly prepared today’s youth with the fundamentals in personal financial management. There are many techniques and methods to budgeting and not all them work for each person/family.

We then discussed that one of the major leading causes of insolvency in Canada is marriage breakdown. When a couple dissolves a relationship, the costs of living increases significantly as there is now the requirement for two residences as well as support payments. The impact of financial strain on a relationship, like all other stresses should be dealt with as they arise. There are solutions to these financial strains.

If you are experiencing financial stresses or strains and they are impacting your relationship, call us at 310-PLAN or e-mail us to discuss the options you have.

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We answered questions that people had concerning personal bankruptcy. Here is a summary of what we discussed:

What is personal Bankruptcy? Personal bankruptcy is a solution that allows individuals to have their debts discharged and will generally last a minimum of nine months. In order to obtain a discharge at the end of nine months, several duties must be fulfilled. These duties include completing monthly income and expense statements, attending two debt management counselling sessions, and making monthly payments.

With respect to vehicles and house, if there is a loan against either and selling the asset would result in a loss, then it will generally not be affected, but you would have to keep paying the secured loan. Regarding these assets, it is best to call us and discuss the situation so we can provide more information.

We speak with thousands of people from the Kitchener-Waterloo area and we understand that personal bankruptcy can be a logical solution for real people who have fallen under tough times. Personal bankruptcy could be the result of marriage break-up, illness, loss of jobs or reduction of hours.

Our entire Kitchener team looks forward to meeting with you to work out a plan to deal with your debts, so call us at 310-PLAN (310-7526, no area code required) or 519-747-0660 or e-mail us to arrange a free initial consultation. There is help available, so give us a call, and let’s get started.

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