Business Struggles

Talking Business Struggles

Earlier this month I had an opportunity to speak with members in our networking group about business struggles as a result of COVID-19 and how a proposal under the Bankruptcy and Insolvency Act could provide for a clean balance sheet and fresh start. Below are some of the key points

Introduction

The hat that we wear in the debt services industry is the hat of a Licensed Insolvency Trustee (LIT). We are licensed by the Office of the Superintendent of Bankruptcy and operate under the Bankruptcy and Insolvency Act statutes, Rules and Regulations; as well as Directives issued by the Office of the Superintendent of Bankruptcy. Any Individual, corporation or partnerships looking to avail themselves of the relief offered under the BIA must do so through a LIT.

Talking Business Struggles

COVID-19, as we are all aware has created fiscal hardship on a lot of businesses. It seems that even the large multinational companies have felt the economic wrath of this disease.

The government has tried to provide some measures of relief, like the Canada Emergency Commercial Rent Assistance and various loans. Even with the Government relief, some businesses continue to struggle. The business struggle could come from an assortment of issues including, but not limited, to their customers being overly cautious, customers now having limited funds to spend during this difficult time, business operating restrictions. These reasons, as well as other reasons, have resulted in a reduction of gross revenue. In addition to the drop in gross revenue, operating overhead likely hasn’t changed much. For some businesses, it has been a rough ride.

How can a Proposal Help With Business Struggles?

A proposal under the Bankruptcy and Insolvency Act is an opportunity to restructure a business’ balance sheet. In simple terms, it affords a business the legal framework to work with its creditors as a whole and provide for payment terms which are manageable for the business and satisfactory for the general body of its creditors.

Downside to a Proposal?

A proposal does have downsides, some of which will be covered below. The biggest risk is that a proposal that is rejected by its creditors or not approved by the court will deem the business to have made an assignment in bankruptcy.

Now to some of the positives

Commercial Leases for Operations

Some businesses might find themselves in unfavourable leases for their operating locations. There may be a need for downsizing operating space as a result of having more employees working from home or with the potential change in how a business delivers its service or products. It is likely safe to say that business owners, whether they like it or not, have been dragged into the digital age!

With a proposal, there is the ability to disclaim a lease or multiple leases. So if you want to reduce the number of locations that you operate from or simply reduce the square footage as more employees work from home, this now becomes possible.

This great news comes with some caveats though. To disclaim a lease, it must be shown that it is necessary in order to advance a viable proposal. A disclaimer of lease can also be challenged by the landlord. Further, once a lease has been disclaimed, your landlord now has a right to vote on the acceptance of your proposal.

Business Struggles as a Result of Owing the Canada Revenue Agency (CRA) Tax Debt

If you owe CRA money and they’re calling, doing nothing could be a disastrous plan of action. CRA has the best toolbox around for the collection of debt. They can freeze your bank accounts, register liens against your assets and even contact your customers to collect your accounts receivable. Any of these actions could put you out of business instantaneously. A business that has been or has begun to struggle will find that they have stopped paying payroll deductions, HST and corporate tax debt.

Corporate Tax Debt

Corporate tax debt is a tax obligation arising when a company earns a net profit for a fiscal period. Companies that have been struggling likely won’t have this obligation just yet. But if your company has been successful, it will have corporate income tax payable. In a proposal, corporate income tax owing is an ordinary unsecured debt. Unlike HST and payroll deductions, there are no special priorities or treatment for this debt.

Payroll Deductions

Payroll deductions include the monies that are deducted from an employees pay cheque, for the benefit of the CRA, and the matching portion that the employer is responsible for. This debt poses a hurdle in the proposal as it is required, in order for the Court to approve a proposal, for this debt to be paid in full within 6 months of the Court approving the proposal. The CRA can consent to have this payment made over a longer period of time but that is more the exception to the rule.

HST Obligations

If your business generates more than $30,000 in gross revenue, your business will be required to collect HST on behalf of the CRA. The collection of this tax is strictly for the benefit of the CRA and is to be remitted in full at the end of each reporting period. Failure to remit this tax creates a liability for the director.

When a proposal is filed, the corporation has an opportunity to discharge this debt. However, as mentioned above, the director has becomes jointly and severally liable for the debt. There is a mechanism within the proposal, that can mitigate or expunge this obligation.

Institutional Debt and Credit Card Debt

Generally speaking, credit card debt will be unsecured and cleaned up in a proposal. Lines of credit and operating accounts however may be secured against the assets of the business. Options with secured debt are limited but the unsecured debt in this pool will get discharge from a proposal. This means that your days of dealing with interest rates and never-ending debt pay down can be a thing of the past. Watch out for personal guarantees though!

Trade Debt

Trade debt can become a headache. In some cases you end up will multiple creditors calling you for payments. These debts also lead to the involvement of collection agencies or even lawyers. If you owe money, and collection agencies are involved, you can expect your phone to ring but it will be for the wrong reasons. These creditors also tend to lack experience in insolvency matters. A proposal will stop collection activity, stop litigation and protect your assets from your creditors. You will likely lose some of your suppliers and the ones that are willing to still work with you will have you on cash-on-delivery terms.

Business Struggles Solved

A successful proposal can be a necessary tool to allow your company to pick itself up at the end of the COVID-19 pandemic and become a viable employer and trade partner in the economy. If your balance sheet suggest that there are significant debt issues, it is worth talking with a Licensed Insolvency Trustee. Worst case scenario is that you leave the conversation with more knowledge.

Contacting us

You can visit our website at: www.jcampbellandassociates.ca; email us at reception@jcaal.com; or call us at 519-601-9793

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Paying Creditors on the Eve of Bankruptcy

When meeting with folks to discuss solutions to their debt woes, a popular question often pops up: “Should I be paying creditors on the eve of bankruptcy?” These payments are called preferential payments. 

On the surface it seems like an honest inquiry and a harmless one at that. Some people might even wonder why anyone that is planning to make an assignment in bankruptcy or file a consumer proposal would even consider making payments to their creditors. 

Honest People, Just Looking to do Right

Coming to the conclusion that a bankruptcy or a proposal is necessary to deal with debt is a tough conclusion on its own. People generally are good natured and want to make best efforts, including one final payment to their creditors. Sometimes making this “final” payment offers the payor some ease on their conscience.  But if we are being honest, the payment is unecessary and might even create more bad than good. It is better to keep your resources, use the extra money to start the insolvency proceeding, stock your fridge and catch up on overdue utilities. 

Still Have Someone You Want to Pay?

Okay, so your fridge is full and utilities are up to date and you still have someone in mind that you would like to pay. Perhaps a family member or friend or a debt where your spouse is a co-borrower. Maybe even a small credit card with the banking institution that handles your chequing account.

The recommendation, at least from this writer, is that you refrain from making those payments. One of the core philosophies of the Bankruptcy and Insolvency Act is that all creditors get treated equally and share in a pro-rate distribution of the bankrupt’s assets. Any arrangement otherwise creates potential preferential payments. 

Preferential Payments? Tell Me More!

A preferential payment is pretty much self explanatory. You are preferring one or some of your creditors over the rest of your creditors.  Usually the preference is made in favour of someone that you know or are related to; a creditor where the payment benefits a third party, like a co-borrower of one of your debt obligations; or a product with your banking institution so that you don’t need to open a new account. 

And if I Make Some Preferential Payments?

Well to put it blunt, there are mechanisms under the Bankruptcy and Insolvency Act to fix those transactions and a duty, where economically reasonable, for your Licensed Insolvency Trustee to avail themselves of these mechanisms. In situations where it is impracticable for your Licensed Insolvency Trustee to take steps, any of your creditors can take it upon themselves to seek a remedy.

These remedies may include, and are not limited to, seeking payment from the party that was the beneficiary of preferential payments or asking the Bankruptcy Court to grant a discharge conditional upon you paying an additional amount into your bankruptcy before being discharged from your bankruptcy.  

In Closing

Preferential payments should be avoided when the end game is a bankruptcy or a proposal under the Bankruptcy and Insolvency Act. These payments have the potential to derail a reasonably good process for getting a fresh start and could cause more grief than otherwise intended. Your best bet is to have the honest conversation with anyone that is impacted by your need to use an insolvency proceeding to get a fresh start and let them know that your Licensed Insolvency Trustee will be contacting them.

If you have more questions, please contact us at reception@jcaal.com or 519-601-9793.

 

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COVID-19, Your Business and Insolvency

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I’m sure this comes as no surprise to anyone reading this that, at least as of the date of this blog, we have a COVID-19 pandemic and both the Federal and Provincial Governments have taken measures to try and “flatten the curve”. Unfortunately this measure means that non-essential business operations have seen their bottom line significantly impacted. A lot of businesses will face insolvency as a result.

 

Is there any support? 

 

The Federal Government has already taken measures to support consumers through the CERB and has encouraged lenders, including mortgage lenders, to provide relief to consumers, which has happened, to an extent. But what about small businesses?

  

Support for Small Businesses

 

There are various programs that have either been rolled out already, being considered or having the pre-qualification requirements adjusted (post roll-out). In addition to the various programs, the Federal Government is considering a rent/lease subsidy to help lessen the impact on cash flow. 

 

When The Support is Too Late or Not Enough 

 

Perhaps government bail outs or moratoriums provided by your creditors or landlord isn’t enough but you have an otherwise viable business, what else can you do?

There are a couple of strategies, depending on the structure of your business, that may provide an opportunity for you to continue with your business dreams while getting a fresh start and relief from your creditors. If you find yourself in this situation thanks to COVID-19, give us a call. We will provide the advice you need at no charge. You can reach us at 519-601-9793.  

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Things to Know With a Consumer Proposal

I think that we are at a point where most consumers are aware of consumer proposals and what they try to achieve. A consumer proposal is one of the options that might be available to someone who is insolvent and unable to keep up with their required payments. Here we will talk about things to know about your role in the process, a few of the things to know about the Licensed Insolvency Trustee’s role and things to know about how the creditors might respond in your consumer proposal. Well let’s get started!

Consumer Proposals and Where to Start

Always, always start with contacting a Licensed Insolvency Trustee (LIT). Most, if not all LITs provide free consultations and provide the whole list of options that can help with your debt situation. LITs get their authority from the Bankruptcy and Insolvency Act, which is important when dealing with creditors that are looking to exercise their rights; and are governed by the Office of the Superintendent of Bankruptcy. The fees that a LIT can charge under a consumer proposal are also regulated by the Bankruptcy and Insolvency Act.

What does all that mean?

You will save money when you start with a LIT and you can have confidence in the process, given its regulated nature.

Doing Your Part

It is important to know that since this is your consumer proposal, you have to be an active participant in the process. This is more than just making the lowest possible payment to your creditors.

The Assessment

When you meet with your LIT, it is important to be transparent and honest. The LIT is an officer of the court and has to balance your rights with the rights of all other stakeholders. You will be required to disclose ALL assets, ALL creditors and ALL sources of income and any other relevant information – got it?
In some cases, people will hide material information. This creates issues when this information surfaces. The creditors and the LIT will also lose confidence in your intentions. One of the goals of the Bankruptcy and Insolvency Act is to provide an honest but overburdened debtor a fresh start. So be honest!

Creditors Rights

The LIT will generally provide a recommended payment that you should offer under your consumer proposal. This is generally a fixed monthly payment for 60 months. This is only a recommendation and creditors do have rights – I know, hard to believe!

Some creditors don’t invest too much in the way of resources in this process and will accept a consumer proposal that an Administrator (appointed title for a Trustee under a consumer proposal) recommends.

Other creditors will endeavour to maximize their recovery. These creditors will either look for a certain return on the dollar or will pick apart your estimated household expenses (i.e. if you’re spending a few hundred dollars a month on entertainment, they may expect you to cut that back and pay a portion of that into the proposal).

So, don’t be surprised if your LIT tells you that the creditors will only accept a proposal if the payment is increased to a certain number.

At this point in time, you’re down to a few options. If the creditor ask isn’t too much more than what you have offered, you may agree to their terms and amend your proposal. It the creditors’ ask is quite a bit higher than what you have offered and making the payment that they are looking for creates financial hardship, you can offer a counter offer of something in between what you offered and what they have asked for. Your LIT will handle the negotiation – you won’t be asked to speak with your creditors. If you and your creditors can’t reach a deal that is one you can afford and one that they are willing to accept, you can always make an assignment in bankruptcy or return to dealing with your creditors on your own.

I’m often asked “do you think that the creditors will accept my proposal?” It is always case by case and in most cases, creditors would prefer a consumer proposal as they know that the alternative is bankruptcy. But there are circumstances where the creditor may be willing to cut their loses if they feel that your consumer proposal isn’t fair to them.

You Got Your Deal in Place. Now What?

Once you get through the negotiation stage, it is time to carry out the terms of your consumer proposal. In all cases this will include making payments as outlined in the consumer proposal and attending two credit counselling sessions. Sometimes there will be other non-economic clauses like filing tax returns on time or carrying out some other task.

Of note, under the Bankruptcy and Insolvency Act, you are only allowed to be in payment arrears to the extent of 2 payments. If you fall three full payments behind on your consumer proposal, your consumer proposal becomes deemed annulled. Simply put, your consumer proposal is void and your creditors may resume collection activity against you.

Full Performance

Once you have performed all the terms of your consumer proposal, you will receive a Certificate of Full Performance. This operates the same way as a discharge from bankruptcy. A couple of things to know is that not all debt can be discharged by a consumer proposal and your credit report will show that you filed a consumer proposal for the next three years.

For a list of debts that are not discharge, see section 178 of the BIA.

Talk to an Expert

If you’re looking for more information or would like to book an appointment with our office, you can call us at 519-601-9795 or email us at reception@jcaal.ca.

You can also check us out on our website or fill in a contact form.

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Bankruptcy – The Good, The Bad And The Ugly

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You find yourself with a pile of debt, not enough money to pay it and a phone that won’t stop ringing! The same few collection agencies literally call you five times a day. What do you do about it? The short answer is that you should arrange for a free consultation with a Licensed Insolvency Trustee (LIT). A LIT will assess your situation and discuss with you all the practical options available to deal with your debt.

You most likely have heard the word bankruptcy but perhaps you are uncertain what it is. If you’re looking for some information before picking up the phone to book that consultation, look no further. In this blog we will cover some of the good, bad and the ugly points of filing personal bankruptcy.

Without Further Ado – The Good

The Bankruptcy and Insolvency Act (BIA) has been referred, by some professionals in our community, as a “sword and shield”. What does this mean exactly? For the honest but overburdened debtor, the BIA can be used as a shield. We will come back to the “sword and shield” concept a bit later in this blog.

“So a shield you say”… One of the driving factors for someone filing for bankruptcy is to get relief from their creditors. The shield part of this expression relates to what is called a Stay of Proceedings or Stay. The Stay stops ongoing or pending garnishments; stops collection activity; and the general burden of having to make payments to ones creditors.

The other benefit to filing for bankruptcy is the idea that at the conclusion of the bankruptcy itself, the person filing for bankruptcy will be debt free. A clean slate if you will.

Something else to consider is the money that you would save by filing bankruptcy. Bankruptcy isn’t free and the LIT will discuss payment obligations, which are dependent on your specific situation. However, the monthly cost of filing bankruptcy would most likely cost less than what your monthly minimum payments to your creditors would be. Also, minimum payments to your creditors could carry on well past your best before date; whereas bankruptcy can be as short as nine months.

Now that we have established that your monthly cost of the bankruptcy would be less and for a shorter period of time than paying your creditors, what will you do with the extra money? You could use this money to stock the cupboards, improve your wardrobe or even start saving for retirement. One caveat on the saving aspect, during a bankruptcy any money you save could be considered an asset that belongs to the bankruptcy – so talk to your LIT first.

So, whether the need for filing for bankruptcy has come from some unfortunate event or from your own actions, bankruptcy can be an effective to get a fresh start.

Okay, So What Are The Bad Points?

Yes there are “bad” aspects to filing for bankruptcy but the the good aspects certainly outweigh the bad aspects. When you file for bankruptcy, there will be a cost; you will have some duties to carry out; your credit score will drop; and your creditors will have rights, if they so choose.

The Cost

Cost can be measured by the actual cost of the bankruptcy, your personal time or length of the bankruptcy and potential assets that you may lose.

Depending on your income, family size and the number of times that you have previously filed for bankruptcy, your bankruptcy could cost as little as $1,800 (usually paid as $200 monthly) and last only nine months. If your income is above a certain standard, your bankruptcy could be either twenty-one months or thirty-six months and the cost will be determined on the household income earned during the bankruptcy. If you have been bankrupt twice before, you will need to appear in bankruptcy court to find out the terms of your discharge.

The biggest concern for most folks is what will happen with their assets. Under provincial legislation, debtors can have the ease of mind knowing that certain assets have certain protection or exemptions. This list is not exclusive and lists some of the more common assets and their exemptions:

• Household Furniture and Effects – The aggregate value of these assets are exempt to the extent of $11,300;
• Clothing – All necessary clothing is exempt from seizure;
• Motor Vehicle – the value of the vehicle less any lien registered against the vehicle is exempt to the extent of $6,600;
• Whole Life Insurance Policies – the protection of these assets will be dependent on who the beneficiary is;
• RRSP – Registered Retirement Savings Plans are exempt in full less any contributions made in the year prior to filing bankruptcy;
• Tools of the Trade – Tools used to earn a living are exempt to the extent of $11,300

There are other assets to which exemptions may apply and your LIT can review those exemptions with you. With respect to assets that are not protected by provincial legislation, you will have to make a choice. You can either surrender those assets to your LIT for sale or you can pay the value of the asset into your bankruptcy. When calculating the realizable value (the amount that you would have to pay to keep the asset) of an asset, you deduct the amount of any registered lien.

The good news is that if your payments and the length of your bankruptcy are too much and too long, there is another option that your LIT can review with you. This option is a proposal. Learn more about consumer proposals.

Duties, You Say?

Yeah, bankruptcy is more than just making payments in order to clear out your debt. You will be responsible to complete certain duties. These duties focus on full disclosure, rehabilitation and maximizing the return for your creditors.

Full Disclosure

Prior to filing bankruptcy your LIT will ask for a complete inventory of your assets, your income, whether or not you made any preferential payments to your creditors and what asset have you disposed of. You will be asked to report on these items and when the time comes to sign documents, these disclosures will be sworn under oath.

Full disclosure doesn’t stop there though. During your bankruptcy any interested party has right to request a creditors meeting and/or an examination under oath. Both of these processes, while not always utilized, serve the purpose of making further inquiries into what has or has not been declared in terms of income and assets; as well as what your conduct was prior to your bankruptcy. Information gathered at these events will help determine whether an opposition to your discharge from bankruptcy is necessary. If you’re an honest Joe and haven’t dissipated your assets on the eve of bankruptcy, you would have nothing to worry about.

Rehabilitation

One of the goals of the BIA is to help a debtor become rehabilitated. This done by giving the debtor a fresh start and the tools necessary to avoid a future insolvency proceeding, especially in cases where the insolvency  of a debtor was driven by poor money management.

During the course of the bankruptcy, a debtor will be required to attend two credit counselling sessions. These sessions are to be provided to you by your LIT, at no additional cost. These sessions are to occur after 10 days from the date of bankruptcy but before day 60 for the first session; the second session must be completed within 210 days from the date of bankruptcy. There must be at least 30 days in between both sessions.

The focus points of the credit counselling sessions revolve around money management, spending and shopping habits, warning signs of financial difficulties, credit rehabilitation and discussion pertaining to non-budgetary causes for insolvency.

If two counselling sessions were not enough, you can ask your LIT for a third session.

It is critical to come out of bankruptcy with the ability to manage your finances and understand the Canadian financial system so that you can avoid another insolvency proceeding.

Maximizing The Recovery Of Creditors

It is important to know that, even though you initiate contact a LIT and ask that LIT to provide you a service, a LIT is considered an Officer of the Court. The LIT must remain impartial between you and your creditors and has a duty to all stakeholders involved. This means that you may get some answers that you don’t like.

One of the duties that a LIT has is to maximize the recovery for creditors. This generally happens by realizing on certain assets (ones that are not exempt, as mentioned above) and collection on surplus income obligations.

Assets that are unencumbered and not exempt will vest in the Trustee. These assets will be valued and disposed of. The debtor does have the option to redeem the value of the asset. Redeeming the value of the asset means making a payment into the bankruptcy for the value of the asset. Essentially you are buying back something that you owned prior to the bankruptcy. For example, lets say that you own a boat worth $5,000 and there are no liens registered against it. You would have a choice to either surrender the boat to your LIT or pay $5,000 into the bankruptcy to keep it.

Surplus income is household income that is in excess of a certain standard, which is issued by the Superintendent of Bankruptcy. There is a Directive issued that gives LIT guidance on how to calculate surplus income and the obligations that the debtor will have to pay into the bankrupt estate. A LIT does have latitude to make adjustments based on circumstances. There is also a process called mediation that allows for a dispute on surplus obligations to be resolved. Mediation can be requested by the debtor or creditors and is mediated by an employee of the Office of the Superintendent of Bankruptcy.

Credit Score

Most people are aware that a bankruptcy is detrimental to your credit score. Hopefully this doesn’t catch you by surprise, but if it does that is okay. Click the link to find our how your Beacon Score is calculated. Your Beacon Score will range between 300 and 900. Bankruptcy can directly affect up to approximately 45% of that score.

The length of impact will be determined on a couple of factors. The first factor is the length of your bankruptcy and the second factor is how many times have you filed bankruptcy.

We already know that the shortest period (not including rare exceptions) of time that you will sit in bankruptcy is nine months. Bankruptcy can be longer, depending on income, prior insolvency proceedings and court discharge orders. During the period of time that you are in bankruptcy, your credit report will show a bankruptcy has been filed and all of your creditors will remain listed with a payment history rating of 9 (1 is the best, 9 is the worst).

Once you have been discharged from bankruptcy, your creditors and the payment history rating will be removed. There will be a notation listed on your report that notifies viewers of your report that a bankruptcy was filed. This notation will last for seven years for a first bankruptcy and fourteen years for second or more bankruptcies.

Creditor Rights!

“Hang on! Creditors have rights?” Yes, your creditors do have rights throughout the administration of your bankruptcy. While they seldom exercise them, here is a list of their rights. Some of the more common things that your creditors can do are:

• Request a meeting of creditors. Usually to make the LIT aware of conduct issues or unreported income and assets;
• Request mediation. This is used where they disagree with the Surplus Income Obligations that you are required to make during the bankruptcy;
• Request an examination under oath. A government official from the Office of the Superintendent of Bankruptcy will ask you some standard questions under oath. Additional questions can be submitted by the creditors and your LIT; and
• Oppose your discharge. Generally, a first or second time bankruptcy will get an Automatic Discharge after a certain number of months, if they have completed all their duties. A creditor can oppose a discharge any time before the Automatic Discharge takes effect, provided there are grounds for the opposition. Your discharge then comes from the Court, which you will have to attend a hearing. The Court will listen to the reason why a creditor has opposed and what they are looking for. The court will make a decision and grant an order accordingly. It is somewhat unpredictable.

As long as you are okay with the credit hit, completing some duties, making payments and have been an honest debtor leading up to the bankruptcy, the above things really shouldn’t be all that concerning. The Good points definitely outweigh the Bad points.

And To The Ugly

So what happens if you have been bankrupt multiple times, not prepared to complete your duties or have been a bit of a bandit leading up to the bankruptcy? Well ugly things of course. Let’s talk about the ugly side of things and hope that you don’t fall into this category.

Multiple Bankruptcies

If you have never been bankrupt before, you could be eligible for an automatic discharge after 9 months or 21 months, depending on income. If you have been bankrupt once before, the time frame is 24 or 36 months, depending on income. An automatic discharge is a discharge that occurs after a passage of time and can be issued by a LIT. An automatic discharge only occurs where no interested party has filed an opposition to your discharge.

If this is your third (or more) time filing bankruptcy, your discharge will be heard by the court. The court has the authority to grant a discharge subject to conditions; suspend the discharge for a period of time; grant and Absolute Order of discharge or refuse to grant a discharge altogether.

What Happens If You Don’t Complete Any Of Your Duties?

If you don’t complete your duties you won’t get discharged. Under these circumstances your LIT will seek its own discharge. If a LIT is discharged before you receive your discharge, the rights of the creditors are revived. This means that they can resume collection activity and garnishments. Basically you are back to square one, with a bunch of your time wasted and interest accumulated. Also, worth mentioning, you cannot file another bankruptcy until you have been discharge from the previous bankruptcy.

“What If I Haven’t Been An Honest Debtor?”

One of the core principals of the Bankruptcy and Insolvency Act (BIA) is to afford an honest but overburdened debtor a fresh start. Another core principal is that your creditors receive an even distribution of your assets and a portion of your income.

Earlier we talked about how the BIA was referred to as a “sword and shield”. The “sword” part of the reference speaks to rights, authority and obligations of all stakeholders to review the conduct of the bankrupt, any transactions made prior to bankruptcy and any preferential payments made. While the BIA will afford a debtor an opportunity to have their debts discharged, the BIA will also protect the rights of creditors an the integrity of the BIA regime.

Conduct, Transfer Of Assets and Preferential Payments

• Conduct – Section 198 of the BIA outlines different bankruptcy offences that can lead to a fine or jail time. Follow this link to read more. Obviously being fined or incarcerated is not an ideal situation.
• Transfer of Assets – To dispose of an asset and receive fair value is quite alright. However, selling your cottage to your cousin for a $1 and then declaring bankruptcy is quite the opposite of alright. Your LIT can apply to the court to have the transaction set aside or have the party privy to the transaction to pay the bankrupt estate the difference between the value of the asset and what was paid for on the transfer. One way or the other, your creditors are entitled to the value of the asset and your LIT will be required to make sure that happens.
• Preferential Payments – These are payments made to specific creditors and not to other creditors. For example, you owe your uncle Kevin $5,000 and your credit card $5,000. If you pay your uncle Kevin $5,000 and the credit car $100, a preferential payment has occurred. Remember that one of the core principals of the BIA is to ensure that your creditors share equally. In this scenario, your LIT will have the duty to recover the preferential payment from your uncle Kevin and share it pro-rata amongst all your creditors.

Just To Recap

If you’re an honest debtor but overburdened debtor, bankruptcy might be a good option to get a fresh start. If some of the “Ugly” considerations apply to you, a bankruptcy is still available but brace yourself for a process that will not only give you a fresh start but help your creditors get what they ought to receive.

More Questions?

If you have any more questions or would like to book a free consultation, you can call us at 519-601-9793; email us at reception@jcaal.ca or visit our website at jcampbellandassociates.ca.

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Payday Loans And Escaping The Cycle

Have you ever found yourself short on money and wondering if payday loans were the answer? You’re not alone. After all, the loan process is quick and the credit requirements are low. In most cases, all you need is proof of income and proof of address. Let’s put it this way: Payday loans are easier to get into then out of.

The Dangerous Cycle of Payday Loans

The loan cycle will usually start off with a small advance, maybe $200. Come next pay you will be asked to pay the $200 back plus interest, plus other administrative fees. Depending on how soon the repayment is made, you could be looking at a payment of $250. What if this payment sets you short by another $200? Worry not, you can re-borrow that $200 and on the following payday, you can pay another $250 to the lender. Do this long enough and you will find that every month you are burning $50 in interest and administrative costs.

Eventually, you will be faced with a situation where you need to borrow more than the $200 to meet your budgeting needs. This is where payday loans can become dangerous. If you need to borrow $250 to pay your current loan obligations and say another $100 to have enough to pay the rent, well that $350 then becomes an even larger amount. For ease of this blog let’s say that the payback amount is now $425.

If you continue along this trend, you will soon find yourself borrowing money from two payday stores. The new store will advance you money so that you can pay the original lender and once that account is clear, you will then need to re-borrow that same $200 that started the cycle in the first place. Now you owe the originating store $250 and the new store close to $500.
As you can see, payday loans can get out of control very quickly.

What is the easiest way to escape the cycle? Avoid payday loans completely. If are already in the cycle, you will have to clamp down on your budget so that the amount you are re-borrowing is less each time. If you find yourself in a cycle where the payday loans are becoming unmanageable, you should contact a Licensed Insolvency Trustee to learn about your options.

For more information on how to break the payday loans cycle, you can contact our office for a free consultation.

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Why You Should Consider a Financial Consultation

Financial consultation is often regarded as the last resort, but you don’t need to be in a lot of debt to benefit from a financial consultant. Getting advice from a consultant can be a great help to those who haven’t started retirement savings, need to plan for future expenses, or are simply confused by all the numbers. Don’t let the stress of finances force you into making bad decisions!

What is Financial Consultation?

A financial consultant or financial planner works with people to organize their finances so that they can live within their means and achieve their monetary goals. They can also give investment advice, helping people without much industry experience make smart decisions. The services and plans they come up are based on the personal data, the client’s objectives, and their current financial situation.

Financial consultation isn’t only for people in dire financial straits, though they often help people in deep debt work their way out of it. Financial planners can help people take stock of what they have and help them define their financial goals. These experts can help set up a structure for savings, whether it’s for short-term plans like vacations or long-term plans like retirement. Most importantly, financial consultation can guide you in achieving your goals efficiently and without putting you into deeper debt!

What Do I Need For A Financial Consultation?

Great financial consultation requires as much data that relates to your finances as possible. It might seem a bit intrusive, but if the financial consultant can see as much of your data as possible, they can give you the best advice and a more exact line set of steps for you to follow. In return, you should get constant communication about your situation, with regular updates and all the information you’ll need to succeed.

A good financial consultant should also make the complications of saving and investing simple and easy to understand for their clients. When you are finished with your financial consultation, you should know the specifics of your plan and what immediate actions you can take.

This is why you should choose a financial consultant you can trust. It’s like any other service; you trust your mechanic to fix a car problem, not someone random person off the street because your mechanic is the proven professional. If you’re having trouble with debt, or can’t wrap your head around spreadsheets and numbers, don’t be afraid to ask questions about their services and background.

Licensed Insolvency Trustees, the only professionals that can legally put together consumer proposals, are uniquely qualified to handle questions regarding finances, even if debt isn’t a problem!

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What You Need To Know About Surplus Income

Perhaps you have already met with a Licensed Insolvency Trustee (LIT) or heard a buddy talking about Surplus Income and Bankruptcy but are still not quite sure what it is, how to calculate it and why someone in bankruptcy may be required to make payments based on it. In this blog, I will explain the what, how and why of Surplus Income payments in a bankruptcy.

So, What is Surplus Income Anyway?

The short answer – surplus income is income that is earned above a certain standard.

This standard, called the Superintendent’s Standards, is updated each year based on information released by Statistics Canada and works in conjunction with the Directive on Surplus Income and section 68 of the Bankruptcy and Insolvency Act.

LITs will use the Superintendent’s Standard to determine the portion of the bankrupt’s income that ought to be paid into their bankruptcy for the benefit of their unsecured creditors.

How is Surplus Income calculated?

Surplus income obligations can be a straightforward calculation or a bit convoluted, depending on your situation. If you click here, you will see a copy of the Superintendent’s Standards.

When calculating surplus income, you need to know what the different variables are that impact the calculation. These variables include family size, other members who have income, other members with income that refuse to report their income, and whether there are non-discretionary expenses.

Total income is defined under section 68.(2) of the Bankruptcy and Insolvency Act to include revenue of whatever nature or from whatever source that is earned or received by the bankrupt between the date of the bankruptcy and the date of the bankrupt’s discharge… It is intended to be a very broad term to include everything from a GST credit to damages for wrongful dismissal.

Family Size

The standard or amount that a family can earn depends on the number of people living in the home. As per the 2018 Superintendent’s Standards, the standard for a single person is $2,152 and for seven-plus people, it is $5,694. If the total household income is below the standard, you have no surplus income obligations.

Other Income and Those You Choose Not To Report

When calculating surplus income obligations, your LIT is required to know the income of all the family members in the family unit.

If your non-bankrupt spouse refuses to report income, then the standard for the family is divided into two. For example, a family of four can earn $3,998 per month. If your spouse refuses to disclose their income, the Standard then becomes $1,999 ($3,998/2).

If your child or relative refuses to report income, then, for the purposes of this calculation, you reduce your family size by one person. For example, a family of four becomes a family of three where someone other than your spouse refuses to report income.

Non-Discretionary Expenses

Non-discretionary expenses are expenses that you are required to pay. As per paragraph 5 (3) of the Directive, these include:

1. child support payments;
2. spousal support payments;
3. child care expenses;
4. expenses associated with a medical condition;
5. court-imposed fines or penalties that are in the process of being paid;
6. expenses permitted by the Income Tax Act that are a condition of employment;
7. any other debt where a stay of proceedings has been lifted by the Court, and a recourse authorized; and
8. interest paid on debts that are not dischargeable in bankruptcy (student loans)

Since these payments are required to be made, they serve to reduce the household income.

Example #1

Let’s say that John is a single guy that pays child support. His income, after statutory deductions, is $3,600 per month. His child support is $400 per month and based on the Superintendent’s Standards (2018) for a family of one, he can earn $2,152 before having surplus income. His surplus income would be $1,048 ($3,600 – $400 – $2,152). If John files a bankruptcy, he will be obligated to 50% of his surplus until he is discharged. His monthly payment would be $524 per month.

Example #2

Let’s say that Lori is married and they have 3 kids. Her spouse does not want to disclose income and her 24-year-old son who works full-time also does not want to disclose his income. As Lori’s son does not wish to disclose his income, the family size would be considered to be a family of four. A family of four under the Superintendent’s Standards (2018) is allowed $3,998. Since her spouse has refused to report income, we then split the standard of $3,998 by half. Lori is allowed to earn $1,999 before having a surplus income obligation.

Why is a Person in Bankruptcy Required to Pay Surplus?

A lot of people are surprised that they may have payments under this concept and feel like it is “kicking me while I’m already down”. Requirements arising from surplus income was legislated with the aim that bankrupts with the financial means to contribute should do so in order to maximize the recovery to their creditors.

Contact Us

If you would like to speak with a Licensed Insolvency Trustee, you can contact us directly at 519-601-9793 or by email at jason@jcaal.ca. You can also visit our website www.jcampbellandassociates.ca.

 

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Credit Card Debt Forgiveness

If you find yourself reading this blog, it is probably safe to assume that you or someone you know is overwhelmed by credit card debt and wondering what to do about it. In this blog, I’ll talk about credit card debt, credit card debt forgiveness and a couple of options.

Credit Cards: The Risk and Reward

A credit card can be utilized for many different reasons. Below we’ve listed some of the most common uses and types:

REWARD CARDS – Perhaps you have a card where you can earn cash back or travel miles by making purchases. Reward type credit cards will usually have a small annual fee but if used correctly, you can actually earn more than you pay.

SECURITY DEPOSITS – Some people are required to travel for work or choose to travel for pleasure. Whether you’re heading to that out of town concert, taking your family to Florida for a couple of weeks, or traveling out of province for work you will most likely need a credit card to book your hotel room and, if desired, rent a vehicle to get around.

METHOD OF PAYMENT – Another example of where credit cards come in handy is when they are used as a method of payment. They can be used to make either a big purchase, pay large vehicle repair bill or simply for convenience.

SUPPLEMENTING INCOME – It is handy to have a credit card to book a hotel room, earn travel miles or even purchase that 4D 60” television that you have always wanted; but what happens when you simply do not earn enough money to meet your basic needs? Sometimes people will use credit cards to supplement their income.

These types of purchases are dangerous and will eventually lead you to read this blog or even visiting a Licensed Insolvency Trustee for help. If you find yourself in this category, you may want to take stock in your monthly expenditures to determine what expenses you can either reduce or cut out.

For whatever reason that you may find yourself using credit cards, it is best to avoid high interest rates by not carrying a balance.

Carrying a Credit Card Balance

Most credit cards have an interest free period. If you can pay your purchase off before the end of this grace period you will save yourself some interest. It is important to know, however, that if you are carrying a balance already, any payments you make will go to the previous balance and as a result, you will have interest accumulate. The best way to control your debt is to make sure that, as much as possible, you carry a low balance or even no balance on your credit cards.

Did you know that if you carry a balance on your credit card (or any debt product) that is more than 50% of what you can borrow, your Beacon Score (on your credit report) suffers? Keep your balances low and if you can’t pay them off in full, keep your cards at less than 50% of its limit.

Credit Card Interest Rates

Interest rates are generally quoted as an annual percentage rate (APR) but are compounded daily. What does this all mean?! Let’s say that you purchase a television for $3,000 on a credit card with an APR of 19.99%. We will ignore the interest-free period and assume that you made no payments. The daily interest rate (19.99/365) would be 0.05476% per day. Sounds small enough I suppose but wait until it starts to get compounded. Day one your interest would be $1.64. Now extrapolate that over a 30 bill cycle and you get interested for that period of $49.68. The interest will add up!

Now, let’s look at some other interest rates on the same purchase. Suppose you purchased the television on credit where the interest rate was 46%. Interest accumulated through the first month would be $115.52. If you had a line of credit at say 8%, your first month of interest would total $19.79.

These numbers are estimates and used to only show you the impact that interest can have on your personal budget.

Debt Forgiveness and Credit Cards

A creditor may choose to offer a partial forgiveness of the debt or waive interest for a period of time. Debt forgiveness may also come by the hand of the Bankruptcy and Insolvency Act. Below is just a few ways that debt might be forgiven. This is not an exhaustive list.

Voluntary Debt Forgiveness

Credit card debt forgiveness may happen voluntarily by a creditor that wishes to resolve an overdue account. If your account has gone to collections, it is possible that you will be offered the opportunity to pay a lump sum payment, which is less than what is owed, in full satisfaction of the creditors claim. The caveat here though is that the creditor will most likely want it as a lump sum payment. The opportunity, if you will, can be quite burdensome.

Interest Free Period

A creditor may also accept the fact that your current situation is such that you are unable to make payments but if given a break, you may be able to work your way out. That break may come in the form of an interest free period. If you are so lucky, a creditor may waive interest on a debt product for a limited period of time. It is expected that you would agree to make a certain payment each month to the creditor during this period in order to keep the break on the table.

Bankruptcy and Insolvency Act

When an honest but overburden debtor can no longer make the required payments they may turn to the Bankruptcy and Insolvency Act for relief. This relief can come in the form of either a bankruptcy or a proposal. A debtor that turns to this remedy will have their debt forgiven, provided they complete the required duties. The cost of a bankruptcy or proposal will be driven by the household income and certain assets. For a better understanding it is recommended that you speak directly with a Licensed Insolvency Trustee.

Filing a proposal or making an assignment in bankruptcy, at first blush, is usually considered a less than ideal solution. However, if given more thought and consideration, either of these two options can help you achieve the ultimate goal of having your debt forgiven and getting your that fresh start that you have been fighting for.

Contact Us

If you would like to speak with a Licensed Insolvency Trustee, you can contact us directly at 519-601-9793 or by email at jason@jcaal.ca. You can also visit our website www.jcampbellandassociates.ca

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When Would You Need A Consumer Proposal?

Do you require debt consolidation, but don’t want to file for bankruptcy? In this kind of case, a consumer proposal is how most indebted Canadians avoid the extreme end of the debt relief scale. They are not arranged lightly, but consumer proposals can be the best bet for a lot of people with insurmountable piles of debt. They have a much softer blow than filing for bankruptcy, with many safeguards in place to protect the debtor.

What is a Consumer Proposal?

A consumer proposal is an arrangement made between you and your creditors to settle your debts, negotiated by an Administrator of Consumer Proposals who is also a Licensed Insolvency Trustee (LIT). Legally, only a LIT can administer a consumer proposal, so you can’t try and come up with one on your own or with another kind of debt relief company. Do not get fooled by any company who says they can restructure your debt in this way – it will be a false promise.

To put it in other terms, a consumer proposal is an alternative to bankruptcy. Instead of declaring bankruptcy and taking on the burdens that this will bring, the consumer proposal allows you to pay off a portion agreed upon with your creditors, and they will forgive the balance. The agreement will protect you from debt collection harassment and won’t penalize you as heavily as a bankruptcy would.

Making The Right Choice: When Should You File A Consumer Proposal?

So when is a consumer proposal a debtor’s best option? Consumer proposals are chosen when repayment terms aren’t working, the debt level is below a certain threshold, and the debtor wants to avoid bankruptcy. The debtor must be a person (not a business), be insolvent, have debts totaling less than $250,000 (excluding mortgages on their principal home) and have a stable source of income. The debtor also can’t have any proposals already filed and open.

When it comes to solving your debt problems, a consumer proposal is always preferential to bankruptcy. You get to protect your assets, including home equity, investments, tax refunds, etc. It also will not follow you and your credit for as long, and the monthly payments won’t be as high. When meeting with a LIT, they will walk you through all your choices and guide you to the right one.

The Truth About Consumer Proposals

Now, a consumer proposal is not without its drawbacks. There is always the chance that the creditors don’t accept – it’s only legally binding if they agree to the terms your LIT has worked out. The consumer proposal will also stay on your credit report for three years after completion. If you can’t keep up with the agreed-upon payments and default on this debt consolidation plan, your creditors can take legal action; to make it right, you’ll have to go with another option, and that’s usually bankruptcy.

This is why it’s important to make the right decision for your debt consolidation. As mentioned at the top, consumer proposals are not entered easily. However, it’s not a decision you don’t have to make on your own; a LIT will walk you through your debt and help you come up with a plan that will appease your creditors while giving you some room to breathe. Call us today if this sounds like something you’d like to explore.

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Budgeting Tips: Getting Your Budget In Place

Money has a purpose. The work you do all day isn’t just for the immediate future – it’s to accomplish long-term goals using a budget. It should be used for something meaningful, and you should be spending meaningfully, even when you’re spending on yourself. The best way to spend meaningfully and meet your goals is to have a budget in place.

Making a budget can be a difficult task, though, not to mention actually sticking to it. Use these tips to help you create this budget with ease and achieve your financial goals!

Make the budget with your partner (or with someone who can hold a single person accountable!). If you’re married or share expenses with a partner, budgeting is something the two of you should do together. Think of every dollar as money you share, not as money you hoard from each other.

If you’re single, use a financial institution, family member, or someone you are close with and trust to help keep you accountable to your budget. Truthfully, budgeting alone is hard, but with the right help, it can be done!

Make this budget complex

Your budget should take into account the complexities of everyday life, and if you’re setting monthly goals, your plan should be different month-by-month. Whether it’s a birthday, holiday, oil change, license renewals, or anything that could come up during the month, try not to let these expenses sneak up on you.

It’s okay if you can’t see every expense in the near future! Despite the month-to-month changes, your budget still should have all the major components – necessities, savings, debt payments, and entertainment – with a little room for things you can’t foresee.

Prioritize your expenses

Where does your money have to go? Make a list of the necessities. Rent or mortgage, food, utilities, clothing, and transportation are necessities. You also have to put in your savings, paying back your debts, and keep some money for less necessary (but much more fun) expenses. This puts a lot of your budget into focus and can help you see your goals as actual, real things.

Make a Budget schedule

A financial schedule is one of the most important parts of your budget. After you’ve finished prioritizing the necessary expenses, try and fit them into a calendar. This way, you know when each bill has to be paid and will help you ensure you have enough money for week by week. Once you have this schedule as air-tight as you can get it, stick to the schedule!

Think about your budget as a positive thing

It’s common to think of a budget as “financial jail”, where you’re paying off your debts and putting money away for expenses that are necessary, not fun. This isn’t a healthy way to think about finances! A good budget will actually allow you more freedom, and you’ll be putting actual money aside for yourself instead of relying on credit to do what you love. You’ll be spending without having to pay for it later, and this way, you’ll feel much less guilty about treating yourself! And let us know how we can help.

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When To Ask For Help Regarding Debt

Asking for help when debt is insurmountable can be very tough. Getting into a situation where professional help is needed can be embarrassing, yes, but the truth is that even the best of us end up beyond our means at some point. Remember, trying to live with mountains of debt is a lot harder than working up the courage to seek help!

Professional debt solution experts, like a Licensed Insolvency Trustee, can be the key to ending your problems, and seeing the end of debt’s control over your life. Here’s when you should seek help regarding your situation.

The Budgets Aren’t Working

Have you given yourself a budget, only to fail to stick to it over and over again? You could have a negative view of your budget as something that restricts you, rather than the positive view of a budget as a plan for how you can and want to spend your income. Credit is often how we make up for our budget failures, meaning repayments become bigger and bigger over time.

When left by ourselves, we can have expectations that are too high. Rather than put yourself on a harsh budget that’s impossible to follow, have a professional walk you through a solution that helps to solve your debt, while not restricting yourself too much.

You’re In The Minimum Payment Cycle

When you’re only making the minimum payments on your credit card or line of credit, you aren’t getting any closer to taking care of what you owe. In making the minimum payments month after month, you are doing nothing but paying off fees when you should be working to lower your debt levels.

You Don’t Have Any Savings

Regardless of a level of debt, every person should have savings put away for an emergency. An unexpected car breakdown, leaky roof, or dental expense shouldn’t add to your financial burden, but it can easily become overwhelming for those without dedicated savings.

Credit Is Paying The Bills

If you’re turning to your credit card to pay off your bills, you definitely should turn to a debt solution expert, like a Licensed Insolvency Trustee. This is an incredibly risky, incredibly unsustainable way of living, and if you do it once, chances are you’ll have to turn to your credit card to pay off a bill again. 

The same goes with paying a credit card with a low-interest line of credit. While the latter has lower interest rates, you’re still just maneuvering the debt around. This doesn’t solve the problem, but rather only kicks it down the road for you to try and manage in the future.

Ask For Help Before Debt Becomes Unmanageable

Whether it’s an unexpected problem, a bill to pay, or a budget to keep, debt levels will not go lower if you rely on your credit to bail you out. If any of the above applies to your situation, don’t hesitate to ask for professional assistance from a debt solution expert, like a Licensed Insolvency Trustee. Taking the first step towards a solution can be difficult, but it’s sometimes the only way to get yourself out of the tangle of debt you’re ensnared in. Just remember that you’re not alone, and you don’t have to suffer with debt alone!

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Marriage Debt Responsibility: Divorce, Debt and Bankruptcy

Quite often in our field, we meet with people who are experiencing a separation or are initiating a divorce because of debt problems. If your finances become unmanageable, without a doubt, your debts will begin to hold you and your family back from achieving short and long-term goals. Understanding marriage debt responsibility is a crucial first step.

Debt: A Cause of Marital Breakdown

Marriage debt responsibility is an important topic to understand whether you are currently experiencing financial issues or not. A major debt will also take away opportunities for families to enjoy some of the nicer things in life, like vacations. With proper money management, an insolvency proceeding and a drive to succeed, debts can be eliminated and a strained marriage can be saved.

Who is Responsible for the Debt?

We often come across spouses who believe that they are responsible for each other’s debt or fail to understand marriage debt responsibility. This couldn’t be further from the truth. The reality is that the person responsible for the debt is the person who applied for the product.

In some circumstances, people have been asked to co-sign or guarantee someone else’s debt.  If have you agreed to co-sign or guaranteed someone else’s debt then you will be held responsible here as well.

Another misnomer is that joint debt (meaning that two or more people applied for the product) is split evenly between all co-borrowers. That is not true either. Each person is responsible for the entire balance of the debt until the debt has been paid in full and the product closed.

For example, if Bank A lends John and Jane $20,000 and the debt goes unpaid, Bank A can sue both John and Jane, each for $20,000. If John files bankruptcy, Jane will be responsible for the entire amount, less anything that Bank A receives from John’s bankruptcy proceeding.

To summarize marriage debt responsibility, you are only responsible for the debt that you applied for, co-signed or guaranteed.

Debt Responsibility Before it is too Late

Filing a bankruptcy or a consumer proposal can give the financially burdened person some much-needed relief. If this is done before a marital breakdown, it could go a long way in saving a relationship. This is especially true when financial troubles are the main topic of stressful arguments. Simply put, you don’t have to let debt break-up your family.

Contact us today if you think debt is at the root of your marital problems. We can lend a compassionate ear, discuss your options for more information about bankruptcies and proposals.

Contact us today to discuss marriage debt responsibility, call us directly at 519-601-9793 or email us at jason@jcaal.ca.

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