Bankruptcy in Guelph: The Ted Michalos Bankruptcy Guelph Blog

Will your trustee be there tomorrow?

Will your trustee be there tomorrow? This sounds like a stupid question, but we were just contacted by a national accounting firm and asked if we’d like to purchase their personal bankruptcy practice as they no longer think it is compatible with their other lines of business. That’s not surprising. Big accounting firms do big audits for big corporations. They aren’t set up to meet with individuals in financial trouble.

Something similar happened about twelve years ago when another national firm made the same decision. One day they were accepting new clients. The next day they were closed for business.

Industry scuttlebutt says that it is only a matter of time until all of the national firms make the same decision. After all there only are 2 or 3 left. Accountants that are dealing with multi-national companies and huge corporations aren’t all that interested in helping the average Joe deal with his debts. Well, if that’s the case then they should get on with it.

Doug Hoyes and I left a national accounting firm to set up our firm because we didn’t feel the big firm we were with was really interested in helping Joe out. We thought we could do it better.

Our firm has grown to be the fourth largest provider of personal insolvency services in Canada, numbers 1, 2 and 3 are all national firms – I suppose we’ll be third thanks to these guys closing. We’ve grown by adding new trustees and new offices. Each of our trustees sees only people in 1 or 2 locations and these offices are located in the communities where they live. I have lived in Guelph for most of my life. We don’t have people driving all over the province to meet with you in a donut shop. We know you want to see the same people when you come in, you want to know who you can call and who will sort out your problems.

If you are experiencing financial difficulties give us a call at (519) 823-0330 or e-mail me – we can walk your through your options over the phone or book you a face to face consultation with one of our professionals. We can explain how a consumer proposal can help you avoid bankruptcy. Either way there is no charge for the session and most people find it helpful.

We’re in this for the long run – it is all that we do and we’ll be here tomorrow.

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2010: Bad Bankruptcy Statistics Come in Threes

2008 is when the current financial mess stated to affect the general population. I remember that immediately following Labour Day our phones started ringing off the hook and the number of people coming into our offices jumped by 50%.

2009 may very well be a year that most people want to forget. Our office continued to be inundated with calls and by the end of the year overall bankruptcy filings were up more than 36% over the previous year.

If you consider 2008 and 2009 the first two bad things, well then 2010 is likely going to provide the third.

From a statistical standpoint, it appears that we have crested the wave. Personal bankruptcy filings have shown slight decreases in the last few months of 2009. This statistic is deceptive. Since they are showing year over year decreases when compared to 2009 (a year of record bankruptcy filings). If you go back to 2007, the last year before the financial storm hit, we are still experiencing increases of more than 40%.

The bad news is likely to continue…

As financial professionals, what we find most interesting (frustrating for individuals) is that interest rates are at historic lows. If people could consolidate or refinance at these lower rates then a significant portion of the people coming through our doors wouldn’t have to. Unfortunately, these options just aren’t available for the average person. For whatever reason (and they are complicated), the lenders seem to prefer to have accounts written off, as opposed to recovering their money at lower rate of return.

We have had more calls in the first half of January this year than we did last year – a good indication that people will continue to file personal bankruptcy at historically high levels for the forseeable future.

If you are one of the many residents of Guelph suffering through the recession and you have more debt than you can handle, call my Guelph office at 310-PLAN, or e-mail me to set up a no charge initial consultation.

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Will bankruptcy in Guelph stop me from being sued?

Yes and no. We will deal with the yes part first:

There is an automatic feature of bankruptcy law in Canada that puts in place something called a “Stay of Proceedings” immediately upon a person filing an assignment in bankruptcy or a consumer proposal. This isn’t something you have to ask the Court to do for you;  it is literally an automatic feature of the law.

The way it works is simple: once you file either for bankruptcy or a consumer proposal your trustee will send a legal notice (the actual Stay of Proceedings) to any person or business currently engaged in legal action against you. It doesn’t matter if you have only just received the Court papers informing you of the lawsuit, or if the creditor has already been to Court and has an Order to garnishee you wages. The Stay is automatic and stops the process immediately. If someone tries to start a legal action after you have filed, the Stay stops them. If you receive notice of the action you inform your trustee and they will send out the Stay to stop things from progressing.

The Stay is also sent to the Court that is handling the legal action and if the creditor has already obtained a Judgment against you, a copy is sent to your employer as well to stop the garnishee. Your trustee has to send a copy to employer in order to stop the garnishee.  The Stay provides your employer with the legal obligation to stop taking money from your pay cheque; without the Stay the garnishee will continue.

That leads us to the most common difficulty with the Stay of Proceedings; many (most) payroll people have never seen this type of document before so it is not uncommon for them to become confused and ask for confirmation from the creditor that the garnishee must stop. It doesn’t happen a lot, but there are times when a trustee must threaten legal action against an employer (or a creditor) for failing to abide by a Stay of Proceedings. If this happens to you, keep in mind that the problem isn’t because of what your trustee is doing, rather it is because someone at your work place is unfamiliar with bankruptcy law.

And now for the no side:

The Stay of Proceedings is only effective against debts that are dischargeable (can be eliminated) by bankruptcy law. Things like child support, spousal support, restitution orders, repayment of debts based on fraud or misrepresentation and some others are not stopped. To see a complete list of these debts, take a look at Section 178 of the Bankruptcy and Insolvency Act of Canada.

Further the automatic staying provisions of bankruptcy law can be lifted. Your creditors have the right to apply to the Court and ask that they be allowed to continue a specific legal action against you if they can demonstrate to the Court that there are reasonable grounds to do so. A good example of this might be a debt that was incurred as a result of fraud or misrepresentation. Let’s say you applied to the bank for a loan to buy a car and instead you took the money to a casino (or took a trip or gave it to your sister). This sounds like a case where the bank might argue that you misrepresented your intentions and therefore the bank might apply to the Court for permission to sue you even though you have filed for bankruptcy.

Further, if someone has started a large civil suit against you and you think that you may file for bankruptcy to stop them, well, you need to think again. If someone really wants their day in Court and they are willing to pay for it, then after you file for bankruptcy they may apply to the Court to have the Stay lifted. The application takes the form of hearing so that you can present your arguments for not allowing the stay to be lifted. If you don’t attend the hearing (and that usually means hiring a lawyer to assist you; this is not something your trustee can do) the Court may simply allow the Stay to be lifted then you are back where you started.

If you are being threatened with a wage garnishee or a lawsuit by a creditor, or if you already been sued and you need the garnishee to stop you should speak to a trustee directly. They will want to see whatever documents you have regarding the legal action so that your trustee can determine if the Stay of Proceedings will help you solve your financial problems.

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“THE AMERICAN DREAM”

I read an article recently about the American Dream.  According to this report, 5% of people in the United States earning $25,000 a year or less felt that they were living the American Dream.  When the annual income went up to $60,000 a year the percentage rate only raised 1%, giving credibility to the reality that the more we have the more we want.

The article went on to describe the life of a young woman working in the financial world who was making an enormous amount of money and living in a lifestyle that allowed her to hire people to do everything for her, from personal shopping to walking her dog and everything in between. Her comments about this were that even though she enjoyed riding the fast train in some ways it felt very unreal to her. Her lifestyle also led her to fall heavily in debt as she felt that the income would always be there. With the economic downturn she lost her job and went from the fast track to no track. She moved to a smaller community, filed for bankruptcy and started over and today she feels that she got her life back. She is living a much healthier and happier life and this meaningful social change was actually a good thing for her (she enjoys walking her dog herself!).

I speak to people every day who have found themselves in similar circumstances as the woman in this article. It seems that this change in the economic environment has happened very quickly and a lot of people have been caught wondering what happened. At Hoyes Michalos & Associates Inc. we have helped many, many people to find a better way of life than running the race to keep up with payments. If you are finding yourself exhausted from trying to keep up this pace give send us an e-mail or call us at 519-823-0330 or 310-PLAN to speak to one of our professionals. We would be happy to review your situation and answer any questions you may have. Filing a consumer proposal to creditors or personal bankruptcy may solve your situation.

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Beware of Debt Consultants

Last weekend I opened one of those coupon flyers – you know the ones, an envelope full of vouchers for different businesses – and there were two different companies advertising that they could “eliminate your interest and reduce your debt to 30% if you call us today…”The procedure they are describing is called a consumer proposal and it may only be prepared and administered by a licensed trustee in bankruptcy. These people are not licensed trustees, they are “debt consultants” who for a fee will refer you to a trustee so that you may file a consumer proposal.

What they won’t tell you is that you don’t need to be referred to a trustee – you may simply use the internet or the phone book to find the number and call a trustee directly.

What’s more, a trustee will discuss all of your options with you, including consumer proposals, bankruptcy, debt management programs and even refinancing your home. There’s no fee for this consultation and if you decide to file a consumer proposal the trustee’s fees are set out by law – there’s no up front fee or hidden costs.

There’s no polite way to say this – there is a growing industry made up of less-than honest people claiming to be “debt consultants”. They will meet with you a couple of times, sign-you up for a debt relief program, take your money, and then refer you to a trustee in bankruptcy; a trustee that would have met with you for free, if you’d gone to them first.

Here are the warning signs to watch for: if you see an ad that claims to be able to reduce your debt to something less than 100% of what you owe, that claims to be able to stop all of the interest charges and that will allow you avoid bankruptcy and the ad isn’t from a licensed trustee in bankruptcy BE CAREFUL. Certainly call them (or contact them on the web), but the first question you should be asking is “are you going to help me set up a consumer proposal?” If the answer is yes then the second question you should be asking is “why should I pay you a fee to help me when I can go see a trustee for the same advice and they won’t charge me a fee?”

Some of these consultants regularly charge in excess of $1,000 – this is money you have to pay them first before they can put their program in place (you have to pay them in full before they will refer you to a trustee).

Before you agree to pay any fees or commit to any program you should contact a licensed trustee in bankruptcy – you’ll discover that referrals are not required and that the fee the consultant wants to charge you is for something your trustee will do for free…

Every week I speak to people that have signed up for these programs and have paid some sort of fee. I have to explain to them that the consultants took advantage of them and charged a fee that they wouldn’t have had to pay had they simply called me first, so call e-mail me or call me today in Guelph at 519-823-0330, and I’ll help you set up a consumer proposal (if that’s the right solution for you) with no up front fee.

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RRSPs and Bankruptcy in Guelph

On July 7, 2008, the government brought into force some amendments to the Bankruptcy and Insolvency Act dealing with registered retirement savings plans (RRSPs). If you have RRSPs and are considering bankruptcy you need to know the following information:Prior to July 7, 2008, unless your RRSP was locked in or otherwise exempt, you lost it when you filed for bankruptcy in Guelph.

As of July 7, 2008 all of those rules still apply, but now you can keep ALL RRSPs when you file bankruptcy in Guelph, except for any money you contributed in the 12 months prior to filing bankruptcy.

This means if you have money that was deposited into your RRSP more than 12 months prior to filing for bankruptcy, that money will now remain yours if you file for bankruptcy.

A word of caution, if you have funds in an RRSP, file for bankruptcy and try to withdraw those funds during your bankruptcy, the RRSP loses its exempt status and instead of the funds being paid to you, they will be seized by your trustee. The idea is to force you to keep the money on deposit for your retirement…

If you filed for bankruptcy prior to July 7, 2008 then the new rules do not apply. Sorry, but any RRSPs you may have that are not exempt under the old rules will be seized by your trustee.

If you have questions about your situation and how your retirement funds may be affected if you file bankruptcy or a consumer proposal please give me a call. We can discuss your situation over the phone or book you an appointment with me or one of our other professionals to review your options in person.

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How Many People Went Bankrupt in Guelph Last Year?

In 2007, 301 residents of Guelph filed personal bankruptcy, an increase of 13% from the 267 people who filed in Guelph in 2006. In addition, a further 115 Guelph residents filed a consumer proposal, an increase of 5% from 2006.

This dramatic increase in the number of consumer proposals and bankruptcy filings in Guelph
follows four years of relatively good results, as can be seen in the chart.

The unemployment rate rose to its highest level since 1997, with 5.7% of the Guelph work force out of work in 2007. Employment levels declined and the poor labour market resulted in fewer people looking for work, driving the participation rate to a 5 year low.
If the unemployment picture remains poor, the bankruptcy rate could increase again in Guelph in 2008 as well.

Despite these high numbers, there is hope. You don’t have to become a statistic. If you are thinking about filing bankruptcy in Guelph, call my Guelph Bankruptcy Office at 519-823-0330 or e-mail me a question. I can explain why people file bankruptcy in Guelph, but more importantly I can help you review your options and decide if bankruptcy is the correct solution for you and your family.

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Guelph Bankruptcy Trustee Testifies in Ottawa – Part 2

Last week I described our testimony before the Senate Banking Committee on student loans and bankruptcy in Guelph. The second part of our oral testimony dealt with our perceptions of how the Canada Revenue Agency may deal with the changes proposed to the Bankruptcy & Insolvency Act.

We noted that there is going to be an automatic opposition section to the Act for persons with large tax debts. Opposition is the term that is used when an individual is required to appear in Court and explain the circumstances that caused their bankruptcy to a Registrar or Master.

Under current legislation, any creditor may request such a review. Under the new law it will be automatic for Canada Revenue. Our concern is that while the threshold for this automatic provision is $200,000 we suspect that the government will petition to have that threshold lowered in future amendments to $100,000 or even $50,000. No other creditor is being afforded this special treatment and frankly, we’re concerned where this may lead.

Our greatest concern with the Canada Revenue Agency is in the area of proposals to creditors. The current policy of the government is to request 100% repayment of the basic tax debt when a person files a proposal – this means that the government votes against many reasonable repayment plans.

As the law sits today, if a proposal is rejected a person is likely to become bankrupt and then be subject to the surplus income rules for a period of 9 months or longer. The new law imposes the surplus income rules for 21 to 36 months – extending the repayment and therefore rewarding the Canada Revenue Agency for rejecting the proposal.

We strongly encouraged the Senate to request the Minister of Revenue to appear and explain his agencies position in this regard.

Following our presentation the Senators present directed questions to Douglas Hoyes and I for the better part of an hour. The questions showed an excellent understanding of the issues and we were pleased with the Senators level of knowledge and interest in the subject.

We believe the experience was well worth the drive (even in a blizzard) and we are confident the Senators will put the information we provided to good use.

If you are thinking about filing bankruptcy in Guelph, you now have access to the same experts the government of Canada has called on for expert testimony. Give my Guelph Bankruptcy Office a call at 519-823-0330 or e-mail me your questions, and I will set up a meeting in our Guelph office where we can discuss your options and help you resolve your financial problems.

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Guelph Bankruptcy Trustee Testifies in Ottawa – Part 1

On February 6, 2008, Douglas Hoyes and Ted Michalos (that’s me in the picture) traveled to Ottawa in order to provide testimony to the Senate Standing Committee on Banking, Trade and Commerce regarding bankruptcy reform. I was the only Guelph personal bankruptcy trustee that has appeared as a witness before the Committee.

Last fall, the Parliament of Canada quickly passed new bankruptcy legislation with the promise that the new law would receive a detailed “second look” in the Senate. With the threat of another election, the Senate decided to pass the law quickly and it has been proclaimed, but not brought into force. Regardless, the Senate decided to conduct hearings regarding the changes with an eye towards the next round of bankruptcy reform. It was with this in mind that Doug and I traveled to Ottawa.

Anyone living in Ontario may recall that February 6 we got hit by a blizzard – all flights were cancelled and Doug and I drove to Ottawa in order to give our testimony. Not much fun, but this legislation is important enough to warrant the extra effort.

Our oral testimony focused on two things – student loans and bankruptcy in Canada and the Canada Revenue Agency.

The new law reduces the exclusion period for student loans from 10 years to 7 (5 on application to the Court). We argued that the period should be further reduced to 2 years.

For those of you unfamiliar with student loans, the current law requires a person to be “out of school” for a minimum of 10 years before their student debt may be discharged (eliminated) by bankruptcy or a proposal. The new law reduces that period to 7 years and allows individuals to apply to the Court after 5 years for special consideration.

Student loans are the only type of debt to have such a time-delayed feature and we argued that is was fundamentally unfair. We selected a 2 year period as that is the period of time that the student loan person will allow a person to defer interest and payments when they finish their studies. If a person hasn’t found gainful employment that will allow for the repayment of their student loans by that time then we suggest they may never be able to properly service the debt.

We provided an analysis of our existing clients for the last 18 months (some 3,000 individuals and families). We determined that those with student debt are likely female with a single dependent and earning 50% less than the average Canadian.

We further argued that the problem wasn’t one the Bankruptcy and Insolvency Act should be trying to solve. The government needs to determine how education will be financed and adjust the system of lending so that people don’t have to rely on the Bankruptcy and Insolvency Act to deal with their student loans.

Next week I’ll post my comments on how bankruptcy law deals with Revenue Canada and tax debts.

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What is a consumer proposal in Guelph?

Here are some short answers to that question:

• It’s a way to repay your unsecured debts
• It’s a legal procedure that provides you protection from collection agents and wage garnishees
• It’s an alternative to bankruptcy for people that are in financial trouble
• It’s a procedure that many people can benefit from (if they only knew it existed!)

Here’s the long answer (and what you need to know to determine if a proposal might be the right solution for you).

A consumer proposal is a legal procedure permitted pursuant to the Bankruptcy and Insolvency Act. They were created to provide individuals considering an assignment in bankruptcy with an alternative under the law.

The concept behind filing for bankruptcy is that you are unable to repay even a portion of your debts. In exchange for singing over your rights to the things that you own and making payments based on your income, after a period of time you are released from your debts.

The concept behind a consumer proposal is that while you can’t afford to repay all of your debts (and the interest), you can afford to repay “a portion of your debts” and you voluntarily offer to do so. The portion you will be required to repay is determined by you and your creditors – basically you offer the people you owe a payment plan and they vote for or against it.

You might be asking, “Why would they accept less than everything that I owe them?” It’s a good question, but please remember, a consumer proposal is an alternative to filing for bankruptcy. If you are voluntarily offering to pay your creditors more money than they will receive if you file for bankruptcy then it is in their best interest to accept your offer.

Now you’re wondering why you might want to agree to pay more in a consumer proposal than you would have to pay in a bankruptcy. Another good question and unfortunately part of the answer will be quite technical.

When you file for bankruptcy your trustee is required to turn the things that you own into cash for your creditors. You don’t lose everything, but if you have any savings, RRSPs, more than one car, and/or equity in your house al of these things (and some others) might be seized and sold by your trustee. In addition, you will be required to make a payment into your bankruptcy based on your household income and family size – the more you earn the higher your payment and the longer you will be required to pay.

Based on the all of that there are times (quite often actually) when it makes more sense to voluntarily agree to make a fixed monthly payment for a longer period of time to avoid losing the things that you own or making the income based payments in a bankruptcy.

Let me give you an example:

Let’s say you and your spouse have run into some financial problems and you are thinking about filing bankruptcy. You’ve got two children, between you and your wife you earn $4,000 per month and you think you have $15,000 equity in your home (equity is the amount of money you’d be left with if your home was sold after the mortgage, real estate fees, legal costs, etc are paid).

If you filed for bankruptcy you would be required to pay your trustee $15,000 to keep your house (if you can’t work out a payment plan the house will be sold to raise that money) and based on your income and family size you’ll have to pay an additional $320 in surplus income payments. These payments will run for at least nine months (later this year the payments will be extended to 21 months under new laws that will be coming into affect). So, bankruptcy will cost you at least $18,000.

Instead of filing for bankruptcy, you might offer your creditors a consumer proposal to pay them $21,000. You’d do so by paying $350 a month for 60 months. By doing so, you no longer have to worry about paying your trustee for the equity in your house, nor do you have to worry about any payments based on your income. In the example I have given you are voluntarily offering to pay $3,000 more in your proposal than you might have to pay if you filed for bankruptcy, but the payment is manageable and you get to keep you house.

There are many other examples when a consumer might make more sense than filing for bankruptcy – it literally depends on your own situation.

I can tell you that nationally, for every six bankruptcies that are filed there is one proposal filed. In Ontario it’s five bankruptcies for every proposal, and in our practice its two to one. For every tow bankruptcy that we file we file one proposal.

They aren’t right for everyone, but for many people a consumer proposal is a great alternative to bankruptcy. The best part – if anyone asks you can honestly say that you didn’t file for bankruptcy, you worked out a deal to repay your debts…

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