Did you know? It costs money to file bankruptcy.
The exact costs of filing for bankruptcy in Ontario can vary, depending on your monthly income, family size, as well as your assets.
View our presentation to learn more:
Doug's Introductory Video (1:06 min)
Doug is a licensed trustee in bankruptcy, chartered accountant, chartered business valuator, and chartered insolvency and restructuring professional. Doug conducts many of the consultations in our Cambridge and Brantford offices. He would be pleased to meet with you to discuss your situation. Doug often carries an e-mail enabled pager, and can answer your e-mail questions quickly and easily.
Did you know? It costs money to file bankruptcy.
The exact costs of filing for bankruptcy in Ontario can vary, depending on your monthly income, family size, as well as your assets.
View our presentation to learn more:
Posted in Bankruptcy Ontario on Monday, December 9, 2013
If you file a consumer proposal with Hoyes Michalos, you have a 99% chance that your proposal will be accepted by your creditors. You read that correctly: our consumer proposal acceptance rate is 99!
Our proposals group maintains detailed statistics on all proposals filed at Hoyes Michalos, and I am very pleased to report that if you file a proposal with us, it is very likely to be accepted by your creditors. Here are the detailed statistics for the last three years (up to the end of October, 2013):
|Passed as Filed||
|Success Rate Including Amendments||
Here are the details:
What does this mean to you?
If you select Hoyes Michalos to be your consumer proposal administrator, you have a 99% chance that we will be able to negotiate a settlement for your debts that will be acceptable to both you and your creditors. That’s great peace of mind.
As you can see from the numbers, the number of proposals “passed as filed” has declined slightly over the last three years (from 92% to 88%), indicating that creditors have become somewhat more “picky” in the amounts they are willing to accept. That’s why it is critically important to use an experienced firm like Hoyes Michalos to act as the administrator of your consumer proposal, so that you can be confident that you are offering a proposal that is “just right”. If you offer too much you may not be able to afford the payments; too little and the creditors may not accept it. By offering the correct amount it’s a “win-win” situation, with all parties satisfied with the outcome.
How does Hoyes Michalos compare to others?
I have no idea what the success rate is for other trustees, although mathematically it can’t be much higher than 99%.
I do know that many people choose to use a debt settlement firm instead of a firm like Hoyes Michalos to deal with their debts. What is the success rate for debt settlement firms?
According to the Canadian Bankers Association, “only about 10 percent of proposals that banks receive from debt settlement companies are actually accepted.”
If you have more debt than you can handle, you have a choice. You can go to a debt settlement firm and have a 10% chance of success, or you can call or e-mail Hoyes Michalos today and have a 99% chance of success on your proposal.
99% or 10%. It’s your choice.
Posted in Consumer Proposal on Saturday, December 7, 2013
When you file for bankruptcy, your trustee is required to “realize” on your assets and distribute the proceeds to your creditors.
In simple terms, you (the person who goes bankrupt) and the creditors (the companies you owe money to) both “win” and “lose” in a bankruptcy.
You win because your debts are eliminated, but you lose some of your assets.
The creditors lose because in most bankruptcies they only recover a very small amount of the money they are owed. To be fair, they do receive any non-exempt assets you may have.
For example, when you declare bankruptcy Canada Revenue Agency is automatically notified, and your tax refund for the year of the bankruptcy (and any prior years that you have not yet received) are forwarded to the trustee. In technical terms, the realization on your tax refund is the refund that is paid to the trustee.
Other assets in this realization process would include your surplus income, equity in a house or car, or any non-exempt investments.
NOTE: In most bankruptcy filings in Ontario, other than a tax refund, there are no assets subject to realization by the trustee. You are allowed to keep your basic household furnishings and personal items, and you can keep one motor vehicle up to a limit determined by the Ontario government, and you can keep your RRSP (except for contributions in the last year). So, in most bankruptcies, you don’t have any assets subject to realization.
At the end of the bankruptcy the trustee does an accounting of all of the money they have realized during the bankruptcy, and that money is then distributed. Here’s how the distribution of assets and other funds works in a bankruptcy:
First, the trustee pays a filing fee to the government, and the trustee’s administrative disbursements (such as the mailing to your creditors) are paid. The trustee is then paid their fee, based on a formula set by the government. (All trustees are paid based on the same formula).
Second, if there are funds available, the government is paid a “levy” of up to $200, which is paid to the Office of the Superintendent of Bankruptcy to fund their operations, which include regulating all trustees to ensure the trustee is following all of the rules.
Third, if there are funds available, they are distributed to the creditors. This distribution of funds from the assets of the bankruptcy is called a “dividend”, and each creditor receives their “pro-rata” share, meaning that the larger creditors receive more dollars than the smaller creditors.
Finally, in the highly unusual event where all of the creditors are paid in full, plus interest at a prescribed rate, any funds remaining would be distributed to the bankrupt.
The realization and distribution of assets in a bankruptcy is governed by federal law. If you have questions about your situation and what assets you will keep or lose contact us today.
Posted in Bankruptcy Ontario on Thursday, December 5, 2013
Conventional wisdom is that any debt borrowed to purchase something of value is “good” debt. For example, borrowing to buy a home is thought to be good debt, because you get a house to live in, and when the mortgage is paid off you still have a house to live in.
That’s all true, but would it be good debt to buy a $10 million house with a $10 million mortgage? If you can’t make the mortgage payments, that would not be good debt.
There are three questions you can ask to determine whether debt is good or bad (click here to see a video on good debt vs. bad debt):
First, can I afford the payments? Even if you are borrowing to invest in a house or an RRSP, if you can’t afford the payments you have taken on bad debt.
Second, is there a long term benefit I will gain from borrowing the money? A house or an investment is a good example, where the benefit will last long after the debt is paid. Borrowing to go on a vacation is probably not good debt, because once the vacation is over, there is no further benefit.
Third, what risk are you taking on by borrowing the money? You may buy a house with a mortgage you can afford, and the house will have a long term benefit, but will you be able to continue making the debt payments if you lose your job, or have your hours reduced at work? How risky is the debt? If you need to continue working 10 hours of overtime every week to make your debt payments, the debt is probably to risky, and should be avoided. (more…)
Posted in Debt on Thursday, November 14, 2013
As we start Credit Education Week, part of Financial Literacy Month, here’s an interesting thought: understanding how credit works can help you manage debt.
For example, do you understand amortization periods? That’s a fancy word, but the concept is simple. Amortization simply means the length of time your payments are stretched out to make your loan payments. This is an important concept to understand, so that when the bank asks you “do you want to pay your loan monthly, bi-weekly or weekly?” you will be able to determine the answer that’s best for you. The correct answer, as I describe in this video on budgeting, is that you should pay your bills as often as you get paid. If you get paid bi-weekly, you should pay your mortgage bi-weekly.
Paying bills to match your paycheque makes budgeting very easy, but it will also pay off your loan much sooner. If instead of paying $1,000 per month on your mortgage you pay $500 every two weeks, in most months to your cash flow there is no difference; you are paying $1,000 per month either way. But making the payments twice monthly will lower your overall interest costs. Even better, in your three pay months, which happens twice a year, you make an extra $500 payment if you are paying bi-weekly. That extra payment will pay off your loan much faster, and you won’t even notice the difference.
That’s a simple example of how understanding how credit works can help you pay off debt years faster.
Here’s another example: it’s not the payment that matters; it’s the total that you pay that’s important.
If you walk into a payday loan store and ask to borrow $500, they say “sure, all you have to pay is $100 in interest and service charges over the next two weeks when you will pay off your loan.” $100 does not seem like a lot, but they are charging you $100 for a two week loan. If you got that same loan every two weeks for a year, you would pay $2,600 in interest and charges. On a $500 loan that’s the equivalent of 520% interest!
If you understand how credit works you will never get a payday loan.
Information is power, so I suggest that during Credit Education Week, and all year long, take the opportunity to learn about credit, and understand how you can live debt free.
Posted in Budget on Tuesday, November 12, 2013
There are many organizations giving lots of advice on how to better manage your money, and I encourage everyone to read as much as they can on money management. Of course there is a problem with “information overload”, and sometimes too much information gets confusing.
For example, there is a lot of great information on budgeting, but there are also those who advise that there are alternatives to traditional budgeting, as I explain in this video:
So what’s the answer? I believe we should all use Credit Education Week as an opportunity to do some financial “house cleaning”, and ask yourself these questions:
First, do I have a financial plan? Do I have a plan to deal with my debt? Once my debt is eliminated, do I have a savings plan? If not, there is no better time than today to get started with a debt elimination plan.
Second, do I have a plan that is simple and easy to follow? I’m an accountant, so I like long, complicated spreadsheets that track every penny, but is that a good long term plan? In most cases, simple is better, so whatever plan you make be sure that it’s easy to implement.
Finally, am I willing to set aside a few minutes every week to stay on track? That’s all it takes: an hour or two to create a plan, and then a few minutes a week to stay on track.
If you can make that commitment, Credit Education Week 2013 will be the start of a secure financial future for you and your family.
Posted in Budget on Monday, November 11, 2013
The month of November is Financial Literacy Month, a creation of the Financial Consumer Agency of Canada, the government agency that supervises federally regulated financial institutions. As stated on the Financial Literacy Month website:
“Financial literacy means having the knowledge, skills and confidence to make responsible financial decisions.”
I strongly believe that knowledge is power. Here’s an example:
You want to finance a car, and the car salesman says he can “put you into this car for a small payment of only $99 per week.” Is that a good deal? Do you have the financial literacy to know what questions to ask to determine if that is a good deal for you? What questions should you ask? If I was faced with that decision, I would want to know:
Those two questions will tell you virtually everything you need to know to make the decision, although you could also ask for the interest rate you will be paying, the total interest paid, and if there are any special terms (like pre-payment penalties). Here are two answers to those questions:
Wow. It turns out that the deal to “only pay $99 per week” will have you paying more than twice the value of the car! Why? Because the loan interest is 29.9%, and it lasts for 7 years, so you will be making 364 payments, which includes $21,140 in interest! (You can verify the math for yourself with this on-line loan amortization schedule calculator).
And that’s why financial literacy is so important: if you don’t know what questions to ask, you can easily make some very bad financial decisions.
The salesman will never say to you “Do you want to pay $36,000 for this $15,000 car?” They will always use the more friendly “$99 per week” sales pitch. I’m not picking on salesman; they have a job to do, and they may genuinely believe that $99 per week is a great deal for you. My point is that you must look out for yourself. You must be financially literate. That’s why the team at Hoyes Michalos promotes Financial Literacy Month, and why we will be actively supporting it’s objectives.
To find out more, check out Moneyproblems.ca talks budgeting and money management for Financial Literacy Month for lots of free tools, workbooks and information.
Posted in Budget on Thursday, October 31, 2013
Whose fault is it if you are heading for bankruptcy? You can watch my six minute rant on the radio on this topic from a recent radio show:
The answer is that our high debt levels are everyone’s fault. The banks and credit card companies earn a huge profit from lending money, so they may lend more than they should lend in some cases. Companies that sell products (like electronics, cars and houses) also encourage you to borrow; it’s not their job to determine whether or not you can afford to pay it back. Of course none of us are forced to borrow; we can choose to borrow, or not.
Looking to find fault misses the point. Whether it was your fault or not, if you have too much debt, you have to deal with it. There are options, like consumer proposals and personal bankruptcy, along with other options to manage your money. I recommend that you take charge of your situation, “be the boss” and explore all options and make a plan to deal with your debts.
Posted in Consumer Proposal on Monday, October 28, 2013
I heard it again on Twitter two weeks ago when Richard Cooper of Total Debt Freedom (a debt settlement company) posted a tweet saying:
I’m getting tire of Trustees saying “the best way to avoid bankruptcy is with consumer proposals” Its same thing guys, stop with the lies
I don’t think Mr. Cooper was directing his tweet specifically at me (since I have never made that statement), but I took the bait and tweeted back that a consumer proposal is not the same as bankruptcy, so perhaps it was time to shoot a video so we could each explain our position. We wanted to include a mortgage broker in the discussion, so we picked a time, turned on our webcams and recorded our conversation on a Skype video call.
FULL DISCLOSURE: I have known Richard Cooper for a few years, but we are not associated in any way. He runs a debt settlement company; my firm does consumer proposals and bankruptcies, and in my view in virtually all cases a consumer proposal is a better option than a debt settlement. For a debt settlement to eliminate all debts all creditors must agree; a consumer proposal is binding on all creditors if over 50% of the dollar value agree. CRA won’t accept debt settlements for less than the full amount owing, but they will accept consumer proposals for less than the full amount owing. Debt settlements will rarely stop a wage garnishment or eliminate a judgment; consumer proposals do. But I digress. My point: just because we appear in a video together does not mean that I endorse Mr. Cooper, or that he endorses me. The third participant in the video was Elisseos Iriotakis, the Co-CEO of Safebridge Financial Group, a company specializing in mortgage centered financial planning. I had never met or spoken to Mr. Iriotakis prior to the day we shot this video.
Our video conversation ran for just over 11 minutes, and you can watch it here or on You Tube:
Here is my position: I agree that both a consumer proposal and a bankruptcy will have a negative impact on your credit. I agree that most mortgage lenders require you to wait two years from the end of your proposal or bankruptcy before they will grant you a mortgage. From the point of view of the lender, it’s the two years that matters. Whether it’s two years from the end of a bankruptcy or a proposal doesn’t matter. That’s why Richard Cooper says that consumer proposals and bankruptcy are “the same”.
The impact on your credit report may be similar if you are applying for a mortgage, but the two procedures have very different implications. Let me illustrate with an example:
Fred (not his real name) owes $15,000 to CRA for back taxes from when he was self-employed, and they are garnisheeing his wages at his new job where he is now an employee for $1,000 per month. He also owes $35,000 on credit cards and other debts. His goal is to get out of debt, and buy a house some day. What should he do?
If a consumer proposal and a bankruptcy are identical, the answer would be “file bankruptcy and get it over with”. Fortunately at Hoyes Michalos we don’t take a “one size fits all” approach. We reviewed Fred’s situation and determined that a bankruptcy would cost him at least $16,000, calculated as follows:
Due to his surplus income his bankruptcy would be extended from 9 months to 21 months, and the cost could total $16,000 or more. Why more? Fred hopes to get a raise in a few months, and there is lots of overtime at the moment, so his surplus income could be even higher than calculated.
The solution? Fred filed a consumer proposal, and the creditors accepted his offer of $300 per month for 60 months, or $18,000 in total. Why would Fred offer $18,000 in a proposal when a bankruptcy may have only cost $16,000? Many reasons:
Sure enough, with the pressure of the garnishment and the other debts eliminated, after filing the proposal Fred was able to work a lot of overtime, and he managed to pay the proposal off in 18 months. He was used to having $1,000 per month in garnishments taken from his paycheque, so with the garnishment stopped, and with the extra overtime, Fred was able to pay $1,000 per month and pay off the proposal in 18 months.
If Fred had gone bankrupt, he would have had to wait 21 months + 2 years before hoping to qualify for a mortgage.
By paying off the proposal early, Fred only had to wait 18 months + 2 years. For Fred, the proposal was the correct option, and he was much happier having avoided bankruptcy.
Is a proposal the right choice for everyone?
No. Fred had a good job, and was able to work overtime. If he had lower income and no RESP or RRSP, the best option may have been a bankruptcy. If buying a house was not a goal, the two year condition required by mortgage lenders is not an issue. (A proposal is purged from your credit report three years after it is paid; Equifax purges a bankruptcy after six years, so in Fred’s case if he paid the proposal in two years the note is off his credit report in 5 years, which is much sooner than the almost 8 years in a bankruptcy. This matters for all borrowing other than a mortgage).
Each situation is different.
In this video we discussed the case of someone who has debts today, and wants to buy a house in the future. If you have debts and currently own a house, a consumer proposal is an excellent option, because you can keep your home. Approximately one third of the people we help already own a home, so if you have some equity, but not enough to qualify to increase your mortgage, a consumer proposal is almost always a the best option. It’s better than bankruptcy, and much better than debt settlement in most cases.
That was my point in the video: you are unique, so don’t assume that just because your friend picked Option A that Option A is right for you.
Which option is best for you? Call us at 310-PLAN (no area code required) or e-mail us to set up a no charge, no obligation initial consultation, and we will explain all of your options so you can make an informed decision.
Posted in Consumer Proposal on Monday, October 7, 2013
I appeared as the “bankruptcy trustee” on an episode of Gail Vaz-Oxlade’s television show Money Moron. (You can watch the show on the Slice website; it’s season 2 episode 6 I appear at about the 11:40 mark). I appeared as an expert on Gail’s two previous shows, Till Debt Do Us Part and Princess, so I am somewhat familiar process. Here’s my “insider’s” view of how the show is made.
The producers of Money Moron contacted me a few weeks before filming, telling me that the couple on the show had a lot of debt, and one of Gail’s challenges for them was to meet with a bankruptcy trustee. They gave me some details on the couple’s debts, and I asked for a few more details, and then agreed to appear on the show.
My segment was due to be filmed at the couple’s house, and I arrived at 9:00 am on the day of the shoot. When I arrived I realized that this is a “big time” production. From what I recall there were two camera operators, a sound person, a lighting person, two directors, and another three or four people who were doing other jobs while we were filming.
I thought I was well dressed, with a dark suit, a white shirt with a small check pattern, and a nice tie. Unfortunately the tight patterns on my shirt and tie are horrible on TV, as they look “jumpy” on TV. After some test shots I ditched the tie, kept my jacket on, and it worked fine (which is why in the clip I’m wearing a suit with no tie).
After sorting out my wardrobe, the next 20 minutes were spent doing sound checks and lighting checks as they adjusted the lights and camera angles to get the shots they wanted. Then, we started filming.
Since I had never met Alanna and Matt before, I spent the next 20 minutes, with cameras rolling, asking them a bunch of questions to be sure I understood their complete financial situation, including their debts, assets, and monthly budget. I did exactly what all of the professionals at Hoyes Michalos do when we first meet with you; we ask questions. (Here’s a link to a five minute video I recorded where I explain what we will discuss at our first meeting).
Once I had the basic facts, I walked them through their options, and gave them plenty of time to ask lots of questions. In total we filmed for close to 90 minutes, including the occasional “re-take” when the directors didn’t quite get the shot they wanted.
In the final show, I appeared on camera for a grand total of 30 seconds. Yes, two hours under the bright lights for 30 seconds in the final show.
Of course the show is not about “Doug Hoyes giving debt advice”. The show is about the host and the participants, and I must say I was impressed by Matt and Alanna. It’s not easy going on TV to talk about your money problems. I was also very impressed by the production crew. They work long days, and do a great job. If it took 90 minutes to get my 20 seconds of tape, it’s not hard to see that it takes many days of filming to get the footage for a show that lasts for 22 minutes.
I must confess that I also like Gail’s “no-nonesense” style. Sometimes it is what it is, and she calls a spade a spade. However, I should also point out that “reality” T.V. is not a perfect representation of reality. Many hours of filming over a period of many weeks cannot be completely accurately summarized in a 22 minute (excluding commercials) television show. Gail has a “tough love” approach. in real life when I meet with people I don’t “sugar coat” my advice, but I’m also not trying to make anyone cry. My approach, and the approach of all Hoyes Michalos professionals, is to deal with the facts. I gather the facts from you about your situation (who you owe money to, what you own, what you earn and spend each month) and I present your options in clear and easy to understand language so you can make an informed decision.
So how did the show end? They did not want to file a consumer proposal or go bankrupt, so I said that given their situation it would be possible to deal with the debt on their own, but I did say:
“Provided you are willing to put the work in to do it, because it won’t be easy.”
In the end, Alanna was able to increase her income, and they used that increase in income to significantly reduce their debt, which was a great solution. In the end, it was the correct solution for everyone.
As for me, it appears that Gail Vax-Oxlade is suspending her television career to concentrate on other projects, so it would appear that my short reality T.V. career is also over. (Three shows, 30 seconds each, for a total of a minute and a half. It was a good run….). That’s fine with me. The occasional television appearance is fun, but sitting under bright lights every day would drive me crazy after a while.
For now, I’m content to help real people explore solutions to their debt problems, without the TV cameras rolling.
Posted in Debt on Monday, September 23, 2013