Douglas Hoyes, CA

Yesterday I sent the following message to Dalton McGunity, the Premier of Ontario.  (You can send a message to him as well from the government website).  Here is a copy of that letter; I’ll report back if I get a response.

Dear Mr. Premier:

As you are no doubt aware, residents of Ontario have record levels of personal debt. Unfortunately some unscrupulous companies, many based in the United States, are taking advantage of this situation and advertising debt negotiation and debt settlement services to Ontarians. I say “unfortunately” because many of these companies do not provide a real service. They charge an upfront fee, and then tell the debtor to stop paying their debts and save money in a separate account to use in a future debt settlement. Most banks and credit card companies are not willing to wait two or three years while the consumer accumulates sufficient money for a settlement, and the debtor then discovers that they are facing legal actions and wage garnishments from their creditors.

By paying up front fees with no guarantee of service, many debtors are worse off than before they entered the debt settlement program.

On February 2 the government of Manitoba amended their Consumer Protection Act regulations by banning upfront charges, setting maximum fees, and requiring debt-settlement agencies to become licensed. Under Manitoba’s new laws, debt settlement companies can only charge a fee if the creditor and debtor reach an agreement on a reduced payment, and their fees are limited to a maximum of 10 per cent of the debt owed.

I applaud Manitoba’s actions to protect consumers, and with that background I ask the following question:

Premier McGuinty, when will the government of Ontario take steps to protect Ontarians from unethical debt settlement companies?

I am a chartered accountant and licensed consumer proposal administrator and bankruptcy trustee, and I acknowledge that I am biased. I met with debtors every day that have paid a lot of money to debt settlement companies and have received no service, and by the time I meet with them it is often to late to negotiate a settlement. In many cases bankruptcy becomes the only option.

I believe consumers should be aware of all of their debt management options, and therefore I believe that debt settlement companies, credit counsellors, bankers, lawyers, accountants, consumer proposal administrators and bankruptcy trustees all have a role to play in helping residents of Ontario deal with their debt problems. However I believe that debt advisors should solve problems, not make them worse, and for that reason I respectfully request that the government of Ontario consider legislation to prevent predatory debt settlement practices.

Thank you in advance for your consideration of this matter.

Yours truly,

J. Douglas Hoyes, BA, CA, CIRP, CBV
Trustee

That was my letter.  Other members of the Hoyes Michalos team have also commented on the Manitoba debt settlement rules, and you can read them here:

• Ontario Lags in Protecting Consumers with Debt
• Debt Settlement Agencies – Manitoba’s New Policy
• Manitoba Cracking Down on Debt Consultants – Will Ontario Follow?

I wrote a post back in September, 2009 on a Small Victory in the Fight for Fairness in Bankruptcy Rules, where I described a “dirty little trick” the government had pulled, forcing people who declare bankruptcy to disclose their educational background. I found it offensive that the government was forcing people to admit that they dropped out of high school, or admit that they had a university education but still experienced financial problems. I didn’t see the need to disclose any more information than necessary, and after writing letters and making phone calls, the government changed the rules.

I’m not saying my letters changed the rules. There were certainly lots of others who also made their opinions known, and together we changed the rules.

Another example of our efforts to bring fairness to the bankruptcy system occurred on February 7, 2008, when Ted Michalos and I became the only independent trustees to testify for a full hour before the Senate Standing Committee on Banking, Trade and Commerce in Ottawa. You can watch our entire testimony on our Hoyes Michalos Senate Video page; here’s a brief clip of my comments on student loans and bankruptcy in Canada.

In February 2008 I traveled to Ottawa to make the argument that forcing former students to wait ten years before being able to discharge their student loans in a bankruptcy was too long. I argued for a two year rule, and later that year the rule was changed to a seven year student loan rule, with a five year limit in cases of hardship.

Again, the rule wasn’t changed just because Ted Michalos and Doug Hoyes traveled to Ottawa, but I like to think that our voice was one of the many voices that helped change the rules.

So here we are again, faced with another bankruptcy rule that requires changing.

On July 14, 2011 the Supreme Court of Canada, released its decision in the case of Schreyer v. Schreyer, and they confirmed the principle that equalization payments after separation or divorce disappear in bankruptcy in Canada. Here are the facts: Mr. and Mrs. Schreyer divorced in 1999, and as is standard procedure, their assets were to be divided amongst them. Mr. Schreyer was to make an equalization payment to Mrs. Schreyer of about $41,000, for her share of the value of the family farm.

Before he made the payment, due to his other debts, he filed bankruptcy. As a result Mrs. Schreyer became a creditor in Mr. Schreyer’s bankruptcy, and as is the case with most debts, the amount he owed her was discharged in the bankruptcy.

Because the Schreyer’s live in Manitoba where family farms are exempt from seizure, Mr. Schreyer got to keep the family farm, even though he was bankrupt.

(Please note that if you declare bankruptcy in Ontario real estate is not exempt, so in Ontario if the bankrupt owned a farm worth $80,000, the trustee may sell the farm and distribute the proceeds to the creditors. If this had happened in Ontario, Mr. Schreyer would have lost the farm when he went bankrupt, or he would have been required to pay into his estate the value of the farm).

In summary, Mr. Schreyer went bankrupt and got to keep the family farm, and his wife, who would have received $40,000 if he hadn’t declared bankruptcy got nothing.

Are the Bankruptcy Rules Fair?

You could argue that the purpose of bankruptcy is to eliminate your debts, which is exactly what happened in this case, so on that basis yes, this rule is fair.

However, you could also argue that in a separation if the spouses should divide their assets equally, that’s exactly what should happen. Obviously that didn’t happen in this case.

As I stated earlier this case couldn’t happen here in Ontario, because the husband would lose the farm. However, it could happen with other exempt assets, such as an RRSP. Consider this scenario:

Mrs. Smith has a good job, and she contributes to her RRSP every month. Mr. Smith stays home with the children. They separate, and the only asset they have is Mrs. Smith’s RRSP. Under normal family law rules, Mr. Smith should receive half of the value of the RRSP.

If Mrs. Smith’s RRSP was worth $100,000, Mr. Smith would normally be entitled to an equalization payment of $50,000. However, if Mrs. Smith declared bankruptcy in Ontario before making the equalization payment, Mr. Smith would get nothing. Under bankruptcy law Mrs. Smith gets to keep her RRSP if she goes bankrupt, except for any contributions she made in the last year. That potentially means that Mrs. Smith gets to keep most or all of her $100,000 RRSP, and Mr. Smith gets nothing.

Most would argue that that’s not fair.

In fact, the Bankruptcy & Insolvency Act does give special treatment for child support, in section 178 (1) (c), which states that the following debt or obligation is not discharged in a bankruptcy:

any debt or liability arising under a judicial decision establishing affiliation or respecting support or maintenance, or under an agreement for maintenance and support of a spouse, former spouse, former common-law partner or child living apart from the bankrupt;

In other words, if you go bankrupt, you are still required to pay child and spousal support.

Clearly Canadian bankruptcy law is not fair. Spousal support and child support doesn’t go away if you go bankrupt, but equalization payments do.

So what should be done? Parliament should close the loophole. It would be a relatively simple change. In fact, all they would need to do is add a few words to the end of section 178 (1) (c) to make court ordered equalization payments non-dischargeable.

Will that happen? Probably, since that’s exactly what the Supreme Court said should happen. We will see.

And yes, I’ll probably write a letter or two……..

Douglas Hoyes, CA, Bankruptcy Trustee

It’s true that the number of personal bankruptcy filings in Ontario dropped from 66,935 in 2009 to 56,619 in 2010. That’s over 10,000 fewer bankruptcies, so yes, that’s definitely good news. However, before we start rejoicing at how great everything is, let’s consider three facts:

First, the level of debt we carry continues to increase. As I reported earlier this month, credit cards continue to create a financial abyss for “Joe Debtor”, the average person who files bankruptcy. As long as our debt levels remain at record levels, it’s inevitable that the number of bankruptcies will increase. They may drop for a year or two, but long term they can only increase.

Second, one of the reasons bankruptcies decreased was because the federal government changed the bankruptcy rules in September 2009 to make it more expensive to file bankruptcy if you have surplus income. The new rules also extended the length of bankruptcy, meaning you could now be bankrupt longer. As a result there was a surge in bankruptcies in the month leading up to the new rules, and then a corresponding drop off in the months after. If you compare 2010 to the record year of 2009, it’s not surprising that the numbers in 2010 dropped. However, the number of bankruptcies filed in 2010 is still higher than 2008′s numbers, so the trend remains up.

Third, while bankruptcies fell, the number of consumer proposals filed in 2010 increased substantially. In 2009 20,414 consumer proposals were filed in Ontario; that number increased by almost 16% to 23,619 in 2010.

Again, that’s not surprising. If bankruptcy is now more expensive and lasts longer, it’s natural for more people to file consumer proposals as a way to avoid bankruptcy.

Here’s my take on these results:

I’m pleased that the economy showed a slight improvement in 2010, and I’m pleased that the unemployment rate in Ontario remains lower than it is in the United States, and I’m glad our interest rates remain low. However, we can’t rely on low interest rates forever.

Our world is in turmoil, with protests against government happening in Africa and the Middle East, nuclear power problems in Japan, and of course a federal election in Canada in May. With this uncertainty we don’t know what tomorrow will bring. If this volatility causes upward pressure on interest rates, our debt service costs go up, and the economy slows down, and that’s not good for the average person.

That being said, I am pleased that consumer proposal filings are increasing. I meet with and talk to dozens of people each week, and almost every one of them is happy to avoid bankruptcy if possible, while still dealing with their debts. That’s a positive trend for the future.

To find out how a consumer proposal can help you avoid bankruptcy, read our comparison between consumer proposals and bankruptcy article, and please use our free on-line debt options calculator to evaluate your options, and then contact us to arrange a no charge initial consultation, and let’s get started.

Ian Martin

The concept behind student loans is that everybody wins.

Student loans are an investment by the government in you.  They lend you money so that you can further your education.  You further your education so that you can get a new or better paying job.  You have a steady job, you repay your student loans, you pay your taxes, you are not relying on social benefits that are funded by the government.  You are living the Canadian dream.  Everybody is happy.

What if it doesn’t turn out that way?  What if you graduate and can’t find steady work in your field of study?  What if you became ill and weren’t able to finish your studies?

One way or another, what happens if you are unable to repay your student loans?

WHAT IS A STUDENT LOAN?

Let’s first clarify what a student loan is and what it is not.  A student loan is a loan directly from the federal or provincial government to provide financial assistance to students.  You can read more about the Canada Student Loans Program here.

A student line of credit through a bank is not the same as a student loan.  Many banks offer these lines of credit and will normally require a co-signer.  They are an alternative if you are not eligible for government student loans.  If you are unable to pay a student line of credit, the bank has the right to collect from you or the co-signer.  It is a joint debt.  It is the same as any other debt with a bank.

GOVERNMENT ASSISTANCE

The government is able to work with you to some extent if you are having difficulty paying your student loans.  Many people refer to “interest relief.”  That system has been replaced by the Repayment Assistance Plan (RAP).  This new program was started for federal student loans in August 2009.  A similar program was started by the Ontario government in November 2010.

Here’s how it works.  Essentially, you apply to have your financial circumstances assessed.  The government decides, based on factors like your income and size of family, how much your “affordable payment” is.  Your loan has to be in good standing to apply under the RAP.  Keep in mind that you are required to make an application for the RAP.  The government does not automatically do the assessment of the “affordable payment.”

WHAT IF I AM STILL UNABLE TO PAY?

Even with assistance from the government, many people are unable to pay their student loans.  There could be any combination of reasons.  What then?

If you are not able to pay your debts by selling or refinancing assets, it might be a good time to talk to a bankruptcy trustee.

The role of a bankruptcy trustee is to assess a person’s financial circumstances.  The trustee provides information about the merits and consequences of the different options for resolving a person’s debts, when that person is unable to pay their debts in full.  Those options include filing a consumer proposal or personal bankruptcy.

Filing a bankruptcy or consumer proposal is asking for legal permission to be released from your debts when there is no reasonable expectation of being able to pay them in full.  However, there are certain limitations in terms of which debts are released by a bankruptcy or consumer proposal.  These limitations are specified by the Bankruptcy and Insolvency Act and one of them is with respect to student loans.  Here it is in a nutshell:

If you have not been out of school for more than 7 years when your personal bankruptcy or consumer proposal is filed, you will still be responsible for repaying your student loans.

What does that mean?  That depends on your particular circumstances.  Even if the limitation does apply to you, there may still be reasons to file a consumer proposal or personal bankruptcy.  Maybe there are other debts.  Maybe there is a garnishee on your wages.

AFTER BANKRUPTCY OR CONSUMER PROPOSAL

Consider this: even if your student loans will not be taken care of by the consumer proposal or personal bankruptcy, you cannot be legally compelled to make payments on the student loans until the consumer proposal or bankruptcy is done.

One of the benefits of a consumer proposal or personal bankruptcy is to help you to stabilize your budget.  If that budget contained monthly payments to a proposal or bankruptcy, continuing those payments toward the student loans (after the proposal or bankruptcy is done) can be an effective plan to deal with the student loans.

What if that kind of plan does not work?  You are done a consumer proposal or personal bankruptcy and your student loans were less than 7 years old, but you are still unable to repay the student loans.  What options do you have?

One choice would be to file a second bankruptcy.  This is probably not a great choice if the only debt is the student loans.  Here are some of the implications of a second bankruptcy:

• The shortest period of time to be discharged from a second bankruptcy is 24 months.  For a first time, it is only 9 months;
• If you have surplus income, the discharge period is 36 months;
• A second bankruptcy will show on your credit report for 14 years after you are discharged;
• There is an increased chance that there will be an opposition to your discharge.

Another choice would be to file a consumer proposal.  This is definitely a possibility, but it depends on your ability to offer a proposal that your creditors find attractive.  A consumer proposal will likely involve a monthly payment plan over 3 to 5 years.  If you have been unable to negotiate a reasonable repayment of your student loans on your own, it may be difficult to find a monthly payment in a consumer proposal that your creditors will accept and that you can afford.

The final choice that I will mention is to make an application to the courts to have your student loans discharged.  The idea is that the court reviews your circumstances to determine if your debts should be discharged because of your ongoing financial hardship.  The primary criteria are that you have been out of school for 5 years and that you have been bankrupt or filed a consumer proposal.  A trustee can talk to you about how this process works, but you should speak to a lawyer to assess the likelihood of such an application being successful.

Clearly, there is a wide variety of considerations and issues with student loans.  If you need some further help sorting it all out, feel free to call us at 310-PLAN (310-7526 with no area code) or to send us your questions by e-mail.

Bankruptcy and Proposal Filings

In 2009 the number of consumer bankruptcies and consumer proposals increased by 31% in Canada in 2009, after growing by over 14% in 2008. In total, 151,712 Canadians filed a bankruptcy or proposal in 2009, the largest number on record by a wide margin. In Ontario, 66,935 people filed a bankruptcy or proposal, an increase of 32.7% over 2008.

An interesting trend emerged in the last three months of 2009: more residents of Ontario have chosen to file a consumer proposal, instead of going bankrupt, primarily due to new bankruptcy rules.

On September 18, 2009 new bankruptcy rules came into force, increasing the cost and length of a bankruptcy for bankrupts with surplus income. The debt limit for eligibility to file a consumer proposal was increased, increasing the attractiveness of a consumer proposal as a debt management option. As a result, there was a spike in bankruptcy filings in the two weeks prior to September 18, as debtors rushed to file bankruptcy to take advantage of the old rules. After September 18 the number of bankruptcy filings dropped, while consumer proposal filings continued to increase.

In Ontario in 2009 there were 46,521 consumer bankruptcies, and 20,414 consumer proposals. Bankruptcies increased by 28.5%, but consumer proposals increased by 43.3%.

Why did bankruptcy and proposal filings increase by record amounts in 2009?

Obviously the recession has caused great financial hardship. As the unemployment rate increases, so too does the growth in personal insolvency filings. The unemployment rate in Ontario rose through the first half of 2009, peaking at 9.5% in May, so the growth in consumer filings is not surprising. (In Canada, the unemployment rate rose from 6.1% to 8.3% during 2009). However, high unemployment is only one reason for the high bankruptcy rates in 2009.

Residents of Ontario continue to borrow at record rates, and in 2009 household credit per person in Canada reached a record level of $40,207. After five consecutive years of double digit growth, the rate of growth for household debt finally slowed to a comparatively low growth rate of 7.8%. However, given the tightening of credit markets and the continuing recession, growth in debt of 7.8% is still a worry for the Canadian consumer, and no doubt contributed to the growth in insolvencies.

While household credit per person grew by 6.4% in 2009, personal disposable income grew by only 0.6% in the first nine months of 2009. This means that, by the end of the third quarter of 2009, Canadians were carrying household debt of 140.8% of their personal disposable income, the highest level in history. This means that for every dollar a Canadian earns, they have $1.41 in debt. Two years ago Canadians carried $1.28 in debt for each dollar earned.

This is a worrisome development for all Canadians carrying debt, because it’s not only the level of debt that is a problem, but the cost of carrying the debt. While consumer debt has continued to increase, consumers have benefited from historically low interest rates. Unfortunately, low interest rates mean Canadians have continued to borrow, leading to record levels of debt. As long as interest rates remain low this may not be a problem, but if interest rates increase, Canadians will be unable to service their debt. This week the government announced that the economy is improving, so it is likely that the Bank of Canada will start to raise interest rates later this year. If that happens, the cost of carrying debt goes up, and more Canadian will experience financial problems.

The message is clear: excessive personal debt is a ticking time bomb, and unless Canadians take steps to deal with their debt, an increase in interest rates or a further reduction in employment will lead to a continued trend of higher personal insolvencies.

For many debtors this is the first time in their lives they have experienced debt problems, and they don’t know where to turn for advice. They are embarrassed to talk to family or friends. Unfortunately many debtors are now turning to unscrupulous debt consultants, who charge a fee and then simply refer the debtor to a bankruptcy trustee. We strongly urge debtors to investigate their advisors before paying anything. Confirm that they are licensed by the federal government, or a provincial agency. At Hoyes, Michalos & Associates we do NOT charge any up-front fees; no reputable trustee charges an up front fee. More information is available in this article on Debt Consultant Scams.

For more information on personal bankruptcy statistics for 2009 see our article bankruptcy statistics for 2009 and 2008, with detailed personal bankruptcy statistics for major cities in Ontario. Our Bankruptcy Trend Report: 2009 contains our detailed analysis.

If you are treading water, trying to service your debts, please call our 310-PLAN help line (no area code required anywhere in Ontario), or contact us by e-mail, or complete our free on-line evaluation, and we will review your situation and help you make a plan to deal with your debts; we will do our best to help you avoid becoming a bankruptcy statistic.

Not surprisingly, the government’s electronic filing system felt the strain, and it was down from late Thursday night until 8:30 am today, September 21. In other words no-one was able to go bankrupt on Friday September 18, the day the new rules came into force. By my estimate Thursday was also the busiest bankruptcy day in Canadian history, with over 1,700 individual Canadians filing bankruptcy, which again is more than three times a normal day’s volume. The irony of course is that Friday was the slowest day in Canadian bankruptcy history: with the government’s system down, no-one filed bankruptcy.

What does the future hold? I have three predictions:

First, I believe that personal bankruptcy filings in Ontario, and consumer proposal filings, will remain at record level for many more months. For the twelve months ended July 31, 2009, the most recent period for which statistics are available, there were over 140,000 Canadians that filed a consumer proposal or bankruptcy. That’s a 32% increase over the prior twelve months, so there is no doubt that the economy is still in very bad shapes, and insolvencies will continue at a high level. If I had to make a prediction I would predict that filing will be in the range of 150,000 per year for at least 2009 and 2010. After that, they may decline slightly if the economy improves, but significant declines won’t happen until our debt levels decrease.

Second, I predict that the percentage of consumer proposals filed will increase. Under the new rules, in a first bankruptcy if you have more than $200 in surplus income, the length of a bankruptcy is increased to 21 months (from nine months). That means the cost of bankruptcy is higher, so many people will choose to file a consumer proposal as an alternative to bankruptcy. I have always supported consumer proposals as an alternative to bankruptcy, so that will be good news for many people.

My third prediction is that I will be spending more time looking at calendars and doing math. As noted above if you have $200 per month of surplus income, on average, during the first six months of your bankruptcy, the bankruptcy is automatically extended. The surplus income calculation is relatively easy if you are paid a fixed salary, or get a pension, since your income doesn’t change each month. But, if you are paid weekly or bi-weekly, your income changes when you have a five or three paycheque month. As a trustee I now must look at the calendar to see when you will have those extra paycheque months. If you have one of them during the bankruptcy period it may not increase your average surplus income, but if you have two or three of them during the first six months of your bankruptcy, your surplus income may be pushed over the $200 per month limit, causing an increase in the length of your bankruptcy. The entire Hoyes Michalos team of trustees will be working extra hard over the next few weeks to become familiar with the math necessary to help you estimate your future income, including your extra paycheque months.

We are in for challenging times ahead, but our commitment remains the same. We will review your options for dealing with debt in detail, and help you understand the implications of your decision. The math may be slightly more complicated, but our goal is to help you find the solution that works for you, so contact us today, and one of our professionals will be pleased to meet with you to help you get a fresh start.

My biggest complaint with the speed the government has implemented these rules is that they have taken a long time, which has created uncertainty for everyone. We thought the rules would come into force in 2006. Then 2007. Then 2008. By 2009 we had almost given up (which is why I wrote to the Prime Minister). You can read our full history on bankruptcy reform in Canada over the last few years. For four years I have had to tell everyone I met with that “the rules might change, so maybe you should wait, or maybe you should file now.” Bankruptcy is stressful enough without the added confusion of not knowing what the rules will be tomorrow.

Finally, in the middle of the summer, on August 19, 2009 all trustees in Canada received an e-mail from the Office of the Superintendent of Bankruptcy saying that the remainder of the new rules would come into force 30 days later, on September 18, 2009. I find it incredible that after waiting for four years the federal government decided, in the middle of Parliament’s summer vacation, to give us 30 days notice to get ready for the new rules.

Even worse, the timing of these new rules couldn’t be worse for many people. Here’s why: Under the old rules, most bankruptcies ended in nine months. Under the new rules, if you have never been bankrupt before and if you have surplus income, your bankruptcy will now last for 21 months. A second bankruptcy with surplus income now lasts for 3 years. The length of a bankruptcy just got longer for a lot of Canadians.

Each month a bankrupt is required to send their trustee proof of their income (copies of paystubs). If they have more than $200 in surplus income, their bankruptcy is automatically extended, and the bankrupt must continue making payments to their bankruptcy estate for the duration of the bankruptcy.

Why did the government increase the length of a bankruptcy if you have surplus income? I don’t know for sure, but I assume it’s because the government doesn’t want the bankruptcy process to appear to be “too easy”. If you have a lot of debt, and if you have the ability to pay something towards those debts, the government believes you should make payments.

I don’t disagree with that approach. Most people I meet with would be happy to repay their debts if they could. The problem, of course, is that most people who are considering personal bankruptcy can’t afford to repay their debts. They have lost their job, or gone through a divorce, or suffered a medical problem that has reduced their income, and repaying their debts in full is not possible.

The problem is this: when the government first introduced the new rules in 2005, Canada was in the midst of an economic boom. Times were good. Unemployment was low. Consumer debt was much lower than it is today. Incomes were high, so asking Canadians to pay a bit more in a bankruptcy was not a huge hardship.

Unfortunately it is now 2009, and Canada is in the midst of the worst recession since the Great Depression. Unemployment is high. Overtime is gone. We are using debt to survive more than ever before. And now, at the worst possible moment, the government has decided to make bankruptcy more costly.

If the government had asked me (which they didn’t), I would have suggested bringing into force now the rule changes that help Canadians (such as increasing the debt limit on consumer proposals), and leaving the more harsh rule changes until the economy recovers, and people are more able to afford the higher payments. If they wanted to bring all of the rule changes into force, I would have suggested at least giving us more than 30 days notice so that everyone could prepare for the new rules.

However, none of that matters now. The new rules take effect on September 18, so we are doing our part to be prepared. If you have more debt than you can handle, here’s what you need to know:

First, if you have more than $200 in surplus income, your bankruptcy will automatically extended, and you will pay more. Bankruptcy may still be your best option, but you should realize that the cost may be higher.

Second, if you owe more than $200,000 to the government in taxes, and your tax debts are more than 75% of your total debt, you are now required to appear before a bankruptcy judge before you can be discharged from bankruptcy.

That’s the bad news. The good news is that the debt limit on consumer proposals has increased from $75,000 to $250,000, so more people will now be able to file a consumer proposal as an alternative to bankruptcy.

Also, a secured lender can no longer cancel a contract simply because you filed bankruptcy. Under the old rules certain banks would automatically repossess your car if you went bankrupt. Now, if your payments are up to date, you can keep the car, provided you continue to make the payments to the bank. This will help a lot of people who need their car to get to work, but can’t purchase another car due to bad credit.

In summary, it would have been nice if the rules making bankruptcy more costly were delayed until the economy recovers, but the rules are here, so it’s important to understand them. If you are in financial difficulty, contact us and we will review your options, including consumer proposals as an alternative to bankruptcy, and we will help you decide which option is right for you.

In closing, my prediction for the next few months is that we will see an increase in the number of consumer proposals filed as Canadians attempt to avoid the harsher new bankruptcy rules. At least that will be a positive development for many people.

The interviewer, Andrew Bell, asked me about the speed that people’s finances are collapsing, and I related the story of the person I met earlier today who had a good job last year, but then both he and his wife got laid off, and they were left with no income. Using debt to survive they got further into debt, and were now facing the prospect of filing bankruptcy.

I was then asked about whether or not people live in denial, and I responded by saying that with credit easy to get, we are tempted to borrow more than we can repay.

We then talked about some common misconceptions about bankruptcy. I said that people worry that everyone will find out; that’s not the case. The bankruptcy appears on your credit report, but unless you are a corporation or you have significant assets, there is no publication in the newspaper or other advertisement of your bankruptcy. The stigma surrounding bankruptcy is less than it used to be, so I’m seeing an increasing number of people going bankrupt now so that by the time the recession ends, hopefully soon, they will be free of their debt and be able to get a fresh start.

My message to the media is the same as my message to everyone I meet: the bankruptcy rules are changing, so you need to know what’s happening now, so that you can decide whether to file now, or to wait. For more information, contact our office and arrange a meeting with one of our professionals, and we’ll help you decide what option is best for you and your family.

If you go bankrupt today the bank can repossess your car, if you have a loan secured by your car, even if your car payments are up to date.  Under the new rules they can’t do that.  There is also a new rule that makes it easier to file a consumer proposal.

No-one at the government can tell me why these rules are not yet in force, so I took matters into my own hands and sent an e-mail to the Prime Minister’s office.  That was 10 days ago, and I’m pleased to report that I finally got a response.  Here it is:

Dear Mr. Hoyes:

On behalf of the Right Honourable Stephen Harper, I would like to acknowledge receipt of your e-mail regarding bankruptcy legislation.

Please be assured that the statements you made have been carefully reviewed. I have taken the liberty of forwarding your e-mail to the Honourable Tony Clement, Minister of Industry, so that he too may be made aware of your comments.

Thank you for writing to the Prime Minister.

M. Bourque
Executive Correspondence Officer
for the Prime Minister’s Office
Agent de correspondance de la haute direction
pour le Cabinet du Premier ministre

Okay, so it’s not much of a response, but obviously the Prime Minister and his staff have other issues to worry about.  (No, I don’t know what’s more important than the economy and the welfare of Canadians, but I’m sure he’s got something on his mind).

The saddest part of this story is that to implement these two new rules would cost the government nothing.  Debtors would be happy.  Creditors would be happy because they potentially would collect more money.  It’s a no-cost win-win, but the government isn’t listening.

I’ll keep trying, and post any further responses I may get.

Bill C-55 makes it easier to file a consumer proposal, and was given Royal Assent on November 25, 2005, and Bill C-12, which makes it easier for bankrupts to keep their cars and house, was passed and received Royal Assent on December 14, 2007. Even though these laws have received Royal Assent, they are not yet in force!

Yes, you read that correctly. Almost three and a half years have passed, and laws designed to help people sit there gathering dust.

What’s the government waiting for? I have no idea.

We all know that we are currently in a very severe recession . Every day I meet with honest, hard working people who have had their hours cut back at work, or they are laid off, and they worry about having their car repossessed and their house foreclosed. They are using credit to survive, and they can’t afford it.

Numbers don’t lie. Last year, and so far this year, we are seeing a massive increase in the number of personal bankruptcies in Ontario. There is a feeling of hopelessness during these tough times; we don’t know when the economy will recover.

The average person with significant debt does not want to go bankrupt. They want to find a way to deal with their debts. That’s why many people want to file a consumer proposal. A consumer proposal is great alternative to bankruptcy. You offer to repay some of your debt, and if the creditors agree, the rest of your debt is wiped out. It’s a “win-win” situation: you deal with your debts without going bankrupt, and your creditors get more money than if you went bankrupt.

Here’s the catch: you can only file a consumer proposal if your total debts, not including the mortgage on your house, are $75,000 or less. If your debts are more than $75,000 you can only file a proposal under Division 1 of the Bankruptcy & Insolvency Act, which is more complicated, more costly, and less likely to be successful. For many people with bank loans, credit cards, lines of credit and car or truck loans, the $75,000 limit is simply not high enough.

The good news is that the government recognized this, and in December, 2007 passed new consumer proposal rules raising the limit to $250,000. I strongly support this new rule, and Ted Michalos and I even went to Ottawa last year to testify before the Senate Banking Committee about the importance of consumer proposals. (You can watch our testimony by clicking on the video, or you can go to our Senate Video page to see our entire testimony).If you want to read it, you can read the transcript of our appearance on the Senate of Canada web site. Here is an excerpt from my introductory remarks:

• Mr. Michalos and I and our bankruptcy trustees spend each day meeting with people in financial distress. These are real people who, in many cases, have lost their jobs, gone through a marriage breakup or suffered through an illness; and after these personal tragedies, they are faced with insurmountable debt.
• These are not bad people. We believe it is important that when parliamentarians draft bankruptcy legislation, they remember that real people are affected.
• The only obvious amendments that will make the insolvency process better for debtors are the new exemption for certain RRSPs, the new rule that prevents a lender from cancelling a security agreement simply because a bankruptcy or a proposal has been filed and the increased debt limit on consumer proposals.
• We believe that the debt limit for the filing of a consumer proposal being increased from $75,000 to $250,000 will encourage even more people to take advantage of the consumer proposal option, and we strongly support that amendment.

As I mentioned in my introductory remarks, there is another rule that would help debtors. Under current law a bank or leasing company can repossess your car, even if your payments are up to date, simply because you went bankrupt or filed a proposal. Under the proposed new rules they can’t repossess simply because you went bankrupt. That’s important, because many people want to continue making their car payment while bankrupt so they can use their car to get to work.

Here’s my point: the federal government has passed last to help people, but they haven’t implemented them. Bringing these laws into force will cost the government nothing. Creditors will get more money under the new rules, so they would be happy. People in financial trouble would also be happy, since they would know that a plan is in place to deal with their debts. It’s a win for everyone if the new rules are implemented.

I’m just one person. I have no friends in high places that I can call on to influence the government. But I’m doing my part. In addition to testifying in Ottawa last year (at my own expense), I have also written to Industry Minister Tony Clement, and to Prime Minister Stephen Harper.

I have yet to receive a response, but when I do I’ll immediately post it here, so stay tuned.