First, the good news. The total number of insolvency filings are down.

In the first six months of 2010 in Ontario there were 28,944 personal bankruptcies and consumer proposals filed. In the first six months of 2011 that number dropped to 26,473, a drop of 9%.

In all of Canada the overall decrease was 8%, so Ontario is representative of the national average. However, here’s where it gets interesting:

In Ontario personal bankruptcies in the first six months of this year decreased by 23% (from 17,314 to 13,406). That sounds like great news for the economy, but that was counter balanced by the increase in the number of consumer proposals filed, from 11,630 last year to 13,067 this year, and increase of 12%.

In the first six months of 2010, 60% of filings were bankruptcies, and 40% were proposals. In the first six months of this year it was much closer to a 50/50 split. What’s going on here?

Two things have changed:

First, back in 2009 the bankruptcy laws in Canada changed, making bankruptcy in Canada more expensive for some people due to the new surplus income rules, while at the same time encouraging the filing of more consumer proposals.

Since Ted Michalos and I founded Hoyes Michalos back in 1999 we have always encouraged consumer proposals as an alternative to bankruptcy; the rest of Canada is starting to catch up, and is start to realize that in many cases a consumer proposal is a better alternative. Here’s why:

If you file bankruptcy, you are required to provide copies of your paystubs each month, and if you have surplus income as defined by the government, you pay more, and your bankruptcy lasts longer. That’s not a problem in a consumer proposal; once we negotiate a deal with your creditors, that’s it. No wonder people like consumer proposals.

Second, as the economy improves and incomes increase, consumer proposals (for the reasons noted above) become better alternatives to deal with your debts. If the economy continues to improve, it’s likely that the percentage of consumer proposals filed will continue to increase.

However, a word of caution: the percentage of consumer proposals filed has dropped as the year has progressed. In the first three months of this year there were actually more consumer proposals filed in Ontario than bankruptcies (6,586 to 6,567). In the second quarter bankruptcies were higher (6,839 to 6,481). Does that mean the economy is fading?

Perhaps, but we will have to wait a few more months to know for sure. In a bankruptcy you lose your tax refund, so if you are expecting a tax refund you may choose to wait until you get it for last year before filing (so you only lose one year and not two). That tends to cause an increase in bankruptcy filings in April, May and June.

How many proposals and bankruptcies were filed in your city? I’ve compiled a list of all of each commentary from all Hoyes Michalos team members, so click on your city to find out more:

• Barrie – Consumer proposals are on the rise in Barrie
• Barrie – Good news – bankruptcy rate drops in Barrie
• Brampton – Consumer proposals and bankruptcy filings decline in Brampton
• Brantford – Bankruptcy rate drops, consumer proposals way up
• Brantford – Consumer proposals in Brantford up
• Cambridge – Bankruptcies drop, consumer proposals increase in Cambridge
• Cambridge – Why people in Cambridge care about how many people file Bankruptcies and Consumer Proposals?
• Cambridge – Consumer proposals on the rise for 2011 in Cambridge
• Chatham – Consumer proposal filings up
• Hamilton – Bankruptcy rate in Hamilton declines
• Hamilton – Bankruptcy rate declines in Hamilton
• Kitchener – Waterloo – Consumer proposals on the rise
• Kitchener/Waterloo – Consumer proposals increase
• Kitchener – Waterloo – Bankruptcies down, consumer proposals up
• London – The changing tide: More consumer proposals, fewer bankruptcies
• London – Are the number of people filing for bankruptcy in London finally coming down?
• Mississauga – Bankruptcy and Proposal Statistics in Mississauga
• North York – Bankruptcy and Consumer Proposal Statistics in North York, Ontario
• Sarnia – Bankruptcies down, but more Consumer Proposals in Sarnia
• St. Catharines – Niagara Newsflash – More people filing consumer proposals than bankruptcy
• Toronto, North York and Scarborough – Bankruptcy Statistics Released
• Toronto – Feeling Alone?
• Toronto – Am I alone? The stats clearly show that you are not alone
• Windsor and Leamington – Bankruptcies Drop
• Vaughan – Bankruptcies are down and Consumer Proposals are up in Vaughan
• Vaughan and Woodbridge – Bankruptcy rate down, consumer proposals up
• Windsor – Bankruptcy filings down in Windsor
• Windsor – Consumer proposal filings up

Here are some articles on statistics in Canada:

• Consumer Proposals Increase Again in 2011
• Ontario Bankruptcy Statistics
• Bankruptcy Canada Statistics

And finally, for more on consumer proposals, this consumer proposals site is a feed of articles from around the web. We will continue to monitor events, and post new updates as further information becomes available.

Jane Merling

I spoke with a gentleman recently who is struggling with an overload of debt. He and his spouse are living on a limited income from pensions and do not own property, so creditors would not be able to take collection action such as a wage garnishee or liens against assets. However, that doesn’t stop interest from accumulating on the debts or telephone calls from collectors, which can be very stressful.

The stress doesn’t stop there, as he is in rapidly failing health and is very concerned about his spouse having to deal with all this when he is no longer able to.

What should he do?

He needs relief from the stress. He needs to quiet his mind about what will happen to his spouse when he is no longer with her. He needs to channel his strength into coping with a terminal illness and making his remaining time peaceful and meaningful for his family.

She needs to concentrate on supporting her spouse as he navigates his way through some very difficult treatments for his failing health. She needs to keep her strength up and her mind clear to deal with issues that were primarily his role in their relationship. And she needs to have freedom from other stresses to cope with the inevitable grieving process.

We shared a calm and direct chat about the bankruptcy process and I answered his many intelligent questions throughout.

What I found really interesting about this dignified gentleman was that he kept thanking me for taking the time to discuss his many concerns. He was grateful to be able to speak directly to a live person and not have to go through a lot of automation and useless prompts.

I assured him that all of the highly trained professionals at Hoyes Michalos & Associates do this with every inquiry we receive.

Not all situations are as dramatic as this one, but dealing with debt can certainly be awkward and difficult. It took this gentleman a long time to “get up the nerve” (his words) to call us.

If you want to get started on a plan to deal with your debts or have questions about the process, contact us.  We’re here to help.  I know this gentleman feels better knowing his options, and so will you.

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……..

The mandate of the Canada Revenue Agency (CRA) is to assess and collect the correct amount of tax for individuals and businesses in Canada.  My colleague Bill Kilner blogged last week about how it’s easy to ignore your taxes after you start to fall behind.  I want to expand a little bit on why it’s important to deal with your tax debts.

I like to think of the CRA as a big sleepy bear.  When he’s hibernating for a long time, it’s easy to forget that he is there.  When he wakes up and flashes those razor sharp claws, you start to appreciate just how dangerous he can be.  Furthermore, he’s not going to give up chasing you once he gets your scent. 

Compared to an average creditor, the tax man has super powers to help collect money owing to him.  The CRA can freeze your bank account or garnishee your wages with just the signature from the director of your local tax office.  A bank or credit card company has to go through a lengthy court process to able to do the same thing.  I’m not here to argue whether it’s fair or right.  It is what it is.

What else can the tax man do?  If you have a business and the CRA knows who your major customers are, they can send a notice to those customers directing them to pay to them (to CRA, not you) the money your customers were to pay to you for the work you have done.  Again, no court order required.

There’s more.  If you have a house, the CRA can register a lien against the property.  No consent required by you.  No court order required.  Think of it as a second mortgage where the tax man is dictating the repayment terms.

Obviously, the best way to avoid these nasty consequences is to pay the debt.  Just like any creditor, the CRA has collectors with whom you can negotiate a payment plan.  However, the CRA is typically unwilling to accept less than the full amount owing. 

So, what do you do if a repayment plan just isn’t realistic?  There’s a common misconception that tax debts are not included in personal bankruptcy.   There are some special considerations that I will discuss in a moment, but the general rule is that the tax man gets treated the same as any other creditor if you file for personal bankruptcy.

I want to make something absolutely clear.  In no way do I advocate bankruptcy as a way of “getting out of paying” your tax debts, or any other debt.  Bankruptcy is a legal process available to Canadians to get a fresh start from their debts (tax and non-tax) when there is no reasonable expectation of being able to pay those debts in full.

The goal in bankruptcy is not to file for bankruptcy, the goal is to be discharged from bankruptcy.  It is not until you are discharged, that the debts are legally released.  In most situations, as long as you fulfill various financial and non-financial duties, you are eligible to receive your discharge without a requirement to go to court.  This is called an automatic order of discharge and is granted by the trustee. 

One of the “special considerations” is that you are not eligible for an automatic discharge if your personal tax debts are greater than $200,000 and represents more than 75% of your total unsecured debts.  This is one of the many changes to bankruptcy law in September 2009.  That means going to court and having a judge (called a registrar in bankruptcy court) deciding what conditions you have to meet to be discharged.  It could involve paying back a portion of the debt.  It could mean a time delay before you can be discharged.  It could mean that the refuses to grant a discharge altogether, but that would be in extraordinary circumstances.

Another “special consideration” is if the CRA has registered a lien against your house.  Bankruptcy deals with the unsecured debts.  Registering a lien makes the taxes a secured debt.  If this has happened and you want to keep your house, you should be talking to the CRA about payment arrangements.  Filing for personal bankruptcy will not remove the lien. 

If you have a business, your debts with the CRA might not be limited to income taxes.  You might also have debts for unremitted GST/HST or payroll deductions.  These are debts that are included in bankruptcy, but there are considerations that go behind the scope of an article like this.  My advice is to contact us so that we can go over your circumstances in detail.

Don’t let this bear chase you up a tree, or worse.  If you want to get started on a plan to deal with your debts, please feel free to contact us for more information or a free consultation.

When you owe money to Revenue Canada, the temptation is to simply not file your tax return, but that’s the wrong approach. Why? Once you are late there is an automatic five per cent late filing penalty the first time and each additional time the penalty escalates. Surely you can make better use of the money than send it to our government. Also, the government does not charge interest on the arrears until after April 30th. So any payment prior goes to the taxes. They will never turn down money so send it in. Finally if you can pay the taxes in six months or less, send in the cheques with the tax return. You can even set up preauthorized payments with them either in person or online.

If the debt will take more time, it is time to analyze the situation. Is this going to be an annual situation? How long will I need to pay off the taxes? Do I need to make a change to my budget or my lifestyle? If you cannot afford to pay the taxes within one year, you may be living beyond your income.

If it will be an annual problem you need to be aware of a certain fact, and that is that if you intend to retire, the first year after you retire, you will owe taxes from the last year of your business (or employment) but will not have the same income to pay them. In other words you may find yourself insolvent, looking for help out of a financial crisis. To avoid that now, pay your 2011 income tax when you make the money in 2011. Then when you retire your taxes are paid up to date. If you have last year’s taxes to pay, you are already fifteen months behind. You need to look at your budget and see how you can attempt to get up to date in twenty-four months (pay three years of taxes in two years). If you can pay within this time frame, call the Canada Revenue Agency and make an arrangement for your tax payments. If you cannot make payments within these guidelines, call us and make an appointment for a free consultation.

You may find a cure for the Tax Time Blues. A consumer proposal or possibly a bankruptcy in Ontario will allow you to take care of this problem and prevent it from happening again. Taxes owing to Revenue Canada (Canada Revenue Agency or CRA) are included when you file a consumer proposal or bankruptcy, so read our report on How to Deal with CRA for more information, or contact us for a free initial consultation, and let’s get started.

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.

When considering your options to deal with the debts you have, many people will first explore the idea of a debt consolidation loan.

A debt consolidation loan is a loan that a financial institution will give you that allows you to group together other debts by paying them off with the loan.  For example, if you have three different debts that total $15,000 a loan company may give you a loan for $15,000 and you would use the loan to pay off the three debts with.  You’re replacing three old debts with one new debt.

Debt consolidation loans have some advantages:

• Because you now only have one payment to make, it should be easier to budget
• If the interest rate on your loan is lower than the interest rates on your credit cards, then it should save you money in interest payments
• By combining three interest rates into one, your overall monthly payment could be lower 

However, they also have some disadvantages:

• A debt consolidation loans are becoming increasingly difficult to obtain.
• You may need a co-signor. If you do, you’re now bringing someone else into the responsibility of your debt problems
• You may need to put something up as security such as your house. If consolidating debts through a second mortgage, your house will now be at risk if you don’t keep up with the payments
• The lender will want to see you have a steady income, employment and a good credit rating before considering whether or not to qualify you for the loan.
• Some financial institutions may qualify you for a loan, but at a high rate of interest.
• Debt consolidation loans require discipline. If you qualify for the loan and then you continue to incur new debts again on the credit cards, you’re essentially increasing your debt load leading to further problems.
• Your credit score will drop. Instead of having three accounts with a good payment history, you now only have one.

Sometimes debt consolidation loans won’t work for you. 

Howard Hayes - Client Services

Don’t forget, a lenders primary motivation for wanting to qualify you for a debt consolidation loan is because they believe they can money from you.

If the debt load you have is just too overwhelming and the monthly payments on a debt consolidation loan will be too high or you simply don’t qualify then you’ll need to start looking at other options.  Bankruptcy is an option, but it may not be the only other answer.

The advantages of filing a bankruptcy would be that you’d be clearing yourself of all the debts as opposed to re-financing them.  You don’t need to qualify to file for bankruptcy; it’s a choice you make.  It’s the quickest and cheapest way to clear yourself of debt problems and it legally protects you when accounts get behind and you face collection problems and the threats of legal action against you.

Many people will search for help in consolidating debts as a way to avoid filing bankruptcy and often fall into the trap of committing to a higher interest rate debt consolidation loan because the only financial institutions that will qualify you will typically charge you a higher rate of interest for doing so.  The fear of bankruptcy and the fear of losing assets will often lead people to the clutches of lenders that care more for their profits than they do about you as a customer.

The good news is that there is another way.  Consumer Proposals are becoming more and more the number one alternative to bankruptcy and the number one way to consolidate debts.

A Consumer Proposal is a legally binding settlement of debts.  Proposals can be filed with the help of a trustee.  It allows you to offer payment terms to the people that you owe money to that you can realistically afford.  You’re allowed a maximum of five years in which to complete a proposal and there is no interest charged on what you repay.   In the same way a debt consolidation loan groups all your debts into one payment, a Consumer Proposal does too except this time, instead of paying the principal debts plus interest, you’re only paying back what you offer to pay back.

Sounds too good to be true? Well consider the position of the people you owe money too.  If you don’t qualify for a debt consolidation loan, and as much as you may want to still avoid a bankruptcy, they want to avoid it too.  They’d rather accept a Consumer Proposal that is offered on the premise that they’d rather get something back that nothing.

Finding ways to solve a debt problem is never easy.  Here at Hoyes Michalos & Associates Inc we recognize that no two people’s debts problems are exactly the same and therefore the best solutions for a debt problem will depend entirely on your specific circumstances.   As such, we always recommend that you contact us right away and speak to one of our professionals about your situation and we’ll go over all the options you have.  Whether you just want to talk on the phone or book an appointment to come in to one of our offices for a chat, it’s a free service we offer and there’s no obligation.  Contact us by email or call today at 310-PLAN and let’s get started.

Janette Martin, North York Office Client Service Specialist

Now, due to some unfortunate reason you find yourself struggling to pay your bills, and you are considering filing bankruptcy in Ontario. Your credit card balances only seem to go higher despite the monthly payments you are making. Your interest rates have jumped because you made a payment a few days late. You have tried calling your creditors to ask for help but they are not willing to work with you. It is time to seek help.

One of the reasons you have not sought help already is because you are afraid of what will happen to you. You have heard stories from your friends; you do not want to lose everything you have worked for.

You might be surprised to find out that if you need to file for bankruptcy in Ontario, there is a good chance that you will be able to keep your RRSP. For more information on other exempt assets in a bankruptcy in Ontario, please see our article on what you get to keep if you file bankruptcy in Ontario.

Will you be able to keep your RRSP if you go bankrupt? When you meet with a Hoyes Michalos professional for your no-charge initial consultation, we will ask you two questions:

The first question is “how much have you contributed into your RRSP in the past 12 months?” The second question is “where your RRSP is held?”

If your RRSP is held with a life insurance company, then depending on who the beneficiary is, the entire RRSP may be exempt from seizure by your trustee. If your RRSP is not exempt due to this, then your trustee is entitled to seize only the amount contributed into the RRSP in the 12 months before you filed for bankruptcy.

This same rule applies to RRSPs that are held at banks or any other institution. Your trustee can only take the amount that has been contributed within 12 months of filing for bankruptcy.

This is good news for you if you have an RRSP that you started many years ago but have been unable to contribute to for the past few years due to your financial situation.

If you do not want to file for bankruptcy, there are other options which can also help you to deal with your creditors. A consumer proposal is a great way to settle your debts. In a consumer proposal you can offer your creditors a low monthly payment over a period of up to five years. You avoid bankruptcy, and you get to keep all of your assets, including your RRSP.

If you are having a difficult time keeping up with your payments, you can visit our free, 10 second, on-line debt options calculator to review your options. Then call us at 310-PLAN (that’s 310-7526, no area code required, and that number works for all of our Ontario offices), or e-mail us today to arrange for a free initial consultation.

Whether you file a bankruptcy or a consumer proposal, once you have your debts under control you will be able to continue contributing to your RRSP and saving for your future.

If you have fallen behind with your payments and you are about to be, or have just been, assigned to collections, contact your creditor before they contact you. Why do I suggest you call those “mean” people first, you ask? Two reasons:

First, the sooner you call the more time you have to arrange payment.

Second, when you contact them voluntarily, you are seen to be more sincere and credible. Have a plan worked out that will address more than just the interest on the debt. Have a plan that will pay the debt in full, or bring it back into line over a reasonable period of time. When you make a deal with them, make your payments on time or early. They do not have to wait for their money before you start to rebuild their trust, which is what credit is all about.

Here’s the key point: if you are going to repair your credit on your own, decide in advance what you can afford to pay before you talk to your creditors. If they agree to your plan, stick to it. Don’t make a promise you can’t keep, because that will hurt your credibility, and make it harder to negotiate a deal in the future.

But what can you do if you can’t work out a plan with the people you owe money to? What do you do if they want more money than you can afford to give them?

If you realize that you cannot pay this debt over a short period of time, or you cannot pay more than interest, then the problem is more severe. That is where we come into the picture. At Hoyes Michalos will sit down with you and review your financial situation and work out a plan to repair or reconstruct your credit. We will review many options if you can’t work out a plan on your own:

• A debt management program may work for you if you can pay the total amount of your debt without interest over a five year term. If that is not possible,
• A consumer proposal may be the solution for you. If that’s not possible,
• Personal bankruptcy may be your final option.

We can explain how each of these programs works, how it affects your credit and how to rebuild your credit from here.

Remember, credit is based on trust and trust has to be earned but you can regain trust after you have lost it.

A consumer proposal may be the first step in building that trust. With a consumer proposal we work with you and your creditors to negotiate a settlement. If you owe $50,000 on credit cards, bank loans, payday loans, and tax debt, we may be able to work out a plan where you pay somewhere between a third to half of the full amount owing. A typical plan may be payments from you of $300 per month for 60 months, or $18,000, with the balance written off. (This is an example only; the actual amount you will pay is based on your income, your assets, and your total debts).

Once the proposal is completed, you are debt free. You will start saving money, and it is those savings that will start the credit repair process. We have more information in our article on how to repair your credit.

To find out how a consumer proposal, or personal bankruptcy, can help you start the credit repair process, please call us at 310-PLAN (that’s 310-7526, no area code required in Ontario), or complete our use our 10 second on-line debt options calculator, or complete our on-line evaluation, or e-mail us today to arrange your no-charge, no obligation initial consultation, and let’s get started.

Bill Kilner is a Client Service Specialist in the Hoyes Michalos Scarborough office, and a contributor to the Bankruptcy Scarborough blog.

My name is Janette Martin and I am an estate manager working with Trustee Benny Mendlowitz here in the Hoyes Michalos & Associates Inc. North York office.

There are many misconceptions about what happens to a person when they file for bankruptcy in Ontario.  Some people think they are not allowed to work (not true), some people think that their family will become responsible for their debts (not true, unless they have co-signed for you), and some people think that either their creditors or the trustee will come to their house to take away their belongings and sell them to pay their debts.

When you file for bankruptcy, as your trustee, we have many responsibilities.  One of our responsibilities is to determine what assets you own and what their value is.  There are several  laws that protect your assets from seizure.  If an asset is not protected by law, then we must sell that asset and we will eventually distribute the money received from the sale to your creditors.

The rules regarding exempt assets change periodically, so it is best to consult with a Hoyes Michalos team member to discuss your specific situation, but here’s a simple overview:

The Execution Act of Ontario exempts a person’s basic belongings. These Ontario bankruptcy exemptions mean that if you go bankrupt in Ontario, the following assets are exempt from seizure by your trustee.

• $5,650 worth of personal possessions (clothing, jewelry, sports equipment, etc.);
• A motor vehicle (cars, trucks, etc.) worth up to $5,650, provided there are no liens against it;
• $11,300 worth of furnishings;
• $11,300 worth of tools of the trade (equipment that you use to earn a living).

So, if you go bankrupt in Ontario, you won’t lose your basic personal possessions, and inexpensive car, and your household furnishings, up to the “garage sale value” limits noted above.

While this list covers the basics, there are other assets that we commonly see, such as life insurance, RRSP’s, automobiles and real estate.

If your life insurance is term insurance, there is no cash value to it, therefore your trustee will not take it.  If your life insurance is whole life, it will at some point have a cash surrender value.  Depending on whom the beneficiary of the policy is, the Insurance Act of Ontario may protect the cash surrender value.  Also, if you have an RRSP with a life insurance company it may be protected depending on who the beneficiary is.

If your RRSP is with an institution other than a life insurance company and you have not made any contributions to it within the 12 months  before you file bankruptcy, the RRSP would be exempt.  Your trustee will only take the contributions made within the 12 months before your date of bankruptcy.

If you own a car or a house, your trustee will calculate the equity in that asset by first determining it’s fair market value and then subtracting the amount of the loan secured against the asset.  In Ontario, the equity in your car is exempt to an amount set under The Executions Act of Ontario, but unfortunately there is no exemption for equity in a home in Ontario.

You will also lose your tax refund if you file bankruptcy.

If you have avoided seeking help because you are worried about what you will lose, you can see that filing for bankruptcy has very little impact on most people.   If you have an asset that you want to keep that you would otherwise lose in a bankruptcy there are other options you can consider. A consumer proposal is a good alternative to bankruptcy, and you don’t have to worry about losing your assets.

Filing a consumer proposal is equivalent to making a deal with your creditors.  You can offer your creditors a monthly payment over a period of years in exchange for being able to keep your assets.  You are in a way “buying back” your assets from your creditors, so the amount that you offer them in your proposal must be equivalent to the realizable value of the asset.

Sound complicated? Not sure if a consumer proposal or bankruptcy is the right solution for you? If you are having a difficult time keeping up with your payments to your creditors, you can visit our website for a free on-line review of your situation, or call Hoyes Michalos at 310-PLAN (that’s 310-7526, no area code required, and that number works for all of our Ontario offices), or e-mail us today to arrange for a free initial consultation.