Douglas Hoyes, Bankruptcy Trustee

What happens to your mortgage if you file a consumer proposal, or a personal bankruptcy in Ontario? Under current laws a mortgage lender is not permitted to cancel a mortgage simply because you filed a bankruptcy or a proposal, if your payments are up to date. If you are behind on your payments, the mortgage holder has the right to foreclose on the property to recover their loan.

Here’s how it works: If you own a home, prior to filing a consumer proposal or personal bankruptcy with Hoyes, Michalos & Associates, we will request that you obtain an appraisal on your home, and a recent mortgage statement so that we can determine whether or not you have equity in your home. (Equity is the difference between what your home is worth, and what is owing on the mortgage). In a bankruptcy you are required to either pay an amount equal to the equity to keep your home, or surrender your house to the trustee. If you have equity and you want to keep your home, a consumer proposal is often the best option, since the value of your home can be incorporated into your proposal payments, which can be extended over up to five years to make the monthly payments manageable.

For more information, please see our article on What Happens to My House if I File Bankruptcy?

Two further points:

First, many mortgage lenders will charge you a fee when you file a consumer proposal or go bankrupt. They charge a fee for processing a claim with the trustee. So, even though you will be keeping your house and making payments, the mortgage company may charge a fee of between $150 and $400 to process the paperwork. Please contact us and we can advise you on whether or not you are likely to be charged a fee by your mortgage company.

Second, due to the credit crisis, the recession, and declining real estate values in parts of Ontario, and throughout North America, some lenders are no longer renewing mortgages. Some lenders now have a policy that if you file a consumer proposal or bankruptcy they will allow you to keep the mortgage until it matures, and then they will require you to find a new lender. In fact, there are even some lenders who are advising their clients that they are getting out of the mortgage business, and will not renew any mortgages, even if you are not filing a bankruptcy or proposal

How can your protect yourself? Again, we recommend you contact one of our professionals for a free initial consultation, so that we can review your options and help you find solutions. Some people may be able to find a new lender. Others may decide that they will sell their house before the bank can foreclose or refuse to renew a mortgage.

We maintain a list of mortgage lenders that charge fees, and that are not renewing mortgages, and we update our list each time we gather new information, so call us or e-mail Hoyes Michalos for up to date information. There are options, so be proactive and start exploring your options today.

You have seen the ads that promise to "reduce your debt by up to 70% without filing bankruptcy." The ads sound too good to be true, and they make you wonder who you are dealing with. How can someone running an ad in a newspaper make such a bold claim?

The procedure they are "selling" is often a consumer proposal and the claim of 70% debt reduction is often correct. Most people that file a consumer proposal repay about 30% of what they owe.

The second half of the claim, "without filing bankruptcy" is also true. A consumer proposal is a legal procedure administered by licensed trustees in bankruptcy who also serve as consumer proposal administrators, but it is not bankruptcy.

Where the people running these ads run into trouble (and that is not to suggest they are breaking the law because as far as I can tell they aren’t) is the fact that they charge you a fee for their services when all of the information they provide and the assistance that they give is available free of charge from trustees in bankruptcy.

Let me say that another way: the service these companies provide is to help you assemble the information necessary to file a consumer proposal. They can’t actually file a consumer proposal themselves, as only licensed consumer proposal administrators can do that. So once they have gathered up all of your information and you have paid them their fee, they refer you to a trustee to prepare and file the consumer proposal. What they don’t tell you is that if you had called a trustee directly there wouldn’t have been this extra fee – they would have provided the same service without the fee.

So who are you dealing with? Well, the companies running these ads call themselves debt consultants. There are no regulations for this industry as until some one thought up this “scam” a few years ago the industry didn’t exist. If there are no regulations then there is also no government oversight. If you decide to deal with one of these companies and something goes wrong, your only recourse is through the Courts. Given that you called them because you were in financial difficulty, what are the chances if something goes wrong you can afford to take them to Court? For most people the answer is slim or none.

So, if you are going to have to deal with a licensed trustee to file a consumer proposal, and the trustee won’t charge you an extra fee to help you assemble the information required to prepare a consumer proposal, why exactly would anyone ever deal with one of these companies?

The answer for some people is that they saw an ad, and responded to it, without asking any questions. For other people they use a debt consultant because they were afraid that a trustee would only talk to them about bankruptcy, and wouldn’t mention other alternatives, like a consumer proposal.

Don’t be fooled. Before you sign any agreement to help you deal with your debts, and before you hand over any of your hard earned (and in short supply) money, ask the person if the solution for you is to file a consumer proposal. If it is then ask them if they are a licensed trustee. If they are not then there really isn’t any point in dealing with them further.

Want to find out more? Call Hoyes, Michalos & Associates today. You can reach us at 310-PLAN (no area code required anywhere in Ontario), or call your local Hoyes Michalos office, or you can e-mail us, or even fill out our free evaluation form and we will respond with some personalized suggestions to deal with your debts. We are licensed by the federal government as both trustees in bankruptcy and consumer proposal administrators, and we do not charge an up front fee. We will explain to you, in detail, all of your debt management options, so that you can make an informed decision. No high pressure ads. Just information from licensed professionals.

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.

Jane Merling

I spoke to a young woman recently that has gone through a very tough time in the past few years. She and her (now) ex spouse could not keep up the payments on their home and lost it under power of sale by the mortgagee. The house was sold at a substantial loss and as the mortgage was guaranteed by Canada Mortgage and Housing Corporation the debt now rests with them. She also has a few credit card debts and other miscellaneous debts.

She and her spouse separated and she is now struggling to live on social assistance while raising a young family.

Creditors would have a hard time trying to collect debts from her as they really have no means of collection under her current circumstances; she doesn’t have wages, so they can’t get a wage garnishment.

However, she received notice from CMHC that they will start to redirect any income tax refunds or GST credits against the shortfall from the sale of the house. As a government agency they have the ability to request that Canada Revenue Agency send these funds to them.

The debt is large and her tax refunds/GST credits are small so it could take years for this debt to be repaid, especially as interest is accumulating at an alarming rate.

She feels that she needs a fresh start after all the stress she has been through in the past few years and would really like to be able to raise her family without this old problem hanging over her head. I invited her to have a free consultation with one of our professionals to discuss her options. Filing a bankruptcy may be the right solution for her and would give her some much needed peace of mind.

This is the time of year when we are all thinking about income tax and if you are facing concerns like this please give us a call at 310-PLAN to speak with one of our professionals, or complete our on-line evaluation, or send us an e-mail for more information.

Doug Hoyes, Bankruptcy Trustee

It never fails: the Hoyes Michalos 310-PLAN telephone help line and our on-line bankruptcy evaluation service get very busy in early January, as people realize they spent too much on their credit cards over Christmas.  I expect that with the continuing recession, this January will be very busy.  So before you get into financial trouble, here are my top three tips for financially surviving Christmas.

First, reduce your debt.  If you already have credit card debt, take steps to reduce it.  If you just pay the minimum balance on your credit cards you can easily spend twice as much for an item when you include the interest costs.  The real problem with high debt is that you are not in control.  The bank controls you, because they decide how much interest you pay, and when your payments are due. If you have more debt than you can handle, consider filing a consumer proposal to deal with your debts.

Second, to avoid increasing your debt this Christmas, use cash or a debit card.  Leave your credit cards at home.  You will spend less if you use cash, because it’s psychologically harder to part with “real money” than it is to swipe your credit card.

Finally, spend less.  Even if you are paying cash, keep your spending low.  Two years ago we wanted to impress everyone by flaunting our spending.  This year frugality is the new bling: the cool people are the people who spend wisely, not the lavish spenders.  Consider gifts like baby-sitting or preparing a meal.  These are gifts that are appreciated but are not expensive.  Discuss the topic with your family and friends.  They are in the same position as you are, so they will appreciate a plan where you can all avoid unnecessary spending.

A simple budget can help you keep your spending under control.

Remember, the bankruptcy rate spikes after Christmas, so now is the time to get your finances under control.  If you already have more debt than you can handle, please contact us today to discuss options for dealing with your debt, so you can look forward to a less stressful new year.

Scott Schaefer

We receive hundreds of e-mails every day from people experiencing financial hardship. Several of these e-mails ask similar questions so we have decided to provide answers live on the radio at 12 noon on Saturday November 14, 2009.

Scott Schaefer, the bankruptcy trustee responsible for our Kitchener office, and Howard Hayes from our Cambridge office, are going to answer your questions during the hour long Ask the Experts show on AM 570 News.   570 is Waterloo Region’s All News station.

We have created an e-mail address to allow youto send in their questions.  Send us your questions, and will will answer them  live on the Ask the Experts radio show.

Howard Hayes

If you have a question that you want answered, or you think other people would like to have answered, please e-mail us your question today.

If you can’t wait until Saturday, or you want to discuss your situation off air, call us at 310-PLAN (no area code required) or e-mail us today.

Canada’s third annual Credit Education Week starts next week, and it’s a great opportunity to learn more about money management. At least once a week I meet with someone who says to me “I got in to financial trouble because I never learned how to manage money.” Unfortunately in Canada our schools do a good job of teaching math and English, but there are no in depth courses that explain the pros and cons of credit cards, mortgages, car loans and how to make a personal budget. I think it’s great that there is now a week devoted to Credit Education in Canada; the more education we have in the wise use of credit, the better.

This year Credit Education Week will focus on Couples and Money. Participants can learn about how couples spend and save, and learn some important lessons that will help couples with their finances, and their relationships. Credit Education Week is supported by leaders within the financial services industry, consumer advocacy groups, community organizations and government, and as a result consumers get free access to financial advice and resources from Canada’s leading experts.

Hoyes, Michalos & Associates are not sponsors of the event, so we have no vested interest in promoting Credit Education Week. However, I strongly believe that the more we know about credit the better, so I’m pleased to help get the word out about this worthwhile event.

For those of you in the Toronto area, the Credit Education Week Canada launch will be held on Monday, November 2, 2009 from 9:30 a.m. to 11:30 a.m. at the Metro Toronto YMCA at 20 Grosvenor St. in Toronto. Alison Griffiths from Maxed Out will be hosting an exclusive panel featuring consumer reporter Pat Foran from CTV Toronto and Canada AM, and Ellen Roseman, the personal finance and consumer affairs columnist for the Toronto Star.

This sounds like a great panel. I’ve been interviewed by Pat Foran for Canada AM, so I know from personal experience that he has a great understanding of personal finance issues. Ellen Roseman has many years of experience writing about personal finance issues, and back in 2007 I even blogged about a great article Ellen Roseman wrote about credit cards in the Toronto Star, so I know she will be a great addition to the panel.

To register for the launch, RSVP before Friday, October 30, 2009 by contacting Elena Jara at 416-228-2535 or by e-mail at ejara@creditcanada.com

For more tools on money management, and for more information, go to the Credit Education Week Canada website.

There is no question that financial distress can be one of the most difficult things to deal with. Money problems are a private issue and it’s hard to tell who to turn to for help.

At Hoyes Michalos our goal is to help you to find the right option for you and your family. People I talk to worry that personal bankruptcy is the only option. Rest assured that when you call us, bankruptcy is the last option we will discuss, not the first.

As a former credit counsellor I’m well qualified to discuss how a debt management plan may be the solution to your problems. Debt management plans are great if you have a limited amount of debt, and the ability to repay your debts in full.

If you can’t repay your debts in full, a consumer proposal may be the perfect option. Like a debt management plan we negotiate a settlement with your creditors, and in most cases a settlement can be reached where you pay less than the full amount owing.

When you call Hoyes Michalos, you will speak with someone who cares about helping you find the right option. We will go over your situation with you, and if you like, we can book you a free consultation to meet face to face and review your options. There is no obligation or cost to this meeting, and you will find us welcoming and non judgmental.

If you are struggling with debt due to job loss, difficult business climate, relationship issues, or any other reason at all, let me invite you to call us. We can be reached toll free at 310-PLAN (that’s 310-7526 – no area code is required). We look forward to helping you build a plan to deal with your debts.

But remember, we can’t help you if you don’t first make the call.

So what do I do if I don’t believe the rules are fair? I follow the rules, but I also do everything in my power to change the rules that don’t make sense. Ted Michalos and I were the only independent trustees asked to testify before the Senate Banking Committee as they contemplated changes to the bankruptcy rules. We argued in favour of rules that would be more fair to the average Canadian in financial difficulty.

When reviewing the new bankruptcy rules that were set to come into force on September 18, 2009, we noticed a big problem: Without warning, the government decided to require all bankrupts to disclose their highest level of education. It became a requirement that you were forced to disclose to your creditors if you were a high school dropout, or if you didn’t finish university. Governments often make stupid decisions, but this decision was about as bad as it gets.

I understand that if you are going bankrupt, you must disclose your debts, and your assets, and your income. Without that information your creditors cannot evaluate your case. But do your creditors need to know whether or not you graduated from high school? Probably not.

Although no-one from the government will explain it to me, I assume that some bureaucrat somewhere decided it would be interesting to do a study of education levels, so they quietly slipped it onto the paperwork bankrupts must fill out.

I found that to be offensive, and most people we dealt with found it very embarrassing having to declare their educational status.

As soon as we discovered this dirty little trick, we took action.

On September 10, 2009, I sent an e-mail to the Superintendent of Bankruptcy (the government official responsible for administering all bankruptcy rules) asking why this requirement was implemented, and stating my objection to it. (About a week later one of his staff replied to me that they were “working on it”).

On September 14, 2009 we issued a press release in an attempt to bring attention to this new rule.

Over the next few days we spoke to the media, and continued to make calls to the government in an attempt to get them to change this rule.

Then, finally, on Saturday morning, September 26, 2009 we received word that the government had quietly changed the rule. Debtors were no longer required to disclose their educational status on their bankruptcy paperwork. Interestingly, the government did not admit to the mistake; they have to this day not issued any official communication on the matter. I was informed by the company that makes the computer software we use; the government told them the form was changing, and they told us.

It would be nice if the government would issue an apology for the mistake, but I’m satisfied that the rule was changed.

[UPDATE: Posted September 30: the government didn't apologize, but they did publish their justification for their actions; you can read it on the OSB web site]

I don’t take credit for the rule change. I made my views known, and fortunately many others did as well, which forced the government to change.

Our commitment will continue to be very simple and straightforward: we will explain all of the rules, and follow them, and continue to fight for changes when we believe the rules are unfair.

Want proof? If you are having financial problems, call our office today at 310-PLAN, or try our free on-line evaluation (we will respond to your request in a few hours during the day), or e-mail us for more information or to set up a free initial consultation. We will explain your options, and we will explain the rules, and then you can decide what option will work best for you. And I’ll keep fighting for fairness for all Canadians in financial trouble.

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.