Archive for the ‘Personal Bankruptcy’ Category

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  That system has been replaced by the Repayment Assistance Plan (RAP).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.

Howard Hayes - Client Services

Most of the people we talk to here at Hoyes Michalos & Associates have had at least one of their debts put into collections.  It is never a pleasant experience.

If a lender’s efforts to recover a debt are not successful, they often hire a third party collection agency to try to recover their money.

It’s never normally the best advice to bury your head in the sand and ignore the collection calls.  It will likely only make things worse.  Even if you have little or no money and know that you’re not going to be able to meet the demands of the collection agents, ignoring them will only leave them guessing as to why you’re not making payments and they’ll continue to call.  

 Here are three options to stop collectors from calling:

1. Negotiate with them and work out a plan. Some collection agents are better than others.  Not all of them, but some collection agents are slowly realizing that it may benefit everyone to work out a reasonable plan with you rather than coercing you into unrealistic repayment plans.

2. You can file a Consumer Proposal with a licensed trustee, or

3. File for Personal Bankruptcy which, like a Consumer Proposal will legally protect you and force them to stop all collection actions against you.

Only a Consumer Proposal or Personal Bankruptcy provide the necessary legal protection required to stop collectors pursuing legal action against you such as attempting to garnishee your wages.

Collectors are usually work on a commission basis (the commission rates are often higher for the collectors  the quicker they can collect from you) so one incentive they have is to call as often as they do and make demands, because by collecting money from you they are increasing the size of their own pay cheques.

In Ontario, collectors are obligate to stick to very specific rules when it comes to collecting debts, however based on what many of our clients tell us,  it’s also apparent that not every collection agent sticks to these rules, but here are a few of your rights to be aware of if collectors are calling.

•You’re entitled to be notified in writing first, that your account has been assigned to them for collection.

•The collector must clearly identify themselves, who they work for, and amount owing when calling you.

•They cannot make calls that may be considered harassing to you and your family.

•They cannot give you false or misleading information

•They can only call other people to confirm your phone number and address.

•They must have written permission from the original creditor to take any legal action to collect a debt from you.

A full list of regulations can be found on the Ontario Government website.

The most important factors to remember if collection agents are calling you, no matter the size of your income and size of the debt, you have rights and most importantly, you have options such as filing a Consumer Proposal or Personal Bankruptcy.  

If a Consumer Proposal is something you’re unfamiliar with, it’s where a negotiated settlement is arranged to allow you to repay a portion of your debts over a period of time without having to declare bankruptcy.  The following article written for my Cambridge Office Blog lists some of the advantages of a Consumer Proposal to consider when considering a Proposal to creditors over a Personal Bankruptcy. 

At Hoyes Michalos & Associates Inc, we’re happy to provide you with the advice you need to deal with collection agents that call and to help you with ways to bring your debts under control.  We can discuss your options either on the phone or we can arrange to meet with you in our office for a no charge consultation.   Contact us by sending an email with any questions you may have, fill out our online evaluation form or call today at 310-PLAN and let’s get started.

I have had many people come to me over the years and say, “This creditor has garnisheed my pay cheque and I can no longer afford to pay my living expenses. How do I stop the wage garnishee?”

If we first understand why a creditor issues a garnishee and how they go about it, then we can understand how to deal with a garnishee. A creditor (like a bank or credit card company) goes to court to get a garnishee because they have not been paid, they have been ignored, or you cannot arrange a satisfactory repayment arrangement with them. For banks, credit cards and the like, issuing a garnishee is a last step because they are required to go to court, get a judgment and have the garnishee issued. The Ontario Wages Act usually keeps the rate of the garnishment to twenty per cent.

The best way to stop a bank or collection agency from garnisheeing your income is to be proactive. That means talking to the creditor prior to them getting to the point where they have no other choice but to put a wage garnishment into play. Often creditors take action because they do not know about what’s going on in your life, except the fact that they are not being paid. They do not know about the layoff, or the sickness or the other circumstances that make paying the creditor impossible. If your circumstances change, contact your creditors and tell them; do not wait for them to call you after the account has become delinquent. The sooner you call, the more time you will have to work with your creditors.

If you haven’t communicated with your creditors, they will notify you that they are taking you to court to get a judgment against you. There is the name of a law firm and phone number on the legal documents. Before things get worse, call and see if you can still work out a payment arrangement. If so, there will be no garnishee. If not, your creditors will get judgment against you and collect on this judgment by way of a garnishment.

Once a garnishment starts, other than paying it in full, there are only two ways to stop the garnishment: file a consumer proposal or file bankruptcy, both of which must be filed by a licensed trustee (such as our team here at Hoyes Michalos).

Once a private sector creditor (a bank or credit card company) notifies you that they want to get a judgment against you, do not ignore it. When you find out that a payment arrangement is not possible or if you know before that you cannot afford a payment arrangement, call us at 310-PLAN. We will review your situation and work with you to find the best and most affordable solution for you and your family situation.

We will help you make a plan. Often that plan will involve a consumer proposal. A consumer proposal is often the best alternative because the monthly payments you will have to make are usually lower than what would be required in a bankruptcy, and the creditors get a partial payment of the balance. However, if a consumer proposal is not possible because your income is too low, then a bankruptcy may be the only remaining option.

Others may claim that they can have a garnishee released, but if their offer is less than what the garnishee would generate, the likely answer would be no. A Trustee must file either a Consumer Proposal or a Bankruptcy. If these are your only alternatives, contact us and we will help you with your problem.

In this article we have discussed banks and credit card companies. The rules for a Canada Revenue Agency (CRA) garnishment are different, so if you have CRA tax debts, please call us at 310-PLAN today for more information.

It’s that time of year again, where people look to get a fresh start and improve their lives. Many people do this in the form of New Year’s resolutions. Some of the most common New Year’s resolutions are:

• Improving personal health: some of the popular resolutions in this category are weight loss, quit smoking, exercise more, and drink less alcohol.
• Improving education:  such as obtaining a post-secondary degree, finishing high school, learning a new language or improving grades.
• Self improvement: Getting more organized, learning to cope with stress, and better time management are common goals people set for themselves.
• Getting a better job: Many people aspire to advance their career or change their career field.
• Getting finances in order:  save money and get out of debt are the most common.

Ross Stevenson

If your New Year’s resolution is to get out of debt, there are some steps you need to take. The first step would be to make a summary of your debts and your significant assets, such as your house, car and RRSP.

The next step would be to make a budget. It is important that you make your budget realistic. You don’t need to get complicated; you can simply calculate the monthly family income and where your money is being spent each month.

The final step would be to set financial goals. Consider what is important to you and your family. Think about where you would like to be in the future.  It is easy to get distracted by the things going on in our day-to-day lives and we forget about what we want in the future. New Year’s is an excellent time to evaluate where we are and what goals we have for ourselves.

In order to be in control of your financial situation you need to summarize your significant assets, make a budget, and set realistic goals.

After you do these things, you can evaluate the advantages and disadvantages of all your options, which may include:

• Using your assets to deal with the debt, perhaps by selling your house, or your second car, or cashing in some of your investments
• Getting a debt consolidation loan with a financial institution
• Debt Management Plan
• Consumer Proposal
• Personal Bankruptcy

Which option is right for you? Start by using our free, on-line debt options calculator.

If your New Year’s resolution is to get out of debt and you would like to discuss your options, we are happy to help. You can phone us at 310-PLAN (no area code required), email us, or fill out our online evaluation.  One of our experts will contact you and go through all your options. This could be the Year you finally get out of debt, so contact us today, and let’s get started.

The other day our Hoyes Michalos head office lost power.   It appears that some contractors were doing some work outside our building, and they cut the hydro lines that feed our head office in Kitchener, leaving us in the dark.   We are able to offer fast, efficient service to everyone with financial problems because all of our offices across Ontario are connected to our central database in Kitchener. Of course the power outage in Kitchener terminated my our access to head office, and affected all of our offices including my bankruptcy and consumer proposal office here at Yonge and Bloor in Toronto.

Sandra Sykora, Bankruptcy Trustee

First my apologies for any of you trying to reach our offices and not being able to get through. Nothing is more frustrating then getting a busy signal when you need to reach someone. We did get things up and running, at least on a temporary basis later in the day and we were fully functional by Friday morning. Of course there was the catch up that needed to be done.

Second and probably most important, I realized how in the dark I was here in Toronto. Being the proactive type I found it hard not to know what was going on and when and how it would be fixed.  It made me feel very anxious and alone. And it became clear to me that maybe that is how many of you are feeling regarding your debts and money problems.

Most people I meet do not discuss finances with family or friends; you probably feel embarrassed, and keep the issues to yourself. I was only powerless for a couple of hours and found it hard, and cannot imagine feeling like that for a long period of time.

Just knowing your options can empower you (no pun intended) and provide you with at least a plan on how to deal with the various issues and what will happen next. Sometimes it is the not knowing that is the most difficult.

For many of you the starting point is making a list of your debts and then doing up a budget. Your budget let’s you know how much money you have available to deal with your debts.

For some the solution may be personal bankruptcy, but if you seek help earlier on it may be possible to deal with your debts through a consumer proposal. Or it can mean being able to choose between the two options and deciding how you want to deal with your debts instead of your creditors dictating the process.

At Hoyes Michalos & Associates, we would be glad to meet with you to discuss your options and come up with a plan that will work for you and your family. It is really that simple. There is no point wandering around in the dark.  Give us a call today at 310-PLAN (that’s 310-7526, no area code required) or e-mail us to ask a question or to arrange a no-charge initial consultation, and let’s get started.

Douglas Hoyes, Bankruptcy Trustee

I was interviewed by Jonathan Chevreau of the Financial Post for an article that appeared today titled No immunity to bankruptcy. Mr. Chevreau poses this question: “Does it ever make sense for retirees to go bankrupt?”

I am quoted as saying that from 2006 to 2010, between 7% and 9% of the debtors handled by bankruptcy trustees Hoyes Michalos & Associates Inc. were 60 years of age or over. That’s true. In fact, after holding steady in the 7% range between 2006 and 2009, in the first seven months of 2010 the percentage of people aged 60 or over who have filed a consumer proposal or a personal bankruptcy in Ontario with us has increased to 9%. That statistic clearly indicates that more seniors are experiencing financial difficulty, and are making the decision to formally deal with their debt.

Here’s the key problem, as quoted in the Financial Post article:

Of course, the problem with carrying debt into retirement is that it must be serviced with less income than when working full-time. Some adapt by making only the minimum monthly payments on credit cards, which leads to a downward debt spiral, a journey that often ends with a trip to offices like Hoyes.

That’s exactly correct. If you already have debt when you retire, and your income drops when you retire, it may become impossible to service your debt and pay your living expenses. It may not even be your fault. During this recession many seniors have financially helped their grown children who are also having money problems, and that can often deplete your retirement nest egg, and even lead to new debt.

What can seniors do if they have debt problems?

I’ve covered some of these issues in our article on What are My Options if My Income is from Social Assistance, Pensions, or Support Payments?, but here’s a summary of your debt management options if you have debts, and all of your income is from pensions:

First, you can do nothing, and stop paying your debts. If you have no assets, and if all of your income is from pensions, in most cases your creditors will be unable to garnishee your pensions. More specifically, a creditor cannot garnishee your wages if you don’t have any, so you could do nothing and the creditors would have no way to enforce any legal actions against you.

Of course doing nothing doesn’t eliminate your debt. The creditors may still phone you and send you letters, and they may take you to court, so you haven’t solved the problem; you have simply ignored them. If you open a new bank account at a bank where you have no debts, and if you are not stressed out by the phone calls, and if you have no other assets, doing nothing may be the correct option for you.

If however doing nothing would be too stressful for you, your next option is to deal with the debts on your own. You could sell your house, or liquidate investments like RRSPs, and use the proceeds to pay off your debt. You probably don’t want to sell your house, but selling may be a wise financial move if you can eliminate your debts, and reduce your monthly living costs by moving to a smaller house or apartment.

Second, if you have no assets to sell, the next option would be to consider a debt consolidation loan. With a debt consolidation loan you borrow at a bank at reasonable rates to pay off your high interest debts, like credit cards. The lower interest rate may allow you to devote more of your monthly payments to principal instead of interest, so you can repay your debts on your own. However, to qualify for a debt consolidation loan you may need assets (like a house) to pledge as security, or you may need a co-signer (since your pension income may not be sufficient to allow you to qualify on your own).

If a loan isn’t a possible solution, the third option is a debt management plan through a not for profit credit counsellor. In a debt management plan you repay all of your debts in full, but generally at a reduced or zero interest rate. For example, if you have $50,000 in debts, you could pay $1,000 per month for 50 months through a debt management plan.

If you can’t afford to repay your debts in full, the fourth option is a consumer proposal. In a consumer proposal you repay a portion of your debts. The amount you repay is negotiated by your Hoyes Michalos consumer proposal administrator with your creditors, and depends on your income, your family size, and your assets. For example, if you have $50,000 in unsecured debts, it may be possible to negotiate a settlement where you pay $500 per month for 50 months, or roughly half of the amount owing, or perhaps even less. Please contact us today to determine what your consumer proposal payments may be given your unique situation.

If even a consumer proposal is more than you can afford, the final option is personal bankruptcy. Bankruptcy discharges your unsecured debts, but there is a cost to bankruptcy, and it will negatively impact your ability to borrow in the future.

As you can see, there are many factors to consider when deciding how to deal with your debts. The answer to the question: “Does it ever make sense for retirees to go bankrupt?” depends on your situation.

For a retiree, the cost of bankruptcy may simply be too high, and the “do nothing” approach may be the best option. However, the stress of the situation may lead you to decide that a consumer proposal or bankruptcy is the correct option. The options are confusing, so here’s my advice: give our office a call, or e-mail us, or complete our free on-line evaluation and we can discuss your options. Our first consultation is free, and there is no obligation, so deal with the stress and contact us today, and then you too can have a fresh start. Let’s get started.

Douglas Hoyes, Bankruptcy Trustee

As predicted in previous posts, there was a massive increase in the level of personal bankruptcy filings in Ontario and Canada in September, 2009. Here are the numbers:

In September, 2009 in Canada there were 12,305 personal bankruptcies filed, a 47% increase over the same month in 2008. In addition, there were 3,160 consumer proposals filed, for an increase of 39%. Not surprisingly, the personal bankruptcy rate in Canada increased by more than the consumer proposal rate due to the new bankruptcy rules that came into force on September 18, 2009. There was obviously a rush by Canadians to file before the new rules were implemented.

Here’s the scary part: for the twelve months ended September 30, 2009 the bankruptcy rate in Canada increased by 36%, and for the three months ended September 30 the personal bankruptcy rate increased by 41%. So the rate increase for twelve months is 36%, for three months it’s 41%, and for one month it’s 46%. That shows that the bankruptcy rate is increasing at an ever faster pace. That’s bad news for the Canadian economy.

In the last twelve months in Canada 148,378 Canadians have filed an insolvency proceeding (116,295 personal bankruptcies and 32,083 consumer proposals). That’s record, by a wide margin. That compares to 100,552 in the same period in 2007, and 108,807 in 2008.

In Ontario, the statistics are equally grim: In September there were 5,007 personal bankruptcies filed (the first month ever over 5,000), an increase of 49% from last September. Proposal filings were up 36%.

The government doesn’t publish statistics by city each month, but we know that in the last three months personal bankruptcies were up by 41% in Toronto, 39% in Hamilton, 55% in Kitchener, 39% in London, and 44% in Windsor.

We will continue to analyze the numbers, but the message is clear: the recession is not over, so now is the time to consider your options and reduce your debt, so that you can survive the continued recession.

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.

The new bankruptcy rules are here. As I have been discussing for many months here on the Hoyes Michalos Bankruptcy Blog the new rules came into effect on Friday September 18, 2009. To beat the new rules many people filed bankruptcy in the few days leading up the rule changes. At Hoyes Michalos we had our two busiest days in history on Wednesday September 16 and Thursday September 17. In fact, September 17 was our busiest day in history, and we did over three times our normal daily volume.

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.

On September 18, 2009 the cost of bankruptcy will increase for many Canadians. Readers of the Hoyes Michalos Bankruptcy Blog will know that we have advocated for change for many years. In February 2008 Ted Michalos and I were the only personal bankruptcy trustees to be given a full hour to testify before the Senate Banking Committee on the proposed new bankruptcy rules. In May I wrote letters to the Prime Minister and the Industry Minister asking them to eliminate the uncertainty and either pass or abandon the new rules. The Prime Minister and Industry Minister both responded, saying they were working on it.

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.