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

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.

On Friday I received a telephone call from Daiene Vernile, the Anchor and Producer of ProvinceWide, a news and information program broadcast at 6:30 pm on Sunday evenings on CTV Southwestern Ontario. As a service to her viewers, she will be hosting a town hall special broadcast in February on Coping with Job Loss. The entire broadcast will be devoted to exploring ways to deal with job loss during these uncertain times.

As a local broadcaster, CTV Southwestern Ontario wants to interview several local residents who have experienced job loss.

Are you willing to share your “downsizing” story on television? You would be interviewed, and specifically asked to describe your experience. Were you surprised by the termination? How is your new job search going? Are you retraining for another career? What has this meant for your family finances?

It’s obviously difficult to discuss personal matters like downsizing on television, but you will be seen by thousands of people, and it could even land you a new job! What better way to advertise your services to potential employers.

I have appeared on ProvinceWide on two previous occasions (the last time was in November, 2008 on a town hall meeting discussing the recession, called Your Money, Your Future; the attached picture is from that broadcast), and I have always found Daiene Vernile to be very well prepared and informed, so I have no hesitation in publishing this request for help with the broadcast. Ms. Vernile will not try to ambush or embarrass you; she truly wants to help people by having real people tell their stories.

If you have experienced downsizing and are available in the Kitchener, Cambridge or Guelph area to record an interview, please e-mail me with your name and e-mail address or phone number, or call me directly at 310-PLAN, and I’ll put you in touch with Ms. Vernile. Who knows, your story may help other people, and may even help you find a job!

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.

Douglas Hoyes, Bankruptcy Trustee

It’s that time of year again: time to make our New Year’s Resolutions. At this time of year we all promise that we will lose weight, stop smoking, and get our financial life in order. I’m not a big fan of New Year’s Resolutions. I think if you want to make a change, do it, regardless of the time of year. If you want to lose weight, isn’t the holiday season the worst time of year to do it?

That being said, the start of a new year is as good a time as any to review our financial situation, and make a plan to deal with our debts. So, for those of you who will be making Financial New Year’s Resolutions this year, here are my top five tips starting the year off right:

First, set goals. If you don’t know where you are going, you won’t get there. What are your goals? You probably have long term goals, like buying a house or car, putting your children through college, or saving for your retirement. You also have short term goals, like buying a new pair of shoes. Whatever your goals are, write them down, and make them specific. Don’t write “buy a car”. A better goal would be “I want to buy a used car for $5,000, and I will pay cash, so my goal is to save $500 per month for the next ten months.” That’s a specific goal.

Second, make a plan to reach your goals. You want to save $500 per month: how are you going to do that? Unless you can increase your income, the only way to save money is to reduce your expenses. Which expenses will you cut? You need a specific list of exactly which expenses you will reduce. For some ideas, there are lots of money saving tips on the internet.

Third, the best way to reach your goals is by making a personal budget. A personal budget is simply a list of what you make and spend each month. Unless you make a budget you won’t know what you spend, so you won’t know which expenses to cut. The best example of using a budget to analyze your expenses is the story of Joe (not his real name), who saved a lot of money by making his own coffee and bringing his own lunch.

Fourth, if you have debts, make a plan to pay off your debts. Every financial expert will tell you to start a savings plan, but if you are in debt a savings plan is not your priority: your priority is to get out of debt. Start by making a list of your debts: write down the name of the lender, the amount owing, and the interest rate. Many people have no idea how much they owe in total until they write it down. Then, prioritize your debts in the order that you want to pay them off. Here’s a tip: don’t make the mistake of trying to repay your smallest debts to get them off your books; instead, start with your highest interest rate debts. Paying off a department store credit card with a 25% interest rate will save you more money in the long run than paying off your line of credit with a 10% interest rate.

Finally, if your goal is to get out of debt, and if your budget tells you that it will be impossible to deal with your debts on your own, research your options and then get professional help. Here are some great resources:

• The Hoyes Michalos team has assembled the answers to the most frequently asked bankruptcy questions (you can read them or listen to the answers)
• Explore your bankruptcy alternatives on our bankruptcy alternatives page
• Use a Debt Options Calculator, a free tool that shows you the cost of various debt management options
• Go to the Bankruptcy Canada On-line Support Group, where you can anonymously discuss your debt problems with other people in debt
• If you prefer to learn by watching, check out Hoyes Michalos videos about bankruptcy and bankruptcy options
• Or if you prefer to listen, Hoyes Michalos on the radio answering your bankruptcy questions.

Here’s a simple New Year’s Resolution: contact us for more information. You can phone us at 310-PLAN (no area code required in Ontario), or call our office closest to you, e-mail us your question, or complete our on-line evaluation and one of our experts will contact you with suggestions for your specific situation. This can be the year you finally deal with your debt, but your fresh start will only come when you make the call.

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.

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.