Month: June 2014

5 Reasons Not To File Bankruptcy

Scott Schaefer

Posted in Bankruptcy Basics

Reading time: 4 minutes

Hoyes, Michalos & Associates Inc. - Hoyes, Michalos & Associates Inc. | Ontario Licensed Insolvency Trustees
5 Reasons Not To File Bankruptcy

There are many reasons why someone would file for personal bankruptcy in Canada as a means of dealing with their debts and getting a fresh start, but there are equally good arguments not to declare bankruptcy.

Here are 5 common reasons why bankruptcy may not be your best choice and why you might want to avoid bankruptcy:

  1. Bankruptcy would be too costly – Costs of a personal bankruptcy are based on assets and income.  From an asset stand point, equity in a house, multiple vehicles, RESP’s, and contributions to RRSP’s in last 12 months are a few assets that must be realized by a bankruptcy trustee.  As for income, individuals have to pay surplus income based on what they earn over the course of the bankruptcy.  This could be as long as 21 months if a filing bankruptcy for the first time.  In this case, if you still need relief from overwhelming debt issues, an alternative would be a consumer proposal.  Consumer proposals are governed by the same laws as personal bankruptcy, but protect assets and income through a monthly payment over a maximum period of 60 months.  These consumer proposals are still filed with a trustee in bankruptcy though.
  2. You’re not insolvent – Being “insolvent” means that an individual cannot pay debts as they become due.  It also means debts could be paid in full if assets were sold.  For example, if someone has $100,000 equity in their house even if they have $60,000 in credit cards and lines of credit, they are considered to be solvent.  In this example, they could remortgage, obtain a bank loan or consider a debt management plan as alternatives to dealing with the $60,000 in unsecured debts.
  3. Prior bankruptcy filed – A first time bankruptcy runs for 9 or 21 months based on income, where as a second time bankruptcy will last for 24 or 36 months. Also a second time bankruptcy stays on a credit report for 14 years.  A third or more bankruptcy requires a court hearing and will likely be longer than 36 months.  If someone needs protection from their creditors and to deal with their debts but wants to avoid a multiple bankruptcy, again, a consumer proposal is an effective alternative.
  4. Judgement Proof – There are limits on what creditors can do to a person’s financial situation so protection from creditors without a bankruptcy in place is possible.  If someone is only receiving pension income or employment insurance and they have no significant assets, their wages likely cannot be garnished by a creditor.  Bankruptcy is filed to protect someone from losing assets and having their wages taken by a creditor. If you don’t have any assets or income that can be garnished, then you are considered ‘judgement proof’. Filing bankruptcy may not be necessary except for emotional reasons (you just don’t want to deal with the stress or calls).
  5. Professional and Personal Reasons – For some people they feel that a personal bankruptcy will be too emotional and that there is a stigma attached in which they cannot handle.  Certain professions such as a lawyer, accountant, and bankers have rules where bankruptcy may be a consideration to their continued employment, but for most people there is no impact on their job.  As for credit rating, there are set rules on how a bankruptcy is reported on a credit report.  Consider the pros and cons of a bankruptcy or consumer proposal appearing on your report to the impact that clearing up your debts will have on your future credit potential.

Bankruptcy is a last resort option.  No matter what your situation, it’s important to factor in all of the pros and cons of filing bankruptcy so you make the choice that is right for you. Contact us today for a free consultation so we can explore all your debt relief options and give you a plan to be debt free.

Why Do I Need To Switch Banks? I Love My Bank.

Rebecca Martyn

Posted in Creditor Actions

Reading time: 6 minutes

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new-bank-account-updated

I am thinking about filing a consumer proposal or bankruptcy and I was just told I need a new bank account.  Why do I need to switch banks? I’ve been dealing with them a long time and love my bank. It’s convenient and everything is set up the way I like it.

Why Do You Need A New Bank Account?

One of the first things we ask when you begin exploring the option of filing bankruptcy or a consumer proposal is if you owe money where you bank.  If the answer is yes, then we strongly recommend that you open a new bank account, with a bank you don’t owe any money to.  Why do we tell you to do that?

The reason is something called the lender’s right of offset which allows banks and credit unions the right to offset your debt by automatically, at their discretion, withdrawing money from other accounts you have on deposit with them.

When the bank receives notice of your consumer proposal, or bankruptcy, they have the right to offset the money that was in your bank account as of the day you filed against any debt you owe them. If you have a loan, credit card or line of credit with the same bank you have a bank account with, they have the right to do this. They can also put a freeze on your money so you can’t take any money out of your bank account. Do you still love your bank now?

There is a stay of proceedings when you file the consumer proposal or bankruptcy (meaning the bank can’t take any future funds), but in the meantime you don’t have use of your account until the bank takes the freeze off. This can take days or even weeks.

What if I bank somewhere else?

Even if you don’t bank where you owe money, it may still be best to open a new bank account. If you have set up all of your creditor payments on pre-authorized payment or post-dated cheques it will be quite expensive and time consuming to put stop payments on all of the payments. Talk to your bank about the best way to deal with all of the payments. They might suggest stop payments, or they might suggest that they give you another bank account number.

Switching bank accounts is a lot of work.  It is quite common today to have your paycheque or benefit cheques directly deposited into your bank account and to have your car payments, insurance, and utilities set up on pre-authorized payment. It takes time to have everything switched over, but considering that is your cash that is at risk, it is time well spent.

What if I have a mortgage where I bank?

If that is the only debt you have with the bank, they will still get notified about your consumer proposal, those are the rules.  As long as you are current on your payments your mortgage lender can’t cancel or change your mortgage terms just because you filed a consumer proposal or bankruptcy however you may still find that the bank’s computer has put a freeze on your bank account. Errors happen.

You can have a mortgage payment come out of whatever bank account you want, it doesn’t have to be at an account where your mortgage is held.  Even if this is the only debt you have with the bank, it is still a good idea to go to a different bank.  It just makes things cleaner & easier and avoids potential problems down the road.

What can happen if I don’t open a new bank account?

I explain this with a true life example. Fred (not his real name) filed a consumer proposal in our office because he needed help with payday loans. Prior to his proposal Fred didn’t owe any money where he banked however he did have a pre-authorized payment plan set up with for a payday loan that was included in his proposal. Against our advice, he did not get a new bank account. Fred put a stop payment (or at least thought he did) with his bank for the pay day loan.  Unfortunately the pay day loan company put 3 more charges through his bank.  The payday loan company claimed that since it took time to get notice of the consumer proposal, they can do this. They are wrong but now Fred has to go back to his bank and find out why the payments cleared.  We spoke with the pay day loan company, sent multiple notices and we listened to a local branch versus head office blame game. Since Fred didn’t owe any money to his bank, an easy solution would have been to have his bank give him a new bank account number. If he had done that, the payday loan company would not have been able to take his money.

Because Fred didn’t get a new bank account, he is now having to deal with the bank and the payday loan company to get his money back.  Fred’s only other option may now be to make a motion to court to force the payday loan company to give him his money back.

Am I even allowed to open a new bank account if I am going to file a consumer proposal?

Under the Canadian Bank Act, you have the right to open a bank account even if you are bankrupt or in a proposal.

To summarize:  Get a new bank account! It will be worth the effort.

At Hoyes Michalos we don’t just sign you up for a bankruptcy or proposal. We want to make sure the process is successful for you which is why we give clients so much information, like how to switch their bank account, ahead of time. If you need debt help, contact us today for good debt advice from our friendly, caring professionals.

Mandatory Credit Counselling – What It Means To You

Ted Michalos

Posted in Bankruptcy Basics

Reading time: 4 minutes

Hoyes, Michalos & Associates Inc. - Hoyes, Michalos & Associates Inc. | Ontario Licensed Insolvency Trustees
credit-counselling-ontario-updated

What exactly is credit counselling and why do I have to take it if I file for bankruptcy or a consumer proposal?

Credit counselling is the term used to describe the two money management sessions you are required to take when you declare bankruptcy or file a consumer proposal.  Unfortunately, the term has been high-jacked and used to describe the services offered by debt consultants and debt settlement companies.  You can probably tell from my tone that I am less than impressed by these businesses, but they are not the point of this article.

Why You Need Credit Counselling

The basic premise behind credit counselling for bankrupt individuals is that one of the contributing factors to your money problems may have been a lack of knowledge regarding financial matters.  The two sessions that are provided by your trustee will help you identify some of the underlying issues that may have caused you to get into trouble.  The sessions describe the warning signs of pending financial problems, as well as introduce strategies to avoid these problems in the future.

There is some question regarding the importance of mandatory credit counselling.  The Office of the Superintendent of Bankruptcy (OSB), the government agency that oversees the insolvency process in Canada is currently conducted an evaluation of counselling and this has somewhat changed the nature of credit counselling services in Canada.

I suspect there will be some people that suggest that credit counselling is not necessary – they will say the benefits of the two required sessions haven’t been proven.  I respectfully disagree.

I am of the opinion that there should be more sessions – at least one for each year that a person is involved in either bankruptcy or a consumer proposal and I will tell you why.  No one accumulates enough debt to require an assignment in bankruptcy or a consumer proposal overnight.  Most of the people I see have taken years to acquire their debt and it may take years to clear their names and re-establish themselves financially.

You can’t expect someone to change their habits just because you tell them to – in fact, by clearing a person’s debts without some attempt  to educate them in proper financial conduct we run the risk of making bankruptcy appear too easy.  People might be inclined to simply go out and do it all again…

I don’t believe that’s what happens, but I do believe that credit counselling is one of the reasons so few people end up filing for bankruptcy or a consumer proposal a second time.  It seems a small price to pay to reduce the risk of future problems.

In regards to increasing the number of sessions to one for each year of either bankruptcy or a consumer proposal, my reasoning is two-fold.  The first is the position I have already stated – it took time to create the debt, it will take time to change peoples’ financial habits to reduce the risk of repeating their money problems.  The second reason follows similar lines.  Each subsequent credit counselling session should build on the knowledge and skills imparted at the previous session.

The current two session requirement does not provide for enough time to lapse to adequately assess whether or not there has been a change in an individual’s attitude towards money.  Further, the current two session requirement has to be completed in the first 7 months of a person’s bankruptcy or consumer proposal.  If their proposal is going to run 5 years doesn’t it make more sense to check in on a regular basis to see that their financial behavior has changed?

8 Alternatives to Payday Loans

Hoyes, Michalos & Associates Inc.

Posted in Loans and Borrowing

Reading time: 4 minutes

Hoyes, Michalos & Associates Inc. - Hoyes, Michalos & Associates Inc. | Ontario Licensed Insolvency Trustees
8 Alternatives to Payday Loans

Running short of cash just before payday is not an uncommon occurrence but turning to payday loans to fund the gap is a very expensive debt mistake. You might start out thinking it’s only going to happen once, but in all likelihood if you are living paycheque to paycheque and you turn to the ‘convenience’  of payday loans once, you’ll do so again.

If you need some temporary cash, try any of these 8 alternatives to visiting a payday loan lender. Not all will work for you however each offer much cheaper borrowing options that won’t see you caught in the cycle of losing $15  to $100 or more from every pay to payday lenders.

If you know someone struggling with payday loans, share this information with a friend.

If you are constantly short on cash because debt payments are eating up a sizeable portion of your paycheque before you even have a chance to pay for living costs, it might be time for some payday loan help. We can help you look at your financial situation and see if there are alternatives to get you out from under all that debt so you don’t need to rely on payday loans ever again.

8 Alternatives to Payday Loans

1. Negotiate With Creditors

In most cases your creditors will understand if you have a temporary cash flow problem. If your short on the rent, talk to your landlord. Even if they are upset, know that your landlord can’t kick you out of your apartment tomorrow. If you know you won’t be able to pay your hydro bill or other important payment, contact your creditor. Ask for an extension and don’t be afraid to ask if they will waive the fee or forego reporting the late payment on your credit report.

2. Take Out A Small Loan

Payday lenders only lend money to people with income. If you have a steady income and haven’t yet maxed out your credit options, try taking out a small loan from a bank or credit union. Be prepared to make steady payments. In addition to dealing with your short term cash flow problem, if you make all your payments on time this small loan can improve your credit report.

3. Pay With Your Credit Card

We don’t like to encourage the use of credit card debt however if you really need the money for food or other living expenses this week, go ahead and  use your credit card. Just don’t make it a habit – using credit cards as a source of lending should be for emergencies only.

4. Dip Into Your Emergency Fund

If you have one, now is the time to use it. If you don’t, try one of the other items recommended here then build one for the future. Even a small amount can help.

5. Get A Cash Advance from Your Credit Card

Cash advances can cost more money than purchases since you are charged interest from day one, but it’s a much cheaper option than the 300% interest charged on a payday loan. Pay it off as soon as you can and don’t charge any extra purchases until you do.

6. Sell Something Or Earn More

Ask your employer if you can work a little overtime. Consider selling any unwanted or unnecessary items on kijiji or through a yard sale for some extra cash.

7. Get Overdraft Protection

If you can, apply for overdraft protection on your chequing account. Even though you will pay interest, and perhaps fees, those costs are usually substantially less than a payday loan or bouncing cheques.

8. Borrow From Friends & Family

Though you might be embarrassed, consider talking to friends and family about your situation. Ask for a short term loan but be prepared to pay it back just like you would any other loan.

Improving Mandatory Credit Counselling for Bankruptcies and Consumer Proposals

Ted Michalos

Posted in Viewpoints

Reading time: 5 minutes

Hoyes, Michalos & Associates Inc. - Hoyes, Michalos & Associates Inc. | Ontario Licensed Insolvency Trustees
review-improve-credit-counselling-updated

One of the duties and responsibilities of filing for either bankruptcy or a consumer proposal is the requirement to attend two financial counselling sessions.  The Office of the Superintendent of Bankruptcy (OSB) is currently conducting a review of the credit counselling requirement so we think it is appropriate that we express our opinion on the matter.

What is good credit counselling?

First and foremost, we are of the opinion that good credit counselling has the ability to provide a real benefit to the individuals that receive it. Most people in financial difficulty have had some “thing” happen in their life that triggers a crisis. Loss of employment, marital breakdown, business failure – any number of tragedies can bring on money problems. Counselling can’t correct what has gone wrong, but it may reduce the risk that people will repeat the same mistakes with their finances in the future.

There is a difference however between credit counselling and debt relief. Credit counselling should mean helping people look at their budget and helping them build stronger personal finance habits. It should not be just about filing a debt management plan and being a debt collector for the banks. 

So here’s how we think credit counselling sessions that are part of your bankruptcy or proposal should be improved.

Frequency

The current standard requires a person that files either bankruptcy or a consumer proposal to attend two counselling sessions. The first session occurs between day 10 and 90 after filing. The second session occurs at least 30 days after the first, but prior to the discharge, in the case of an individual bankrupt, or of the issuance of the certificate of full performance, in the case of a consumer debtor.

We believe these requirements should be modified as follows:

For bankruptcies

1)      In all cases, the first counselling session should occur within 60 days of filing;

2)      In 9 month bankruptcies, the second counselling session should occur at least 30 days after the first and before the expiration of the 7th month after filing;

3)      In 21 month bankruptcies, the second counselling should occur at least 90 days after the first and before the expiration of the 12th month after filing. In addition, a third counselling session should occur at least 180 days after the second session and before the expiration of the 19th month;

4)      In 36 month bankruptcies, the second session should occur at least 90 days after the first and before the expiration of the 12th month after filing. In addition, a third session should occur at least 180 days after the second session and before the expiration of the 24th month, and a fourth session should occur at least 180 days  after the third and before the expiration of the 34th month; and

5)      The Court should require an annual counselling session for every year of a Conditional or Suspended Order.

For consumer proposals

a)      In all cases the first counselling should occur within 60 days of filing; and

b)      There should be a requirement to attend at least one additional counselling session for every 12 month period in the term of the proposal. For example, a 60 month proposal will require a total of 6 counselling sessions, the initial plus 5 additional sessions based on the term of the proposal.

In addition, any Division I proposals filed by an individual (or individuals if joint) should require the same counselling standards as consumer proposals.

Content

The first counselling session should consist of a workbook individuals are required to complete prior to attending the session. This workbook could be completed on-line, or at the request of the debtor, by hardcopy. The workbook should be designed to address basic money management skills, including, but not limited to record keeping, budgeting, longer term financial planning, as well as financial literacy. The objective should be for the debtor to complete the workbook in advance and then for the counsellor to review the debtor’s results.  The session should end with a list of expectations or goals to be achieved before the next session(s).

All subsequent counselling sessions should include a review of the expectations and goals that were set at the prior session, as well as a general review of the debtor’s current financial situation and the establishment of a new set of financial expectations and goals going forward.

Compensation

We note that the fees for counselling have not changed in a very long time. The first counselling session should be in person and might take an hour to complete. The fee for this session should be $150.00. The subsequent sessions could be completed on-line, by phone, or in person and might take 30 minutes. In person sessions should be paid a fee of $75, while on-line and/or phone sessions should be paid a fee of $50.

If all of our suggestions were adopted, the cost for counselling in a five year consumer proposal would increase from the current $192.10 ($170 in fees plus $22.10 in HST) to $593.25 ($525 in fees plus $68.25 in HST) if all of the sessions were performed in person. However with the on-line option the costs would be lower. The benefits however to ensuring that those filing bankruptcy or a consumer proposal gain value from these sessions are well worth the suggested changes.

Debt Counsellors and Debt Coaches – Real or Scam?

J. Douglas Hoyes

Posted in Debt Relief

Reading time: 4 minutes

Hoyes, Michalos & Associates Inc. - Hoyes, Michalos & Associates Inc. | Ontario Licensed Insolvency Trustees
Professional looking through documents

You have debt and you want help, and you hear the ads on the radio or throughout the internet promising to eliminate your debt, but you don’t know who to trust.  Are debt counsellors real, or are they a scam?  Are they different than seeing a trustee? What does a debt coach do? You should know the difference.

There are two categories of debt coaches that are generally reputable:

Not for Profit Credit Counsellors

In Ontario there are two organizations that provide accreditation to not-for-profit credit counsellors: The Ontario Association of Credit Counselling Services and Credit Counselling Canada. Both organizations require their member organizations to have appropriate training, and to follow strict guidelines for dealing with clients and their money.

I have personally worked with many counsellors from these groups over the years, and I can confirm that they provide a valuable service.  They can help you with budgeting and money management, and if you are able to repay your debts in full they can prepare a debt management plan.

However, they cannot work out a deal where you pay less than the full amount owing and they cannot deal with certain debts, like tax debts.  For this reason, they are not the solution for everyone.

Consumer Proposal Administrators and Bankruptcy Trustees

Obviously I am biased, but I can tell you that to act as a consumer proposal administrator or bankruptcy trustee you must have extensive training (generally a minimum of three years) and you must be licensed by the federal government.  All of the trustees at Hoyes, Michalos are federally licensed, and in good standing.

A bankruptcy trustee provides two specific debt relief solutions: personal bankruptcy and consumer proposal services. However, we are required by law to explain all your options. So we can give you advice on debt consolidation and debt management plans to help you compare these options to the services provided by trustees.  That’s why we encourage people who are uncertain about what to do about their debts to at least give us a call or e-mail us. We are always happy to provide some direction. In fact 4 out of 5 people who call us we help without the need to file bankruptcy OR a consumer proposal.

Now we get into the grey area. There are other less reputable groups that may be a scam, so be careful if you encounter:

Debt Consultants

Anyone can call themselves a debt consultant; no training is required, and there is no government or other regulation.  They often make spectacular claims like “we can reduce your debt by 70%”, but without a government license they can’t actually file a consumer proposal on your behalf. What they do is charge you a fee to send you to an ‘officer of the court’ in other words, a trustee.

Debt Coaches

A debt coach is a pretty broad term. The services they offer can range from helping you with building a personal budget, repairing your credit or, like ‘debt consultants’, offer to give you advice on how to settle your debts. It’s this last area where again, you wander into the realm of unlicensed professionals offering debt relief services for a fee that worries me.

How Do You Know If It’s a Scam?

Before you pay money to hire someone to deal with your debts, ask them these questions:

  1. Are you regulated by the federal government?
  2. Are you a member of any professional associations?
  3. Are you a member of the Better Business Bureau?
  4. Do you charge up-front fees?
  5. Exactly what services will I be paying for?
  6. Will you do the service or are you going to refer me to someone else?

By investigating who you plan to use up front, you can protect yourself from scam artists who just take your money, and provide no service.  If you are still unsure, give us a call at 1-866-747-0660 and we’ll tell you whether or not the company you are selecting is real, or a scam.